UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(mark
one)
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x
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the fiscal year ended December 31, 2006
or
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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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Commission
file number 1-8002
(Exact
name of Registrant as specified in its charter)
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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, P.O. Box 9046
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Waltham,
Massachusetts
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02454-9046
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (781) 622-1000
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, $1.00 par value
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New
York Stock Exchange
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Preferred
Stock Purchase Rights
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes x
No
o
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or 15(d) of the Act. Yes
o
No
x
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 the filing requirements
for at
least the past 90 days. Yes x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405
of
Regulation S-K is not contained herein, and will not be contained, to
the best
of the
Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference into Part III of this Form 10-K or any amendment
to
this Form
10-K. o
Indicate
by check mark whether the Registrant is an accelerated filer (as defined
in Rule
12b-2 of the Exchange Act). Yes
x
No
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
As
of
June
30,
2006, the aggregate market value of the voting stock held by nonaffiliates
of
the Registrant was approximately $5,699,169,000 (based on the last reported
sale
of common stock on the New York Stock Exchange Composite Tape reporting
system
on June 30, 2006).
As
of
February 2, 2007, the Registrant had 420,030,996 shares of Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Sections
of Thermo Fisher’s definitive Proxy Statement for the 2007 Annual Meeting of
Shareholders are incorporated by reference into Parts II and III of this
report.
THERMO
FISHER SCIENTIFIC
ANNUAL
REPORT ON FORM 10-K
FOR
THE FISCAL YEAR ENDED DECEMBER 31,
2006
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TABLE
OF CONTENTS
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Page
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PART
I
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Item
1.
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3
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Item
1A.
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23
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Item
1B.
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30
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Item
2.
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30
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Item
3.
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31
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Item
4.
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32
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PART
II
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Item
5.
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32
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Item
6.
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33
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Item
7.
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34
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Item
7A.
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52
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Item
8.
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53
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Item
9.
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53
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Item
9A.
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53
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Item
9B.
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54
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PART
III
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Item
10.
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54
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Item
11.
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55
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Item
12.
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55
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Item
13.
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55
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Item
14.
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55
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PART
IV
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Item
15.
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55
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Item
1.
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General
Development of Business
Thermo
Fisher Scientific Inc. (also referred to in this document as “Thermo Fisher,”
“we,” the “company,” or the “registrant”) is
the
world leader in serving science.
We enable
our 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.
In
November 2006, Thermo Electron Corporation (also referred to in this
document as
“Thermo,” which is the predecessor to Thermo Fisher) merged with Fisher
Scientific International Inc. (also referred to in this document as “Fisher”) to
create the world leader in serving science. Thermo
Fisher has 30,500 employees and serves more than 350,000 customers within
pharmaceutical and biotech companies, hospitals and clinical diagnostic
labs,
universities, research institutions and government agencies, as well
as
environmental, industrial quality and process control settings.
We
deliver a broad selection of analytical instruments, equipment, consumables
and
laboratory supplies. Our growing portfolio of products includes innovative
technologies for mass spectrometry, elemental analysis, molecular spectroscopy,
sample preparation, informatics, fine and high-purity chemistry production,
cell
culture, RNA interference analysis and immunodiagnostic testing, as well
as air
and water quality monitoring and process control. We also give our customers
convenient purchasing options, through our 7,500 sales and service
professionals, numerous catalogs and e-commerce capabilities.
We
are
continuously advancing the capabilities of our technologies, software
and
services, as well as our supply-chain management expertise. Our goal
is to make
our customers more productive and to enable them to solve their analytical
challenges, from routine testing to complex research and discovery.
In
the
late 1980s, Thermo adopted a strategy of spinning out certain businesses
into
separate public subsidiaries in which we kept a majority ownership. By
1997, we
had spun out 22 public entities serving many diverse markets. To simplify
our
structure, we announced in January 2000 a major reorganization that ultimately
resulted in taking private all of our public subsidiaries, selling non-core
businesses and spinning off our paper recycling and medical products
businesses.
As part of the reorganization, we divested of businesses with aggregate
annual
revenues of over $2 billion. This reorganization was substantially completed
in
February 2002, when we took private our last publicly traded subsidiary.
In July
2004, we sold Spectra-Physics, Inc., our optical technologies
segment. The
businesses spun off and sold have been accounted for as discontinued
operations.
Except where indicated, the information presented in this report pertains
to our
continuing operations.
Thermo
Fisher is a Delaware corporation and was incorporated in 1956. The company
completed its initial public offering in 1967 and was listed on the New
York
Stock Exchange in 1980.
Forward-looking
Statements
Forward-looking
statements,
within
the meaning of Section 21E of the Securities Exchange Act of 1934 (the
Exchange
Act), are made throughout this Annual Report on Form 10-K. Any statements
contained herein that are not statements of historical fact may be deemed
to be
forward-looking statements. Without limiting the foregoing, the words
“believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar
expressions are intended to identify forward-looking statements. While
the
company may elect to update forward-looking statements in the future,
it
specifically disclaims any obligation to do so, even if the company’s estimates
change, and readers should not rely on those forward-looking statements
as
representing the company’s views as of any date subsequent to the date of the
filing of this report.
A
number
of important factors could cause the results of the company to differ
materially
from those indicated by such forward-looking statements,
including those detailed under the heading, “Risk Factors” in Part I, Item 1A.
Business
Segments and Products
We
report
our business in two segments: Analytical Technologies and Laboratory
Products
and Services. For financial information about segments, including domestic
and
international operations and export sales, see Note 3 to our Consolidated
Financial Statements, which begin on page F-1 of this report.
Analytical
Technologies Segment
We
serve
the pharmaceutical, biotechnology, academic, government and other research
and
industrial markets, as well as the clinical laboratory and healthcare
industries, through our Analytical Technologies segment. This segment
has six
principal product groupings - Scientific Instruments, Biosciences, Integrative
Technologies, Diagnostics,
Environmental Instruments and Process Instruments - and provides
a broad range of instruments, bioscience reagents, software and services
to
address various scientific challenges in laboratories, in manufacturing
and out
in the field.
| · |
Our
Scientific Instruments include analytical instrumentation that
analyzes
prepared samples.
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| · |
Our
Biosciences products include
a wide range of consumables and services across general chemistry
and life
sciences applications.
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| · |
Our
Integrative Technologies offerings include software interpretation
tools
and development support for the data generated by the instruments
as well
as laboratory automation equipment and systems.
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| · |
Our
Diagnostics products and services are used by healthcare and
other
laboratories to prepare and analyze patient samples to detect
and diagnose
diseases.
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| · |
Our
Environmental Instruments include solutions and services for
environmental
monitoring, safety and security.
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| · |
Our
Process Instruments provide measurement
solutions and services outside the laboratory to enable process
control
and optimization.
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Scientific
Instruments
Our
analytical instrumentation is used primarily in laboratory and industrial
settings and incorporates a range of techniques,
including mass spectrometry (MS), chromatography and optical
spectroscopy,
and can
be combined with a range of accessories, consumables, software, spectral
reference databases, services and support to provide a complete solution
to the
customer.
Mass
spectrometry is a technique for analyzing chemical compounds, individually
or in
complex mixtures, by forming gas phase charged ions that are then analyzed
according to mass-to-charge ratios. In addition to molecular information,
each
discrete chemical compound generates a fragmentation pattern that provides
structurally diagnostic information. Chromatography is a technique for
separating, identifying and quantifying individual chemical components
of
substances based on physical and chemical characteristics specific to
each
component. Optical spectroscopy is a technique for analyzing individual
chemical
components of substances based on the absorption or emission of electromagnetic
radiation of a specific wavelength of light, for example, visible (light),
ultraviolet or infra-red.
In
life
sciences markets, we offer a
line of
mass spectrometers (MS) including ion traps, quadrupoles
and
other advanced mass spectrometers,
as well
as
liquid
chromatographs (LCs) and columns, and multi-instrument combinations of
these
products as integrated solutions (LC-MS). These systems are tailored
to meet the
rigorous demands of lab professionals in applications such as drug discovery,
life science research and analytical quantitation.
Ion
Trap MS.
The
company’s ion trap mass spectrometry product line features a tiered portfolio
to
support a wide spectrum of analytical requirements. These instruments
support
applications ranging from compound identification and routine high performance
liquid chromatography (HPLC) detection to sophisticated analysis of
low-abundance components in complex biological matrices.
| · |
LTQ
FTTM
-
Combines our most advanced ion trap and Fourier Transform (FT)
Ion
Cyclotron Resonance (ICR) technologies into a single instrument
with
superior analytical power and
versatility. The system uniquely combines high resolution,
accurate mass
determinations and MSn (mass spectrometry to the nth power)
for
high-throughput analysis on a single
instrument.
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| · |
LTQ
OrbitrapTM
-
Combines our most advanced ion trap with our patented Orbitrap
technology,
providing high resolution and accurate mass determinations
over a broad
dynamic range for the analysis of complex biological
mixtures.
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| · |
LTQ
XLTM
-
Based on a 2-dimensional (2-D) linear ion trap design and incorporating
patented innovative technologies and ease-of-use features,
this system is
primarily used for metabolic profiling and proteomics
research.
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| · |
LXQTM
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Based
on a 2-D linear ion trap design, this system provides high-throughput
performance for drug discovery, forensics and proteomics
applications.
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| · |
LCQ Deca
XP MAXTM
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Used primarily for rapid metabolite identification, peptide
mapping and
complex mixture analysis. It features the Ion MaxTM,
front-end ion source, which provides ruggedness and full scan
sensitivity,
making it a valuable tool for analysis of in-vivo
and in-vitro
samples.
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| · |
LCQ
Advantage MAXTM
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An ion trap mass spectrometer that integrates the power of
MS/MS with an
LC system, boosting analytical power with library searchable
MS/MS spectra
for reliable compound identification. This instrument delivers
high
productivity for routine HPLC
environments.
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Triple
Quadrupole MS.
The
company’s TSQ Quantum Series consists of an advanced portfolio of triple
quadrupole mass spectrometers.
| · |
TSQ
Quantum AccessTM
-
A versatile, entry-level mass spectrometer that is used in
environmental
and food safety laboratories.
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| · |
TSQ
Quantum Discovery MAXTM
-
This high-performance, ultra-compact benchtop MS system incorporates
innovative technology for increased sensitivity, precision,
ruggedness and
reliability. It is principally designed for high-productivity
environments
such as environmental, clinical and drug discovery laboratories.
With the
Ion Max source, the TSQ Quantum Discovery MAX addresses the
needs of these
laboratories for more rugged and dependable LC/MS/MS to enable
around-the-clock productivity.
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| · |
TSQ
Quantum UltraTM
-
An advanced instrument used primarily for bioanalytical studies.
It
features the Ion Max source with interchangeable electrospray
ionization
(ESI) and atmospheric pressure chemical ionization (APCI) probes
for
increased robustness and
sensitivity.
|
In
December 2006, we expanded our sample preparation capabilities for mass
spectrometry with the acquisition of Cohesive Technologies, a manufacturer
of
advanced sample extraction and liquid chromatography products, which
are used
with triple quadrupole mass spectrometers in bioanalysis and drug discovery.
TM
Represents a trademark or service mark of Thermo Fisher Scientific Inc.
or its
subsidiaries.
A
significant and growing application for our
technologically advanced mass spectrometers
is
proteomics, the study of proteins. Most drugs - about 90 percent - interact
with
proteins, so multi-instrument systems that can rapidly identify and quantify
proteins are of increasing value to pharmaceutical and biotechnology
customers.
The introduction of ETD (Electron Transfer Dissociation) on our LTQ XL
ion trap
machine extends the range of techniques for proteomics researchers and
enables
routine analysis of protein modifications. We continue to introduce new
systems
that address the breadth of primary analytical needs for high-throughput
analysis including bioanalysis and proteomics research, as well as for
other
growing life science areas such as:
| · |
Biomarkers
- compounds that may be endogenous and signal the early onset
of a
specific disease.
|
| · |
ADME/Tox
- Absorption, Distribution, Metabolism, Excretion and Toxicology
studies
that are conducted for drug discovery in support of human clinical
trials.
|
| · |
Metabalomics
- measurement of the real biochemical status, dynamics, interactions
and
regulation of whole systems or organisms at a molecular
level.
|
In
addition, Thermo Fisher offers a broad range of advanced magnetic sector
instrumentation for high-resolution MS. This range also covers organic
MS, gas
isotope ratio MS and thermal ionization MS.
Liquid
Chromatography.
Our
HPLC systems, such as the high speed Accela HPLC, Surveyor PlusTM
and
SpectraSYSTEMTM,
offer
high throughput and sensitivity. They are sold as stand-alone instrumentation
(HPLC) or as integrated systems with our mass spectrometers (LC-MS).
The
Surveyor MSQTM
Plus is
a single quadrupole LC-MS system used primarily in pharmaceutical laboratories
as a detector, providing chromatographers the ability to run routine
HPLC
applications more efficiently. These
products utilize our comprehensive line of HPLC columns, including
HYPERSILTM
Gold,
HyPurityTM
and
Aquasil columns.
In
January 2007, we acquired Spectronex, a European-based supplier of mass
spectrometry, chromatography and surface science instrumentation, as
well as
Flux Instruments, a manufacturer of high performance liquid chromatography
pumps
and software.
Beyond
life sciences markets, our chemical analysis instrumentation, including
our gas
chromatography, elemental analysis and molecular spectroscopy instrumentation,
uses various separation and optical spectroscopy
techniques
to determine the elemental and molecular composition of a wide range
of complex
liquids and solids.
Gas
Chromatography.
Gas
chromatography is a separation technique used to analyze complex samples
in the
form of gases. Thermo Fisher’s high performance and reliable line of gas
chromatographs (GCs) includes our Trace GC Ultra, a versatile laboratory
GC with
a full range of detectors, injectors, and valve systems; our FOCUS GC,
which is
a single-channel GC; our Trace GCxGC for analysis of target compounds
in complex
matrices; and autosamplers, including our TriPlusTM
Autosampler, that provide a robotic sampling solution to a GC laboratory.
We
also offer chromatography data system software, detectors and various
accessories such as GC columns to complete our gas phase chromatography
offering.
Our
GC
offering is also incorporated into our GC mass spectrometry (GC-MS) product
line, which pairs a mass spectrometer detector with a GC front end. In
2006, we
introduced the DSQTM
II, a
GC/MS product based on the platform of Thermo Fisher’s DSQ and PolarisQ GC/MS
systems. The DSQ II incorporates the new DynaMax XR ion detection system
and the
DuraBriteTM
ion
source. The PolarisQ Ion Trap MSn offers affordable tandem mass spectrometry
at
the sensitivity of GC-specific detectors.
Elemental
Analysis.
Thermo
Fisher also offers a line of elemental analysis instrumentation used
to analyze
elements in liquid samples. This product line includes our combustion
analyzers,
M & S Series atomic absorption (AA) systems, the new iCAP 6000 Series of
benchtop inductively coupled plasma (ICP) spectrometers, and X Series
2 and
Element2 ICP mass spectrometry (ICP-MS) systems. Environmental laboratories,
geochemical and clinical/toxicology laboratories often employ these techniques,
as well as many other industrial laboratories.
Thermo
Fisher provides a full range of instrumentation that also performs the
elemental
analysis of solids, including our ARL arc spark product line based on
optical
emission spectroscopy (OES), our benchtop and standalone ARL X-ray fluorescence
(XRF) systems for bulk analysis, our ARL X-ray diffractometry (XRD) systems,
our
X-ray microspectroscopy offering, our glow discharge MS system and our
Auger and
X-ray photoelectron spectroscopy (XPS) systems for surface analysis.
Our
product line also includes our Niton portable XRF analyzers. These
portable elemental analyzers are state-of-the-art handheld instruments
offering high-performance analysis of metal alloys for positive material
identification, scrap metal recycling, QA/QC and precious metals analysis,
as
well as analysis of soils and sediments, environmental monitoring, lead
in paint
assessment, geochemical mapping and coatings/plating analysis. The Niton
Xli,
XLp and XLt Series product lines are designed for the rapid on-site testing
of
metals for numerous industrial applications, including mining, coatings,
precious metals and powder samples.
Molecular
Spectroscopy.
Thermo
Fisher is also a leader in analytical instrumentation involving spectroscopic
analysis of molecular structures. Our NicoletTM
Series
research grade Fourier transform infrared (FT-IR) and Nicolet 380 FT-IR
systems
provide a complete analytical offering in FT-IR spectroscopy, from routine
QA/QC
applications to advanced research work across many industries. Thermo
Fisher has
built on this technology with a broad range of IR spectroscopy and imaging
systems such as its ContinuµmTM
XL and
CentaurusTM
IR
microscope systems. Complementing FT-IR analysis capabilities, we also
offer
dispersive and FT-Raman systems for additional vibrational spectroscopic
analysis of large samples or analysis down to a single micron. Thermo
Fisher
also designs, manufactures and markets visible and ultraviolet (UV)-visible
spectrophotometers.
Customers
for Thermo Fisher’s chemical analysis instrumentation include environmental,
pharmaceutical, polymer, petrochemical, food, semiconductor, energy,
coatings,
geological, steel and basic materials producers who frequently use these
instruments for quality assurance and quality control applications, primarily
in
a laboratory.
Services.
We
have
an extensive service network to support our installed base of instruments
across
the globe. In addition, we provide a broad range of services, including
multi-vendor laboratory instrument services, such as instrument qualifications;
preventive and corrective maintenance;
validation, regulatory compliance and metrology;
as well as instrument/equipment
asset management services with
solutions that deliver instrument
and equipment maintenance
management, physical inventory tracking and enterprise-wide maintenance
reporting to help customers improve the cost/performance of their
instrumentation, equipment and facilities.
Biosciences
Our
broad
range of Biosciences products include fine and high-purity chemistry
products,
microbiological culture media, proprietary protein, DNA, cell-culture
products
and sterile liquid-handling systems. These products are used across the
general
chemistry and life sciences arenas primarily for scientific research
and drug
discovery, as well as clinical and industrial testing and biopharmaceutical
research and production. Our Biosciences products are sold under proprietary
product names such as Acros OrganicsTM,
MaybridgeTM,
HyCloneTM,
PierceTM,
DharmaconTM,
ABgeneTM,
OxoidTM
and
RemelTM.
Global
Chemicals
Our
Global
Chemicals solutions provide chemistry-based applications to scientists
involved
in analysis, research and development, and manufacturing. Our broad product
portfolio includes our Acros Organics chemicals, which are used in basic
research and manufacturing applications to synthesize new and interesting
materials. These products are supplied in pre-pack and semi-bulk quantities
and
are used across all types of chemistry in a range of products, including
cosmetics, foods, fragrances, flavors, drugs and coatings. Our Maybridge
products, which include innovative drug-like molecules and screening
compounds,
are used by scientists designing new chemical compounds for pharmaceutical
drugs. Our Fisher ChemicalTM
products
help scientists purify, extract, separate, identify and/or manufacture
products.
These products are used across a range of industries, including pharmaceutical,
biotechnology, electronic, and environmental. Our Fisher BioReagentsTM
products
are used in many different laboratory applications, from cell growth
to detailed
protein analysis, to help scientists understand functions within living
organisms. Our Fine and Custom Chemistry unit provides bulk sizes of
our various
products when customers scale-up from research to development and production.
The primary markets served are pharmaceutical, life sciences and high
technology.
Life
Science Research (LSR)
Our
Life
Science Research products provide innovative technologies and services
globally
through Genomic Technologies, RNA Technologies, Cell Pathways & Proteomics,
and Molecular Biology Reagents lines. Our offering includes a wide range
of
proprietary protein-research and cell-culture products; nucleic-acid
technologies; reagents for high-content cellular screening; reliable,
high-quality RNA oligonucleotides; small-interfering RNA and related
RNA-interference products; and plastic consumables. We serve the pharmaceutical
and biotechnology industries as well as diagnostics companies, clinical
laboratories, colleges and universities, government and industrial customers.
Our
Genomic Technologies products, sold under the ABgene name, are used to
measure
nucleic acids with high precision and sensitivity, enabling researchers
to gain
a better understanding of the control mechanisms inside a cell. Used
in the
study of cancer, metabolic diseases, in epidemiological studies and in
agriculture research, our products provide a better understanding of
the
mechanisms in cells, enabling scientists to shorten the drug development
process. Our RNA Technologies products, sold under the
Dharmacon name, are used by scientists conducting basic research to understand
the function of genes and their role in biological processes. A primary
focus of
research using RNAi technology is to understand the biological basis
of human
disease. The Dharmacon products are also used in the drug discovery process
to
aid in the identification and validation of new drug targets. Our
Cell
Pathways and Proteomics products, sold under the
Pierce, BioImageTM,
EndogenTM
and
SearchLightTM
names,
enable the effective and efficient study of the biology of proteins,
and offer
unique cell-based assays and services for high-content pathway analysis.
BioProcess
Production
Our
BioProcess Production offerings include cell-culture and bioprocessing
products
used in the production of animal and human viral vaccines, monoclonal
antibodies, skin replacement and protein-based drugs. The product line
is used
in research and academic markets for cellular interaction studies, toxicity
testing, antiviral, and anticancer studies. Our HyClone product offering
includes leading cell-culture products (sera, classical media, serum-free
and
protein-free media, and process liquids) and bioprocessing systems for
life
science research and protein-based drug production. The line includes
flexible,
single-use BioProcess ContainerTM
(BPCTM)
systems, which are sterile, disposable bags specifically designed for
transporting, mixing, dispensing, and storing sterile liquids and powders.
Under
the TC TechTM
name, we
also provide sterile fluid-handling bags used to transfer, transport
and store
bioprocess liquids in the biopharmaceutical manufacturing process as
well as
tubing, fittings, connectors and flexible single-use containers specifically
qualified for use in bioscience applications in the biopharmaceutical,
biotechnology and diagnostic industries. Products, including cell-culture
media,
sera, process liquids and reagents, as well as single-use BioProcess
Container
systems, are provided in a variety of sizes ranging from small volumes
up to
tens of thousands of liters of specialized products in large vessels
for
full-scale production.
Microbiology
Our
Microbiology offerings include high-quality microbiology laboratory products,
including dehydrated and prepared culture media, collection and transport
systems, diagnostic and rapid direct specimen tests, quality-control
products
and associated products for the microbiology market. Our products focus
on
aiding customers in the diagnosis of disease or potential contamination
of their
products or manufacturing facilities. Our Oxoid products are used by
microbiologists worldwide to grow and identify bacteria. Within the clinical
field, these products facilitate a rapid and accurate diagnosis of infectious
disease and provide a recommendation of effective antibiotic treatment.
Within
the food and pharmaceutical industries, Oxoid products are used to assure
the
safety and quality of consumer products by monitoring production environments,
raw materials and end products for bacterial contamination. Our Remel
products
are used worldwide by clinical laboratories, including hospitals, reference
labs, clinics, and physician offices to quickly and accurately generate
results
for the diagnosis and treatment of infectious diseases and by industrial
and
research laboratories, such as food, beverage, personal care, pharmaceutical
and
biotech industries to monitor air quality, production processes, raw
materials
and finished products to assure the safety and quality of consumer
products.
Integrative
Technologies
Our
Integrative Technologies offerings provide integrated solutions
for
customers in regulated and unregulated industries such as pharmaceuticals,
biotechnology, petrochemicals, chemicals, and food and beverage utilizing
our
broad capabilities in laboratory equipment, instrumentation, consumables,
reagents and software. Our products include laboratory information management
systems (LIMS),
chromatography data systems (CDS),
database analytical tools, automation systems, microplate instrumentation
and
automated imaging systems.
To
support our global installations, we provide implementation, validation,
training, maintenance and support from our large global services
network.
Informatics
Thermo Fisher develops and provides LIMS solutions that provide
application-specific, purpose-built functionality in software targeted
for
certain industries. These industries include pharmaceutical, petrochemical,
chemical, food and beverage, metals and mining, environmental and
water/wastewater, as well as government and academia. Thermo Fisher is
a leader
in developing commercial-off-the-shelf (COTS) solutions designed for
specific
industry applications. Providing basic requirements as standard functionality
reduces risk for our customers and eases implementation, validation and
training, while lowering total cost of ownership. More recently, we have
focused
our design and development on open standards. Moving to an open,
service-oriented computing architecture based on Microsoft® .NET creates more
interoperability so our systems can enable end-to-end process workflows.
Our
flagship LIMS, called SampleManager, moved to the .NET platform, incorporated
Service-Oriented Architecture, enhanced Web interfacing, and added support
for
the Microsoft® SQL Server
2005
database in addition to Oracle’s database option. Our Darwin LIMSTM
is also
based on .NET. Other products within the portfolio will be moved to .NET,
migrating away from proprietary programming languages while continuing
to
support existing customers’ use of such programming.
Our
portfolio includes SampleManager LIMSTM,
an
enterprise solution used in laboratories at leading companies in the
pharmaceutical, oil and gas, environmental, chemical and food and beverage
industries; WatsonTM
LIMS,
for pharmaceutical bioanalytical laboratories; GalileoTM
LIMS
designed specifically for ADME and in-vitro testing in early drug discovery
and
development; Nautilus LIMSTM,
used in
a range of industrial applications and increasingly by biotechnology
laboratories because of its configurability, patented workflows and
plate-handling capabilities; and Darwin LIMS for pharmaceutical manufacturing
R&D and QA/QC. In addition, we market the Atlas CDSTM,
a
multi-industry enterprise-class system that is tightly integrated with
our LIMS
solutions for greater accuracy and consistent reporting of shared data,
as well
as increased productivity.
We
also
provide a global services network of experienced consultants who
provide a broad range of services focused
on the successful implementation of our customers’
projects. These
services
include project planning, management of user workshops, defining business
requirements, milestone delivery, systems integration, workflow modeling
and
validation consultancy.
Laboratory
Automation Solutions
Thermo
Fisher
is a
leading innovator of automation systems that provide solutions for the
drug
discovery market. With core competencies in integration, applications
and
innovation, we work closely with customers to develop both turnkey products
and
tailored systems for genomic/proteomic, biochemical and drug discovery
applications. Our key technologies include automated storage, integration
platforms, robotics and software. Advanced automated storage systems
offer both
low- and high-volume capacities with full environmental control; integration
platforms range from stand-alone plate stackers and movers to multifunctional
three-dimensional platforms with robotic arms, advanced analytical equipment
and
software for experiment design, control and analysis; microplate instrumentation
encompasses a complete range of high-performance plate readers, washers
and bulk
dispensers. Precise and reliable motion control is achieved through
state-of-the-art robotics that improve throughput and walk-away time.
The
company’s software platforms schedule and control all robotics and third-party
instrumentation. These software platforms integrate with LIMS and other
informatics systems to enable efficient workflow and data management.
Our
automated platforms can incorporate imagers, liquid handlers, bulk dispensers,
incubators, microplate stackers, automated storage products and vertical
loading
robotics.
Cellular
Imaging and Analysis
Thermo
Fisher is a leading provider of complete systems for high-content screening
(HCS) and analysis (HCA) used by drug discovery and systems-biology researchers.
Our CellomicsTM
platform
includes automated imaging instrumentation (ArrayScanTM
VTI
HCS
Reader and the cellWoRxTM
High
Content Cell Analysis System), BioApplication image analysis software
and High
Content Informatics (HCiTM),
fully
integrated to improve the quality and productivity of cell-based assays.
Our
proprietary platforms are in use at multiple sites within the top 15
pharmaceutical companies, as well as at leading biotechnology companies
and
academic centers throughout the world. These products enable customers
to
develop new and effective therapies to treat, cure and prevent diseases
and are
utilized by scientists in drug discovery companies and basic research
institutions to look at how drug candidates and targets of interest affect
live
cells. For drug discovery companies, these experiments enable scientists
to
determine the best drug candidates and to ultimately shorten the drug
discovery
process. For basic research scientists, these experiments enable scientists
to
explore all aspects of cell biology in a fast, quantitative fashion.
These
technologies are used in a range of drug discovery and in therapeutic
areas such
as neurobiology, toxicology, cancer biology and cell biology.
Diagnostics
Our
Diagnostics products
and
services
are used
by the diagnostics community, including healthcare laboratories in hospitals,
academic and research institutes, to prepare
and analyze patient samples such as blood, urine, body fluids or tissue
sections, to detect
and diagnose diseases,
such as cancer.
Clinical
Diagnostics
Our
clinical diagnostics products include a broad offering of liquid, ready-to-use
and lyophilized immunodiagnostics reagent kits, calibrators, controls
and
calibration verification fluids. In particular, we provide products used
for
drugs-of-abuse testing; therapeutic drug monitoring, including immunosuppressant
drug testing; thyroid hormone testing; serum toxicology; clinical chemistry;
immunology; hematology; coagulation; glucose tolerance testing; monitoring
and
toxicology. Many of these products are sold under their industry-recognized
brand names such as: CEDIATM,
DRITM,
CASCOTM,
MASTM,
QMSTM
and Duke
ScientificTM.
In many
instances, we will work with customers or partners to develop new products
and
applications for their instrument platforms. We have developed one of
the
broadest menus for drugs-of-abuse immunoassays, including those for newer
drugs
such as Oxycodone, Heroin Metabolite and Buprenorphine. We also offer
a complete
line of Immunosuppressant Drug immunoassays that can be used on a variety
of
clinical chemistry analyzers. Our clinical chemistry and automation systems
include analyzers
and
reagents to analyze and measure routine blood and urine chemistry, such
as
glucose and cholesterol; and advanced testing for specific proteins,
therapeutic
drug monitoring and drugs of abuse. Our diagnostic test range currently
covers
approximately 80 different validated methods. We also provide pre- and
post-analytical automation for preparation of blood specimens before
and after
analysis. In other analytical laboratory fields, our reagents and automated
photometric analyzers are used for colorimetric and enzymatic analysis
and
quality control in food and beverage, wine and pharmaceutical production.
In
addition to our own sales channels, our clinical chemistry and automation
systems are distributed by some of the leading diagnostic manufacturers,
such as
Siemens Medical Solutions Diagnostics and Ortho-Clinical Diagnostics
(OCD).
Anatomical
Pathology
We
provide a broad portfolio of products for use primarily in immunochemistry,
histology, cytology and hematology applications. These products include
consumables for specimen collection, tissue processing, embedding and
staining,
such as reagents, stains, slides, cover glass, microarray substrates,
detection
kits and antibodies. We also provide a range of instruments including
Lab Vision
360, an autostaining immunohistochemistry slide staining system; and
the
HMS760X, a robot stainer used in slide staining of histology and cytological
specimens; along with other equipment such as tissue processors for preparation
of tissue samples; microtomes and cryostats for sectioning of processed
tissues;
embedding centers, slide stainers to highlight abnormal cells for microscopic
examination and diagnosis; coverslippers, such as the Microm CTM6, which
places
glass slipcovers on slides at a high capacity of approximately 450 slides
per
hour; and cassette and slide labelers for identifying specimens. The
Shandon CytospinTM
4
Cytocentrifuge uses low-speed centrifugation technology to concentrate
and
deposit a thin layer of cells onto a microscope slide to ensure better
cell
capture and better preservation of cell morphology. The Shandon
ExcelsiorTM
provides
a fully automatic solution for tissue processing and reagent storage/handling.
For
efficient handling and accurate identification of histology and cytology
specimens, we offer a comprehensive line of cassette and slide labelers,
including
the new Shandon Laser MicroWriterTM
developed specifically for anatomical pathology. The Laser MicroWriter
prints 1D
and 2D barcodes, text, logos and graphics in 26 different fonts at a
speed of 1
to 2 seconds per slide and is designed to handle high-volume workloads
in
clinical or research laboratories. Other histology products include the
new
Shandon FinesseTM
+ line
of microtomes for paraffin or resin sectioning, the Shandon CryotomeTM
Series
of cryostats for frozen sections and the Shandon VaristainTM
line of
slide stainers for cell morphology highlights.
Slide/Specialty
Glass
Thermo
Fisher focuses on manufacturing flat-sheet glass to produce medical disposable
products such as microscope slides, plates, cover glass and microarray
substrates serving the medical, diagnostics and scientific
communities.
Environmental
Instruments
Our
environmental analysis instrumentation offers innovative technologies
for
complying with government regulations and industry safety standards,
or
responding to a hazardous material situation, including air and water
quality
monitoring, gas and particulate detection, and elemental analysis. Our
instruments include
portable and fixed instrumentation used to help our customers protect
people and
the environment, with
particular focus on environmental compliance, product quality, worker
safety,
process efficiency and security. Key
end
markets include fossil fuel and nuclear-powered electric generation facilities,
federal and state agencies such as the Environmental Protection Agency
(EPA),
first responders such as the New York Police Department, national laboratories
such as Los Alamos, general commercial and academic laboratories, transportation
security for sites such as ports and airports, and other industrial markets
such
as pulp and paper and petrochemical. Our instrumentation is used in three
primary applications:
air
quality monitoring and gas detection, water quality and aqueous solutions
analysis, and radiation measurement and protection.
We
are a
leader in air quality instruments for ambient air and continuous emissions
monitoring. Primary markets and customers include environmental regulatory
agencies, emissions generating industries such as power generation and
pulp and
paper, first responders and industrial customers with Occupational Safety
and
Health
Administration-related
gas detection requirements. Our instruments employ a variety of leading
analytical techniques, such as chemiluminescence, which uses the light
emission
from chemical reactions to detect common air pollutants such as nitrogen
dioxide
at the parts-per-trillion level. The iSeriesTM
family
of analyzers uses various optical detection technologies to monitor
parts-per-billion levels of regulated pollutants, such as ground level
ozone and
sulfur dioxide. The
TEOMTM
series
of continuous particulate monitors utilizes a patented measurement technology
to
detect airborne particulate matter with high sensitivity in a brief time
period.
This monitoring capability allows the U.S. EPA and worldwide monitoring
networks
to provide the public with Web-based access to the concentration levels
of the
particulate matter of most concern to people susceptible to respiratory
conditions (such as the elderly and young children). Further,
state and federal environmental agencies, as well as environmental compliance
officers at facilities that release emissions into the air, use our stack
gas
monitoring systems to ensure that governmentally mandated standards are
being
met. The
introduction of our Mercury FreedomTM
System
for the continuous monitoring of total gaseous mercury emissions from
coal fired
power plants enables the U.S. power generation industry to monitor for
compliance with new regulations mandating the measurement of mercury,
which will
become effective in 2009. Our
industrial hygiene products measure toxic gases such as carbon monoxide
and
hydrogen sulfide, and hazardous chemicals such as benzene. The instruments
range
from handheld monitors used at hazardous waste sites for remediation
activities,
to general-purpose portable products for personnel-exposure monitoring,
to
sophisticated fixed systems in industrial facilities for early warning
of unsafe
combustible and toxic gas concentrations. In addition to these core
applications, our product portfolio includes particulate monitoring instruments
and leak-detection monitors.
Our
water
analysis products
are recognized as high-quality meters, electrodes and solutions for the
measurement of pH, ions, conductivity and dissolved oxygen. Marketed
under the
OrionTM
and
EutechTM
product
names, our products are sold across a broad range of industries for a
variety of
laboratory, field and process applications. Based on electrochemical
sensing
technology, these products are used wherever the quality of water and
water-based products is critical. Primary applications include quality
assurance, environmental testing and regulatory compliance in end markets
such
as general laboratories, life science, water and wastewater, food and
beverage,
chemical, pharmaceutical and power generation.
Our
radiation measurement and protection instruments are used to monitor,
detect and
identify specific forms of radiation in nuclear power, environmental,
industrial, medical and security applications. For example, power- generation
facilities distribute our Mark IITM
electronic pocket-calculator sized personal dosimeters to employees who
work in
areas that may expose them to radiation to capture the legal dose of
record to
which they are exposed on a daily basis. In addition, our customers use
contamination monitors, such as our PCM2TM,
in
at-risk locations around their facilities to monitor radiation. A variety
of our
detectors, such as the Surveyor 2000TM,
are
used to monitor radiation levels and dosage using gross gamma detection
technologies. Our product portfolio includes handheld survey meters and
vehicle
and pedestrian portals used to stop illicit transport of radioactive
material.
Environmental and contamination monitors are used by nuclear power plants
to
ensure worker safety.
Our
security instruments and systems include a comprehensive range of stationary
and
portable instruments used for chemical and radiation detection. These
instruments are based upon analytical technologies used in our core markets
that
we have refined for the specific needs of the security market, including
key
customers like the Department of Homeland Security, the Department of
Defense,
the Department of Energy and first responders. Our instruments, including
the
new handheld RadEyeTM
personal
radiation detector (PRD) and PackEyeTM
backpack
style device for discreet, rapid detection of gamma-emitting radioactive
sources
in large areas, are used for the detection and prevention of terrorist
acts at
airports, embassies, cargo facilities, border crossings and other high-threat
locations, as well as at major events such as the Olympics. For example,
Thermo
Fisher provides the latest generation of radiation detection systems,
known as
Advanced Spectroscopic Portals (ASPs), to the U.S. Department of Homeland
Security’s Domestic Nuclear Detection Office (DNDO). Deployment of these systems
at port and border locations globally is designed to detect and deter
the
importation of illicit nuclear devices or radiological materials. The
ASPs are
designed to allow Customs and other agencies to instantly detect and
identify
sources of radiation to a specific energy fingerprint, thus increasing
the
probability of deterring a threat, without a slowdown in commerce.
Process
Instruments
Our
Process Instruments products include
online instrumentation solutions and services that provide regulatory
inspection; quality control; package integrity; process measurements;
precise
temperature control; physical, elemental and compositional analysis;
surface and
thickness measurements; remote communications; and flow and blend optimization.
We serve a wide variety of global industries including oil and gas,
petrochemical, pharmaceutical, food and beverage, consumer products,
power
generation, metal, cement, minerals and mining, semiconductor and polymer.
Our
products are typically used in mission-critical manufacturing applications
that
require high levels of reliability and robustness. Our Process Instruments
include five principal product lines: compliance testing, material
characterization, materials and minerals, process systems, and weighing
and
inspection.
Through
our compliance testing product lines we provide simulation and verification
equipment for electronic components and systems under the KeyTek brand
based on
pulsed EMI (Electromagnetic Interference) technology. This business provides
electronic components and systems-testing solutions for OEMs and independent
testing labs. Our products and solutions are capable of testing EMC
(Electromagnetic Compatibility) and ESD (Electrostatic Discharge) at
the systems
and discrete package levels to assist our customers in complying with
various
industry standards.
Our
materials characterization product lines include instruments that help
our
customers analyze materials for viscosity, surface tension and thermal
properties. For instance, our Haake-MARSTM
and
Haake-POLYLABTM
products
accurately and flexibly measure a wide range of rheological properties
in the
lab and in process applications. These measurement platforms use open
standards
and have the ability to connect to a range of sensors and systems. Our
PRISMTM
line of
extruders and blenders meet R&D, small-scale production, quality control and
pharmaceutical needs.
Our
materials and minerals product line includes online bulk material analysis
systems, such as the CBXTM
and
CQMTM
products
for the coal, cement, minerals and other bulk material handling markets.
These
products employ proprietary, ultrahigh-speed, non-invasive measurement
technologies that use neutron activation and measurement of gamma rays
to
analyze, in real time, the physical and chemical properties of raw material
streams. This eliminates the need for off-line sampling, and enables
real-time
online optimization, for instance, allowing the customer to optimally
blend raw
materials to control sulfur and ash in coal fired utilities. Our gauging
products are used online to measure the total thickness, basis weight
and
coating thickness of flat-sheet materials, such as metal strip, plastics,
foil,
rubber, glass, paper and other web-type products. Our RadiometrieTM
gauging
line uses ionizing and non-ionizing technologies to perform high-speed,
real-time, non-invasive measurements. We also provide process control
instruments that monitor nuclear flux inside a reactor helping our nuclear
power
customers operate their plants in a safe and optimal manner.
In
2006,
we acquired EGS Gauging Inc. (EGS) and the business and assets of Analyser
Systems (ASYS). EGS provides leading technology in measurement of thickness
and
related properties for non-metallic gauging using traditional ionizing
technology and proprietary non-ionizing technology called FSIRTM.
ASYS
further enhanced our capabilities in neutron activated measurements around
bulk
material streams.
Our
process systems products help oil and gas, refining, petrochemical,
electric-utility and other customers optimize their processes. These
instruments
provide measurements that help improve efficiency, provide process and
quality
control, maintain regulatory compliance and increase worker safety. For
instance, our gas flow computers support custody transfer applications
in the
production and transmission of natural gas; our KRILTM
level
and interface detection products are used in extremely harsh coker applications
for petroleum refining; our MOLATM
analyzer
helps our customers measure moisture in extreme applications like coke
used in
metal foundries, and our VG PrimaTM
line of
process mass spectrometers help our customers detect minute constituents
in
process gases. These systems provide real-time direct and remote data
collection, analysis and local control functions using a variety of
technologies, including radiation, radar, ultrasonic and vibration measurement
principles, gas chromatography and mass spectrometry. Our SOLATM
line of
products, based on pulsed UV fluorescence technology, is an online sulfur
analyzer used by refiners to bring clean fuels to consumers. We have
extended
the applications for SOLA to include online sulfur detection in the
petrochemical environment, including flare gas composition and catalyst
protection.
Our
weighing and inspection products serve the food and beverage, pharmaceutical
packaging and bulk material handling industries. For the food and beverage
and
pharmaceutical markets, we provide solutions to help our customers attain
safety
and quality standards. Based on a variety of technologies, such as X-ray
imaging
and ultratrace chemical detection, our products are used to inspect packaged
goods for physical contaminants, validate fill quantities, or check for
missing
or broken parts. For example, our DSPTM
line of
metal detectors uses non-invasive, high-speed, flux technology to inspect
packaged products; our AC line of checkweighers is used to weigh packages
on
high-speed packaging lines; our InScanTM
line
uses X-ray imaging to enable our customers to inspect canned or bottled
beverages at very high speeds; and the PureAquaTM
line
provides online-sniffing technology to inspect recycled bottles for traces
of
contaminants before refilling. We also provide bulk material handling
products
such as belt scales, flow meters, safety switches and contamination detectors
to
enable solids-flow-monitoring, level measurements, personnel safety,
spillage
prevention and contamination detection for a wide variety of processing
applications in the food, minerals, coal, cement and other bulk solids
handling
markets.
Laboratory
Products and Services Segment
Through
our Laboratory Products and Services segment, we offer a combination
of products
and services that allows our customers to engage in their core business
functions of research, development, manufacturing, clinical diagnosis
and drug
discovery more accurately, rapidly and cost effectively. We serve the
pharmaceutical, biotechnology, academic, government and other research
and
industrial markets, as well as the clinical laboratory and healthcare
industries. This segment has six principal product groupings - Laboratory
Equipment, Laboratory Consumables, Research Market, Healthcare Market,
Safety
Market and BioPharma Services -
and
provides
products and integrated solutions for various scientific challenges that
support
many facets of life science research, clinical diagnosis and workplace
safety.
Specifically, our Laboratory Equipment products consist primarily of
sample
preparation, controlled environment storage and handling equipment as
well as
laboratory workstations; our Laboratory Consumables include consumables,
tubes
and containers for sample preparation, analysis and sample storage. Our
Research
Market offers a wide variety of chemicals, instruments and apparatus,
liquid
handling pumps and devices, capital equipment and consumables; our Healthcare
Market offers analytical equipment, diagnostic tools and reagents and
consumables; our Safety Market offers workplace and first responder equipment,
protective gear and apparel; and our BioPharma Services provide packaging,
warehousing and distribution services, labeling, pharmaceutical and biospecimen
storage, and analytical laboratory services primarily in the area of
drug
discovery and pharmaceutical clinical trials.
In
the
Research Market, the Fisher catalog has been published for nearly 100 years
and is an internationally recognized scientific supply resource. In the
Research, Healthcare and Safety Markets, we publish more than 3 million
copies of our various catalogs each year in eight different languages.
Our
e-commerce product references are showcased by our website,
www.fishersci.com,
which
is a leading e-commerce site supporting the scientific research community.
The
website contains product content for more than 320,000 products. We
maintain an international network of warehouses in our
primary markets through which we maintain inventory and coordinate product
delivery. With specialized product vaults and temperature controlled
storage capacity, we are able to handle the complete range of products
we offer
to our customers. Our transportation capabilities include our own fleet of
delivery vehicles as well as parcel shipping capabilities that are closely
integrated with our third-party parcel carriers. Throughout the product
delivery process, we provide our customers with convenient access to
comprehensive electronic systems allowing for automated catalog search,
product
order and invoicing and payment capabilities.
We
deliver our products through third-party carriers and our own fleet of
delivery
vehicles. Third-party carriers include United Parcel Service (UPS), Federal
Express, DHL and other carriers, including national and regional trucking
firms,
overnight carrier services and the U.S. Postal Service.
Laboratory
Equipment
Our
Laboratory Equipment products
and integrated solutions are used primarily by pharmaceutical companies
for drug
discovery and development, and by biotechnology companies and universities
for
life science research to advance the prevention and cure of diseases
and enhance
the quality of life.
We
provide a broad range of equipment that is used for the preparation and
preservation of chemical and biological samples, primarily for pharmaceutical,
academic, clinical and government customers. Products include incubators
that
are used in biological experiments to allow growth of cells and organisms
in
optimal conditions of temperature, carbon dioxide and humidity. These
are sold
under various product line names including FormaTM
and
HeraeusTM.
We
also
offer a wide range of centrifuges, which are used to separate biological
matrices and inorganic materials. Our microcentrifuges are primarily
used for
the purification of nucleic acids in the molecular biology laboratory,
our
general use benchtop centrifuges are suitable for processing clinical
samples
such as blood and urine, and our floor models are used for large volume
blood
processing or in laboratories with high-throughput needs. Our super-speed
and
ultra-speed models are used for applications such as protein purification.
Our
centrifuges are sold under various product line names including
SorvallTM,
IECTM,
JouanTM
and
Heraeus.
We
have a
broad range of water purification products and technologies that serve
the
pharmaceutical, academic, industrial research and clinical testing markets.
The
different technologies (distillation, reverse osmosis, deionization,
ultrafiltration, membrane filtration and the use of UV) allow for the
systems to
accept various incoming water qualities from around the world and deliver
a
range of water qualities for a wide variety of laboratory applications.
These
applications range from Type II water typically used to feed water baths
or
glassware washers to distilled water to Type I (extremely high-purity
water),
for use in hydrating reagents and buffers. In addition, for the most
sensitive
techniques requiring pyrogen-free, free of trace metals or low Total
Organic
Carbon (TOC) we offer integrated specialty treatments. These are sold
under the
product line name of BarnsteadTM.
Our
shakers, stirrers and stirring hotplates, water baths and dry blocks,
ovens,
furnaces, heating mantles, tapes, mats and temperature monitoring devices,
including thermometers, are offered in a range of sizes, temperatures
and
configurations for life science, analytical chemistry and quality control
applications where temperature uniformity and control are critical. These
are
sold under various product line names including Barnstead, PrecisionTM,
Heraeus, Blue MTM
and
VariomagTM.
We
offer
thermal
cyclers for the amplification of nucleic acids by
polymerase chain reaction (PCR)
or
reverse transcriptase-PCR (RT-PCR). These are sold under the product
line name
of Hybaid.
Our
centrifugal vacuum concentrators assist researchers in evaporating organic
solvents, acids and buffers from their samples and have a wide range
of
applications in the preparation of deoxyribonucleic acid (DNA), oligomers,
plasmid preparation and the purification of pharmaceutical compounds.
Our freeze
dryers are used to lyophilize drugs, plants or tissues for long-term
room
temperature or refrigerated storage often retaining biological activity
and the
original cellular structure upon re-hydration. These products are sold
under the
SavantTM
and
Jouan product line names.
We
are
leaders in cold temperature storage equipment, ranging from laboratory
refrigerators and freezers to ultralow temperature freezers and cryopreservation
storage tanks, which are used primarily for storing samples in a cold
environment to protect from degradation. These systems may be customized
to
accommodate specific equipment, allowing reactions (such as chromatography)
to
be run under low-temperature conditions. These products are sold under
various
product line names including Forma, RevcoTM,
HarrisTM,
JewettTM,
Barnstead, Heraeus and Jouan.
Our
biological safety cabinets enable technicians to handle samples without
risk to
themselves or their environment and without risk of cross-contamination
of
samples. Equipped with filtered air ventilation, controlled laminar flow
and an
ultraviolet source, biological safety cabinets can be used for tissue
culture,
IVF, infectious samples, forensic analysis or bioterrorism research.
These
products are sold under various product line names including Forma, Heraeus,
HoltenTM
and
Jouan.
We
provide a range of steam sterilizers for sterilizing biological samples
and
laboratory tools that are primarily used by pharmaceutical, clinical
and
academic customers. These products are sold under the product line names
of
H+PTM
and
Forma.
Through
our control technologies product line we are a leading manufacturer of
precision
temperature control products for global industrial and laboratory markets.
The
temperature-control product line includes the NESLABTM
and
HAAKETM
lines of
heated/refrigerated circulating baths, immersion coolers and re-circulating
chillers. Customers use these products to control highly critical manufacturing
processes, such as semiconductor manufacturing operations or
pharmaceutical-grade extrusion lines.
We
also
manufacture private label and OEM versions of certain of our product
lines.
We
are a
major supplier of laboratory workstations and fume hoods for either new
construction or laboratory renovation. Our product offerings include
steel, wood
and plastic laminate casework systems, adaptable furniture systems, chemical
ventilation fume hoods and chemical storage cabinets and various other
laboratory fixtures and accessories. Laboratory workstation products
are sold
under the names of Fisher HamiltonTM,
HorizonTM,
ConceptTM,
SafeAireTM
and
PioneerTM.
We
supply
internet, phone and field technical support and service for laboratory
equipment
including installation, maintenance, repair and training on a worldwide
basis
via a network of internal phone support technicians and field-based service
technicians as well as third-party service providers.
Laboratory
Consumables
We
manufacture and sell glass
and
plastics consumables and certain related equipment to entities conducting
scientific research, including drug discovery and drug development, quality
and
process control, clinical and basic research and development.
We
are a
leading supplier of sample tubes, containers and vessels, in a variety
of
plastics and glass and in a wide range of volumes for all types of life
science,
analytical and clinical analysis. Included in this offering are microwell
plates
ranging from a single well to 1,536 wells for applications ranging from
tissue
culture to primary and secondary screening in drug discovery. The geometry
of
the wells, the type of plastic resin, the surface treatments or filtration
membrane in the devices vary to serve a number of applications for maximizing
cell growth, sample concentration within the well or reduce background
fluorescence or non-specific binding. These products are sold under various
brand names including NalgeneTM,
NuncTM,
MBPTM,
Capitol
VialTM,
ChaseTM
and
SamcoTM.
Accurate
measurement and dispensing of samples and reagents is critical in a variety
of
industrial, academic, government, and clinical laboratories. We have
a wide
variety of single and multiple channel pipetting tools from manual to
highly
automated, covering a wide volume range. The ergonomics of these devices
are
important to the comfort of researchers handling numerous samples and
pipetting
steps on a daily basis. Due to sample cross-contamination concerns, the
tips of
the pipettes are disposable and a separate tip is used for each sample.
These
products are sold under various brands and product line names including
FinnpipetteTM,
MatrixTM,
MBP and
QSP.
We
have
tubes specific to centrifugation in various sizes to fit the volume and
centrifugal speed requirements of the sample. In addition, we are the
leaders in
sample storage vials and organization systems for ultralow temperature
and
cryogenic storage, offering specific products for low protein binding
(CryobankTM)
and low
DNA binding (Bank itTM).
These
products are sold under various brands including Nalgene, Nunc and
Matrix.
We
are
the leading provider of tissue culture filtration and growth vessels.
Our
products are used by researchers for growth of tissue culture and can
be scaled
up to biomanufacturing of vaccines or monoclonal antibodies using Cell
Factory
products. The
sterility of samples and growth media is critical to the viability of
the cells.
These products are sold under various brands including Nalgene and
Nunc.
Research
Market
Our
Research Market offerings include a wide range of products and services
from a
single source designed to allow our customers to engage more accurately
and
efficiently in laboratory research and development throughout the world.
Our
customers represent all industries requiring any level of laboratory
research,
including but not limited to the pharmaceutical, biotech, food and agriculture,
government, academic and manufacturing industries.
Our
products include all forms of laboratory products, ranging from capital
equipment and instruments to chemicals to consumable products. We offer
a mix of
products that are manufactured by Thermo Fisher, that are manufactured
by third
parties for us on a private-label basis, and that are manufactured by
third
parties under their brand but offered for sale exclusively through us.
We also
offer a broad range of third-party products representing leading industry
brand
names on a non-exclusive basis.
Our
biennial catalog consists of more than 40,000
products. Beyond our catalog, we offer our customers access to more than
650,000
products. Our e-commerce website, www.fishersci.com, has been an
industry-leading online ordering and reference tool since its inception
in the
1990s.
In
addition to our broad product offering, we offer a variety of specialized
services to our customers through our Managed Services team. Services
provided
to customers include dedicated logistics personnel who manage inventory
and
provide desktop delivery, coordinate instrument calibration and service,
facilitate glass washing, provide on-site customer service and deliver
other
services that allow our customers to focus on their core research
activities.
Healthcare
Market
Our
Healthcare Market offerings include a broad array of consumables, diagnostic
kits and reagents, equipment, instruments, solutions and services for
hospitals,
clinical laboratories, reference laboratories, physicians’ offices and other
clinical testing facilities. These products are manufactured by Thermo
Fisher
and third parties.
Healthcare
Market products and solutions focus on the collection, transportation
and
analysis of biological samples. Major product lines include anatomical
pathology, molecular diagnostic and cardiac risk management solutions,
along
with blood collection devices, consumable vials and transportation devices,
as
well as an expensive portfolio of rapid diagnostic testing devices for
drugs-of-abuse testing and diagnosis and monitoring of cancer, endocrine
function and cardiovascular, gastrointestinal, nervous system, respiratory
and
sexually transmitted diseases. The Healthcare Market core product offering
also
includes high-end diagnostic instruments and equipment together with
the
reagents used in those instruments and equipment to perform diagnostic
tests.
Sales in the healthcare market are fueled by the administration and evaluation
of diagnostic tests. We believe that the aging population, as well as
the
increased demand for the development of new specialty diagnostic tests,
will
result in increased market growth.
In
addition to our broad product offering, we offer a variety of specialized
services to our customers through our Managed Services team. Services
provided
to customers include dedicated logistics personnel that manage inventory,
provide on-site customer service, and deliver other services that allow
our
customers to focus on their core responsibilities.
Safety
Market
Through
our Safety Market we supply safety-related products to various industries
including laboratory research, industrial manufacturing, healthcare,
universities, food/agriculture, environmental and petrochemical as well
as
government and municipal agencies, fire departments and military units.
Products
offered to these markets include: cleanroom and controlled-environment
supplies;
personal protective equipment such as respirators, clothing, gloves,
hardhats,
hearing protection and eyewear; fall protection harnesses and restraints;
self-contained breathing apparatus; specialized firefighting and military
equipment and supplies; environmental monitoring and sampling equipment;
and
first responder supplies and equipment such as decontamination tents,
bio-isolation systems, chemical protective suits and emergency response
trailers. We offer products mainly manufactured by third parties as well
as
those manufactured by Thermo Fisher.
We
also
provide access to a broad offering of training, equipment servicing and
on-site
inventory management support through our dedicated safety sales professionals,
equipment service employees and on-site customer support teams. Our goal
is to
provide a total solution of products, training and support to our
customers.
BioPharma
Services
Our
BioPharma Services offerings include global services for pharmaceutical
and
biotechnology companies engaged in clinical trials, including specialized
packaging, over-encapsulation, multi-lingual and specialized labeling
and
distribution for phase III and phase IV clinical trials, analytical
testing, biological-specimen management, as well as combinatorial chemistry,
custom-chemical synthesis and supply-chain management. Thermo
Fisher’s biorepository
business provides temperature-controlled repository services for pharmaceutical,
biotechnology, university, government, clinical and blood-processing
customers.
Our biorepository services business stores millions of pharmalogical
and
biospecimen samples at commercial sites in the United States and the
United
Kingdom. Additional services include inventory management, validation,
business
continuity, and repository management and transportation capabilities
resulting
in a complete cold chain sample management solution.
Services
are offered throughout the world, with operations in the United States,
United
Kingdom, Switzerland and Singapore. Expansion of our activities is under
way
into India and Latin America. Most services are offered under the Fisher
Clinical ServicesTM
or
Lancaster LaboratoriesTM
brands.
Sales
and Marketing
We
market
and sell our products and services through a direct sales force,
customer-service professionals, electronic commerce, third-party distributors
and various catalogs.
We
have
approximately 7,500 sales and service professionals including over 1,000
highly
trained technical specialists who enable us to better meet the needs
of our more
technical end-users. We also provide customers with an efficient ordering
system, product standardization and other supply-chain-management services
to
reduce procurement costs.
New
Products and Research and Development
Our
business includes the development and introduction of new products and
may
include entry into new business segments. We are not currently committed
to any
new products that require the investment of a material amount of our
funds, nor
do we have any definitive plans to enter new businesses that would require
such
an investment.
During
2006, 2005 and 2004, we spent $170 million, $153 million and $135 million,
respectively, on research and development, excluding a charge in 2006
of $15
million for in-process research and development at the date of the merger
with
Fisher.
Raw
Materials
Our
management team believes that we have a readily available supply of raw
materials for all of our significant products from various sources. We
do not
anticipate any difficulties obtaining the raw materials essential to
our
business. Raw-material
and fuel prices are subject to fluctuations due to market conditions.
We employ
many strategies, including the use of alternative materials and the use
of
derivative instruments, to mitigate the effect of these fluctuations
on our
results.
Patents,
Licenses and Trademarks
Patents
are important in both segments of our business. No particular patent,
or related
group of patents, is so important, however, that its loss would significantly
affect our operations as a whole. Where appropriate, we seek patent protection
for inventions and developments made by our personnel and incorporated
into our
products or otherwise falling within our fields of interest. Patent rights
resulting from work sponsored by outside parties do not always accrue
exclusively to the company and may be limited by agreements or
contracts.
We
protect some of our technology as trade secrets and, where appropriate,
we use
trademarks or register trademarks used in connection with products. We
also
enter into license agreements with others to grant and/or receive rights
to
patents and know-how.
Seasonal
Influences
Revenues
in the fourth calendar quarter are historically stronger than in the
other
quarters due to capital spending patterns of industrial, pharmaceutical
and
government customers.
Working
Capital Requirements
There
are
no special inventory requirements or credit terms extended to customers
that
would have a material adverse effect on our working capital.
Dependency
on a Single Customer
There
is
no single customer the loss of which would have a material adverse effect
on our
business. No customer accounted for more than 10% of our total revenues
in any
of the past three years.
Backlog
Our
backlog of firm orders at year-end 2006 and 2005 was as follows:
|
2006
|
2005
|
|||||||
|
(In
thousands)
|
||||||||
|
Analytical
Technologies
|
$
|
827,097
|
$
|
445,321
|
||||
|
Laboratory
Products and Services
|
256,310
|
82,761
|
||||||
|
$
|
1,083,407
|
$
|
528,082
|
|||||
We
believe that virtually all of our backlog at the end of 2006 will be
filled
during 2007. The increase in backlog in 2006 is principally due to the
Fisher
merger and, to a lesser extent, increased demand.
Government
Contracts
Although
the company transacts business with various government agencies, no government
contract is of such magnitude that a renegotiation of profits or termination
of
the contract at the election of the government agency would have a material
adverse effect on the company’s financial results.
Competition
General
The
company encounters aggressive and able competition in virtually all of
the
markets we serve. Because of the diversity of our products and services,
we face
many different types of competitors and competition. Our competitors
include
a
broad
range of manufacturers and third-party distributors. In
general, competitive climates in the markets we serve are characterized
by
changing technology and customer demands that require continuing research
and
development. Our success in these markets primarily depends on the following
factors:
| · |
technical
performance and advances in technology that result in new products
and
improved price/performance ratios;
|
| · |
product
differentiation, availability and
reliability;
|
| · |
our
broad product offering;
|
| · |
our
reputation among customers as a quality provider of products
and
services;
|
| · |
customer
service and support;
|
| · |
active
research and application-development programs;
and
|
| · |
relative
prices of our products and
services.
|
Environmental
Matters
We
are
subject to various laws and governmental regulations concerning environmental
matters and employee safety and health in the United States and other
countries.
U.S. federal environmental legislation that affects us includes the Toxic
Substances Control Act, the Resource Conservation and Recovery Act, the
Clean
Air Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive
Environmental Response Compensation and Liability Act (“CERCLA”). We are also
subject to regulation by the Occupational Safety and Health Administration
(“OSHA”) concerning employee safety and health matters. The United States
Environmental Protection Agency (“EPA”), OSHA, and other federal agencies have
the authority to promulgate regulations that have an effect on our
operations.
In
addition to these federal activities, various states have been delegated
certain
authority under the aforementioned federal statutes as well as having
authority
over these matters under state laws. Many state and local governments
have
adopted environmental and employee safety and health laws and regulations,
some
of which are similar to federal requirements.
A
number
of our operations involve the handling, manufacturing, use or sale of
substances
that are or could be classified as toxic or hazardous materials within
the
meaning of applicable laws. Consequently, some risk of environmental
harm is inherent in our operations and products, as it is with other
companies
engaged in similar businesses.
Our
expenses for environmental requirements are incurred generally for ongoing
compliance and historical remediation matters. Based on current information,
we
believe that these compliance costs are not material. For historical
remediation
obligations, our expenditures relate primarily to the cost of permitting,
installing, and operating and maintaining groundwater-treatment systems
and
other remedial measures. We estimate our aggregate expenses for these
environmental remediation matters will be approximately $1 million per
year.
Our
Fair
Lawn and Somerville, New Jersey, facilities are the subject of administrative
consent orders issued by the New Jersey Department of Environmental Protection
in 1984. Our Rockford, Illinois, facility is subject to a Resource Conservation
and Recovery Act (“RCRA”) corrective action program administered by the Illinois
Environmental Protection Agency. We are required to maintain
groundwater-remediation activities at these sites. As the owner of the
Fair Lawn
facility, we are listed as a potentially responsible party for remediation
within an area called the Fair Lawn Wellfields Superfund Site. This site
was
listed in 1983 on the National Priority List under CERCLA. Both New Jersey
sites
are also the subjects of CERCLA National Resources Damages claims.
We
record
accruals for environmental 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.
We
calculate estimates based upon several factors, including reports prepared
by
environmental specialists and management’s knowledge and experience with these
environmental matters. We include in these estimates potential costs
for
investigation, remediation and operation and maintenance of cleanup sites.
Accrued
liabilities for environmental matters totaled $24 million at December
31, 2006
and were not material prior to the merger with Fisher. The liability
for
environmental matters associated with Fisher was recorded at the date
of merger
at its fair value and as such was discounted to its net present
value.
These
environmental liabilities do not include third-party recoveries to which
we may
be entitled. We believe that our accrual is adequate for the environmental
liabilities we currently expect to incur. As a result, we believe that
our
ultimate liability with respect to environmental matters will not have
a
material adverse effect on our financial position, results of operations
or cash
flows. However, we 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, changes in the conduct of our operations, and the effect
of
changes in accounting rules, which could have a material adverse effect
on our
financial position, results of operations or cash flows.
Regulatory
Affairs
Our
operations, and some of the products we offer, are subject to a number
of
complex and stringent laws and regulations governing the production,
handling,
transportation and distribution of chemicals, drugs and other similar
products,
including the operating and security standards of the United States Drug
Enforcement Administration, the Bureau of Alcohol, Tobacco, Firearms
and
Explosives, the Food and Drug Administration, and various state boards
of
pharmacy as well as comparable state and foreign agencies. As Thermo
Fisher’s
businesses also include export and import activities, we are subject
to
pertinent laws enforced by the U.S. Departments of Commerce, State and
Treasury. In addition, our logistics activities must comply with the
rules and
regulations of the Department of Transportation, the Federal Aviation
Administration and similar foreign agencies. While we believe we are
in
compliance in all material respects with such laws and regulations, any
noncompliance could result in substantial fines or otherwise restrict
our
ability to provide competitive distribution services and thereby have
an adverse
effect on our financial condition. To date, none has had a material impact
on
our operations.
Number
of Employees
As
of
December 31,
2006,
we had approximately 30,500 employees.
Financial
Information About Geographic Areas
Financial
information about geographic areas is summarized in Note 3 to our Consolidated
Financial Statements,
which
begin on page F-1 of this report.
Available
Information
The
company files annual,
quarterly and current reports, proxy statements and other documents with
the
Securities and Exchange Commission (SEC) under the Exchange Act. The
public may
read and copy any materials that we file with the SEC at the SEC’s Public
Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. The public
may
obtain information on the operation of the Public Reference Room by calling
the
SEC at 1-800-SEC-0330.
Also,
the
SEC maintains a website that contains reports, proxy and information
statements
and other information that issuers, including the company, file electronically
with the SEC. The public can obtain any documents that we file with the
SEC at
www.sec.gov. We also make available free of charge on or through our
own website
at www.thermofisher.com our Annual Report on Form 10-K, Quarterly Reports
on
Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments
to those
reports filed or furnished pursuant to Section 13(a) of the Exchange
Act as soon
as reasonably practicable after we electronically file such material
with, or
furnish it to, the SEC. In addition, paper copies of these documents
may be
obtained free of charge by writing to the company care of its Investor
Relations
Department at our principal executive office located at 81 Wyman Street,
Waltham, Massachusetts 02451.
Executive
Officers of the Registrant
|
Name
|
Age
|
Present
Title (Fiscal Year First Became Executive Officer)
|
||||
|
Marijn
E. Dekkers
|
49
|
President
and Chief Executive Officer (2000)
|
||||
|
Marc
N. Casper
|
38
|
Executive
Vice President (2001)
|
||||
|
Guy
Broadbent
|
43
|
Senior
Vice President (2001)
|
||||
|
Seth
H. Hoogasian
|
52
|
Senior
Vice President, General Counsel and Secretary (2001)
|
||||
|
Alan
J. Malus
|
47
|
Senior
Vice President (2006)
|
||||
|
Joseph
R. Massaro
|
37
|
Senior
Vice President, Global Business Services (2006)
|
||||
|
Stephen
G. Sheehan
|
51
|
Senior
Vice President, Human Resources (2003)
|
||||
|
Fredric
T. Walder
|
49
|
Senior
Vice President, Commercial Excellence (2006)
|
||||
|
Peter
M. Wilver
|
47
|
Senior
Vice President and Chief Financial Officer (2003)
|
||||
|
Peter
E. Hornstra
|
47
|
Vice
President and Chief Accounting Officer (2001)
|
Mr.
Dekkers was appointed Chief Executive Officer in November 2002 and President
in
July 2000. He was Chief Operating Officer from July 2000 to November
2002.
Mr.
Casper was appointed Executive Vice President in November 2006. He was
Senior
Vice President from December 2003 to November 2006. He was President,
Life and
Laboratory Sciences from December 2001 to March 2005. He was Vice President
of
Thermo from December 2001 to December 2003. From July 2000 to July 2001,
Mr.
Casper was president and chief executive officer of Kendro Laboratory
Products,
a life sciences company that provides sample-preparation and processing
equipment and that was acquired by the company in May 2005.
Mr.
Broadbent was appointed Senior Vice President in November 2006. He was
President, Laboratory Equipment from November 2004 to November 2006,
and Vice
President of Thermo from January 2001 to November 2004. He was President,
Spectra-Physics Division from December 2003 to July 2004 and was President,
Optical Technologies from October 2000 to December 2003.
Mr.
Hoogasian was appointed Senior Vice President in November 2006, Secretary
in
2001 and General Counsel in 1992. He was Vice President from 1996 to
November
2006.
Mr.
Malus was appointed Senior Vice President in November 2006. Prior to
Thermo’s
merger with Fisher, Mr. Malus was group president of distribution and
services
for Fisher, where he focused on growing the company’s customer channel
businesses serving research, healthcare, education and safety markets.
Mr. Malus
joined Fisher in 1998 and has served in a variety of management
roles.
Mr.
Massaro was appointed Senior Vice President, Global Business Services
in
November 2006. Prior to Thermo’s merger with Fisher, Mr. Massaro was vice
president finance and accounting for Fisher and vice president finance
and
strategic planning for Fisher BioPharma Services. Mr. Massaro joined
Fisher in
June 2002 and has served in a variety of management roles. Prior
to
joining Fisher, Mr. Massaro was a director with the Boston office of
PricewaterhouseCoopers.
Mr.
Sheehan was appointed Senior Vice President,
Human
Resources in November 2006. He was Vice President, Human Resources from
August
2001 to November 2006.
Mr.
Walder was appointed Senior Vice President, Commercial Excellence in
November
2006. He was President, Environmental Instruments from April to November
2006,
and President, Scientific Instruments from December 2002 to April 2006.
Mr.
Walder joined Thermo in 1992 and has served in a variety of management
roles.
Mr.
Wilver was appointed Senior Vice President in November 2006 and Chief
Financial
Officer in October 2004. He was Vice President from October 2004 to November
2006, and Vice President, Financial Operations from October 2000 to October
2004.
Mr.
Hornstra was appointed Vice President in February 2007 and Chief Accounting
Officer in January 2001. He was Corporate Controller from January 1996
to
February 2007.
Item
1A. Risk Factors
Set
forth
below are the risks that we believe are material to our investors. This
section
contains forward-looking statements. You should refer to the explanation
of the
qualifications and limitations on forward-looking statements beginning
on page
3.
We
must develop new products, adapt to rapid and significant technological
change
and respond to introductions of new products in order to remain competitive.
Our
growth strategy includes significant investment in and expenditures for
product
development. We sell our products in several industries that are characterized
by rapid and significant technological changes, frequent new product
and service
introductions and enhancements and evolving industry standards. Without
the
timely introduction of new products, services and enhancements, our products
and
services will likely become technologically obsolete over time, in which
case
our revenue and operating results would suffer.
Development
of our products requires significant investment; our products and technologies
could become uncompetitive or obsolete.
Our
customers use many of our products to develop, test and manufacture their
own
products. As a result, we must anticipate industry trends and develop
products
in advance of the commercialization of our customers’ products. If we fail to
adequately predict our customers’ needs and future activities, we may invest
heavily in research and development of products and services that do
not lead to
significant revenue.
Many
of
our existing products and those under development are technologically
innovative
and require significant planning, design, development and testing at
the
technological, product and manufacturing-process levels. These activities
require us to make significant investments.
Products
in our markets undergo rapid and significant technological change because
of
quickly changing industry standards and the introduction of new products
and
technologies that make existing products and technologies uncompetitive
or
obsolete. Our competitors may adapt more quickly to new technologies
and changes
in
customers’
requirements than we can. The products that we are currently
developing,
or
those we will develop in the future, may not be technologically feasible
or
accepted by the marketplace, and our products or technologies could become
uncompetitive or obsolete.
It
may be difficult for us to implement our strategies for improving internal
growth. Some
of
the markets in which we compete have been flat or declining over the
past
several years. To address this issue, we are pursuing a number of strategies
to
improve our internal growth, including:
| · |
finding
new markets for our products;
|
| · |
developing
new applications for our technologies;
|
| · |
combining
sales and marketing operations in appropriate markets to compete
more
effectively;
|
| · |
allocating
research and development funding to products with higher growth
prospects;
|
| · |
continuing
key customer initiatives;
|
| · |
expanding
our service offerings;
|
| · |
strengthening
our presence in selected geographic markets; and
|
| · |
continuing
the development of commercial tools and infrastructure to increase
and
support cross-selling opportunities of products and services
to take
advantage of our breadth in product
offerings.
|
We
may
not be able to successfully implement these strategies, and these strategies
may
not result in the growth of our business.
The
company may be unable to integrate successfully the legacy businesses
of Thermo
Electron Corporation and Fisher Scientific International Inc. and may
be unable
to realize the anticipated benefits of the merger.
The
merger involved the combination of two companies which previously operated
as
independent public companies. The company is required to devote significant
management attention and resources to integrating its business practices
and
operations. Potential difficulties the company may encounter in the integration
process include the following:
| · |
if
we are unable to successfully combine the businesses of Thermo
and Fisher
in a manner that permits the company to achieve the cost savings
and
operating synergies anticipated to result from the merger,
such
anticipated benefits of the merger may not be realized fully
or at all or
may take longer to realize than
expected;
|
| · |
lost
sales and customers as a result of certain customers of either
of the two
former companies deciding not to do business with the
company;
|
| · |
complexities
associated with managing the combined
businesses;
|
| · |
integrating
personnel from diverse corporate cultures while maintaining
focus on
providing consistent, high quality products and customer
service;
|
| · |
potential
unknown liabilities and unforeseen increased expenses or delays
associated
with the merger;
|
| · |
performance
shortfalls at the company as a result of the diversion of management’s
attention to the merger; and
|
| · |
inability
to successfully execute a branding campaign for the combined
company.
|
In
addition, it is possible that the integration process could result in
the loss
of key employees, the disruption or interruption of, or the loss of momentum
in,
the company’s ongoing businesses or inconsistencies in standards, controls,
procedures and policies, any of which could adversely affect our ability
to
maintain relationships with customers and employees or our ability to
achieve
the anticipated benefits of the merger, or could reduce our earnings
or
otherwise adversely affect the business and financial results of the
company.
Our
inability to protect our intellectual property could have a material
adverse
effect on our business. In
addition, third parties may claim that we infringe their intellectual
property,
and we could suffer significant litigation or licensing expense as a
result.
We place
considerable emphasis on obtaining patent and trade secret protection
for
significant new technologies, products and processes because of the length
of
time and expense associated with bringing new products through the development
process and into the marketplace. Our success depends in part on our
ability to
develop patentable products and obtain and enforce patent protection
for our
products both in the United States and in other countries. We own numerous
U.S.
and foreign patents, and we intend to file additional applications, as
appropriate, for patents covering our products. Patents may not be issued
for
any pending or future patent applications owned by or licensed to us,
and the
claims allowed under any issued patents may not be sufficiently broad
to protect
our technology. Any issued patents owned by or licensed to us may be
challenged,
invalidated or circumvented, and the rights under these patents may not
provide
us with competitive advantages. In addition, competitors may design around
our
technology or develop competing technologies. Intellectual property rights
may
also be unavailable or limited in some foreign countries, which could
make it
easier for competitors to capture increased market position. We could
incur
substantial costs to defend ourselves in suits brought against us or
in suits in
which we may assert our patent rights against others. An unfavorable
outcome of
any such litigation could materially adversely affect our business and
results
of operations.
We
also
rely on trade secrets and proprietary know-how with which we seek to
protect our
products, in part, by confidentiality agreements with our collaborators,
employees and consultants. These agreements may be breached and we may
not have
adequate remedies for any breach. In addition, our trade secrets may
otherwise
become known or be independently developed by our competitors.
Third
parties may assert claims against us to the effect that we are infringing
on
their intellectual property rights. For example, in September 2004 Applied
Biosystems/MDS Scientific Instruments and related parties brought a lawsuit
against us alleging our mass spectrometer systems infringe a patent held
by the
plaintiffs. We could incur substantial costs and diversion of management
resources in defending these claims, which could have a material adverse
effect
on our business, financial condition and results of operations. In addition,
parties making these claims could secure a judgment awarding substantial
damages, as well as injunctive or other equitable relief, which could
effectively block our ability to make, use, sell, distribute, or market
our
products and services in the United States or abroad. In the event that
a claim
relating to intellectual property is asserted against us, or third parties
not
affiliated with us hold pending or issued patents that relate to our
products or
technology, we may seek licenses to such intellectual property or challenge
those patents. However, we may be unable to obtain these licenses on
commercially reasonable terms, if at all, and our challenge of the patents
may
be unsuccessful. Our failure to obtain the necessary licenses or other
rights
could prevent the sale, manufacture, or distribution of our products
and,
therefore, could have a material adverse effect on our business, financial
condition and results of operations.
Demand
for most of our products depends on capital spending policies of our
customers
and on government funding policies. Our
customers include pharmaceutical and chemical companies, laboratories,
universities, healthcare providers, government agencies and public and
private
research institutions. Many factors, including public policy spending
priorities, available resources and product and economic cycles, have
a
significant effect on the capital spending policies of these entities.
These
policies in turn can have a significant effect on the demand for our
products.
Our
results could be impacted if we are unable to realize potential future
benefits
from new productivity initiatives. We
continue to pursue practical process improvement (PPI) programs and other
cost
saving initiatives at our locations which are designed to further enhance
our
productivity, efficiency and customer satisfaction. While we anticipate
continued benefits from these initiatives, future benefits are expected
to be
fewer and smaller in size and may be more difficult to achieve.
Our
business is impacted by general economic conditions and related uncertainties
affecting markets in which we operate. Adverse economic conditions could
adversely impact our business in 2007 and beyond, resulting
in:
· reduced
demand for some of our products;
· increased
rate of order cancellations or delays;
· increased
risk of excess and obsolete inventories;
· increased
pressure on the prices for our products and services; and
· greater
difficulty in collecting accounts receivable.
Changes
in governmental regulations may reduce demand for our products or increase
our
expenses.
We
compete in many markets in which we and our customers must comply with
federal,
state, local and international regulations, such as environmental, health
and
safety, and food and drug regulations. We develop, configure and market
our
products to meet customer needs created by those regulations. Any significant
change in regulations could reduce demand for our products or increase
our
expenses. For example, many of our instruments are marketed to the
pharmaceutical industry for use in discovering and developing drugs.
Changes in
the U.S. Food and Drug Administration’s regulation of the drug discovery and
development process could have an adverse effect on the demand for these
products.
If
any of our security products fail to detect explosives or radiation,
we could be
exposed to product liability and related claims for which we may not
have
adequate insurance coverage. The
products sold by our environmental instruments business include a comprehensive
range of fixed and portable instruments used for chemical, radiation
and trace
explosives detection. These products are used in airports, embassies,
cargo
facilities, border crossings and other high-threat facilities for the
detection
and prevention of terrorist acts. If any of these products were to malfunction,
it is possible that explosive or radioactive material could pass through
the
product undetected, which could lead to product liability claims. There
are also
many other factors beyond our control that could lead to liability claims,
such
as the reliability and competence of the customers’ operators and the training
of such operators. Any such product liability claims brought against
us could be
significant and any adverse determination may result in liabilities in
excess of
our insurance coverage. Although we carry product liability insurance,
we cannot
be certain that our current insurance will be sufficient to cover these
claims
or that it can be maintained on acceptable terms, if at all.
Our
inability to successfully identify and complete acquisitions or successfully
integrate any new or previous acquisitions could have a material adverse
effect
on our business.
Our
business strategy includes the acquisition of technologies and businesses
that
complement or augment our existing products and services. Promising acquisitions
are difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory, including
antitrust, approvals. We may not be able to identify and successfully
complete
transactions. Any acquisition we may complete may be made at a substantial
premium over the fair value of the net assets of the acquired company.
Further,
we may not be able to integrate any acquired businesses successfully
into our
existing businesses, make such businesses profitable, or realize anticipated
cost savings or synergies, if any, from these acquisitions, which could
adversely affect our business.
Moreover,
we have acquired many companies and businesses. As a result of these
acquisitions, we recorded significant goodwill on our balance sheet,
which
amounts to approximately $8.5 billion as of December 31, 2006. We assess
the
realizability of the goodwill we have on our books annually as well as
whenever
events or changes in circumstances indicate that the goodwill may be
impaired.
These events or circumstances generally include operating losses or a
significant decline in earnings associated with the acquired business
or asset.
Our ability to realize the value of the goodwill will depend on the future
cash
flows of these businesses. These cash flows in turn depend in part on
how well
we have integrated these businesses. If we are not able to realize the
value of
the goodwill, we may be required to incur material charges relating to
the
impairment of those assets.
Our
growth strategy to acquire new businesses may not be successful and the
integration of future acquisitions may be difficult and disruptive to
our
ongoing operations.
We
have retained contingent liabilities from businesses that we have sold.
From
1997
through 2004, we divested over 60 businesses with aggregate annual revenues
in
excess of $2 billion. As part of these transactions, we retained responsibility
for some of the contingent liabilities related to these businesses, such
as
lawsuits, product liability and environmental claims and potential claims
by
buyers that representations and warranties we made about the businesses
were
inaccurate. The resolution of these contingencies has not had a material
adverse
effect on our results of operations or financial condition; however,
we can not
be certain that this favorable pattern will continue.
As
a
multinational corporation, we are exposed to fluctuations in currency
exchange
rates, which could adversely affect our cash flows and results of
operations.
International revenues account for a substantial portion of our revenues,
and we
intend to continue expanding our presence in international markets. In
2006, our
international revenues from continuing operations, including export revenues
from the United States, accounted for approximately 46% of our total
revenues.
The exposure to fluctuations in currency exchange rates takes on different
forms. International revenues are subject to the risk that fluctuations
in
exchange rates could adversely affect product demand and the profitability
in
U.S. dollars of products and services provided by us in international
markets,
where payment for our products and services is made in the local currency.
As a
multinational corporation, our businesses occasionally invoice third-party
customers in currencies other than the one in which they primarily do
business
(the “functional currency”). Movements in the invoiced currency relative to the
functional currency could adversely impact our cash flows and our results
of
operations. In addition, reported sales made in non-U.S. currencies by
our
international businesses, when translated into U.S. dollars for financial
reporting purposes, fluctuate due to exchange rate movement. Should our
international sales grow, exposure to fluctuations in currency exchange
rates
could have a larger effect on our financial results. In 2006, currency
translation had a favorable effect on revenues of our continuing operations
of
$18 million due to a weakening of the U.S. dollar relative to other currencies
in which the company sells products and services.
We
are subject to laws and regulations governing government contracts, and
failure
to address these laws and regulations or comply with government contracts
could
harm our business by leading to a reduction in revenue associated with
these
customers. We
have
agreements relating to the sale of our products to government entities
and, as a
result, we are subject to various statutes and regulations that apply
to
companies doing business with the government. The laws governing government
contracts differ from the laws governing private contracts and government
contracts may contain pricing terms and conditions that are not applicable
to
private contracts. We are also subject to investigation for compliance
with the
regulations governing government contracts. A failure to comply with
these
regulations could result in suspension of these contracts, criminal,
civil and
administrative penalties or debarment.
Because
we compete directly with certain of our largest customers and product
suppliers,
our results of operations could be adversely affected in the short term
if these
customers or suppliers abruptly discontinue or significantly modify their
relationship with us.
Our
largest customer in
the
laboratory consumables business and our largest customer in the diagnostics
business are also significant competitors. Our business may be harmed
in the
short term if our competitive relationship in the marketplace with these
customers results in a discontinuation of their purchases from us. In
addition,
we manufacture products that compete directly with products that we source
from
third-party suppliers. We also source competitive products from multiple
suppliers. Our business could be adversely affected in the short term
if any of
our large third-party suppliers abruptly discontinues selling products
to
us.
Because
we rely heavily on third-party package-delivery services, a significant
disruption in these services or significant increases in prices may disrupt
our
ability to ship products, increase our costs and lower our
profitability.
We
ship a
significant portion of our products to our customers through independent
package
delivery companies, such as UPS and Federal Express in the U.S. and DHL
in
Europe. We also maintain a small fleet of vehicles dedicated to the delivery
of
our products and ship our products through other carriers, including
national
and regional trucking firms, overnight carrier services and the U.S.
Postal
Service. If UPS or another third-party package-delivery provider experiences
a
major work stoppage, preventing our products from being delivered in
a timely
fashion or causing us to incur additional shipping costs we could not
pass on to
our customers, our costs could increase and our relationships with certain
of
our customers could be adversely affected. In addition, if UPS or our
other
third-party package-delivery providers increase prices, and we are not
able to
find comparable alternatives or make adjustments in our delivery network,
our
profitability could be adversely affected.
We
are subject to regulation by various federal, state and foreign agencies
that
require us to comply with a wide variety of regulations, including those
regarding the manufacture of products, the shipping of our products and
environmental matters.
Some
of
our operations are subject to regulation by the U.S. Food and Drug
Administration and similar international agencies. These regulations
govern a
wide variety of product activities, from design and development to labeling,
manufacturing, promotion, sales and distribution. If we fail to comply
with the
U.S. Food and Drug Administration’s regulations or those of similar
international agencies, we may have to recall products and cease their
manufacture and distribution, which would increase our costs and reduce
our
revenues.
We
are
subject to federal, state, local and international laws and regulations
that
govern the handling, transportation, manufacture, use or sale of substances
that
are or could be classified as toxic or hazardous substances. Some risk
of
environmental damage is inherent in our operations and the products we
manufacture, sell or distribute. This requires us to devote significant
resources to maintain compliance with applicable environmental laws and
regulations, including the establishment of reserves to address potential
environmental costs, and manage environmental risks.
We
rely heavily on manufacturing operations to produce the products we sell,
and
our business could be adversely affected by disruptions of our manufacturing
operations.
We
rely
upon our manufacturing operations to produce many of the products we
sell. Any
significant disruption of those operations for any reason, such as strikes
or
other labor unrest, power interruptions, fire, earthquakes, or other
events
beyond our control could adversely affect our sales and customer relationships
and therefore adversely affect our business. Although most of our raw
materials
are available from a number of potential suppliers, our operations also
depend
upon our ability to obtain raw materials at reasonable prices. If we
are unable
to obtain the materials we need at a reasonable price, we may not be
able to
produce certain of our products or we may not be able to produce certain
of
these products at a marketable price, which could have an adverse effect
on our
results of operations.
We
may be unable to adjust to rapid changes in the healthcare industry,
some of
which could adversely affect our business.
The
healthcare industry has undergone significant changes in an effort to
reduce
costs. These changes include:
•
development of large and sophisticated groups purchasing medical and
surgical
supplies;
•
wider
implementation of managed care;
•
legislative healthcare reform;
•
consolidation of pharmaceutical companies;
•
increased outsourcing of certain activities, including to low-cost offshore
locations; and
•
consolidation of distributors of pharmaceutical, medical and surgical
supplies.
We
expect
the healthcare industry to continue to change significantly in the future.
Some
of these potential changes, such as a reduction in governmental support
of
healthcare services or adverse changes in legislation or regulations
governing
the delivery or pricing of healthcare services or mandated benefits,
may cause
healthcare-industry participants to purchase fewer of our products and
services
or to reduce the prices they are willing to pay for our products or
services.
We
may incur unexpected costs from increases in fuel and raw material prices,
which
could reduce our earnings and cash flow.
Our
primary commodity exposures are for fuel, petroleum-based resins, steel
and
serum. While we may seek to minimize the impact of price increases through
higher prices to customers and various cost-saving measures, our earnings
and
cash flows could be adversely affected in the event these measures are
insufficient to cover our costs.
Unforeseen
problems with the implementation and maintenance of our information systems
could interfere with our operations. As
a part
of the effort to upgrade our current information systems, we are implementing
new enterprise resource planning software and other software applications
to
manage certain of our business operations. As we implement and add
functionality, problems could arise that we have not foreseen. Such problems
could adversely impact our ability to do the following in a timely manner:
provide quotes, take customer orders, ship products, provide services
and
support to our customers, bill and track our customers, fulfill contractual
obligations and otherwise run our business. In addition, if our new systems
fail
to provide accurate and increased visibility into pricing and cost structures,
it may be difficult to improve or maximize our profit margins. As a result,
our
results of operations and cash flows could be adversely affected.
Our
debt may adversely affect our cash flow and may restrict our investment
opportunities or limit our activities.
As
of
December 31, 2006, we had approximately $2.7 billion in outstanding
indebtedness. In addition, we had the ability to incur an additional
$635
million of indebtedness under our revolving credit facility. We may also
obtain
additional long-term debt and lines of credit to meet future financing
needs,
which would have the effect of increasing our total leverage.
Our
leverage could have negative consequences, including increasing our
vulnerability to adverse economic and industry conditions, limiting our
ability
to obtain additional financing and limiting our ability to acquire new
products
and technologies through strategic acquisitions.
Our
ability to satisfy our obligations depends on our future operating performance
and on economic, financial, competitive and other factors beyond our
control.
Our business may not generate sufficient cash flow to meet these obligations.
If
we are unable to service our debt or obtain additional financing, we
may be
forced to delay strategic acquisitions, capital expenditures or research
and
development expenditures. We may not be able to obtain additional financing
on
terms acceptable to us or at all.
Additionally,
the agreements governing our debt require that we maintain certain financial
ratios, and contain affirmative and negative covenants that restrict
our
activities by, among other limitations, limiting our ability to incur
additional
indebtedness, make investments, create liens, sell assets and enter into
transactions with affiliates. The covenants in our revolving credit facility
include a debt-to-EBITDA ratio. Specifically, the company has agreed
that, so
long as any lender has any commitment under the facility, or any loan
or other
obligation is outstanding under the facility, or any letter of credit
is
outstanding under the new facility, it will not permit (as the following
terms
are defined in the new facility) the Consolidated Leverage Ratio (the
ratio of
consolidated indebtedness to consolidated EBITDA) as at the last day
of any
fiscal quarter to be greater than 3.0 to 1.0.
Our
ability to comply with these financial restrictions and covenants is
dependent
on our future performance, which is subject to prevailing economic conditions
and other factors, including factors that are beyond our control such
as foreign
exchange rates and interest rates. Our failure to comply with any of
these
restrictions or covenants may result in an event of default under the
applicable
debt instrument, which could permit acceleration of the debt under that
instrument and require us to prepay that debt before its scheduled due
date.
Also, an acceleration of the debt under one of our debt instruments would
trigger an event of default under other of our debt instruments.
Item
1B. Unresolved
Staff Comments
Not
applicable.
|
Item
2.
|
The
location and general character of our principal properties by segment
as of
December 31,
2006,
are as follows:
Analytical
Technologies
We
own
approximately 3,040,000
square feet of office, engineering, laboratory and production space,
principally
in Wisconsin, California and Virginia within the U.S., and in Germany
and
England. We lease approximately 3,630,000 square feet of office, engineering,
laboratory and production space, principally in Massachusetts, Michigan,
Texas,
Kansas, California and Pennsylvania within the U.S., and in Australia,
England,
China and Germany, under various leases that expire between 2007 and
2050.
Laboratory
Products and Services
We
own
approximately 7,650,000
square feet of office, engineering, laboratory and production space,
principally
in Wisconsin, Pennsylvania, New York, New Jersey and Illinois within
the U.S.,
and in Switzerland and Germany. We lease approximately 4,810,000 square
feet of
office, engineering, laboratory and production space, principally in
Illinois,
Maryland, California and Pennsylvania within the U.S. and in Finland,
under
various leases that expire between 2007 and 2019.
Corporate
Headquarters
We
own
approximately 81,000
square feet of office space in Massachusetts. We also own approximately
100,000
square feet of office space in New Hampshire which was the former corporate
headquarters of Fisher.
We
believe that all of the facilities that we are currently utilizing are
in good
condition and are suitable and adequate to meet our current needs. If
we are
unable to renew any of the leases that are due to expire in 2007 or 2008,
we
believe that suitable replacement properties are available on commercially
reasonable terms.
|
Item
3.
|
Legal
Proceedings
|
On
September 3, 2004, Applera Corporation, MDS Inc. and Applied Biosystems/MDS
Scientific Instruments filed a complaint against the company in U.S.
District
Court for the District of Delaware, Civil Action No. 04-1230-GMS. These
plaintiffs allege that the company’s mass spectrometer systems, including its
triple quadrupole and certain of its ion trap systems, infringe U.S.
patent
number 4,963,736 entitled “Mass Spectrometer and Method and Improved Ion
Transmission.” The plaintiffs seek damages, including treble damages for alleged
willful infringement, attorneys’ fees, prejudgment interest and injunctive
relief. An unfavorable outcome could have a material adverse impact on
the
company’s financial position, results of operations and cash flows.
On
December 8, 2004 and February 23, 2005, the company asserted in two lawsuits
in
the same Delaware court, that one or more of the plaintiffs in the above
action
infringe two patents of the company (U.S.
patent number 5,385,654 entitled “Controlled Temperature Anion Separation by
Capillary Electrophoresis” and U.S. patent number 6,528,784 entitled “Mass
Spectrometer System Including a Double Ion Guide Interface and Method
of
Operation”).
The
lawsuits brought by the company seek relief similar to that being sought
by the
plaintiffs.
Our
business involves a risk of product liability and other claims in the
ordinary
course of business. We are a party to various lawsuits and legal proceedings,
including consolidated multi-party product liability actions for products
we may
have distributed or manufactured. These matters have arisen in the ordinary
course and conduct of our business, as well as through acquisitions.
We believe
that some of the costs incurred in defending and ultimately disposing
of many of
these claims for personal injury and other matters may be covered in
part by
insurance policies maintained by certain insurance carriers or subject
to
indemnification by our suppliers or purchasers. Management, after review
and
consideration with counsel, considers that any ultimate liability with
respect
to these matters should not have a material adverse effect on our results
of
operations, financial position or cash flows. While liabilities arising
from
potential future claims could become material, we currently believe,
on the
basis of our claims history and related factors, that such potential
future
claims are not likely to have a material impact on our business, financial
condition and results of operations. Actual costs incurred will depend
on the
solvency of our insurance carriers, the degree of coverage with respect
to any
particular claim, our success in litigating these claims and the solvency
of
third parties who may be jointly and severally liable. See “Item 1 —
Business — Environmental Matters,” for legal proceedings involving certain
environmental matters.
We
are
subject to the jurisdiction of various regulatory agencies including,
among
others, the U.S. Food and Drug Administration and the Agency for
International Development. Various governmental agencies conduct investigations
from time to time to examine matters relating to our operations. Some
operations
involve and have involved the handling, manufacture, use or sale of substances
that are classified as toxic or hazardous substances within the meaning
of
applicable environmental laws. Consequently, some risk of environmental
and
other damage is inherent in particular operations and products as it
is with
other companies engaged in similar businesses, and we cannot assure that
material damage will not occur or be discovered or that the damage will
not be
determined to be material in the future.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
No
matters were submitted to a vote of security holders, whether through
the
solicitation of proxies or otherwise, during our 2006 fourth fiscal
quarter.
PART
II
|
Item
5.
|
Market
for the Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity
Securities
|
Market
Price of Common Stock
Our
common stock is traded on the New York Stock Exchange under the symbol
TMO. The
following table sets forth the high and low sale prices of the
company’s
common
stock for 2006 and 2005, as reported in the consolidated transaction
reporting
system.
|
2006
|
2005
|
||||||||||||
|
|
High
|
Low
|
High
|
Low
|
|||||||||
|
First
Quarter
|
$
|
37.12
|
$
|
30.28
|
$
|
29.99
|
$
|
24.89
|
|||||
|
Second
Quarter
|
39.45
|
34.00
|
27.20
|
24.24
|
|||||||||
|
Third
Quarter
|
40.21
|
34.59
|
30.90
|
26.70
|
|||||||||
|
Fourth
Quarter
|
46.16
|
38.93
|
31.78
|
29.53
|
|||||||||
Holders
of Common Stock
As
of
February 2,
2007,
the company had 8,535 holders of record of its common stock. This does
not
include holdings in street or nominee names.
Dividend
Policy
The
company has never paid cash dividends and does not expect to pay cash
dividends
in the foreseeable future. Payment of dividends is
at the
discretion of the company’s Board of Directors and will depend upon, among other
factors, the company’s earnings, capital requirements and financial
condition.
Issuer
Purchases of Equity Securities
A
summary
of the share repurchase activity for the company’s fourth quarter of 2006
follows:
|
Period
|
Total
Number
of
Shares
Purchased
|
Average
Price
Paid
per Share
|
Total
Number
of
Shares
Purchased
as
Part of
Publicly
Announced
Plans
or
Programs
(1)
|
Maximum
Dollar
Amount
of
Shares That
May
Yet Be
Purchased
Under
the
Plans
or
Programs
(1)
|
|||||||||||||||
|
October
1 - October 28
|
—
|
$
|
—
|
—
|
$
|
72,000,000
|
|||||||||||||
|
October
29 - November 25
|
—
|
$
|
—
|
—
|
$
|
72,000,000
|
|||||||||||||
|
November
26 - December 31
|
1,630,366
|
$
|
44.16
|
1,630,366
|
$
|
—
|
|||||||||||||
|
Total
Fourth Quarter
|
1,630,366
|
$
|
44.16
|
1,630,366
|
$
|
—
|
|||||||||||||
|
(1)
|
On
February 28,
2006, the company announced a repurchase program authorizing
the purchase
of up to $100 million of the company’s common stock in the open market or
in negotiated transactions. On May 7, 2006, the company increased
the
existing authorization for the purchase of up to an additional
$200
million of the company’s common stock in the open market or in negotiated
transactions. All of the shares of common stock repurchased
by the company
during the fourth quarter of 2006 were purchased under this
program. At
December 31, 2006, no remaining authorization existed for future
repurchases. In February 2007, the company’s Board of Directors authorized
the repurchase of up to $300 million of the company’s common stock through
February 28, 2008.
|
|
Item
6.
|
Selected
Financial
Data
|
|
2006
(a)
|
2005
(b)
|
|
2004
(c)
|
|
2003
(d)
|
|
2002
(e)
|
|
|||||||||
|
(In millions except per share amounts)
|
|||||||||||||||||
|
Statement
of Operations Data
|
|||||||||||||||||
|
Revenues
|
$
|
3,791.6
|
$
|
2,633.0
|
$
|
2,206.0
|
$
|
1,899.4
|
$
|
1,849.4
|
|||||||
|
Operating
Income
|
242.0
|
263.5
|
237.5
|
187.4
|
169.9
|
||||||||||||
|
Income from Continuing Operations
|
166.3
|
198.3
|
218.4
|
175.2
|
203.4
|
||||||||||||
|
Net
Income (Loss)
|
168.9
|
223.2
|
361.8
|
200.0
|
309.7
|
||||||||||||
|
Earnings per Share from Continuing Operations:
|
|||||||||||||||||
|
Basic
|
.85
|
1.23
|
1.34
|
1.08
|
1.21
|
||||||||||||
|
Diluted
|
.82
|
1.21
|
1.31
|
1.05
|
1.17
|
||||||||||||
|
Earnings
(Loss) per Share:
|
|||||||||||||||||
|
Basic
|
.86
|
1.38
|
2.22
|
1.23
|
1.84
|
||||||||||||
|
Diluted
|
.84
|
1.36
|
2.17
|
1.20
|
1.73
|
||||||||||||
|
Balance
Sheet Data
|
|||||||||||||||||
|
Working
Capital
|
$
|
1,507.2
|
$
|
562.2
|
$
|
890.9
|
$
|
710.5
|
$
|
667.8
|
|||||||
|
Total
Assets
|
21,262.2
|
4,251.6
|
3,576.7
|
3,389.3
|
3,651.5
|
||||||||||||
|
Long-term
Obligations
|
2,180.7
|
468.6
|
226.1
|
229.5
|
451.3
|
||||||||||||
|
Shareholders’
Equity
|
13,911.8
|
2,793.3
|
2,665.6
|
2,381.7
|
2,030.3
|
||||||||||||
Through
2002,
the
company had a fiscal year end ending the Saturday nearest December 31.
In 2003,
the company changed its year end to December 31. The results of Spectra-Physics
have been reclassified to discontinued operations for all years presented.
The
caption “restructuring and other costs” in the notes below include amounts
charged to cost of revenues, primarily for the sale of inventories revalued
at
the date of acquisition.
|
(a)
|
Reflects
completion of the merger with Fisher on November 9, 2006, including
issuance of common stock. Also reflects a $123.3 million pre-tax
charge
for restructuring and other costs; a charge of $36.7 million
for
acceleration of vesting of equity-based compensation as a result
of the
Fisher merger; and after-tax income of $2.6 million related
to the
company’s discontinued operations.
|
|
(b)
|
Reflects
a $30.3 million pre-tax charge for restructuring and other
costs; $27.6
million of pre-tax net gains from the sale of shares of Thoratec
Corporation and Newport Corporation; and after-tax income of
$24.9 million
related to the company’s discontinued operations. Also reflects use of
cash and debt for acquisitions, principally
Kendro.
|
|
(c)
|
Reflects
a $19.2 million pre-tax charge for restructuring and other
costs; $9.6
million of pre-tax gains from the sale of shares of Thoratec;
$33.8
million of tax benefits recorded on completion of tax audits;
after-tax
income of $143.5 million related to the company’s discontinued operations;
and the repurchase of $231.5 million of the company’s common
stock.
|
|
(d)
|
Reflects
a $45.3 million pre-tax charge for restructuring and other
costs; $16.3
million of pre-tax gains from the sale of shares of Thoratec;
$13.7
million of pre-tax gains from the sale of shares of FLIR
Systems,
Inc.; after-tax income of $24.8 million related to the company’s
discontinued operations; and the repurchase and redemption
of $356.9
million of the company’s debt and equity
securities.
|
|
(e)
|
Reflects
a $46.2 million pre-tax charge for restructuring and other
costs; $111.4
million of pre-tax gains from the sale of shares of FLIR; after-tax
income
of $106.3 million related to the company’s discontinued operations; the
repurchase and redemption of $924.9 million of the company’s debt and
equity securities; and the reclassification of the company’s $71.9 million
principal amount 4 3/8% subordinated convertible debentures
from long-term
obligations to current liabilities as a result of the company’s decision
to redeem them in April 2003. Also reflects the adoption of
SFAS No. 142,
under which amortization of goodwill
ceased.
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results
of Operations
|
Reference
is made throughout this Management’s
Discussion and Analysis of Financial Condition and Results of Operations
to
Notes to Consolidated Financial Statements, which begin on page F-1 of
this
report.
Thermo
Electron Corporation and Fisher Scientific International Inc. announced
on May
8, 2006 that the boards of directors of both companies had unanimously
approved
a definitive agreement to combine the two companies in a tax-free,
stock-for-stock exchange. The Fisher businesses are a leading provider of
products and services to the scientific research community and clinical
laboratories. The Fisher businesses provide a suite of products and services
to
customers worldwide from biochemicals, cell-culture media and proprietary
RNAi
technology to rapid-diagnostic tests, safety products and other consumable
supplies. Fisher had revenues of $5.4 billion in 2005. The transaction
was
approved by both companies’ shareholders, in separate meetings, held on August
30, 2006 and, following regulatory approvals, was completed on November
9, 2006.
Fisher’s results are included in the accompanying financial statements from
November 9, 2006. Following the merger, the company was renamed Thermo
Fisher
Scientific Inc.
Overview
of Results of Operations and Liquidity
The
company develops,
manufactures and sells a broad range of products that are sold worldwide.
The
company expands the product lines and services it offers by developing
and
commercializing its own core technologies and by making strategic acquisitions
of complementary businesses. In 2004, the company sold Spectra-Physics,
its
optical technologies segment which has been presented as discontinued
operations
in the accompanying financial statements. Following the merger with Fisher,
the
company’s continuing operations fall into two principal business segments:
Analytical Technologies and Laboratory Products and Services. Revenues
in the
fourth quarter are historically stronger than in other quarters due to
capital
spending patterns of industrial, pharmaceutical and government
customers.
| Revenues |
2006
|
2005
|
||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||
|
Analytical
Technologies
|
$
|
2,425,821
|
64.0%
|
|
$
|
2,006,744
|
76.2%
|
|
||||||
|
Laboratory
Products and Services
|
1,406,637
|
37.1%
|
|
626,283
|
23.8
%
|
|
||||||||
|
Eliminations
|
(40,841
|
)
|
(1.1
)%
|
|
—
|
—
|
||||||||
|
$
|
3,791,617
|
100%
|
|
$
|
2,633,027
|
100%
|
|
|||||||
The
company’s revenues grew by 44% during 2006, including 32% from the Fisher
merger. The weakening of the dollar relative to non-U.S. currencies also
caused
an increase in reported revenues. In addition to the change in revenues
caused
by acquisitions, net of divestitures and currency translation, which
are
discussed below, sales increased 6% in 2006, primarily due to increased
demand
and, to a lesser extent, higher prices.
The
company’s strategy is to augment internal growth at existing businesses with
complementary acquisitions such as those completed in 2006 and 2005.
In addition
to the merger with Fisher, the principal acquisitions included Cohesive
Technologies Inc., a provider of advanced sample extraction and liquid
chromatography products in December 2006; GV Instruments Limited, a manufacturer
of isotope ratio mass spectrometers, which was acquired in July 2006;
EGS
Gauging, Inc., a provider of flat polymer web gauging products, which
was
acquired in June 2006; Ionalytics Corporation, a provider of an ion-filtering
device used with mass spectrometers, which was acquired in August 2005;
the
Kendro Laboratory Products division of SPX Corporation, a provider of
a wide
range of laboratory equipment for sample preparation, processing and
storage,
which was acquired in May 2005; Rupprecht and Patashnick Co., Inc. (R&P), a
provider of continuous particulate monitoring instrumentation for the
ambient
air, emissions monitoring and industrial hygiene markets, which was acquired
in
April 2005; and Niton LLC, a provider of portable X-ray analyzers to
the metals,
petrochemical and environmental markets, which was acquired in March
2005.
In
2006,
the company’s operating income and operating income margin were $242 million and
6.4%, respectively, compared with $263 million and 10.0%, respectively,
in 2005.
(Operating income margin is operating income divided by revenues.) The
decrease
in operating income and operating income margin was due to $125 million
of
pretax charges associated with the Fisher merger, described below, and
$93
million of higher amortization expense, principally due to the Fisher
merger.
These items were offset in part by the inclusion of Fisher’s results from
November 9, 2006 and higher profitability at existing businesses due
to
increased revenues, productivity improvements including lower costs following
restructuring actions and, to a lesser extent, price increases. The company’s
effective tax rate was 20.6% and 30.6% in 2006 and 2005, respectively.
The
decrease in the effective tax rate in 2006 compared with 2005 was primarily
due
to geographic changes in profits, in particular lower income in the United
States due to charges associated with the Fisher merger, partially offset
by
non-deductible merger related costs. The provision for income taxes in
2005
includes $4 million for the estimated effect of tax audits of prior years
in a
non-U.S. country. This charge increased the effective tax rate in 2005
by 1.5
percentage points.
Income
from continuing operations decreased to $166 million in 2006, from $198
million
in 2005, primarily due to the items discussed above that reduced operating
income in 2006 and the inclusion of gains on the sale of investments
in 2005,
offset in part by a lower effective tax rate in 2006.
During
2006, the company’s cash flow from operations totaled $406 million, compared
with $271 million in 2005. The increase resulted from improved cash flow
at
existing business and, to a lesser extent, cash flow from the Fisher
business,
net of $157 million in merger-related operating cash outflows including
severance and retirement benefits as well as transaction costs incurred
by
Fisher that were paid subsequent to November 9, 2006.
As
of
December 31,
2006,
the company’s outstanding debt totaled $2.7 billion, of which 77% is due in 2009
and thereafter. The company expects that its existing cash and short-term
investments of $691 million as of December 31, 2006, and the company’s future
cash flow from operations together with available unsecured borrowing
capacity
of up to $635 million under its existing 5-year revolving credit agreement
are
sufficient to meet the working capital requirements of its existing businesses
for the foreseeable future, including at least the next 24 months.
Critical
Accounting Policies
The
company’s
discussion and analysis of its financial condition and results of operations
is
based upon its financial statements, which have been prepared in accordance
with
accounting principles generally accepted in the United States of America.
The
preparation of these financial statements requires the company to make
estimates
and judgments that affect the reported amounts of assets, liabilities,
revenue
and expenses and related disclosure of contingent liabilities. On an
on-going
basis, the company evaluates its estimates, including those related to
equity
investments, bad debts, sales returns, inventories, business combinations,
intangible assets, warranty obligations, income taxes, pension costs,
contingencies and litigation, equity-based compensation, restructuring
and sale
of businesses. The company bases its estimates on historical experience,
current
market and economic conditions and other assumptions that management
believes
are reasonable. The results of these estimates form the basis for judgments
about the carrying value of assets and liabilities where the values are
not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The
company believes the following represent its critical accounting policies
and
estimates used in the preparation of its financial statements:
| (a) |
Accounts
Receivable
|
|
The
company maintains allowances for doubtful accounts for estimated
losses
resulting from the inability of its customers to pay amounts
due. Such
allowances totaled $45 million at December 31, 2006. The company
estimates
the amount of customer receivables that are uncollectible based
on the age
of the
|
|
receivable,
the creditworthiness of the customer and any other information
that is
relevant to the judgment. If the financial condition of the
company’s
customers were to deteriorate, reducing their ability to make
payments,
additional allowances would be
required.
|
|
(b)
|
Inventories
|
|
The
company writes down its inventories for estimated obsolescence
for
differences between the cost and estimated net realizable value
taking
into consideration usage in the preceding 12 months, expected
demand and
any other information that is relevant to the judgment. If
ultimate usage
or demand vary significantly from expected usage or demand,
additional
writedowns may be required.
|
|
(c)
|
Intangible
Assets and Goodwill
|
|
The
company uses assumptions and estimates in determining the fair
value of
assets acquired and liabilities assumed in a business combination.
A
significant portion of the purchase price in many of the company’s
acquisitions is assigned to intangible assets that require
that use of
significant judgment in determining (i) fair value; and (ii)
whether such
intangibles are amortizable or non-amortizable and, if the
former, the
period and the method by which the intangible asset will be
amortized. The
company estimates the fair value of acquisition-related intangible
assets
principally based on projections of cash flows that will arise
from
identifiable intangible assets of acquired businesses. The
projected cash
flows are discounted to determine the present value of the
assets at the
dates of acquisition. Amortizable intangible assets totaled
$6.18 billion
at December 31, 2006. Actual cash flows arising from a particular
intangible asset could vary from projected cash flows which
could imply
different carrying values and annual amortization expense from
those
established at the dates of acquisition and which could result
in
impairment of such asset. The company reviews other intangible
assets for
impairment when indication of potential impairment exists,
such as a
significant reduction in cash flows associated with the
assets.
|
|
The
company evaluates goodwill and indefinite-lived intangible
assets for
impairment annually and when events occur or circumstances
change that may
reduce the value of the asset below its carrying amount using
forecasts of
discounted future cash flows. Events or circumstances that
might require
an interim evaluation include unexpected adverse business conditions,
economic factors, unanticipated technological changes or competitive
activities, loss of key personnel and acts by governments and
courts.
Goodwill and indefinite-lived intangible assets totaled $8.52
billion and
$1.33 billion, respectively, at December 31, 2006. Estimates
of future
cash flows require assumptions related to revenue and operating
income
growth, asset-related expenditures, working capital levels
and other
factors. Different assumptions from those made in the company’s analysis
could materially affect projected cash flows and the company’s evaluation
of goodwill for impairment. Should the fair value of the company’s
goodwill or indefinite-lived intangible assets decline because
of reduced
operating performance, market declines, or other indicators
of impairment,
or as a result of changes in the discount rate, charges for
impairment may
be necessary.
|
|
(d)
|
Other
Long-Lived Assets
|
|
The
company reviews other long-lived assets for impairment when
indication of
potential impairment exists, such as a significant reduction
in cash flows
associated with the assets. Other long-lived assets totaled
$1.57 billion
at December 31, 2006, including $1.26 billion of fixed assets.
In testing
a long-lived asset for impairment, assumptions are made concerning
projected cash flows associated with the asset. Estimates of
future cash
flows require assumptions related to revenue and operating
income growth
and asset-related expenditures associated with the asset being
reviewed
for impairment. Should future cash flows decline significantly
from
estimated amounts, charges for impairment of other long-lived
assets may
be necessary.
|
|
(e)
|
Revenues
|
|
In
instances where the company sells equipment with a related
installation
obligation, the company generally recognizes revenue related
to the
equipment when title passes. The company recognizes revenue
related to the
installation when it performs the installation. The allocation
of revenue
between the equipment and the installation is based on relative
fair value
at the time of sale. Should the fair value of either the equipment
or the
installation change, the company’s revenue recognition would be affected.
If fair value is not available for any undelivered element,
revenue for
all elements is deferred until delivery is
completed.
|
|
In
instances where the company sells equipment with customer-specified
acceptance criteria, the company must assess whether it can
demonstrate
adherence to the acceptance criteria prior to the customer’s acceptance
testing to determine the timing of revenue recognition. If
the nature of
customer-specified acceptance criteria were to change or grow
in
complexity such that the company could not demonstrate adherence,
the
company would be required to defer additional revenues upon
shipment of
its products until completion of customer acceptance testing.
|
|
The
company’s software license agreements generally include multiple products
and services, or “elements.” The company recognizes software license
revenue based on the residual method after all elements have
either been
delivered or vendor specific objective evidence (VSOE) of fair
value
exists for
|
|
any
undelivered elements. In the event VSOE is not available for
any
undelivered element, revenue for all elements is deferred until
delivery
is completed. Revenues from software maintenance and support
contracts are
recognized on a straight-line basis over the term of the contract.
VSOE of
fair value of software maintenance and support is determined
based on the
price charged for the maintenance and support when sold separately.
Revenues from training and consulting services are recognized
as services
are performed, based on VSOE, which is determined by reference
to the
price customers pay when the services are sold separately.
|
|
The
company records reductions to revenue for estimated product
returns by
customers. Should a greater or lesser number of products be
returned,
additional adjustments to revenue may be
required.
|
|
(f)
|
Warranty
Obligations
|
|
At
the time the company recognizes revenue, it provides for the
estimated
cost of product warranties based primarily on historical experience
and
knowledge of any specific warranty problems that indicate projected
warranty costs may vary from historical patterns. The liability
for
warranty obligations of the company’s continuing operations totaled $45
million at December 31, 2006. Should product failure rates
or the actual
cost of correcting product failures vary from estimates, revisions
to the
estimated warranty liability would be necessary.
|
|
(g)
|
Income
Taxes
|
|
The
company operates in numerous countries under many legal forms
and as a
result, is subject to the jurisdiction of numerous domestic
and non-U.S.
tax authorities, as well as to tax agreements and treaties
among these
governments. Determination of taxable income in any jurisdiction
requires
the interpretation of the related tax laws and regulations
and the use of
estimates and assumptions regarding significant future events,
such as the
amount, timing and character of deductions, permissible revenue
recognition methods under the tax law and the sources and character
of
income and tax credits. Changes in tax laws, regulations, agreements
and
treaties, currency exchange restrictions or our level of operations
or
profitability in each taxing jurisdiction could have an impact
upon the
amount of current and deferred tax balances and hence the company’s net
income.
|
|
The
company estimates the degree to which tax assets and loss carryforwards
will result in a benefit based on expected profitability by
tax
jurisdiction, and provides a valuation allowance for tax assets
and loss
carryforwards that it believes will more likely than not go
unused. If it
becomes more likely than not that a tax asset or loss carryforward
will be
used, the company reverses the related valuation allowance
with an offset
generally to goodwill as most of the tax attributes arose from
acquisitions. The company’s tax valuation allowance totaled $195 million
at December 31, 2006. Should the company’s actual future taxable income by
tax jurisdiction vary from estimates, additional allowances
or reversals
thereof may be necessary.
|
|
The
company provides a liability for future income tax payments
in the
worldwide tax jurisdictions in which it operates. Accrued income
taxes
totaled $60 million at December 31, 2006. Should tax return
positions that
the company expects are sustainable not be sustained upon audit,
the
company could be required to record an incremental tax provision
for such
taxes. Should previously unrecognized tax benefits ultimately
be
sustained, a reduction in the company’s tax provision would
result.
|
|
(h)
|
Contingencies
and Litigation
|
|
The
company records accruals for various contingencies, including
legal
proceedings, environmental, workers’ compensation, product, general and
auto liabilities, self-insurance and other claims that arise
in the normal
course of business. The accruals are based on management’s judgment,
historical claims experience, the probability of losses and,
where
applicable, the consideration of opinions of internal and or
external
legal counsel and actuarial estimates. Reserves of Fisher,
including
environmental reserves, were initially recorded at their fair
value and as
such were discounted to their net present value. Additionally,
we record
receivables from third-party insurers when recovery has been
determined to
be probable.
|
|
(i)
|
Pension
and Other Retiree Benefits
|
|
Several
of the company’s U.S. and non-U.S. subsidiaries sponsor defined benefit
pension and other retiree benefit plans. The cost and obligations
of these
arrangements are calculated using many assumptions to estimate
the
benefits that the employee earns while working, the amount
of which cannot
be
|
|
completely
determined until the benefit payments cease. Major assumptions
used in the
accounting for these employee benefit plans include the discount
rate,
expected return on plan assets and rate of increase in employee
compensation levels. Assumptions are determined based on company
data and
appropriate market indicators in consultation with third party
actuaries,
and are evaluated each year as of the plans’ measurement date. Net
periodic pension costs for the company’s pension and other postretirement
benefit plans totaled $16 million in 2006 and the company’s unfunded
benefit obligation totaled $237 million at year-end 2006. Should
any of
these assumptions change, they would have an effect on net
periodic
pension costs and the unfunded benefit obligation. For example,
a 10%
decrease in the discount rate would result in an annual increase
in
pension and other postretirement benefit expense of approximately
$2
million and an increase in the benefit obligation of approximately
$101
million.
|
|
(j)
|
Equity-based
Compensation
|
|
The
fair value of each stock option granted by the company is
estimated using the Black-Scholes option pricing model. Use
of a valuation
model requires management to make certain assumptions with
respect to
selected model inputs. Management estimates expected volatility
based on the historical volatility of the company’s stock.
The expected life of a grant is estimated using the simplified
method
for “plain vanilla” options as permitted by SAB 107. The risk-free
interest rate is based on U.S. Treasury zero-coupon issues
with a
remaining term which approximates the expected life assumed
at the date of
grant. Changes in these input variables would affect the amount
of expense associated with stock-based compensation. The
compensation expense recognized for all equity-based awards
is net of
estimated forfeitures. The company estimates forfeiture
rates based on historical analysis of option forfeitures.
If actual forfeitures should vary from estimated forfeitures,
adjustments
to compensation expense may be
required.
|
|
(k)
|
Restructuring
Costs
|
|
The
company records restructuring charges for the cost of vacating
facilities
based on future lease obligations and expected sub-rental income.
The
company’s accrued restructuring costs for abandoned facilities in
continuing operations totaled $12 million at December 31, 2006.
Should
actual cash flows associated with sub-rental income from vacated
facilities vary from estimated amounts, adjustments may be
required.
|
|
(l)
|
Assets
Held for Sale
|
|
The
company estimates the expected proceeds from any assets held
for sale and,
when necessary, records losses to reduce the carrying value
of these
assets to estimated realizable value. Should the actual or
estimated
proceeds, which would include post-closing purchase price adjustments,
vary from current estimates, results could differ from expected
amounts.
|
Results
of Operations
2006
Compared With 2005
Continuing
Operations
Sales
in
2006 were $3.792 billion, an increase of $1.159 billion (44%) from 2005.
Sales
increased $978 million due to acquisitions (principally Fisher), net
of
divestitures. The favorable effects of currency translation resulted
in an
increase in revenues of $18 million in 2006. Aside from the effect of
acquisitions, net of divestitures, and currency translation, revenues
increased
$163 million (6%) primarily due to increased demand, and to a lesser
extent,
price increases, as described by segment below. Growth was strong in
Asia and
Europe and moderate in North America.
|
Operating
Income Margin
|
2006
|
2005
|
||||||
|
Consolidated
|
6.4%
|
|
10.0%
|
|
In
2006,
operating income and operating income margin were $242 million and 6.4%,
respectively, compared with $263 million and 10.0%, respectively, in
2005. The
decrease in operating income and operating income margin was due to $125
million
of pretax charges associated with the Fisher merger and $93 million of
higher
amortization expense, principally due to the Fisher merger. The $125
million of
charges includes $73 million of charges to cost of revenues for the sale
of
inventories revalued at the date of the merger, $37 million of accelerated
equity-based compensation due to a change in control occurring at the
merger
date and $15 million of in-process research and development at Fisher
on the
date of the merger. The unfavorable effect of these items was offset
in part by
the inclusion of Fisher’s results from November 9, 2006, through the end of the
year and higher profitability at existing businesses due to increased
revenue,
productivity improvements, including lower costs following restructuring
actions
and, to a lesser extent, price increases.
Restructuring
and other costs were recorded in 2006 and 2005. Restructuring costs in
2005 were
primarily for reductions in staffing levels at existing businesses resulting
from the integration of Kendro and the consolidation of two facilities
in Texas,
as well as charges associated with actions initiated prior to 2005 that
could
not be recorded until incurred and adjustments to previously provided
reserves
due to changes in estimates of amounts due for abandoned facilities,
net of
expected sub-tenant rental income. Restructuring actions undertaken prior
to
2005 were substantially complete at the end of 2004. Aside from the $15
million
charge for in-process research and development existing at Fisher on
the date of
merger, discussed above, restructuring costs in 2006 include charges
to close a
plant in Massachusetts and consolidate its operations with those of an
acquired
Kendro facility in North Carolina, charges for consolidation of a U.K.
facility
into an existing factory in Germany, the move of manufacturing operations in New
Mexico to other plants in the U.S. and Europe and remaining costs of
prior
actions. The company is finalizing its plan for potential restructuring
actions
that may be undertaken at Fisher or within existing businesses with which
Fisher
is being integrated. Such actions may include rationalization of product
lines,
consolidation of facilities and reductions in staffing levels. The cost
of
actions at Fisher businesses is being charged to the cost of the acquisition,
while the cost of actions at existing businesses being integrated with
Fisher is
charged to expense. The company expects to finalize its restructuring
plans for
Fisher no later than one year from the date of merger. The company has
finalized
its plans for integrating Kendro with its existing business and expects
that
charges to expense will ultimately total approximately $16 million, of
which $15
million has been recorded as of December 31, 2006, with the balance to
be
recorded as incurred. Also, the company has identified actions totaling
$5
million that will be undertaken in 2007. The restructuring actions initiated
in
2006 resulted in annual cost savings beginning in the second half of
2006 and
early 2007 of approximately $11 million, including $6 million in the
Analytical
Technologies segment and $5 million in the Laboratory Products and Services
segment.
In
2006,
the company recorded restructuring and other costs, net, of $123 million,
including $78 million of charges to cost of revenues consisting of $75
million
for the sale of inventories revalued at the date of acquisition (principally
Fisher) and $3 million for accelerated depreciation on fixed assets being
abandoned due to facility consolidations. The company incurred $30 million
of
cash costs, primarily for severance, abandoned facilities and relocation
expenses at businesses that have been consolidated. As discussed above,
the
company recorded a charge of $15 million for in-process research and
development
at Fisher on the merger date. In 2005, the company recorded restructuring
and
other costs, net, of $30 million, including charges to cost of revenues
of $13
million primarily for the sale of inventories revalued at the date of
acquisition. The company incurred $23 million of cash costs, primarily
for
severance, abandoned facilities and relocation expenses in connection
with the
integration of Kendro with existing businesses. In addition, the company
recorded a gain of $8 million primarily from the sale of six abandoned
buildings
and a charge of $2 million principally for the writedown of a building
held for
sale (Note 15).
Acquisition-related
intangible assets of $7.2 billion arose from the merger with Fisher,
including
$5.9 billion of amortizable intangible assets. The company expects that
amortization expense associated with the Fisher intangible assets will
total
approximately $470 million per year.
In
July
2006, the company acquired GV Instruments Limited (GVI), a UK-based provider
of
mass spectrometry instruments and accessories for $17.5 million, net
of cash
acquired and a post-closing refund of $4.6 million received in January
2007.
Subsequent to the acquisition of GVI, the UK Office of Fair Trading (OFT)
commenced an investigation of the transaction to determine whether it
qualified
for consideration under the UK Enterprise Act. On December 15, 2006,
the OFT
referred the transaction to the UK Competition Commission for further
investigation under the Enterprise Act to determine whether the transaction
results in, or may be expected to result in, a substantial lessening
of
competition within any market in the UK for goods or services, particularly
gas
isotope ratio mass spectrometers, thermal ionization mass spectrometers
and
multicollector inductively coupled plasma mass spectrometers. Of GVI’s sales of
$19 million in its fiscal 2006, $0.4 million were UK sales. The Competition
Commission must prepare and publish its report within 24 weeks of the
reference
decision unless there are special reasons why it cannot do so. During
the
investigation, the company is subject to certain undertakings, which
took effect
October 2006, that require it not take any action that will lead to further
integration of the GVI business with the company or otherwise impair
the GVI
business from competing independently. The company is cooperating with
the
Competition Commission’s investigation. There can be no assurance as to the
outcome of this matter. Were the Competition Commission to require that
the
company divest of GVI, charges for impairment of assets could result.
Goodwill
and intangible assets recorded as a result of the acquisition of GVI
totaled
approximately $22 million.
Segment
Results
|
2006
|
2005
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues:
|
|||||||||||
|
Analytical
Technologies
|
$
|
2,425,821
|
$
|
2,006,744
|
21%
|
|
|||||
|
Laboratory
Products and Services
|
1,406,637
|
626,283
|
125%
|
|
|||||||
|
Eliminations
|
(40,841
|
)
|
—
|
||||||||
|
Consolidated
Revenues
|
$
|
3,791,617
|
$
|
2,633,027
|
44%
|
|
|||||
|
Operating
Income:
|
|||||||||||
|
Analytical
Technologies
|
$
|
383,640
|
$
|
284,666
|
35%
|
|
|||||
|
Laboratory
Products and Services
|
189,229
|
86,600
|
119%
|
|
|||||||
|
Other
|
—
|
148
|
|||||||||
|
Subtotal
Reportable Segments
|
572,869
|
371,414
|
54%
|
|
|||||||
|
Cost
of Revenues Charges
|
(77,625
|
)
|
(13,387
|
)
|
|||||||
|
Restructuring
and Other Costs, Net
|
(45,712
|
)
|
(16,900
|
)
|
|||||||
|
Amortization
of Acquisition-related Intangible Assets
|
(170,826
|
)
|
(77,640
|
)
|
|||||||
|
Stock
Option Compensation Acceleration Charge
|
(36,747
|
)
|
—
|
||||||||
|
Consolidated
Operating Income
|
$
|
241,959
|
$
|
263,487
|
(8)%
|
|
|||||
The
company’s management evaluates segment operating performance using operating
income before certain charges to cost of revenues, 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;
amortization of acquisition-related intangible assets; and charges for
the
acceleration of stock option compensation resulting from a change in
control.
The company uses these measures because they help management understand
and
evaluate the segments’ core operating results and facilitate comparison of
performance for determining compensation (Note 3).
Analytical
Technologies
|
2006
|
2005
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues
|
$
|
2,425,821
|
$
|
2,006,744
|
21%
|
|
|||||
|
Operating
Income Margin
|
15.8%
|
|
14.2%
|
|
1.6
pts.
|
||||||
Sales
in
the Analytical Technologies segment increased $419 million to $2.426
billion in
2006. Sales increased $249 million due to the Fisher merger and other
acquisitions, net of divestitures. The favorable effects of currency
translation
resulted in an increase in revenues of $10 million in 2006. In addition
to the
changes in revenue resulting from acquisitions, divestitures and currency
translation, revenues increased $160 million (8%) due to higher broad-based
demand from life science and industrial customers combined with strong
market
response to new products and, to a lesser extent, price increases. Growth
was
particularly strong in sales of mass spectrometry and spectroscopy instruments
and, to a lesser extent, anatomical pathology products and equipment
sold in
commodity markets such as steel, petroleum and cement.
Operating
income margin was 15.8% in 2006 and 14.2% in 2005. The increase resulted
from
profit on incremental revenues, and to a lesser extent, price increases
and
productivity improvements, including cost-reduction measures following
restructuring actions. Had stock option compensation been recorded as
expense in
2005, the operating income margin in 2005 would have been 13.4%.
Laboratory
Products and Services
|
2006
|
2005
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues
|
$
|
1,406,637
|
$
|
626,283
|
125%
|
|
|||||
|
Operating
Income Margin
|
13.5%
|
|
13.8%
|
|
(0.3)
pts.
|
||||||
Sales
in
the Laboratory Products and Services segment increased $780 million to
$1.407
billion in 2006. Sales increased $769 million due to the Fisher merger
and other
acquisitions, net of divestitures. The favorable effects of currency
translation
resulted in an increase in revenues of $8 million in 2006. In addition
to the
changes in revenue resulting from acquisitions, divestitures and currency
translation, revenues increased $3 million due to an increase in demand
for
laboratory equipment.
Operating
income margin decreased to 13.5% in 2006 from 13.8% in 2005, primarily
due to
the inclusion of stock option compensation in 2006 following adoption
of SFAS
No. 123R, offset in part by price increases and productivity improvements,
including restructuring actions. Had stock option compensation been recorded
as
expense in 2005, the operating income margin in 2005 would have been
13.1%.
Other
Income (Expense), Net
The
company reported other expense, net, of $33 million in 2006 and other
income,
net, of $22 million in 2005 (Note 4). Other income (expense), net, includes
interest income, interest expense, gain on investments, net, equity in
earnings
of unconsolidated subsidiaries and other items, net. Interest income
increased
to $16 million in 2006 from $12 million in 2005, primarily due to higher
invested cash balances from operating cash flow and, to a lesser extent,
increased market interest rates, offset in part by cash used to fund
acquisitions. Interest expense increased to $52 million in 2006 from
$27 million
in 2005, as a result of debt assumed in the merger with Fisher and, to
a lesser
extent, a full year of debt used to partially fund the Kendro acquisition
and
higher rates associated with the company’s variable-rate debt.
During
2006 and 2005, the company had gains on investments, net, of $1 million
and $35
million, respectively. The gains included $29 million in 2005 from the
sale of
shares of Thoratec Corporation and a loss of $1 million in 2005 from
the sale of
shares of Newport Corporation, in addition to other gains from the company’s
investment portfolio activity. The company obtained common shares of
Thoratec as
part of the sale of Thermo Cardiosystems Inc. in 2001 and obtained the
shares of
Newport as part of the sale of Spectra-Physics in 2004. Following the
sale of
shares in 2005, the company no longer owns shares of Thoratec or Newport.
Other
income in 2006 and 2005 also includes net currency transaction gains
and equity
in earnings of unconsolidated subsidiaries.
Provision
for Income Taxes
The
company’s effective tax rate was 20.6% and 30.6% in 2006 and 2005, respectively.
The decrease in the effective tax rate in 2006 compared with 2005 was
primarily
due to geographic changes in profits, in particular lower income in the
United
States due to charges associated with the Fisher merger, partially offset
by
non-deductible merger related costs. The provision for income taxes in
2005
includes $4 million for the estimated effect of a tax audit of prior
years in a
non-U.S. country. The effect of this charge increased the effective tax
rate in
2005 by 1.5 percentage points.
Contingent
Liabilities
At
year-end 2006, the company was contingently liable with respect to certain
legal
proceedings and related matters. As described under “Litigation and Related
Contingencies” in Note 11, an unfavorable outcome in the matters described
therein could materially affect the company’s financial position as well as its
results of operations and cash flows.
Recent
Accounting Pronouncements
As
of
January 1, 2006, the company adopted SFAS No. 123R “Share-based Payment.” The
standard requires that companies record as expense the effect of equity-based
compensation over the applicable vesting period. The company adopted
the
standard using the modified prospective application transition method.
Under
this transition method, the compensation cost recognized beginning
January 1, 2006 includes compensation cost for (i) all share-based
payments granted prior to, but not yet vested as of January 1, 2006,
based on
the grant-date fair value estimated in accordance with the original provisions
of SFAS No. 123, and (ii) all share-based payments granted subsequent
to December 31, 2005 based on the grant-date fair value estimated in
accordance
with the provisions of SFAS No. 123R. Compensation cost is recognized
ratably over the requisite vesting period or, for 2006 grants, to the
retirement
date for retirement eligible employees, if earlier. Prior period amounts
have
not been restated. The company recorded $62 million of pre-tax expense
in 2006
for stock options, including $34 million the recognition of which was
accelerated into 2006 as a result of the merger with Fisher causing a
change in
control. The stock option costs of $62 million included $7 million in
cost of
revenues, $51 million in selling, general and administrative expenses
and $4
million in research and development expenses. As of December 31, 2006,
the
company had $133 million ($85 million, net of tax) of total unrecognized
compensation costs related to unvested equity awards, including unvested
awards
at Fisher on the date of merger that converted into awards exercisable
over
various vesting periods into shares of company common stock. The cost
is
expected to be recognized over approximately 3 years.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefits Pension and Other Postretirement Plans, an amendment of FASB
Statements
No. 87, 88, 106 and 132R.” SFAS No. 158 requires an employer to recognize the
funded status of defined benefit pension and other postretirement benefit
plans
as an asset or liability. The company adopted SFAS No. 158 as of December
31,
2006. The effect of adoption resulted in increases in total assets of
$14
million, total liabilities of $9 million and stockholders’ equity of $5 million.
In
July
2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes—an Interpretation of FASB Statement No. 109” (FIN No. 48). FIN
No. 48 prescribes a comprehensive model for how a company should recognize,
measure, present, and disclose in its financial statements uncertain
tax
positions that the company has taken or expects to take on a tax return.
Under
FIN No. 48, the financial statements will reflect expected future tax
consequences of such positions presuming the taxing authorities’ full knowledge
of the position and all relevant facts, but without discounting for the
time
value of money. FIN No. 48 also revises disclosure requirements and introduces
a
prescriptive, annual, tabular roll-forward of the unrecognized tax benefits.
FIN
No. 48 will become effective in the first quarter of 2007. The company
does not
expect the effect of adoption to be material.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value and
expands disclosures about fair value measurements. SFAS No. 157 is effective
for
the company in 2008. The company is currently evaluating the potential
impact of
adopting SFAS No. 157.
Discontinued
Operations
The
company’s discontinued operations reported after-tax income of $0.5 million in
2006, representing the results of two small Fisher businesses held for
sale.
The
company had after-tax gains of $2 million in 2006 and $25 million in
2005 from
the disposal of discontinued operations. The 2006 gains represent additional
proceeds from the sale of several businesses prior to 2004, net of a
charge for
the settlement of an indemnification claim that arose from a divested
business.
An
after-tax gain of $17 million arose from the September 2005 sale of the
company’s point of care and rapid diagnostics business for $53 million in cash.
Revenues and pre-tax loss of the divested business totaled $30 million
and $1
million, respectively, in 2004 and revenues and pre-tax income totaled
$27
million and $1 million, respectively, in 2005 through the date of sale.
Due to
the immateriality of the operating results of this business relative
to
consolidated results, the company has not reclassified the historical
results
and accounts of this business to discontinued operations. In addition
to the
sale of this business, the company had after-tax gains aggregating $8
million in
2005 from the sale of abandoned real estate; additional proceeds from
the sale
of businesses divested prior to 2004, including the sale of abandoned
real
estate and post-closing adjustments; and the settlement of litigation
and an
arbitration award related to a divested business.
2005
Compared With 2004
Continuing
Operations
Sales
in
2005 were $2.633 billion, an increase of $427 million (19%) from 2004.
Sales
increased $337 million (15%) due to acquisitions, net of divestitures.
The
unfavorable effects of currency translation resulted in a decrease in
revenues
of $4.5 million in 2005. Aside from the effect of acquisitions, net of
divestitures, and currency translation, revenues increased $94 million
(4%)
primarily due to increased demand, and to a lesser extent, price increases,
as
described by segment below. Growth was strong in Asia and moderate in
North
America and Europe.
|
Operating
Income Margin
|
2005
|
2004
|
||||
|
Consolidated
|
10.0%
|
|
10.8%
|
|
Operating
income was $263 million in 2005, compared with $238 million in 2004.
Operating
income increased due to higher sales, including revenues from acquisitions,
offset in part by the items discussed below. Operating income margin
decreased
to 10.0% in 2005 from 10.8% in 2004, primarily due to $55 million of
higher
amortization expense for acquisition-related intangible assets and $10
million
of higher charges to cost of revenues, primarily for the sale of inventories
revalued at the date of acquisition. These factors were offset in part
by higher
profitability from the increase in revenues and, to a lesser extent,
price
increases.
In
2005,
the company recorded restructuring and other costs, net, of $30 million,
including charges to cost of revenues of $13 million, primarily for the
sale of
inventories revalued at the date of acquisition. The company incurred
$23
million of cash costs, primarily for severance, abandoned facilities
and
relocation expenses in connection with the integration of Kendro with
existing
businesses. In addition, the company recorded a gain of $8 million, primarily
from the sale of six abandoned buildings and a charge of $2 million,
principally
for the writedown of a building held for sale. In 2004, the company recorded
restructuring and other costs, net, of $19 million, including charges
to cost of
revenues of $3 million, consisting of $2 million for the sale of inventories
revalued at the date of acquisition of Jouan and $1 million of accelerated
depreciation on fixed assets being abandoned due to facility consolidations.
The
company incurred $17 million of cash costs, primarily for severance,
abandoned
facilities and relocation expenses at businesses that have been consolidated.
In
addition, the company recorded a gain of $3 million on the sale of a
product
line and a loss of $1 million from the writedown of abandoned equipment
and the
sale of two abandoned buildings.
Segment
Results
|
2005
|
2004
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues:
|
|||||||||||
|
Analytical
Technologies
|
$
|
2,006,744
|
$
|
1,814,647
|
11%
|
|
|||||
|
Laboratory
Products and Services
|
626,283
|
391,348
|
60%
|
|
|||||||
|
Consolidated
Revenues
|
$
|
2,633,027
|
$
|
2,205,995
|
19%
|
|
|||||
|
Operating
Income:
|
|||||||||||
|
Analytical
Technologies
|
$
|
284,666
|
$
|
237,018
|
20%
|
|
|||||
|
Laboratory
Products and Services
|
86,600
|
42,515
|
104%
|
|
|||||||
|
Other
|
148
|
—
|
|||||||||
|
Subtotal
Reportable Segments
|
371,414
|
279,533
|
33%
|
|
|||||||
|
Cost
of Revenues Charges
|
(13,387
|
)
|
(3,361
|
)
|
|||||||
|
Restructuring
and Other Costs, Net
|
(16,900
|
)
|
(15,829
|
)
|
|||||||
|
Amortization
of Acquisition-related Intangible Assets
|
(77,640
|
)
|
(22,831
|
)
|
|||||||
|
Consolidated
Operating Income
|
$
|
263,487
|
$
|
237,512
|
11%
|
|
|||||
Analytical
Technologies
|
2005
|
2004
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues
|
$
|
2,006,744
|
$
|
1,814,647
|
11%
|
|
|||||
|
Operating
Income Margin
|
14.2%
|
|
13.1%
|
|
1.1
pts.
|
||||||
Sales
in
the Analytical Technologies segment increased $192 million (11%) to $2.007
billion in 2005. Sales increased $96 million due to acquisitions, net
of
divestitures. The unfavorable effects of currency translation resulted
in a
decrease in revenues of $4 million in 2005. In addition to the changes
in
revenue resulting from acquisitions, divestitures and currency translation,
revenues increased $100 million (6%) due to higher broad-based demand
from life
science and industrial customers combined with strong market response
to new
products and, to a lesser extent, price increases. Growth was particularly
strong in sales of mass spectrometry and spectroscopy instruments; and,
to a
lesser extent, equipment sold to commodity markets including steel, petroleum
and cement; instruments used in environmental and security applications;
and
anatomical pathology products.
Operating
income margin was 14.2% in 2005 and 13.1% in 2004. The increase resulted
from
profit on incremental revenue, and to a lesser extent, price increases
and
productivity improvements, including cost reduction measures following
restructuring actions.
Laboratory
Products and Services
|
2005
|
2004
|
Change
|
|||||||||
|
|
(Dollars
in thousands)
|
||||||||||
|
Revenues
|
$
|
626,283
|
$
|
391,348
|
60%
|
|
|||||
|
Operating
Income Margin
|
13.8%
|
|
10.9%
|
|
2.9
pts.
|
||||||
Sales
in
the Laboratory Products and Services segment increased $235 million (60%)
to
$626 million in 2005. Sales increased $241 million due to acquisitions
(principally Kendro), net of divestitures. Currency translation had an
immaterial effect on revenues. In addition to the changes in revenue
resulting
from acquisitions, divestitures and currency translation, revenues decreased
$6
million (1.5%) due to slightly lower demand for laboratory equipment
used for
sample preparation, processing and storage.
Operating
income margin increased to 13.8% in 2005 from 10.9% in 2004. The increase
resulted from inclusion of higher margin revenues from Kendro as well
as
productivity improvements, including cost reduction measures following
restructuring actions.
Other
Income, Net
The
company reported other income, net, of $22 million both in 2005 and 2004
(Note
4). Interest income increased to $12 million in 2005 from $9 million
in 2004,
primarily due to higher invested cash balances following the sale of
Spectra-Physics in July 2004 and, to a lesser extent, increased market
interest
rates, offset in part by cash used to fund acquisitions. Interest expense
increased to $27 million in 2005 from $11 million in 2004, as a result
of debt
used to partially fund the Kendro acquisition and, to a lesser extent,
higher
rates associated with the company’s variable-rate debt.
During
2005 and 2004, the company had gains on investments, net, of $35 million
and $21
million, respectively. The gains included $29 million in 2005 and $10
million in
2004 from the sale of shares of Thoratec and a loss of $1 million in
2005 from
the sale of shares of Newport, in addition to other gains from the company’s
investment portfolio activity. Other income in 2005 and 2004 also includes
net
currency transaction gains and equity in earnings of unconsolidated
subsidiaries.
Provision
for Income Taxes
The
company’s effective tax rate was 30.6% and 15.8% in 2005 and 2004, respectively.
The provision for income taxes in 2005 includes $4 million for the estimated
effect of a tax audit of prior years in a non-U.S. country. The effect
of this
charge increased the effective tax rate in 2005 by 1.5 percentage points.
The
effective tax rate was lower in 2004 primarily due to $34 million of
tax
benefits associated with the completion of tax audits. The company’s federal tax
returns and those of several subsidiaries were under audit for the period
1998
to 2000. In 2004 and early 2005, the IRS and the company reached final
settlements of the audits and the company determined that previously
unrecognized tax benefits were realizable. In addition, audits of state
tax
returns were also completed in 2004. This tax benefit reduced the company’s
effective tax rate in 2004 by 13.0 percentage points.
Discontinued
Operations
The
company had after-tax gains of $25 million in 2005 and $100 million in
2004 from
the disposal of discontinued operations and $43 million of after-tax
income in
2004 from discontinued operations.
An
after-tax gain of $17 million arose from the September 2005 sale of the
company’s point of care and rapid diagnostics business for $53 million in cash.
Revenues and pre-tax loss of the divested business totaled $30 million
and $1
million, respectively, in 2004 and revenues and pre-tax income totaled
$27
million and $1
million,
respectively, in 2005 through the date of sale. In addition to the sale
of this
business, the company had after-tax gains aggregating $8 million in 2005
from
the sale of abandoned real estate; additional proceeds from the sale
of
businesses divested prior to 2004, including the sale of abandoned real
estate
and post-closing adjustments; and the settlement of litigation and an
arbitration award related to a divested business.
In
July
2004, the company completed the sale of its Optical Technologies segment,
Spectra-Physics, to Newport. The company has reclassified the results
of
Spectra-Physics as discontinued operations for all periods presented
in the
accompanying financial statements.
The
company’s discontinued operations (Spectra-Physics) had revenues through the
date of sale of $119 million in 2004. Net income of the discontinued
operations
through the date of sale in 2004 was $4.5 million, net of a tax provision
of $2
million. As a result of the decision to sell Spectra-Physics, a previously
unrecognized tax asset arising from the difference between the book and
tax
basis of Spectra-Physics became realizable and the company recorded a
tax
benefit as income from discontinued operations totaling $38.5 million
in 2004.
In addition, the company recorded a gain on the sale of Spectra-Physics
of $46
million, net of a tax provision of $16 million.
The
tax
returns of the company and its former Trex Medical and ThermoLase businesses
were under audit by the IRS. In 2004 and early 2005, the IRS and the
company
reached final settlements of the audits and the company determined that
previously unrecognized tax benefits associated with the divested businesses
totaling $53 million were realizable. These tax benefits were recorded
as a gain
on the disposal of discontinued operations in 2004.
In
addition to the 2004 gains discussed above, the company had $1 million
of
after-tax gains and $1 million of tax benefits associated with discontinued
operations.
Liquidity
and Capital Resources
Consolidated
working capital was $1.507 billion at December 31, 2006, compared with
$562
million at December 31, 2005. The increase was primarily due to working
capital
acquired in the merger with Fisher. Included in working capital were
cash, cash
equivalents and short-term available-for-sale investments of $691 million
at
December 31, 2006, compared with $295 million at December 31, 2005. The
increase
was primarily due to cash acquired in the merger with Fisher.
2006
Cash
provided by operating activities was $406 million during 2006, including
$407
million provided by continuing operations. A reduction in current liabilities
used cash of $148 million, primarily as a result of merger-related payments
made
following completion of the transaction totaling $157 million, including
executive severance and retirement benefits, and transaction costs incurred
by
Fisher. Cash of $32 million was provided by collections on accounts receivable.
Payments for restructuring actions of the company’s continuing operations,
principally severance, lease costs and other expenses of real estate
consolidation, used cash of $30 million during 2006.
In
connection with restructuring actions undertaken by continuing operations,
the
company had accrued $20 million for restructuring costs at December 31,
2006.
The company expects to pay approximately $7 million of this amount for
severance
and retention, primarily through 2007, and $1 million for other costs,
primarily
through 2007. The balance of $12 million will be paid for lease obligations
over
the remaining terms of the leases, with approximately 67% to be paid
through
2007 and the remainder through 2013. In addition, at December 31, 2006,
the
company had accrued $35 million for acquisition expenses. Accrued acquisition
expenses included $30 million of severance and relocation obligations,
which the
company expects to pay primarily through 2007. The remaining balance
primarily
represents abandoned-facility payments that will be paid over the remaining
terms of the leases through 2014.
During
2006, the primary investing activities of the company’s continuing operations,
excluding available-for-sale investment activities, included acquisitions,
the
purchase of property, plant and equipment and the sale of product lines.
Cash
acquired in the merger with Fisher totaled $360 million, net of transaction
costs. The company expended $132 million on acquisitions and $77 million
for
purchases of property, plant and equipment. The company partially liquidated
assets totaling $40 million in a Fisher retirement trust to fund payments
that
were due to former Fisher executives following the merger. The company
had
proceeds from the sale of product lines of $9 million. Investing activities
of
the company’s discontinued operations provided $5 million of cash during 2006,
primarily additional proceeds from a business divested prior to 2004.
In January
2007, the company acquired two businesses for an aggregate of $20 million.
In
February 2007, Newport repaid in full its note payable to the company,
totaling
$48 million.
The
company’s financing activities used $260 million of cash during 2006,
principally for the repurchase of $300 million of the company’s common stock and
the repayment of $335 million of debt, offset in part by short-term borrowing
and proceeds of stock option exercises. The company increased short-term
borrowings by $177 million in 2006. The company had proceeds of $180
million
from the exercise of employee stock options and $17 million of tax benefits
from
the exercise of stock options. In 2006, the company’s Board of Directors
authorized the repurchase of $300 million of the company’s common stock through
February 28, 2007. At December 31, 2006, no remaining authorization existed
for
future repurchases. In February 2007, the Board of Directors authorized
the
repurchase of up to $300 million of the company’s common stock through February
28, 2008.
The
company has no material commitments for purchases of property, plant
and
equipment and expects that for all of 2007, such expenditures will approximate
$240 - $260 million. On August 29, 2006, the company negotiated a new
$1 billion
revolving credit agreement that became effective at the time of the merger
with
Fisher and replaced the company’s existing credit facilities. At December 31,
2006, borrowings of $635 million were available under the revolving credit
agreement. The company believes that its existing resources, including
cash and
investments, future cash flow from operations, and available borrowings
under
its existing revolving credit facilities, are sufficient to meet the
working
capital requirements of its existing businesses for the foreseeable future,
including at least the next 24 months.
2005
Cash
provided by operating activities was $271 million during 2005, including
$273
million provided by continuing operations and $2 million used by discontinued
operations. Cash of $24 million was provided by an increase in other
current
liabilities, primarily accrued payroll and benefits due to the timing
of
payments, and deferred revenue, pending completion of obligations to
customers.
Income tax payments of approximately $13 million arose from taxes on
gains on
the sale of investments. The company contributed $11 million of funding
to a
U.K. pension plan in June 2005 (Note 5). Payments for restructuring actions
of
the company’s continuing operations, principally severance, lease costs and
other expenses of real estate consolidation, used cash of $20 million
in 2005.
During
2005, the primary investing activities of the company’s continuing operations,
excluding available-for-sale investment activities, included acquisitions
and
the purchase and sale of property, plant and equipment. The company expended
$933 million, net of cash acquired, for the acquisitions of Niton, R&P,
Kendro and Ionalytics (Note 2). The company expended $44 million for the
purchases of property, plant and equipment and had proceeds from the
sale of
property, principally abandoned real estate, of $16 million. Investing
activities of the company’s discontinued operations provided $66 million of cash
in 2005, primarily from the sale of its point of care and rapid diagnostics
business in September 2005 and the sale of a building of a previously
divested
business in August 2005.
The
company’s financing activities provided $391 million of cash during 2005,
principally from the issuance of $250 million senior notes due in 2015
and a net
increase in short-term borrowings of $119 million. The company received
net
proceeds of $27 million from the exercise of employee stock options during
2005.
The
company repaid in full $570 million of borrowings under its bridge loan
with
cash and proceeds of new debt issuances described below. In May 2005,
the
company issued $250 million aggregate principal amount of 5% senior notes
(the
Notes) due 2015, with an effective interest rate of 5.27% after including
the
impact of an interest rate swap arrangement. Under the Notes’ Indenture, the
company is subject to certain affirmative and negative covenants.
Also
in
May 2005, the company entered into an arrangement that provides the company
an
uncommitted line of credit of up to $250 million through a series of
short-term
money market loans funded on an ongoing basis in the secondary market.
Such
money market loans have maturity periods of overnight to 364 days and
bear
varying rates of interest based on the maturity date and market rate
at the time
of issuance. In May 2005, the company borrowed $250 million through three
short-term loans under the money market arrangement with maturities of
one week
to three months. As of December 31, 2005, the company had repaid the
borrowings
under this arrangement.
In
June
2005, the company entered into a five-year revolving credit facility
with a bank
group that provided up to 175 million euros. The facility carried interest
at a
Euribor rate plus 35 basis points. As of December 31, 2005, the company
had
outstanding borrowings under this facility of 105 million euros ($124
million)
in two tranches with maturities in January 2006 and with a weighted average
interest rate of 2.47%. The facility was terminated in 2006.
2004
Cash
provided by operating activities was $265 million during 2004, including
$250
million provided by continuing operations and $15 million provided by
discontinued operations. Payments for restructuring actions of the company’s
continuing operations, principally severance, lease costs and other expenses
of
real estate consolidation, used cash of $26 million in 2004. Accounts
receivable
increased $34 million due primarily to higher sales of mass spectrometry
and
informatics product offerings. Inventories increased $21 million, due
in part to
increased production of mass spectrometry and spectroscopy instruments
in
response to higher demand for these products. Cash provided by discontinued
operations of $15 million principally represents the positive cash flow
of
Spectra-Physics, offset in part by the payment of retained liabilities
from
businesses sold prior to 2003, including settlement of litigation and
lease
payments on abandoned facilities.
During
2004, the primary investing activities of the company’s continuing operations,
excluding available-for-sale investment activities, included acquisitions
for
$143 million, net of cash acquired (Note 2) and the expenditure of $44
million for the purchase of property, plant and equipment, net of dispositions.
Investing activities of discontinued operations provided $172 million
of cash in
2004. In July 2004, the company sold Spectra-Physics to Newport Corporation
for
$300 million, including $200 million of initial cash proceeds. As a result
of
Newport assuming non-U.S. debt of Spectra-Physics that had earlier been
expected
to be retained by the company, and as a result of the post-closing adjustment
process, the company refunded $25 million to Newport (Note 16).
The
company’s financing activities used $183 million of cash during 2004, including
$184 million used by continuing operations. During 2004, the company
expended
$232 million to repurchase 8.4 million shares of the company’s common stock. The
company received net proceeds of $58 million from the exercise of employee
stock
options during 2004.
Off-Balance
Sheet Arrangements
The
company did not use special purpose entities or other off-balance-sheet
financing arrangements in 2004 - 2006 except for letters of credit, bank
guarantees, surety bonds and other guarantees disclosed in the table
below. Of
the amounts disclosed in the table below for letters of credit, bank
guarantees,
surety bonds and other guarantees, $13.7 million relates to guarantees
of the
performance of third parties, principally in connection with businesses
that
were sold. The balance relates to guarantees of the company’s own performance,
primarily in the ordinary course of business.
Contractual
Obligations and Other Commercial Commitments
The
table
below summarizes, by period due or expiration of commitment, the company’s
contractual obligations and other commercial commitments as of December
31,
2006.
|
Payments
Due by Period or Expiration of
Commitment
|
|||||||||||||||||
|
2007
|
2008
and
2009
|
2010
and
2011
|
2012
and
Thereafter
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
|
Contractual Obligations and Other Commercial Commitments:
|
|||||||||||||||||
|
Debt
principal, including short term debt (a)
|
$
|
478,912
|
$
|
132,861
|
$
|
591
|
$
|
2,036,610
|
$
|
2,648,974
|
|||||||
|
Interest (b)
|
108,407
|
199,954
|
191,590
|
732,543
|
1,232,494
|
||||||||||||
|
Capital lease obligations
|
4,386
|
5,944
|
2,743
|
1,956
|
15,029
|
||||||||||||
|
Operating lease obligations
|
92,111
|
134,308
|
75,574
|
85,089
|
387,082
|
||||||||||||
|
Unconditional
purchase obligations (c)
|
110,773
|
7,103
|
984
|
111
|
118,971
|
||||||||||||
|
Letters
of credit and bank guarantees
|
70,014
|
6,303
|
151
|
160
|
76,628
|
||||||||||||
|
Surety
bonds and other guarantees
|
28,832
|
—
|
—
|
8,358
|
37,190
|
||||||||||||
|
Other (d)
|
15,350
|
—
|
—
|
—
|
15,350
|
||||||||||||
|
$
|
908,785
|
$
|
486,473
|
$
|
271,633
|
$
|
2,864,827
|
$
|
4,531,718
|
||||||||
|
(a)
|
Amounts
represent the expected cash payments for debt and do not
include any
deferred issuance costs.
|
|
(b)
|
For
the purpose of this calculation, amounts assume interest
rates on floating
rate obligations remain unchanged from levels at December
31, 2006,
throughout the life of the
obligation.
|
|
(c)
|
Unconditional
purchase obligations include agreements to purchase goods
or services that
are enforceable and legally binding and that specify all
significant
terms, including: fixed or minimum quantities to be purchased;
fixed,
minimum or variable price provisions; and the approximate
timing of the
transaction. Purchase obligations exclude agreements that
are cancelable
at any time without penalty.
|
|
(d)
|
Obligation
represents funding commitments pursuant to investments held
by the
company.
|
The
company holds an investment in a joint venture whereby the current party
has a
right to require the company to purchase its interest beginning in 2008.
The
purchase price is based on a multiple of pretax earnings.
The
company has no material commitments for purchases of property, plant
and
equipment but expects that for 2007, such expenditures for its existing
business
will approximate $240 to $260 million.
In
disposing of assets or businesses, the company often provides representations,
warranties and/or indemnities to cover various risks including, for example,
unknown damage to the assets, environmental risks involved in the sale
of real
estate, liability to investigate and remediate environmental contamination
at
waste facilities, and unidentified tax liabilities and legal fees related
to
periods prior to the disposition. The company does not have the ability
to
estimate the potential liability from such indemnities because they relate
to
unknown conditions. However, the company has no reason to believe that
these
uncertainties would have a material adverse effect on its financial position,
annual results of operations or cash flows.
The
company has recorded liabilities for known indemnifications included
as part of
environmental liabilities. See Item 1. Business-Environmental Matters
for a
discussion of these liabilities.
Item
7A. Quantitative
and Qualitative Disclosures About Market
Risk
The
company is exposed to market risk from changes in interest rates,
currency exchange rates and equity prices, which could affect its future
results
of operations and financial condition. The company manages its exposure
to these
risks through its regular operating and financing activities. Additionally,
the
company uses short-term forward contracts to manage certain exposures
to
currencies. The company enters into forward currency-exchange contracts
to hedge
firm purchase and sale commitments denominated in currencies other than
its
subsidiaries’ local currencies. The company does not engage in extensive
currency hedging activities; however, the purpose of the company’s currency
hedging activities is to protect the company’s local currency cash flows related
to these commitments from fluctuations in currency exchange rates. The
company’s
forward currency-exchange contracts principally hedge transactions denominated
in euros, U.S. dollars, British pounds sterling, Canadian dollars and
Swiss
francs. Income and losses arising from forward contracts are recognized
as
offsets to losses and income resulting from the underlying exposure being
hedged. The company does not enter into speculative currency agreements.
Interest
Rates
Certain
of the company’s short-term available-for-sale investments, long-term notes
receivable and long-term obligations are sensitive to changes in interest
rates.
Interest rate changes would result in a change in the fair value of these
financial instruments due to the difference between the market interest
rate and
the rate at the date of purchase or issuance of the financial instrument.
A 10%
decrease in year-end 2006 and 2005 market interest rates would result
in a net
negative impact to the company of $84 million and $9 million, respectively,
on
the net fair value of its interest-sensitive financial instruments.
In
addition,
interest rate changes would result in a change in the company’s interest expense
due to variable-rate debt instruments. A 100-basis-point increase in
90-day
LIBOR at December 31, 2006 and 2005, would increase the company’s annual pre-tax
interest expense by $9 million and $1 million, respectively.
Currency
Exchange Rates
The
company views its investment in international subsidiaries with a functional
currency other than the company’s reporting currency as permanent. The company’s
investment in international subsidiaries is sensitive to fluctuations
in
currency exchange rates. The functional currencies of the company’s
international subsidiaries are principally denominated in euros, British
pounds
sterling and Japanese yen. The effect of a change in currency exchange
rates on
the company’s net investment in international subsidiaries is reflected in the
“accumulated other comprehensive items” component of shareholders’ equity. A 10%
depreciation in year-end 2006 and 2005 functional currencies, relative
to the
U.S. dollar, would result in a reduction of shareholders’ equity of $324 million
and $66 million, respectively.
The
fair
value of forward currency-exchange contracts is sensitive to changes
in currency
exchange rates. The fair value of forward currency-exchange contracts
is the
estimated amount that the company would pay or receive upon termination
of the
contract,
taking
into account the change in currency exchange rates. A 10% appreciation
in
year-end 2006 and 2005 currency exchange rates related to the company’s
contracts would result in an increase in the unrealized loss on forward
currency-exchange contracts of $7 million and $1 million, respectively.
The
unrealized gains or losses on forward currency-exchange contracts resulting
from
changes in currency exchange rates are expected to approximately offset
losses
or gains on the exposures being hedged.
Certain
of the company’s
cash
and cash equivalents are denominated in currencies other than the functional
currency of the depositor and are sensitive to changes in currency exchange
rates. A 10% depreciation in the related year-end 2006 and 2005 currency
exchange rates applied to such cash balances would result in a negative
impact
of $5 million and $3 million, respectively, on the company’s net
income.
Equity
Prices
The
company’s available-for-sale investment portfolio includes equity securities
that are sensitive to fluctuations in price. In addition, the company’s
convertible obligations are sensitive to fluctuations in the price of
the
company’s common stock. Changes in equity prices would result in changes in the
fair value of the company’s available-for-sale investments and convertible
obligations due to the difference between the current market price and
the
market price at the date of purchase or issuance of the financial instrument.
The company assumed Fisher’s convertible debt at the date of the merger. A 10%
increase in year-end 2006 and 2005 market equity prices would reduce
the fair
value of the company’s convertible obligations by $128 million and $1 million,
respectively.
|
Item
8.
|
Financial
Statements and Supplementary
Data
|
This
data
is submitted as a separate section to this report. See Item 15 “Exhibits
and Financial Statement Schedules.”
|
Item
9.
|
Changes
in and Disagreements with Accountants on
Accounting and Financial
Disclosure
|
Not
applicable.
|
Item
9A.
|
Controls
and
Procedures
|
Management’s
Evaluation of Disclosure Controls and Procedures
The
company’s management, with the participation of the company’s chief executive
officer and chief financial officer, evaluated the effectiveness of the
company’s disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2006. Based on this evaluation,
the
company’s chief executive officer and chief financial officer concluded that,
as
of December 31, 2006, the company’s disclosure controls and procedures were
effective in providing reasonable assurance that information required
to be
disclosed by the company in the reports that it files or submits under
the
Exchange Act is recorded, processed, summarized, reported and accumulated
and
communicated to the company’s management, including its chief executive officer
and chief financial officer, as appropriate to allow timely decisions
regarding
required disclosure.
Management’s
Annual Report on Internal Control Over Financial Reporting
The
company’s
management, including the company’s chief executive officer and chief financial
officer, is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and
15d-15(f)) for the company. Internal control over financial reporting
is a
process
designed to provide reasonable assurance regarding the reliability of
financial
reporting and the preparation of financial statements for external purposes
in
accordance with generally accepted accounting principles. The
company’s
management conducted an assessment of the effectiveness of the company’s
internal control over financial reporting as of December 31, 2006 based
on
criteria established in “Internal Control - Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based
on this assessment, the company’s management concluded that, as of December 31,
2006, the company’s internal control over financial reporting was effective.
The
company’s independent registered public accounting firm, PricewaterhouseCoopers
LLP, has audited the effectiveness of the company’s internal control over
financial reporting and management’s assessment of the effectiveness of the
company’s internal control over financial reporting as of December 31, 2006,
as
stated in their report that appears on pages F-2 and F-3 of this Annual
Report
on Form 10-K.
Changes
in Internal Control over Financial Reporting
There
have been no changes in the company’s internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the
fiscal
quarter ended December 31, 2006, that have materially affected or are
reasonably
likely to materially affect the company’s internal control over financial
reporting. The company acquired Fisher on November 9, 2006 and has evaluated
Fisher’s internal control over financial reporting as part of its overall
assessment of internal control over financial reporting at December 31,
2006.
|
Item
9B.
|
Other
Information
|
Not
applicable.
PART
III
|
Item
10.
|
Directors
and Executive Officers of the
Registrant
|
The
information with respect to directors required by this Item will be contained
in
our definitive proxy statement to be filed with the SEC not later than
120 days
after the close of business of the fiscal year (2007 Definitive Proxy
Statement)
and is incorporated in this report by reference.
The
information with respect to executive officers required by this Item
is included
in Item 1 of Part I of this report.
The
information with respect to Section 16(a) beneficial ownership reporting
compliance required by this Item will be contained in our 2007 Definitive
Proxy
Statement and is incorporated in this report by reference.
The
information with respect to audit committee financial expert and identification
of the audit committee of the Board of Directors required by this Item
will be
contained in our 2007 Definitive Proxy Statement and is incorporated
in this
report by reference. Copies of the audit committee charter, as well as
the
charters for the compensation committee and nominating and corporate
governance
committee, are available on our website at www.thermofisher.com. Paper
copies of
these documents may be obtained free of charge by writing to the company
care of
its Investor Relations Department at our principal executive office located
at
81 Wyman Street, Waltham, Massachusetts 02451.
The
company has adopted a code of ethics that applies to its principal executive
officer,
principal financial officer, principal accounting officer or controller,
or
persons performing similar functions. This code of ethics is incorporated
in our
code of business conduct and ethics that applies to all of our officers,
directors and employees. A copy of our code of business conduct and ethics
is
available on our website at www.thermofisher.com. We intend to satisfy
the SEC’s
disclosure requirements regarding amendments to, or waivers of, the code
of
business conduct and ethics by posting such information on our website.
A paper
copy of our code of business conduct and ethics may be obtained free
of charge
by writing to the company care of its Investor Relations Department at
our
principal executive office.
In
addition,
the
Board of Directors has adopted corporate governance guidelines of the
company. A
copy of the company’s corporate governance guidelines are available on the
company’s website at www.thermofisher.com. Paper copies of the corporate
governance guidelines may be obtained free of charge by writing to the
company
care of its Investor Relations Department at our principal executive
office.
Item
11.
Executive Compensation
The
information required by this Item will be contained in our 2007 Definitive
Proxy
Statement and is incorporated in this report by reference.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and
Management and Related Stockholder
Matters
|
The
information required by this Item will be contained in our 2007
Definitive Proxy Statement and is incorporated in this report by reference.
|
Item
13.
|
Certain
Relationships and Related Transactions and
Director Independence
|
The
information required by this Item will
be
contained in our 2007 Definitive Proxy Statement and is incorporated
in this
report by reference.
|
Item
14.
|
Principal
Accountant Fees and
Services
|
The
information required by this Item will be contained in our 2007 Definitive
Proxy
Statement and is incorporated in this report by reference.
PART
IV
|
Item
15.
|
Exhibits
and Financial Statement
Schedules
|
|
(a)
|
The
following documents are filed as part of this
report:
|
|
(1)
|
Consolidated
Financial Statements (see Index on page F-1 of this
report):
|
Report
of
Independent Registered Public Accounting Firm
Consolidated
Statement of Income
Consolidated
Balance Sheet
Consolidated
Statement of Cash Flows
Consolidated
Statement of Comprehensive Income and Shareholders’ Equity
Notes
to
Consolidated Financial Statements
|
(2)
|
Consolidated
Financial Statement Schedule (see Index on page F-1 of this
report):
|
Schedule
II: Valuation and Qualifying Accounts
All
other
schedules are omitted because they are not applicable or not required,
or
because the required information is included either in the consolidated
financial statements or in the notes thereto.
|
(b)
|
Exhibits
|
See
the
Exhibit Index on page 57.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of
1934,
the
Registrant has duly caused this Report to be signed on its behalf by
the
undersigned, thereunto duly authorized.
|
Date: March
1, 2007
|
THERMO
FISHER SCIENTIFIC INC.
|
|
By: /s/
Marijn E.
Dekkers
|
|
|
Marijn
E. Dekkers
|
|
|
President
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934,
this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 1, 2007.
|
Signatures
|
Title
|
||
| By: |
/s/
Marijn E. Dekkers
|
President,
Chief Executive Officer and Director
|
|
| Marijn E. Dekkers |
(Principal
Executive Officer)
|
||
| By: |
/s/
Paul M. Meister
|
Chairman
of the Board and Director
|
|
| Paul M. Meister | |||
|
|
|||
| By: |
/s/
Peter M. Wilver
|
Senior
Vice President and Chief Financial Officer
|
|
|
Peter
M. Wilver
|
(Principal Financial Officer) | ||
| By: |
/s/
Peter E. Hornstra
|
Vice
President and Chief Accounting Officer
|
|
| Peter E. Hornstra | (Principal Accounting Officer) | ||
| By: |
/s/
Bruce L. Koepfgen
|
Director
|
|
| Bruce L. Koepfgen | |||
| By: |
/s/
Peter J. Manning
|
Director
|
|
| Peter J. Manning | |||
| By: |
/s/
Jim P. Manzi
|
Director
|
|
| Jim P. Manzi | |||
| By: |
/s/
Michael E. Porter
|
Director
|
|
| Michael E. Porter | |||
| By: | /s/ Scott M. Sperling | Director | |
| Scott M. Sperling | |||
| By: |
/s/
Elaine S. Ullian
|
Director
|
|
| Elaine S. Ullian |
|
Exhibit
Number
|
Description
of Exhibit
|
|
2.1
|
Agreement
and Plan of Merger by and among Thermo Electron Corporation,
Trumpet
Merger Corporation and Fisher Scientific International Inc.,
dated as of
May 7, 2006 (filed as Exhibit 2.1 to the Registrant’s Current Report on
Form 8-K filed May 11, 2006 [file No. 1-8002] and incorporated
in this
document by reference).
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant
(filed as
Exhibit 3.1. to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2005 [File No. 1-8002] and incorporated
in this
document by reference).
|
|
|
3.2
|
Amendment
to Thermo Fisher Scientific Inc.’s Third Amended and Restated Certificate
of Incorporation (filed as Exhibit 3.1 to the Registrant’s Current Report
on Form 8-K filed November 14, 2006 [file No. 1-8002] and incorporated
in
this document by reference).
|
|
|
3.3
|
Amended
and Restated Bylaws of the Company, effective as of January
17, 2007
(filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed
January 19, 2007 [File No. 1-8002] and incorporated in this
document by
reference).
|
|
|
The
Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation
S-K,
to furnish to the Commission upon request, a copy of each instrument
with
respect to long-term debt of the Registrant or its consolidated
subsidiaries.
|
||
|
4.1
|
Rights
Agreement, dated as of September 15, 2005, by and between Thermo
Electron
Corporation and American Stock Transfer & Trust Company, as Rights
Agent, which includes as Exhibit A, the Terms of Series B Junior
Participating Preferred Stock, and as Exhibit B, the Form of
Rights
Certificate (filed as Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K filed September 16, 2005 [File No. 1-8002] and incorporated
in
this document by reference).
|
|
|
4.2
|
Amendment
No. 1 to the Rights Agreement, dated as of May 7, 2006, between
Thermo
Electron Corporation and American Stock Transfer & Trust Company, as
rights agent (filed as Exhibit 1.1 to the Registrant’s Registration
Statement on Form 8-A/A filed May 12, 2006 [File No. 1-8002]
and
incorporated in this document by reference).
|
|
|
10.1
|
Revolving
Credit Facility Letters from Barclays Bank PLC in favor of
the Registrant
and its subsidiaries (filed as Exhibit 10.8 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended January 3, 1998
[File No.
1-8002] and incorporated in this document by
reference).
|
|
|
10.2
|
Amended
and Restated Deferred Compensation Plan for Directors of the
Registrant
(filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated
in this document by reference).
|
|
|
10.3
|
Thermo
Fisher Scientific Inc. Directors Stock Option Plan, as amended
and
restated as of November 9, 2006 (filed as Exhibit 10.21 to
the
Registrant’s Current Report on Form 8-K filed November 14, 2006 [File
No.
1-8002] and incorporated in this document by
reference).
|
|
|
10.4
|
Thermo
Electron Corporation 2003 Annual Incentive Award Plan, effective
May 14,
2003 (filed as Appendix B to the Registrant’s Definitive Proxy on Schedule
14A for the 2003 Annual Shareholders Meeting [File No. 1-8002]
and
incorporated in this document by
reference).
|
|
10.5
|
Thermo
Fisher Scientific Equity Incentive Plan, as amended and restated
as of
November 9, 2006.
|
|
|
10.6
|
Thermo
Fisher Scientific 2001 Equity Incentive Plan, as amended and
restated as
of November 9, 2006.
|
|
|
10.7
|
Thermo
Fisher Scientific Employees’ Equity Incentive Plan, as amended and
restated as of November 9, 2006.
|
|
|
10.8
|
Thermo
Electron Corporation Deferred Compensation Plan, effective
November 1,
2001 (filed as Exhibit 10.13 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 29, 2001 [File No.
1-8002] and
incorporated in this document by reference).
|
|
|
Each
of the plans listed in Exhibits 10.9 to 10.21
originally provided for the grant of options to acquire the
shares of the
Registrant’s formerly majority-owned subsidiaries. In connection with
the
reorganization of the Registrant commenced in 1999, all of
the
Registrant’s formerly majority-owned subsidiaries were taken private and
as a result, these plans were frozen and all of the options
originally
granted under the plans ultimately became options to purchase
shares of
Common Stock of the Registrant.
|
||
|
10.9
|
Amended
and Restated Thermo Information Solutions Inc. Equity Incentive
Plan
(filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 28, 2002 [File No. 1-8002] and
incorporated
in this document by reference). (Thermo Information Solutions
merged with
Thermo Coleman Corporation on September 17, 1999, and Thermo
Coleman
merged with Thermo Electron on October 15, 1999.)
|
|
|
10.10
|
Amended
and Restated Thermo Coleman Corporation Equity Incentive Plan
(filed as
Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2002 [File No. 1-8002] and
incorporated in this document by reference). (Thermo Coleman
merged with
Thermo Electron on October 15, 1999.)
|
|
|
10.11
|
Equity
Incentive Plan of Thermo Sentron Inc. (filed as Exhibit 10.7
to Thermo
Sentron’s Registration Statement on Form S-1 [Reg. No. 333-806] and
incorporated in this document by reference). (Thermo Sentron
merged with
Thermedics Inc. on April 4, 2000, and Thermedics merged with
Thermo
Electron on June 30, 2000.)
|
|
10.12
|
Equity
Incentive Plan of Thermedics Detection Inc. (filed as Exhibit
10.7 to
Thermedics Detection’s Registration Statement on Form S-1 [File No.
333-19199] and incorporated in this document by reference).
(Thermedics
Detection merged with Thermedics on April 12, 2000, and Thermedics
merged
with Thermo Electron on June 30, 2000.)
|
|
|
10.13
|
Amended
and Restated Equity Incentive Plan of Metrika Systems Corporation
(filed
as Exhibit 10.3 to the Quarterly Report on Form 10-Q of Metrika
for the
quarter ended July 3, 1999 [File No. 1-13085] and incorporated
in this
document by reference). (Metrika merged with Thermo Instrument
on May 3,
2000, and Thermo Instrument merged with Thermo Electron on
June 30,
2000.)
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.14
|
Amended
and Restated Equity Incentive Plan of ThermoQuest Corporation
(filed as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of ThermoQuest
for the
quarter ended July 3, 1999 [File No. 1-14262] and incorporated in
this document by reference). (ThermoQuest merged with Thermo
Instrument on
May 11, 2000, and Thermo Instrument merged with Thermo Electron
on June
30, 2000.)
|
|
|
10.15
|
Amended
and Restated Thermo Electron Corporation - ThermoQuest Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.19 to the
Registrant’s
Quarterly Report on Form 10-Q for the quarter ended July 3,
1999 [File No.
1-8002] and incorporated in this document by reference). (On
May 11, 2000,
ThermoQuest merged with Thermo Instrument and on June 30, 2000,
Thermo
Instrument merged with Thermo Electron and all outstanding
options granted
under this plan were ultimately assumed by Thermo
Electron.)
|
|
|
10.16
|
Amended
and Restated Equity Incentive Plan of Thermo Optek Corporation
(filed as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Thermo
Optek for the
quarter ended July 3, 1999 [File No. 1-11757] and incorporated in
this document by reference). (Thermo Optek merged with Thermo
Instrument
on May 11, 2000, and Thermo Instrument merged with Thermo Electron
on June
30, 2000.)
|
|
|
10.17
|
Amended
and Restated Thermo Electron Corporation - Thermo Optek Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.20 to the
Registrant’s
Quarterly Report on Form 10-Q for the quarter ended July 3,
1999 [File No.
1-8002] and incorporated in this document by reference). (On
May 11, 2000,
Thermo Optek merged with Thermo Instrument and on June 30,
2000, Thermo
Instrument merged with Thermo Electron and all outstanding
options granted
under this plan were ultimately assumed by Thermo
Electron.)
|
|
|
10.18
|
Amended
and Restated Equity Incentive Plan of Thermo Instrument Systems
Inc.
(filed as Exhibit 10.6 to the Quarterly Report on Form 10-Q
of Thermo
Instrument for the quarter ended July 3, 1999 [File No. 1-9786]
and
incorporated in this document by reference). (Thermo Instrument
merged
with Thermo Electron on June 30, 2000.)
|
|
|
10.19
|
Amended
and Restated Equity Incentive Plan of Trex Medical Corporation
(filed as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Trex Medical
for the
quarter ended July 3, 1999 [File No. 1-11827] and incorporated
in this
document by reference). (Trex Medical merged with Thermo Electron
on
November 29, 2000.)
|
|
|
10.20
|
1997
Spectra-Physics Lasers, Inc. Stock Option Plan (filed as Exhibit
10.6 of
Amendment No. 1 to Spectra-Physics’ Registration Statement on Form S-1
[File No. 333-38329] and incorporated in this document by reference).
(Spectra-Physics merged with Thermo Electron on February 25,
2002.)
|
|
|
10.21
|
2000
Spectra-Physics Lasers, Inc. Stock Incentive Plan (filed as
Exhibit 10.1
to Spectra-Physics’ Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 [File No. 000-23461] and incorporated in
this document
by reference). (Spectra-Physics merged with Thermo Electron
on February
25, 2002.)
|
|
|
10.22
|
Description
of Amendments to Certain Stock Option Plans made in February
2002 (filed
as Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 29, 2001 [File No. 1-8002] and incorporated
in
this document by reference).
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.23
|
Form
of Amended and Restated Indemnification Agreement between the
Registrant
and its directors and officers (filed as Exhibit 10.2 to the
Registrant’s
Registration Statement on Form S-4 [Reg. No. 333-90661] and
incorporated in this document by reference).
|
|
|
10.24
|
Amended
and Restated Employment Agreement between the Registrant and
Marijn
Dekkers (filed as Exhibit 99.1 to the Registrant’s Current Report on Form
8-K dated December
12, 2002.
|
|
|
10.25
|
Executive
Registry Program at the Massachusetts General Hospital (filed
as Exhibit
10.74 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 28, 2002 [File No. 1-8002] and incorporated in this
document by reference).
|
|
|
10.26
|
Form
of Executive Change in Control Retention Agreement dated November
19,
2003, between the Registrant and its executive officers (other
than Marijn
Dekkers) and certain other key employees (filed as Exhibit
10.65 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2003 [File No. 1-8002] and incorporated in this document
by
reference).
|
|
|
10.27
|
Form
of Amendment to Executive Change in Control Retention Agreement
dated
November 9, 2006 between the Registrant and certain key employees
and
executive officers who signed original agreements prior to
November 9,
2006 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed November 14, 2006 [File No. 1-8002] and incorporated
in this
document by reference).
|
|
|
10.28
|
Form
of Amendment to Executive Change in Control Retention Agreement
dated
November 9, 2006 between the Registrant and certain persons
who became
executives on or after November 9, 2006 (filed as Exhibit 10.3
to the
Registrant’s Current Report on Form 8-K filed November 14, 2006 [File
No.
1-8002] and incorporated in this document by
reference).
|
|
|
10.29
|
Form
of Executive Severance Agreement dated November 19, 2003, between
the
Registrant and its executive officers (other than Marijn Dekkers)
and
certain other key employees (filed as Exhibit 10.66 to the
Registrant’s
Annual Report on Form 10-K for the fiscal year ended December
31, 2003
[File No. 1-8002] and incorporated in this document by
reference).
|
|
|
10.30
|
Amendment
No. 1 to Executive Severance Agreement with Marc Casper, dated
as of
November 9, 2006(filed as Exhibit 10.7 to the Registrant’s Current Report
on Form 8-K filed November 14, 2006 [File No. 1-8002] and incorporated
in
this document by reference).
|
|
|
10.31
|
Amendment
No. 1 to Executive Severance Agreement with Guy Broadbent,
dated as of
November 9, 2006 (filed as Exhibit 10.8 to the Registrant’s Current Report
on Form 8-K filed November 14, 2006 [File No. 1-8002] and incorporated
in
this document by reference).
|
|
|
10.32
|
Restricted
Stock Units Agreement dated November 19, 2003, by and between
the
Registrant and Marc Casper (filed as Exhibit 10.68 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December
31, 2003
[File No. 1-8002] and incorporated in this document by reference).
|
|
|
10.33
|
Stock
Option Agreement dated December 12, 2003, by and between the
Registrant
and Jim Manzi (filed as Exhibit 10.72 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2003 [File
No. 1-8002]
and incorporated in this document by reference).
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.34
|
Letter
Agreement dated February 11, 2004, between the Registrant and
Marijn
Dekkers (filed as Exhibit 10.74 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2003 [File No.
1-8002] and
incorporated in this document by reference).
|
|
|
10.35
|
Credit
Agreement dated August 29, 2006, among the Company, as borrower,
Bank of
America, N.A., as administrative agent and swing line lender,
Bank of
America, N.A. and Barclays Bank PLC, as L/C issuers, the several
banks and
other financial institutions or entities from time to time
parties
thereto, as lenders, Banc of America Securities LLC and Barclays
Capital,
as joint lead arrangers and joint book managers, Barclays Bank
PLC, as
syndication agent, and ABN AMRO Bank, N.V., Deutsche Bank Securities,
Inc., and JP Morgan Chase Bank, N.A., as documentation agents
(filed as
Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed
September 1, 2006 [File No. 1-8002] and incorporated in this
document by
reference).
|
|
|
10.36
|
Letter
Agreement dated February 25, 2005, between the Registrant and
Marijn
Dekkers (filed as Exhibit 10.60 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2004 [File No.
1-8002] and
incorporated in this document by reference).
|
|
|
10.37
|
Form
of Thermo Electron Corporation Stock Option Agreement for use
in
connection with the grant of stock options under certain of
the
Registrant’s equity incentive plans to officers and directors of the
Registrant (filed as Exhibit 99.1 to the Registrant’s Current Report on
Form 8-K filed March 2, 2005 [file number 1-8002] and incorporated
herein
by reference).
|
|
|
10.38
|
Form
of Thermo Electron Corporation Stock Option Agreement for use
in
connection with the grant of stock options under the company’s 2005 Stock
Incentive Plan to officers and directors (other than Marijn
Dekkers)
(filed as Exhibit 99.1 to the company’s Current Report on Form 8-K filed
May 23, 2005 [File No. 1-8002] and incorporated in this document
by
reference).
|
|
|
10.39
|
Form
of Thermo Fisher Scientific Inc. Stock Option Agreement for
use in
connection with the grant of stock options under the Registrant’s equity
plans, as amended and restated on November 9, 2006 to officers
and
directors of the Registrant (other than Marijn Dekkers, Marc
Casper and
Guy Broadbent) (filed as Exhibit 10.12 to the Registrant’s Current Report
on Form 8-K filed November 14, 2006 [file number 1-8002] and
incorporated
in this document by reference).
|
|
|
10.40
|
Form
of Thermo Electron Corporation Stock Option Agreement for use
in
connection with the grant of stock options under the Registrant’s equity
incentive plans to Marijn Dekkers (filed as Exhibit 99.2 to
the
Registrant’s Current Report on Form 8-K filed March 2, 2005 [file number
1-8002] and incorporated in this document by reference).
|
|
|
10.41
|
Form
of Thermo Fisher Scientific Inc. Stock Option Agreement for
use in
connection with the grant of stock options under the Registrant’s 2005
Stock Incentive Plan, as amended and restated on November 9,
2006 to
Marijn Dekkers (filed as Exhibit 10.13 to the Registrant’s Current Report
on Form 8-K filed November 14, 2006 [file number 1-8002] and
incorporated
in this document by reference).
|
|
|
10.42
|
Stock
Option Agreement dated November 9, 2006 with Marc Casper (filed
as Exhibit
10.14 to the Registrant’s Current Report on Form 8-K filed November 14,
2006 [file number 1-8002] and incorporated in this document
by
reference).
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.43
|
Stock
Option Agreement dated November 9, 2006 with Guy Broadbent
(filed as
Exhibit 10.15 to the Registrant’s Current Report on Form 8-K filed
November 14, 2006 [file number 1-8002] and incorporated in
this document
by reference).
|
|
|
10.44
|
Form
of Thermo Electron Corporation Restricted Stock Agreement for
use in
connection with the grant of restricted stock under the Registrant’s
equity incentive plans to Marijn Dekkers (filed as Exhibit
99.3 to the
Registrant’s Current Report on Form 8-K filed March 2, 2005 [file number
1-8002] and incorporated in this document by reference).
|
|
|
10.45
|
Form
of Thermo Fisher Scientific Inc.’s Restricted Stock Agreement for use in
connection with the grant of restricted stock under the Registrant’s 2005
Stock Incentive Plan, as amended and restated on November 9,
2006 to
Marijn Dekkers (filed as Exhibit 10.17 to the Registrant’s Current Report
on Form 8-K filed November 14, 2006 [file number 1-8002] and
incorporated
in this document by reference).
|
|
|
10.46
|
Form
of Thermo Fisher Scientific Inc.’s Restricted Stock Agreement for use in
connection with the grant of restricted stock under the Registrant’s 2005
Stock Incentive Plan, as amended and restated on November 9,
2006 to
officers of the Registrant (other than Marijn Dekkers, Marc
Casper and Guy
Broadbent) (filed as Exhibit 10.16 to the Registrant’s Current Report on
Form 8-K filed November 14, 2006 [file number 1-8002] and incorporated
in
this document by reference).
|
|
|
10.47
|
Restricted
Stock Agreement dated February 27, 2006, by and between the
Registrant and
Guy Broadbent (filed as Exhibit 10.54 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2005 [file
No. 1-8002]
and incorporated in this document by reference).
|
|
|
10.48
|
Restricted
Stock Agreement dated November 9, 2006 with Marc Casper (filed
as Exhibit
10.18 to the Registrant’s Current Report on Form 8-K filed November 14,
2006 [file number 1-8002] and incorporated in this document
by
reference).
|
|
|
10.49
|
Restricted
Stock Agreement dated November 9, 2006 with Guy Broadbent (filed
as
Exhibit 10.19 to the Registrant’s Current Report on Form 8-K filed
November 14, 2006 [file number 1-8002] and incorporated in
this document
by reference).
|
|
|
10.50
|
Form
of Thermo Fisher Scientific Inc.’s Performance Restricted Stock Agreement
for use in connection with the grant of performance restricted
stock under
the Registrant’s 2005 Stock Incentive Plan, as amended and restated on
November 9, 2006 to officers of the Registrant (filed as Exhibit
10.20 to
the Registrant’s Current Report on Form 8-K filed November 14, 2006 [file
number 1-8002] and incorporated in this document by
reference).
|
|
|
10.51
|
Summary
of Thermo Fisher Scientific Inc. Annual Director Compensation
(filed
as Exhibit 10.22 to the Registrant’s Current Report on Form 8-K filed
November 14, 2006 [file number 1-8002] and incorporated in
this document
by reference).
|
|
|
10.52
|
Thermo
Fisher Scientific Inc. 2005 Stock Incentive Plan, as amended
and restated
on November 9, 2006 (filed
as Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed
November 14, 2006 [file number 1-8002] and incorporated in
this document
by reference).
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.53
|
Fisher
Scientific International Inc. 2005 Equity and Incentive Plan,
as amended
for awards granted on or after November 9, 2006 (filed
as Exhibit 10.10 to the Registrant’s Current Report on Form 8-K filed
November 14, 2006 [file number 1-8002] and incorporated in
this document
by reference).
|
|
|
10.54
|
Letter
Agreement dated November 17, 2005 between the Registrant and
Marijn
Dekkers
(filed as Exhibit 10.50 to the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2006 [file No. 1-8002] and
incorporated
in this document by reference).
|
|
|
10.55
|
Letter
Agreement dated February 27, 2006, between the Registrant and
Marijn
Dekkers
filed as Exhibit 10.51 to the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2006 [file No. 1-8002] and
incorporated
in this document by reference).
|
|
|
10.56
|
Summary
of Annual Incentive Program of Thermo Electron Corporation
(filed as
Exhibit 10.66 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2004 [File No. 1-8002] and incorporated
in
this document by reference).
|
|
|
10.57
|
Summary
of 2007 Annual Cash Incentive Plan Matters (set forth in Item
1.01 to the
Registrant’s Current Report on Form 8-K dated
filed
March 1, 2007 [File No. 1-8002] in the first two paragraphs
under heading
“2007 Executive Compensation Matters” and incorporated herein by
reference).
|
|
|
10.58
|
Marijn
Dekkers Waiver Letter, dated as of May 7, 2006 ((filed as Exhibit
10.1 to
the company’s Current Report on Form 8-K filed May 11, 2006 [file No.
1-8002] and incorporated in this document by
reference).
|
|
|
10.59
|
Form
of Noncompetition Agreement between the Registrant and certain
key
employees and executive officers (filed
as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed
November 14, 2006 [file No. 1-8002] and incorporated in this
document by
reference).
|
|
|
10.60
|
Noncompetition
Agreement between the Registrant and Marc Casper, dated as
of November 9,
2006 (filed
as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed
November 14, 2006 [file No. 1-8002] and incorporated in this
document by
reference).
|
|
|
10.61
|
Noncompetition
Agreement between the Registrant and Guy Broadbent, dated as
of November
9, 2006 (filed
as Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed
November 14, 2006 [file No. 1-8002] and incorporated in this
document by
reference).
|
|
|
10.62
|
Amended
and Restated Employment Agreement, dated as of December 31, 2003,
between Fisher Scientific International Inc. and Paul M. Meister
(filed as
Exhibit 10.2 to Fisher Scientific International Inc.’s Registration
Statement on Form S-3 (Registration no. 333-110038) filed on
January 6, 2004 and incorporated in this document by
reference).
|
|
|
10.63
|
Amendment
to Employment Agreement, dated as of August 2, 2005, between Fisher
Scientific International Inc. and Paul M. Meister (filed as
Exhibit 10.03
to Fisher Scientific International Inc.’s. Quarterly Report on
Form 10-Q filed August 4, 2005 [file No. 1-10920] and
incorporated in this document by
reference).
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.64
|
Second
Amendment to Employment Agreement, dated as of January 10,
2006, between
Fisher Scientific International Inc. and Paul M. Meister (filed
as Exhibit
10.02 to Fisher Scientific International Inc.’s. Current Report on
Form 8-K filed January 11, 2006 [file No. 1-10920] and incorporated
in this document by reference).
|
|
|
10.65
|
Fisher
Scientific International Inc. Incentive Compensation Plan,
as amended and
restated effective as of January 1, 2002 (filed as Exhibit 10.6 to
Fisher Scientific International Inc.’s. Annual Report on Form 10-K for the
year ended December 31, 2002, filed March 21, 2003 [file No.
1-10920] and incorporated in this document by reference).
|
|
|
10.66
|
Fisher
Scientific International Inc. Deferred Compensation Plan for
Non-Employee
Directors (filed as Exhibit 10.11 to Fisher Scientific International
Inc.’s Annual Report on Form 10-K for the year ended December 31,
1992 filed March 24, 1993 [file No. 1-10920] and incorporated in this
document by reference).
|
|
|
10.67
|
First
Amendment to the Fisher Scientific International Inc. Deferred
Compensation Plan for Non-Employee Directors (filed as Exhibit
10.01 to
Fisher Scientific International Inc.’s Current Report on Form 8-K filed
March 7, 2006 [file No. 1-10920] and incorporated in this document
by
reference).
|
|
|
10.68
|
Retirement
Plan for Non-Employee Directors of Fisher Scientific International
Inc.
(filed as Exhibit 10.12 to Fisher Scientific International
Inc.’s Annual
Report on Form 10-K for the year ended December 31, 1992 filed
March 24, 1993 [file No. 1-10920] and incorporated in this document
by reference).
|
|
|
10.69
|
First
Amendment to the Fisher Scientific International Inc. Retirement
Plan for
Non-Employee Directors (filed as Exhibit 10.04 to Fisher Scientific
International Inc.’s Quarterly Report on Form 10-Q filed May 10,
2005 [file No. 1-10920] and incorporated in this document by
reference).
|
|
|
10.70
|
Amendment
to Retirement Plan for Non-Employee Directors of Fisher Scientific
International Inc. (filed as Exhibit 10.02 to Fisher Scientific
International Inc.’s Current Report on Form 8-K filed March 7, 2006 [file
No. 1-10920] and incorporated in this document by
reference).
|
|
|
10.71
|
Fisher
Scientific International Inc. 2001 Equity and Incentive Plan,
effective as
of May 16, 2001 (filed as Annex I to Fisher Scientific International
Inc.’s definitive proxy statement filed April 12, 2001 [file No.
1-10920] and incorporated in this document by
reference).
|
|
|
10.72
|
Form
of Fisher Scientific International Inc. Non-Qualified Stock
Option Award
Agreement (Management Options — Fisher Scientific International Inc.
2001 Equity and Incentive Plan) (filed as Exhibit 10.1 to Fisher
Scientific International Inc.’s Quarterly Report on Form 10-Q filed
November 9, 2004 [file No. 1-10920] and incorporated in this document
by reference).
|
|
|
10.73
|
Form
of Fisher Scientific International Inc. Non-Qualified Stock
Option Award
Agreement (Management Options - Fisher Scientific International
Inc. 2003
Equity and Incentive Plan) (filed as Exhibit 10.2 to Fisher
Scientific
International Inc.’s Quarterly Report on Form 10-Q filed November 9, 2004
[file No. 1-10920] and incorporated in this document by reference).
|
|
|
10.74
|
Form
of Non-Qualified Stock Option Agreement pursuant to the Fisher
Scientific
International Inc. 2001 Equity and Incentive Plan and 2003
Equity and
Incentive Plan (filed as Exhibit 10.1 to Fisher Scientific
International
Inc.’s Current Report on Form 8-K filed March 9, 2005 [file No.
1-10920] and incorporated in this document by
reference).
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.75
|
Fisher
Scientific International Inc. 2005 Equity and Incentive Plan,
effective as
of May 6, 2005 (filed as Exhibit A to Fisher Scientific International
Inc.’s definitive proxy statement filed April 4, 2005 [file No.
1-10920] and incorporated in this document by
reference).
|
|
|
10.76
|
Form
of 2005 Equity and Incentive Plan Non-Qualified Stock Option
Award
Agreement (filed as Exhibit 10.01 to Fisher Scientific International
Inc.’s Current Report on Form 8-K filed June 10, 2005 [file No.
1-10920] and incorporated in this document by
reference).
|
|
|
10.77
|
Form
of Performance Based Restricted Stock Unit Agreement (filed
as Exhibit
10.01 to Fisher Scientific International Inc.’s Current Report on
Form 8-K filed December 19, 2005 [file No. 1-10920] and
incorporated in this document by reference).
|
|
|
10.78
|
Fisher
Scientific International Inc. Executive Retirement and Savings
Program,
originally effective August 1, 1992, as restated effective
June 23, 1997 (filed as Exhibit 10.60 to Fisher Scientific
International Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2004, filed March 16, 2005 [file No. 1-10920] and
incorporated in this document by reference).
|
|
|
10.79
|
First
amendment to the Fisher Scientific International Inc. Executive
Retirement
and Savings Program (filed as Exhibit 10.61 to Fisher Scientific
International Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2004, filed March 16, 2005 [file No. 1-10920] and
incorporated in this document by reference).
|
|
|
10.80
|
Second
Amendment to the Fisher Scientific International Inc. Executive
Retirement
and Savings Program (filed as Exhibit 10.03 to Fisher Scientific
International Inc.’s Quarterly Report on Form 10-Q filed May 10,
2005 [file No. 1-10920] and incorporated in this document by
reference).
|
|
|
10.81
|
Description
of Amendments made in November 2006 to certain Fisher Scientific
International Inc. Restricted Stock Unit Awards.
|
|
|
21
|
Subsidiaries
of the Registrant.
|
|
|
23.1
|
Consent
of PricewaterhouseCoopers LLP.
|
|
|
31.1
|
Certification
of Chief Executive Officer required by Exchange Act Rules 13a-14(a)
and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.
|
|
|
31.2
|
Certification
of Chief Financial Officer required by Exchange Act Rules 13a-14(a)
and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.
|
|
|
32.1
|
Certification
of Chief Executive Officer required by Exchange Act Rules 13a-14(b)
and
15d-14(b), as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.*
|
|
|
32.2
|
Certification
of Chief Financial Officer required by Exchange Act Rules 13a-14(b)
and
15d-14(b), as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.*
|
|
*
|
Certification
is not deemed “filed” for purposes of Section 18 of the Exchange Act or
otherwise subject to the liability of that section. Such
certification is not deemed to be incorporated by reference
into any
filing under the Securities Act or the Exchange Act except
to the extent
that the registrant specifically incorporates it by
reference.
|
65
THERMO
FISHER SCIENTIFIC INC.
ANNUAL
REPORT ON FORM 10-K
INDEX
OF CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
The
following Consolidated Financial Statements of the Registrant
and its subsidiaries are required to be included in Item 15:
|
Page
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated Statement of Income for the years ended December
31, 2006,
2005 and 2004
|
F-4
|
|
Consolidated
Balance Sheet as of December 31, 2006 and 2005
|
F-5
|
|
Consolidated Statement of Cash Flows for the years ended December
31,
2006, 2005 and 2004
|
F-7
|
|
Consolidated Statement of Comprehensive Income and Shareholders’ Equity
for the years ended December 31, 2006, 2005 and 2004
|
F-9
|
|
Notes
to Consolidated Financial Statements
|
F-11
|
The
following Consolidated Financial Statement Schedule of the Registrant
and its
subsidiaries is filed as part of this Report as required to be included
in Item
15(a):
|
Page
|
|
|
Schedule
II – Valuation and Qualifying Accounts
|
F-72
|
|
Note:
|
All
other financial statement schedules are omitted because they
are not
applicable or not required, or because the required information
is
included in the consolidated financial statements or in the
notes
thereto.
|
F-1
THERMO
FISHER SCIENTIFIC INC.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Shareholders of
Thermo
Fisher Scientific Inc.:
We
have
completed integrated audits of Thermo Fisher Scientific Inc.'s consolidated
financial statements and of its internal control over financial reporting
as of
December 31, 2006 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our
audits,
are presented below.
Consolidated
financial statements and financial statement schedule
In
our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Thermo Fisher Scientific Inc. and its subsidiaries at December
31,
2006 and 2005, and the results of their operations and their cash flows
for each
of the three years in the period ended December 31, 2006 in conformity
with
accounting principles generally accepted in the United States of America.
In
addition, in our opinion, the financial statement schedule listed in
the index
appearing under Item 15(a)(2) presents
fairly, in all material respects, the information set forth therein when
read in
conjunction with the related consolidated financial statements. These
financial
statements and financial statement schedule are the responsibility of
the
Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We
conducted our audits of these statements in accordance with the standards
of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about
whether the financial statements are free of material misstatement. An
audit of
financial statements includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
As
discussed in Notes 1 and 5 to the consolidated financial statements,
the Company
changed the manner in which it accounts for share-based compensation
in 2006 and
the manner in which it accounts for defined benefit pension and other
postretirement plans effective December 31, 2006.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management’s Annual Report on
Internal Control Over Financial Reporting appearing under Item 9A, that
the
Company maintained effective internal control over financial reporting
as of
December 31, 2006 based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material
respects,
effective internal control over financial reporting as of December 31,
2006,
based on criteria established in Internal
Control - Integrated Framework
issued
by the COSO. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on the effectiveness
of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight
Board
(United States). Those standards require that we plan and perform the
audit to
obtain reasonable assurance about whether effective internal control
over
financial reporting was maintained in all material respects. An audit
of
internal control over financial reporting includes obtaining an understanding
of
internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary
in the
circumstances. We believe that our audit provides a reasonable basis
for our
opinions.
F-2
THERMO
FISHER SCIENTIFIC INC.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -
(Continued)
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting
may not
prevent or detect misstatements. Also, projections of any evaluation
of
effectiveness to future periods are subject to the risk that controls
may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
Boston,
Massachusetts
February
28,
2007
F-3
THERMO
FISHER SCIENTIFIC INC.
CONSOLIDATED
STATEMENT OF INCOME
(In
thousands except per share amounts)
|
Year
Ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Revenues (Notes
1 and 3)
|
$
|
3,791,617
|
$
|
2,633,027
|
$
|
2,205,995
|
||||
|
Costs
and Operating Expenses:
|
||||||||||
|
Cost
of revenues (Note 15)
|
2,223,557
|
1,438,079
|
1,191,516
|
|||||||
|
Selling,
general and administrative expenses
|
1,110,205
|
761,786
|
626,458
|
|||||||
|
Research
and development expenses
|
170,184
|
152,775
|
134,680
|
|||||||
|
Restructuring
and other costs, net (Note 15)
|
45,712
|
16,900
|
15,829
|
|||||||
|
3,549,658
|
2,369,540
|
1,968,483
|
||||||||
|
Operating
Income
|
241,959
|
263,487
|
237,512
|
|||||||
|
Other
Income (Expense), Net (Note 4)
|
(32,589
|
)
|
22,411
|
21,707
|
||||||
|
Income
from Continuing Operations Before Provision for Income
Taxes
|
209,370
|
285,898
|
259,219
|
|||||||
|
Provision
for Income Taxes (Note 6)
|
(43,054
|
)
|
(87,597
|
)
|
(40,852
|
)
|
||||
|
Income
from Continuing Operations
|
166,316
|
198,301
|
218,367
|
|||||||
|
Income from Discontinued Operations (net of income tax provision
of $233
in 2006;
includes income tax benefit of $36,321 in 2004; Note 16)
|
543
|
—
|
43,018
|
|||||||
|
Gain on Disposal of Discontinued Operations, Net (net of income
tax
provision of
$1,146 and $16,341 in 2006 and 2005; includes income tax benefit
of
$36,728 in
2004; Note
16)
|
2,076
|
24,917
|
100,452
|
|||||||
|
Net
Income
|
$
|
168,935
|
$
|
223,218
|
$
|
361,837
|
||||
|
Earnings per Share from Continuing Operations (Note
7)
|
||||||||||
|
Basic
|
$
|
.85
|
$
|
1.23
|
$
|
1.34
|
||||
|
Diluted
|
$
|
.82
|
$
|
1.21
|
$
|
1.31
|
||||
|
Earnings
per Share (Note
7)
|
||||||||||
|
Basic
|
$
|
.86
|
$
|
1.38
|
$
|
2.22
|
||||
|
Diluted
|
$
|
.84
|
$
|
1.36
|
$
|
2.17
|
||||
|
Weighted
Average Shares (Note
7)
|
||||||||||
|
Basic
|
196,057
|
161,587
|
163,133
|
|||||||
|
Diluted
|
203,672
|
165,334
|
167,641
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
THERMO
FISHER SCIENTIFIC INC.
CONSOLIDATED
BALANCE SHEET
(In
thousands)
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
Assets
|
|||||||
|
Current
Assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
667,434
|
$
|
214,326
|
|||
|
Short-term
investments, at quoted market value (Note 9)
|
23,762
|
80,661
|
|||||
|
Accounts
receivable, less allowances of $45,011 and $21,841
|
1,392,743
|
560,172
|
|||||
|
Inventories
|
1,164,465
|
359,392
|
|||||
|
Deferred
tax assets (Note 6)
|
209,172
|
79,586
|
|||||
|
Other
current assets
|
201,960
|
59,763
|
|||||
|
3,659,536
|
1,353,900
|
||||||
|
Property,
Plant and Equipment, at Cost, Net
|
1,256,727
|
280,654
|
|||||
|
Acquisition-related
Intangible Assets, Net (Note 2)
|
7,511,565
|
450,740
|
|||||
|
Other
Assets (Note 2)
|
309,421
|
200,080
|
|||||
|
Goodwill
(Note 2)
|
8,524,989
|
1,966,195
|
|||||
|
$
|
21,262,238
|
$
|
4,251,569
|
||||
F-5
THERMO
FISHER SCIENTIFIC INC.
CONSOLIDATED
BALANCE SHEET - (Continued)
(In
thousands except share amounts)
|
December
31,
|
|||||||
|
2006
|
2005
|
||||||
|
Liabilities
and Shareholders’
Equity
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Short-term obligations and current maturities of long-term
obligations
(Note 10)
|
$
|
483,298
|
$
|
130,137
|
|||
|
Accounts
payable
|
630,815
|
153,475
|
|||||
|
Accrued
payroll and employee benefits
|
253,342
|
114,707
|
|||||
|
Accrued
income taxes
|
60,309
|
55,147
|
|||||
|
Deferred
revenue
|
121,319
|
85,592
|
|||||
|
Customer
deposits
|
52,148
|
38,229
|
|||||
|
Other
accrued expenses (Notes 2, 15 and 16)
|
551,090
|
214,375
|
|||||
|
2,152,321
|
791,662
|
||||||
|
Deferred
Income Taxes (Note 6)
|
2,557,479
|
65,015
|
|||||
|
Other
Long-term Liabilities (Note 5)
|
459,906
|
132,950
|
|||||
|
Long-term
Obligations (Note 10)
|
2,180,705
|
468,630
|
|||||
|
Commitments
and Contingencies (Note 11)
|
|||||||
|
Shareholders’
Equity (Notes 5 and 12):
|
|||||||
|
Preferred
stock, $100 par value, 50,000 shares authorized; none
issued
|
|||||||
|
Common stock, $1 par value, 1,200,000,000 shares authorized;
424,240,292
and 181,817,452 shares issued
|
424,240
|
181,817
|
|||||
|
Capital
in excess of par value
|
11,810,423
|
1,421,382
|
|||||
|
Retained
earnings
|
1,773,410
|
1,604,475
|
|||||
|
Treasury
stock at cost, 7,635,184 and 19,335,163 shares
|
(246,404
|
)
|
(437,707
|
)
|
|||
|
Deferred
compensation
|
—
|
(3,834
|
)
|
||||
|
Accumulated
other comprehensive items (Note 8)
|
150,158
|
27,179
|
|||||
|
13,911,827
|
2,793,312
|
||||||
|
$
|
21,262,238
|
$
|
4,251,569
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
THERMO
FISHER SCIENTIFIC INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(In
thousands)
|
Year
Ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Operating
Activities
|
||||||||||
|
Net
income
|
$
|
168,935
|
$
|
223,218
|
$
|
361,837
|
||||
|
Income
from discontinued operations (Note 16)
|
(543
|
)
|
—
|
(43,018
|
)
|
|||||
|
Gain
on disposal of discontinued operations, net (Note 16)
|
(2,076
|
)
|
(24,917
|
)
|
(100,452
|
)
|
||||
|
Income
from continuing operations
|
166,316
|
198,301
|
218,367
|
|||||||
|
Adjustments to reconcile income from continuing operations
to net cash
provided by
operating activities:
|
||||||||||
|
Depreciation
and amortization
|
240,773
|
123,272
|
66,141
|
|||||||
|
Noncash
restructuring and other costs, net (Note 15)
|
17,445
|
1,700
|
1,156
|
|||||||
|
Deferred
income taxes
|
(73,627
|
)
|
(5,417
|
)
|
3,004
|
|||||
|
Gain
on investments, net (Notes 4 and 9)
|
(733
|
)
|
(35,319
|
)
|
(20,838
|
)
|
||||
|
Noncash
equity compensation (Note 5)
|
69,370
|
2,803
|
1,757
|
|||||||
|
Noncash
charges for the sale of inventories revalued at the date of
acquisition
|
74,749
|
12,839
|
2,254
|
|||||||
|
Other
noncash expenses, net
|
12,921
|
5,400
|
7,964
|
|||||||
|
Changes
in current accounts, excluding the effects of acquisitions
and
dispositions:
|
||||||||||
|
Accounts receivable
|
32,129
|
(63,873
|
)
|
(34,296
|
)
|
|||||
|
Inventories
|
7,860
|
6,258
|
(21,456
|
)
|
||||||
|
Other current assets
|
(3,237
|
)
|
(4,254
|
)
|
5,678
|
|||||
|
Accounts payable
|
11,089
|
6,740
|
12,939
|
|||||||
|
Other current liabilities
|
(147,568
|
)
|
24,338
|
7,337
|
||||||
|
Net
cash provided
by continuing operations
|
407,487
|
272,788
|
250,007
|
|||||||
|
Net
cash provided by (used in) discontinued operations
|
(1,833
|
)
|
(1,875
|
)
|
14,503
|
|||||
|
Net cash
provided
by operating activities
|
405,654
|
270,913
|
264,510
|
|||||||
|
Investing
Activities
|
||||||||||
|
Cash
acquired in Fisher merger, net of transaction costs (Note
2)
|
359,868
|
—
|
—
|
|||||||
|
Acquisitions,
net of cash acquired (Note 2)
|
(131,953
|
)
|
(933,218
|
)
|
(143,010
|
)
|
||||
|
Proceeds
from sale of available-for-sale investments (Note 4)
|
155,605
|
363,719
|
634,967
|
|||||||
|
Purchases
of available-for-sale investments
|
(87,821
|
)
|
(231,900
|
)
|
(611,095
|
)
|
||||
|
Proceeds
from maturities of available-for-sale investments
|
1,900
|
129
|
29,819
|
|||||||
|
Purchases
of property, plant and equipment
|
(76,797
|
)
|
(43,545
|
)
|
(49,985
|
)
|
||||
|
Proceeds
from sale of property, plant and equipment
|
5,789
|
16,151
|
5,511
|
|||||||
|
Distribution from retirement trust to fund disbursements
|
39,941
|
—
|
—
|
|||||||
|
Proceeds from sale of product lines and businesses, net of
cash divested
(Note 2)
|
8,590
|
5,661
|
—
|
|||||||
|
Proceeds
from sale of other investments (Note 4)
|
2,386
|
5,970
|
26
|
|||||||
|
Collection
of notes receivable
|
2,805
|
—
|
178
|
|||||||
|
Increase
in other assets
|
(1,281
|
)
|
(2,489
|
)
|
(2,506
|
)
|
||||
|
Other
|
(403
|
)
|
431
|
(1,579
|
)
|
|||||
|
Net cash provided by (used in) continuing operations
|
278,629
|
(819,091
|
)
|
(137,674
|
)
|
|||||
|
Net cash provided by discontinued operations
|
4,818
|
65,611
|
171,827
|
|||||||
|
Net
cash provided
by (used in) investing activities
|
$
|
283,447
|
$
|
(753,480
|
)
|
$
|
34,153
|
|||
F-7
THERMO
FISHER SCIENTIFIC INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS - (Continued)
(In
thousands)
|
Year
Ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Financing
Activities
|
||||||||||
|
Redemption
and repayment of long-term obligations (Note 10)
|
$
|
(334,585
|
)
|
$
|
(212
|
)
|
$
|
(1,288
|
)
|
|
|
Increase
(decrease) in short-term notes payable
|
176,774
|
119,048
|
(7,938
|
)
|
||||||
|
Net
proceeds from issuance of long-term debt
|
—
|
246,851
|
—
|
|||||||
|
Borrowings
under short-term bridge financing agreements
|
—
|
570,000
|
—
|
|||||||
|
Repayment
of bridge financing agreement
|
—
|
(570,000
|
)
|
—
|
||||||
|
Purchases of company common stock
|
(300,000
|
)
|
—
|
(231,530
|
)
|
|||||
|
Net
proceeds from issuance of company common stock (Note 5)
|
180,333
|
27,191
|
57,636
|
|||||||
|
Excess
tax benefits from exercised stock options (Note 5)
|
17,382
|
—
|
—
|
|||||||
|
Other
|
—
|
(2,018
|
)
|
(548
|
)
|
|||||
|
Net cash provided by (used in) continuing operations
|
(260,096
|
)
|
390,860
|
(183,668
|
)
|
|||||
|
Net cash provided by discontinued operations
|
—
|
—
|
445
|
|
Net cash provided by (used in) financing activities
|
(260,096
|
)
|
390,860
|
(183,223
|
)
|
|||||
|
Exchange
Rate Effect on Cash of Continuing Operations
|
24,103
|
(20,853
|
)
|
16,522
|
||||||
|
Exchange
Rate Effect on Cash of Discontinued Operations
|
—
|
—
|
(849
|
)
|
||||||
|
Increase
(Decrease) in Cash and Cash Equivalents
|
453,108
|
(112,560
|
)
|
131,113
|
||||||
|
Cash
and Cash Equivalents at Beginning of Year
|
214,326
|
326,886
|
195,773
|
|||||||
|
Cash
and Cash Equivalents at End of Year
|
$
|
667,434
|
$
|
214,326
|
$
|
326,886
|
See
Note
14 for supplemental cash flow information.
The
accompanying notes are an integral part of these consolidated financial
statements.
F-8
THERMO
FISHER SCIENTIFIC INC.
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
AND
SHAREHOLDERS’ EQUITY
(In
thousands except share amounts)
|
Year
Ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Comprehensive
Income
|
||||||||||
|
Net
Income
|
$
|
168,935
|
$
|
223,218
|
$
|
361,837
|
||||
|
Other
Comprehensive Items (Note 8):
|
||||||||||
|
Currency
translation adjustment
|
118,569
|
(105,033
|
)
|
96,800
|
||||||
|
Unrealized gains (losses) on available-for-sale investments,
net of
reclassification
adjustment and net of tax
|
(33
|
)
|
15,309
|
(9,970
|
)
|
|||||
|
Unrealized
gains (losses) on hedging instruments,
net of tax
|
204
|
(1,921
|
)
|
2,528
|
||||||
|
Minimum
pension liability adjustment,
net of tax
|
(944
|
)
|
(13,502
|
)
|
(3,023
|
)
|
||||
|
117,796
|
(105,147
|
)
|
86,335
|
|||||||
|
$
|
286,731
|
$
|
118,071
|
$
|
448,172
|
|||||
|
Shareholders’
Equity
|
||||||||||
|
Common
Stock,
$1 Par Value:
|
||||||||||
|
Balance
at beginning of year (181,817,452; 179,818,648; and 175,479,994
shares)
|
$
|
181,817
|
$
|
179,819
|
$
|
175,480
|
||||
|
Issuance
of shares for merger with Fisher (251,164,572 shares)
|
251,165
|
—
|
—
|
|||||||
|
Issuance
of shares for conversion of debt (1,668,141 shares)
|
1,668
|
—
|
—
|
|||||||
|
Retirement
of treasury shares (20,000,000 shares)
|
(20,000
|
)
|
—
|
—
|
||||||
|
Issuance
of stock under employees’ and directors’ stock plans (9,590,127;
1,998,804;
and 4,338,654
shares)
|
9,590
|
1,998
|
4,339
|
|||||||
|
Balance
at end of year
(424,240,292; 181,817,452; and 179,818,648 shares)
|
424,240
|
181,817
|
179,819
|
|||||||
|
Capital
in Excess of Par Value:
|
||||||||||
|
Balance
at beginning of year
|
1,421,382
|
1,381,448
|
1,298,881
|
|||||||
|
Elimination
of deferred compensation (Note 5)
|
(3,834
|
)
|
—
|
—
|
||||||
|
Issuance
of equity for merger with Fisher
|
10,028,949
|
—
|
—
|
|||||||
|
Fair
value of Fisher convertible debt allocable to equity
|
546,783
|
—
|
—
|
|||||||
|
Issuance
of shares for conversion of debt
|
67,988
|
—
|
—
|
|||||||
|
Retirement
of treasury shares
|
(500,400
|
)
|
—
|
—
|
||||||
|
Activity
under employees’ and directors’ stock plans
|
162,775
|
33,296
|
66,562
|
|||||||
|
Equity
compensation (Note 5)
|
69,371
|
—
|
—
|
|||||||
|
Tax
benefit related to employees’ and directors’ stock plans
|
17,409
|
6,638
|
16,005
|
|||||||
|
Balance
at end of year
|
11,810,423
|
1,421,382
|
1,381,448
|
|||||||
|
Retained
Earnings:
|
||||||||||
|
Balance
at beginning of year
|
1,604,475
|
1,381,257
|
1,019,420
|
|||||||
|
Net
income
|
168,935
|
223,218
|
361,837
|
|||||||
|
Balance
at end of year
|
$
|
1,773,410
|
$
|
1,604,475
|
$
|
1,381,257
|
||||
F-9
THERMO
FISHER SCIENTIFIC INC.
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
AND
SHAREHOLDERS’ EQUITY - (Continued)
(In
thousands except share amounts)
|
Year
Ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Treasury
Stock:
|
||||||||||
|
Balance
at beginning of year (19,335,163; 19,269,245; and 10,416,770
shares)
|
$
|
(437,707
|
)
|
$
|
(435,779
|
)
|
$
|
(192,469
|
)
|
|
|
Purchases
of company common stock (7,881,113 and 8,448,800 shares)
|
(300,000
|
)
|
—
|
(231,530
|
)
|
|||||
|
Retirement
of treasury shares (20,000,000 shares)
|
520,400
|
—
|
—
|
|||||||
|
Activity
under employees’ and directors’ stock plans (418,908; 65,918; and 403,675
shares)
|
(29,097
|
)
|
(1,928
|
)
|
(11,780
|
)
|
||||
|
Balance at end of year (7,635,184; 19,335,163; and 19,269,245
shares)
|
(246,404
|
)
|
(437,707
|
)
|
(435,779
|
)
|
||||
|
Deferred
Compensation (Note 5):
|
||||||||||
|
Balance
at beginning of year
|
(3,834
|
)
|
(2,561
|
)
|
(2,834
|
)
|
||||
|
Elimination
of deferred compensation
|
3,834
|
—
|
—
|
|||||||
|
Awards
under employees’ stock plans
|
—
|
(4,076
|
)
|
(1,680
|
)
|
|||||
|
Amortization
of deferred compensation
|
—
|
2,803
|
1,757
|
|||||||
|
Forfeitures
under employees’ stock plans
|
—
|
—
|
196
|
|||||||
|
Balance
at end of year
|
—
|
(3,834
|
)
|
(2,561
|
)
|
|||||
|
Accumulated
Other Comprehensive Items (Note 8):
|
||||||||||
|
Balance
at beginning of year
|
27,179
|
161,366
|
83,215
|
|||||||
|
Initial
impact upon adoption of SFAS No. 158, net of taxes
|
5,183
|
—
|
—
|
|||||||
|
Other
comprehensive items
|
117,796
|
(134,187
|
)
|
78,151
|
||||||
|
Balance
at end of year
|
150,158
|
27,179
|
161,366
|
|||||||
|
$
|
13,911,827
|
$
|
2,793,312
|
$
|
2,665,550
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-10
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
Note
1. Nature
of Operations and Summary of Significant Accounting
Policies
Nature
of Operations
A
world
leader in serving science, Thermo Fisher Scientific Inc. (the company,
formerly
Thermo Electron Corporation) enables customers to make the world healthier,
cleaner and safer. The company offers customers a complete range of high-end
analytical instruments, software, services, consumables and reagents
to enable
integrated laboratory workflow solutions and a complete portfolio of
laboratory
equipment, chemicals, supplies and services used in healthcare, scientific
research, safety and education. 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.
Principles
of Consolidation
On
November 9, 2006, the company completed a merger with Fisher Scientific
International Inc. Fisher’s accounts and results are included in the
accompanying financial statements from that date (Note 2). The accompanying
financial statements include the accounts of the company and its wholly
and
majority-owned subsidiaries. Also, the company consolidates variable
interest
entities in which the company bears a majority of the risk to the entities’
potential losses or stands to gain from a majority of entities’ expected
returns. The company does not currently have any material investments
in
entities it consolidates as variable interest entities. All material
intercompany accounts and transactions have been eliminated. The company
accounts for investments in businesses in which it owns between 20% and
50%
using the equity method.
Presentation
In
July
2004, the company sold Spectra-Physics, Inc., its optical technologies
segment.
The results of operations and cash flows of Spectra-Physics have been
classified
as discontinued operations in the accompanying financial statements (Note
16).
Two small business units acquired as part of the merger with Fisher Scientific
International Inc. (Note 2) are also included in discontinued operations.
Certain reclassifications of prior year amounts have been made to conform
to the
current year presentation.
Revenue
Recognition and Accounts Receivable
Revenue
is recognized after all significant obligations have been met,
collectibility is probable and title has passed, which typically occurs
upon
shipment or delivery or completion of services. If customer-specific
acceptance
criteria exists, the company recognizes revenue after demonstrating adherence
to
the acceptance criteria. The company recognizes revenue and related costs
for
arrangements with multiple deliverables, such as equipment and installation,
as
each element is delivered or completed based upon its relative fair value.
If
fair value is not available for any undelivered element, revenue for
all
elements is deferred until delivery is completed. When a portion of the
customer’s payment is not due until installation or acceptance, the company
defers that portion of the revenue until completion of installation or
acceptance has been obtained. Revenues for training are deferred until
the
service is completed. Revenues for extended service contracts are recognized
ratably over the contract period. Provisions for discounts, warranties,
rebates
to customers, returns and other adjustments are provided for in the period
the
related sales are recorded.
The
company’s
informatics businesses recognize revenue from the sale of software. License
fee
revenues relate primarily to sales of perpetual licenses to end-users
and are
recognized when a formal agreement exists, the license fee is fixed and
determinable, delivery of the software has occurred and collection is
probable.
Software arrangements with customers often include multiple elements,
including
software products, maintenance and support. The company recognizes software
license fees based on the residual method after all elements have either
been
delivered or vendor specific objective evidence (VSOE) of fair value
exists for
such undelivered elements. In the event VSOE is not available for any
undelivered element, revenue for all elements is deferred until delivery
is
completed. Revenues from
F-11
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
software
maintenance and support contracts are recognized on a straight-line basis
over
the term of the contract, which is generally a period of one year. VSOE
of fair
value of software maintenance and support is determined based on the
price
charged for the maintenance and support when sold separately. Revenues
from
training and consulting services are recognized as services are performed,
based
on VSOE, which is determined by reference to the price customers pay
when the
services are sold separately.
Accounts
receivable are recorded at the invoiced amount and do not bear interest.
The
company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to pay amounts due. The
allowance
for doubtful accounts is the company’s best estimate of the amount of probable
credit losses in existing accounts receivable. The company determines
the
allowance based on historical write-off experience. Past due balances
are
reviewed individually for collectibility. Account balances are charged
off
against the allowance when the company believes it is probable the receivable
will not be recovered. The company does not have any off-balance-sheet
credit
exposure related to customers.
The
company records shipping and handling charges billed to customers in
net sales
and records shipping and handling costs in cost of goods sold for all
periods
presented.
Deferred
revenue in the accompanying balance sheet consists primarily of unearned
revenue
on service contracts, which is recognized ratably over the terms of the
contracts. Substantially all of the deferred revenue in the accompanying
2006
balance sheet will be recognized within one year.
Warranty
Obligations
The
company provides for the estimated cost of product warranties, primarily
from
historical information, in cost of revenues at the time product revenue
is
recognized. While the company engages in extensive product quality programs
and
processes, including actively monitoring and evaluating the quality of
its
component supplies, the company’s warranty obligation is affected by product
failure rates, utilization levels, material usage, service delivery costs
incurred in correcting a product failure and supplier warranties on parts
delivered to the company. Should actual product failure rates, utilization
levels, material usage, service delivery costs or supplier warranties
on parts
differ from the company’s estimates, revisions to the estimated warranty
liability would be required. The liability for warranties is included
in other
accrued expenses in the accompanying balance sheet. The changes in the
carrying
amount of warranty obligations are as follows (in thousands):
|
Balance
at December 31, 2004
|
$
|
27,369
|
|||
|
Provision
charged to income
|
29,122
|
||||
|
Usage
|
(25,200
|
)
|
|||
|
Acquisitions
|
6,763
|
||||
|
Adjustments
to previously provided warranties, net
|
(1,947
|
)
|
|||
|
Other,
net (a)
|
(2,654
|
)
|
|||
|
Balance
at December 31, 2005
|
33,453
|
||||
|
Provision
charged to income
|
41,262
|
||||
|
Usage
|
(36,587
|
)
|
|||
|
Acquisitions
|
5,611
|
||||
|
Adjustments
to previously provided warranties, net
|
(500
|
)
|
|||
|
Other,
net (a)
|
2,225
|
||||
|
Balance
at December 31, 2006
|
$
|
45,464
|
(a) Primarily represents the effects of currency
translation.
F-12
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Income
Taxes
In
accordance with SFAS No. 109, “Accounting for Income Taxes,” the company
recognizes deferred income taxes based on the expected future tax consequences
of differences between the financial statement basis and the tax basis
of assets
and liabilities, calculated using enacted tax rates in effect for the
year in
which the differences are expected to be reflected in the tax
return.
Earnings
per Share
Basic
earnings per share has been computed by dividing net income by the weighted
average number of shares outstanding during the year. Except where the
result
would be antidilutive to income from continuing operations, diluted earnings
per
share has been computed assuming the conversion of the company’s 3.25%
Subordinated Convertible Debentures and the elimination of the related
interest
expense, and use of the treasury stock method for the remaining convertible
obligations, warrants and the exercise of stock options, as well as their
related income tax effects (Note 7).
Cash
and Cash Equivalents
Cash
equivalents consists principally of money market funds, commercial paper
and
other marketable securities purchased with an original maturity of three
months
or less. These investments are carried at cost, which approximates market
value.
Investments
The
company’s marketable equity and debt securities that are part of its cash
management activities are considered short-term investments in the accompanying
balance sheet. Such securities principally represent available-for-sale
investments. In addition, the company owns marketable equity securities
that
represent less than 20% ownership and for which the company does not
have the
ability to exert significant influence. Such investments are also considered
available-for-sale. All available-for-sale securities are carried at
market
value, with the difference between cost and market value, net of related
tax
effects, recorded in the “Accumulated other comprehensive items” component of
shareholders’ equity (Notes
8
and 9). Decreases in market values of individual securities below cost
for a
duration of six to nine months are deemed indicative of other than temporary
impairment, and the company assesses the need to write down the carrying
amount
of the investments to market value through other income, net, in the
accompanying statement of income.
The
company has securities held in a rabbi trust for a legacy Fisher supplemental
nonqualified executive retirement program, as more fully described in
Note 5 -
Employee Benefit Plans. These securities had a fair market value of
approximately $33 million at December 31, 2006. The assets held in the
rabbi
trust are comprised of 69% cash and cash equivalents, 16% debt securities
and
15% equity securities at December 31, 2006. The debt and equity securities
are
classified as available-for-sale. Of the total $33 million of securities
held as
of December 31, 2006, $24.4 million is expected to be paid to participants
in
2007 and was included in other current assets, while the remainder was
recorded
in other assets.
Other
investments for which there is not a readily determinable market value
are
accounted for under the cost method of accounting. The company periodically
evaluates the carrying value of its investment accounted for under the
cost
method of accounting, which provides that they are recorded at the lower
of cost
or estimated net realizable value. At December 31, 2006 and 2005, the
company
had cost method investments with carrying amounts of $9.6 million and
$2.5
million, respectively, which are included in other assets.
F-13
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Inventories
Inventories
—
Inventories are valued at the lower of cost or market, cost being determined
principally by the first-in, first-out (“FIFO”) method with certain of the
company’s subsidiaries utilizing the last-in, first-out (“LIFO”) method. The
company periodically reviews quantities of inventories on hand and compares
these amounts to the expected use of each product or product line. In
addition,
the company has certain inventory that is subject to fluctuating market
pricing.
The company assesses the carrying value of this inventory based on a
lower of
cost or market analysis. The company records a charge to cost of sales
for the
amount required to reduce the carrying value of inventory to net realizable
value. Costs associated with the procurement and warehousing of inventories,
such as inbound freight charges, purchasing and receiving costs, and
internal
transfer costs, are included in the cost of revenues line item within
the
statement of operations. The components of inventories are as
follows:
|
|
December
31,
|
|||||||
|
2006
|
2005
|
|||||||
|
(In
thousands)
|
||||||||
|
Raw
Materials
|
$
|
307,666
|
$
|
133,774
|
||||
|
Work
in Progress
|
121,730
|
50,043
|
||||||
|
Finished
Goods
|
735,069
|
175,575
|
||||||
|
$
|
1,164,465
|
$
|
359,392
|
|||||
The
value
of inventory maintained using the LIFO method was $177.3 million at December
31,
2006, which approximated estimated replacement cost as all inventory
accounted
for under the LIFO method was acquired in the merger with Fisher and
was
recorded at its fair market value on November 9, 2006.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. The costs of additions and
improvements are capitalized, while maintenance and repairs are charged
to
expense as incurred. The company provides for depreciation and amortization
using the straight-line method over the estimated useful lives of the
property
as follows: buildings and improvements, 25 to 40 years; machinery and
equipment,
3 to 10 years; and leasehold improvements, the shorter of the term of the
lease or the life of the asset. When assets are retired or otherwise
disposed
of, the assets and related accumulated depreciation are eliminated from
the
accounts and only resulting gain or loss is reflected in the accompanying
results of operations. Property, plant and equipment consists of the
following:
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
(In
thousands)
|
||||||||
|
Land
|
$
|
146,515
|
$
|
29,743
|
||||
|
Buildings
and Improvements
|
506,159
|
152,943
|
||||||
|
Machinery,
Equipment and Leasehold Improvements
|
880,321
|
332,699
|
||||||
|
1,532,995
|
515,385
|
|||||||
|
Less:
Accumulated Depreciation and Amortization
|
276,268
|
234,731
|
||||||
|
$
|
1,256,727
|
$
|
280,654
|
|||||
Depreciation
and amortization expense of property, plant and equipment including amortization
of assets held under capital leases, was $69.9 million, $45.6 million
and $43.3
million in 2006, 2005 and 2004, respectively.
F-14
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Acquisition-related
Intangible Assets and Other Assets
Other
assets in the accompanying balance sheet include deferred tax assets,
notes
receivable, cash surrender value of life insurance, deferred debt expense,
capitalized catalog costs, cost-method investments and other assets.
Acquisition-related intangible assets include the costs of acquired product
technology, patents, trademarks and other specifically identifiable intangible
assets, and are being amortized using the straight-line method over their
estimated useful lives, which range from 3 to 20 years. In addition,
the company
has trademarks that it acquired in the merger with Fisher that have indefinite
lives and which are not amortized. The company reviews other intangible
assets
for impairment when indication of potential impairment exists, such as
a
significant reduction in cash flows associated with the assets. Intangible
assets with indefinite lives are reviewed for impairment annually or
whenever
events or changes in circumstances indicate they may be impaired.
Acquisition-related intangible assets are as follows:
|
|
Gross |
Accumulated
Amortization
|
Net
|
||||||||
|
(In
thousands)
|
|||||||||||
|
2006
|
|||||||||||
|
Definite
Lives:
|
|||||||||||
|
Customer
relationships
|
$
|
4,732,738
|
$
|
(184,379
|
)
|
$
|
4,548,359
|
||||
|
Product
technology
|
1,009,617
|
(64,002
|
)
|
945,615
|
|||||||
|
Trademarks
|
696,359
|
(12,130
|
)
|
684,229
|
|||||||
|
Patents
|
18,161
|
(14,209
|
)
|
3,952
|
|||||||
|
Other
|
4,217
|
(1,720
|
)
|
2,497
|
|||||||
|
6,461,092
|
(276,440
|
)
|
6,184,652
|
||||||||
|
Indefinite
Lives:
|
|||||||||||
|
Trademarks
|
1,326,913
|
—
|
1,326,913
|
||||||||
|
$
|
7,788,005
|
$
|
(276,440
|
)
|
$
|
7,511,565
|
|||||
|
2005
|
|||||||||||
|
Definite
Lives:
|
|||||||||||
|
Customer
relationships
|
$
|
388,186
|
$
|
(58,713
|
)
|
$
|
329,473
|
||||
|
Product
technology
|
143,826
|
(29,494
|
)
|
114,332
|
|||||||
|
Trademarks
|
2,838
|
(1,399
|
)
|
1,439
|
|||||||
|
Patents
|
18,508
|
(13,405
|
)
|
5,103
|
|||||||
|
Other
|
1,570
|
(1,177
|
)
|
393
|
|||||||
|
$
|
554,928
|
$
|
(104,188
|
)
|
$
|
450,740
|
|||||
The
estimated future amortization expense of acquisition-related intangible
assets
with
definite lives is as follows (in thousands):
|
2007
|
$
|
577,922
|
|||
|
2008
|
574,645
|
||||
|
2009
|
562,833
|
||||
|
2010
|
487,735
|
||||
|
2011
|
453,018
|
||||
|
2012
and thereafter
|
3,528,499
|
||||
|
$
|
6,184,652
|
Amortization
of acquisition-related
intangible
assets was $170.8 million, $77.6 million and $22.8 million in 2006, 2005
and
2004, respectively.
F-15
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Goodwill
The
company assesses the realizability of goodwill annually and whenever
events or
changes in circumstances indicate it may be impaired. Such events or
circumstances generally include the occurrence of operating losses or
a
significant decline in earnings associated with one or more of the
company’s
reporting units. The company estimates the fair value of its reporting
units by
using forecasts of discounted future cash flows. When an impairment is
indicated, any excess of carrying value over fair value of goodwill is
recorded
as an operating loss.
The
company completed annual tests for impairment at December 31, 2006 and
2005, and
determined that goodwill was not impaired. The company used an income
approach
to determine the fair value of its reporting units.
The
changes in the carrying amount of goodwill by segment are as
follows:
|
Analytical
Technologies
|
Laboratory
Products
and
Services
|
Total
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Balance at December 31, 2004
|
$
|
1,089,236
|
$
|
423,789
|
$
|
1,513,025
|
|||||
|
Acquisitions
|
38,744
|
465,000
|
503,744
|
||||||||
|
Write off due to sale of businesses
|
(15,536
|
)
|
—
|
(15,536
|
)
|
||||||
|
Tax liabilities of acquired businesses
|
10,723
|
1,111
|
11,834
|
||||||||
|
Currency translation
|
(29,716
|
)
|
(16,106
|
)
|
(45,822
|
)
|
|||||
|
Other
|
(1,131
|
)
|
81
|
(1,050
|
)
|
||||||
|
Balance at December 31, 2005
|
1,092,320
|
873,875
|
1,966,195
|
||||||||
|
Acquisitions
|
2,121,088
|
4,396,330
|
6,517,418
|
||||||||
|
Finalization of purchase price allocation for Kendro
|
—
|
(13,044
|
)
|
(13,044
|
)
|
||||||
|
Write off due to sale of businesses
|
(6,792
|
)
|
—
|
(6,792
|
)
|
||||||
|
Currency translation
|
40,860
|
19,129
|
59,989
|
||||||||
|
Other
|
806
|
417
|
1,223
|
||||||||
|
Balance at December 31, 2006
|
$
|
3,248,282
|
$
|
5,276,707
|
$
|
8,524,989
|
|||||
Asset
Retirement Obligations
The
company records obligations associated with its lease obligations, the
retirement of tangible long-lived assets and the associated asset-retirement
costs in accordance with SFAS No. 143, “Accounting for Asset Retirement
Obligations” and FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional
Asset Retirement Obligations,” an interpretation of SFAS No. 143 (“FIN 47”). The
company reviews legal obligations associated with the retirement of long-lived
assets that result from contractual obligations or the acquisition,
construction, development and/or normal use of the assets. If it is determined
that a legal obligation exists, regardless of whether the obligation
is
conditional on a future event, the fair value of the liability for an
asset
retirement obligation is recognized in the period in which it is incurred,
if a
reasonable estimate of fair value can be made. The fair value of the
liability
is added to the carrying amount of the associated asset, and this additional
carrying amount is depreciated over the life of the asset. The difference
between the gross expected future cash flow and its present value is
accreted
over the life of the related lease as an operating expense. The company
provides
for asset retirement obligations when such amounts can be reasonably
estimated,
regardless of whether the settlement is conditional on a future event.
At
December 31, 2006, the company had recorded asset retirement obligations
of
$22.9 million.
F-16
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Accounts
Payable
The
company, in accordance with FIN 39, “Offsetting of Amounts Related to Certain
Contracts,” reclassifies net book overdrafts to accounts payable at period end.
Amounts reclassified to accounts payable totaled $97.2 million at December
31,
2006. Bank overdrafts of $3.9 million at December 31, 2006 were reclassified
to
short-term debt.
Loss
Contingencies
Accruals
are recorded for various contingencies, including legal proceedings,
environmental, workers’ compensation, product, general and auto liabilities,
self-insurance and other claims that arise in the normal course of business.
The
accruals are based on management’s judgment, historical claims experience, the
probability of losses and, where applicable, the consideration of opinions
of
internal and/or external legal counsel and actuarial estimates. Additionally,
the company records receivables from third-party insurers up to the amount
of
the loss when recovery has been determined to be probable. Liabilities
acquired
in the merger with Fisher have been recorded at their fair value and,
as such,
were discounted to their present value at the date of acquisition.
Advertising
The
company expenses advertising costs as incurred, except for certain
direct-response advertising, which is capitalized and amortized on a
straight-line basis over its expected period of future benefit, generally
two
years. The company has capitalized advertising costs of $14.4 million
at
December 31, 2006, included in other assets in the accompanying balance
sheet.
Direct-response advertising consists of external catalog production and
mailing
costs, and amortization begins on the date the catalogs are first mailed.
Advertising expense, which following the merger with Fisher includes
amortization of capitalized direct-response advertising, as described
above, was
$57.8 million, $36.0 million and $34.1 million for the years ended December
31,
2006, 2005 and 2004, respectively. Included in advertising expense was
catalog
amortization of $2.0 million for 2006.
Currency
Translation
All
assets and liabilities of the company’s
non-U.S. subsidiaries are translated at year-end exchange rates, and
revenues
and expenses are translated at average exchange rates for the year in
accordance
with SFAS No. 52, “Foreign Currency Translation.” Resulting translation
adjustments are reflected in the “Accumulated other comprehensive items”
component of shareholders’ equity. Currency transaction gains and losses are
included in the accompanying statement of income and are not material
for the
three years presented.
Forward
Contracts
The
company accounts for forward currency contracts under SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended,
requires that all derivatives, including forward currency-exchange contracts,
be
recognized in the balance sheet at fair value. Derivatives that are not
hedges
are recorded at fair value through earnings. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of the
hedged item
through earnings or recognized in other comprehensive income until the
hedged
item is recognized in earnings. The company immediately records in earnings
the
extent to which a hedge is not effective in achieving offsetting changes
in fair
value or cash flows.
F-17
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
The
company uses forward currency-exchange contracts primarily to hedge certain
operational (cash-flow hedges) and balance sheet (fair-value hedges)
exposures
resulting from changes in currency exchange rates. Such exposures result
from
purchases, sales and intercompany loans that are denominated in currencies
other
than the functional currencies of the respective operations. These contracts
principally hedge transactions denominated in euros, U.S. dollars, British
pounds sterling, Canadian dollars and Swiss francs. The company enters
into
these currency-exchange contracts to hedge anticipated product purchases
and
sales and assets and liabilities arising in the normal course of business,
principally accounts receivable and intercompany loans. Accordingly,
the hedges
are not speculative in nature. As part of the company’s overall strategy to
manage the level of exposure to the risk of currency-exchange fluctuations,
some
operating units hedge a portion of their currency exposures anticipated
over the
ensuing 12-month period, using exchange contracts that have maturities
of 12
months or less. The company does not hold or engage in transactions involving
derivative instruments for purposes other than risk management.
The
company records its forward currency-exchange contracts at fair value
in its
balance sheet as other current assets or other accrued expenses and,
for
cash-flow hedges, the related gains or losses on these contracts are
deferred as
a component of accumulated other comprehensive items in the accompanying
balance
sheet. These deferred gains and losses are recognized in earnings in
the period
in which the underlying anticipated transaction occurs. Unrealized gains
and
losses resulting from the impact of currency exchange rate movements
on
fair-value hedges are recognized in earnings in the period in which the
exchange
rates change and offset the currency losses and gains on the underlying
exposure
being hedged. Cash flows resulting from currency-exchange contracts qualifying
as cash-flow hedges are recorded in the accompanying statement of cash
flows in
the same category as the item being hedged. At December 31, 2006, the
company
did not have any deferred gains or losses relating to forward currency-exchange
contracts. The ineffective portion of the gain or loss on derivative
instruments
is recorded in other income, net, in the accompanying statement of income
and is
not material for the three years presented.
The
company entered into an interest rate swap agreement in 2005 in connection
with
debt issued for the Kendro acquisition (Note 10).
Recent
Accounting Pronouncements
In
July
2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes—an Interpretation of FASB Statement No. 109” (FIN No. 48). FIN
No. 48 prescribes a comprehensive model for how a company should recognize,
measure, present, and disclose in its financial statements uncertain
tax
positions that the company has taken or expects to take on a tax return.
Under
FIN No. 48, the financial statements will reflect expected future tax
consequences of such positions presuming the taxing authorities’ full knowledge
of the position and all relevant facts, but without discounting for the
time
value of money. FIN No. 48 also revises disclosure requirements and introduces
a
prescriptive, annual, tabular roll-forward of the unrecognized tax benefits.
FIN
No. 48 will become effective in the first quarter of 2007. The company
does not
expect the impact of adoption will be material.
In
September
2006,
the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 is effective
for the
company in 2008. The company is currently evaluating the potential impact
of
adopting SFAS No. 157.
F-18
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefits Pension and Other Postretirement Plans, an amendment of FASB
Statements
No. 87, 88, 106 and 132R.” SFAS No. 158 requires an employer to recognize the
funded status of defined benefit pension and other postretirement benefit
plans
as an asset or liability. This amount is defined
as
the difference between the fair value of plan assets and the benefit
obligation.
The company is required to recognize as a component of other comprehensive
income, net of tax, the actuarial (gains) losses and prior service costs
(credits) that arise but were not previously required to be recognized
as
components of net periodic benefit cost. Other comprehensive income will
be
adjusted as these amounts are later recognized in income as components
of net
periodic benefit cost. SFAS No. 158 is effective for the company as of
December
31, 2006. The incremental effect of applying SFAS No. 158 on individual
line
items in the consolidated balance sheet at December 31, 2006 was as follows
(in
thousands):
|
|
Before
Application
of
SFAS
No. 158
|
Effect
of Adopting SFAS
No. 158
|
After
Application
of
SFAS
No. 158
|
||||||||
|
Other
Assets
|
$
|
295,099
|
$
|
14,322
|
$
|
309,421
|
|||||
|
Total
Assets
|
21,247,916
|
14,322
|
21,262,238
|
||||||||
|
Accrued
Payroll and Employee Benefits
|
224,081
|
29,261
|
253,342
|
||||||||
|
Total
Current Liabilities
|
2,123,060
|
29,261
|
2,152,321
|
||||||||
|
Deferred
Income Taxes
|
2,553,403
|
4,076
|
2,557,479
|
||||||||
|
Other
Long-Term Liabilities
|
484,104
|
(24,198
|
)
|
459,906
|
|||||||
|
Total
Liabilities
|
7,341,272
|
9,139
|
7,350,411
|
||||||||
|
Accumulated
Other Comprehensive Items
|
144,975
|
5,183
|
150,158
|
||||||||
|
Total
Shareholders’ Equity
|
13,906,644
|
5,183
|
13,911,827
|
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 quantify
impairment of assets, and in determining the ultimate loss from abandoning
leases at facilities being exited (Note 15). Actual results could differ
from
those estimates.
Note
2. Merger,
Acquisitions and Dispositions
Merger
with Fisher Scientific International Inc.
Thermo
Electron Corporation and Fisher Scientific International Inc. (“Fisher”)
announced on May 8, 2006 that the boards of directors of both companies
had
unanimously approved a definitive agreement to combine the two companies
in a
tax-free, stock-for-stock exchange. The Fisher businesses are a leading
provider
of products and services to the scientific research community and clinical
laboratories. The Fisher businesses provide a suite of products and services
to
customers worldwide from biochemicals, cell-culture media and proprietary
RNAi
technology to rapid-diagnostic tests, safety products and other consumable
supplies. Fisher had revenues of $5.4 billion in 2005. The transaction
was
approved by both companies’ shareholders, in separate meetings, held on August
30, 2006 and, following regulatory approvals, was completed on November
9, 2006.
The results of the operations of Fisher have been included in the results
of the
company from the date of acquisition. Following the merger, the company
was
renamed Thermo Fisher Scientific Inc.
F-19
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
Under
the
terms of the agreement, Fisher shareholders received two shares of company
common stock for each share of Fisher common stock they owned. Based
on the
average closing price for the two trading days before and after the announcement
date of $38.93 per share, this exchange represented a value of $77.86
per Fisher
share, or an aggregate equity value of $10.3 billion. The company also
assumed
Fisher’s debt ($2.3 billion). The merger enabled the two companies to broaden
their customer offerings to include a full range of analytical instruments,
equipment, reagents and consumables, software and services for research,
analysis, discovery and diagnostics.
Upon
completion of the transaction, Thermo’s shareholders owned approximately 39
percent of the combined company, and Fisher’s shareholders owned approximately
61 percent. Based upon pre-merger members of the company’s board of directors
and senior management representing a majority of the composition of the
combined
company’s board and senior management and the Fisher shareholders receiving a
premium (as of the date preceding the merger announcement) over the fair
market
value of Fisher common stock on such date, the company is considered
to be the
acquirer for accounting purposes.
The
purchase price exceeded the fair value of the acquired net assets, and
accordingly, $6.44 billion was allocated to goodwill, approximately $450
million
of which is expected to be deductible for tax purposes.
Acquisitions
2006
On
December 14, 2006, the company’s Analytical Technologies segment acquired
Cohesive Technologies Inc., a Massachusetts-based provider of advanced
sample
extraction and liquid chromatography products. The purchase price totaled
$70.2
million in cash, subject to a post-closing adjustment. Cohesive had revenues
of
$13.5 million in 2006 through the date of acquisition. The acquisition
of
Cohesive enabled the segment to broaden its in-line sample preparation
capabilities. The company expects to undertake an assessment to determine
the
fair value of Cohesive’s identifiable intangible assets in the first quarter of
2007. Pending completion of that assessment, an estimate of the fair
value of
the identifiable intangible assets has been recorded at December 31,
2006. The
excess of the purchase price over the fair value of the acquired net
assets or
$37.0 million, has been allocated to goodwill, none of which is tax
deductible.
On
July
20, 2006, the company’s Analytical Technologies segment acquired GV Instruments
Limited (GVI), a UK-based provider of isotope ratio mass spectrometry
instruments and accessories used in earth sciences, medical and life
sciences
applications. The acquisition broadened the segment’s offerings of mass
spectrometry products. The purchase price was $17.5 million, net of cash
acquired and a post-closing adjustment refund of $4.6 million. This receivable
from the sellers was accrued at December 31, 2006 and received in January
2007.
GVI’s revenues totaled $19 million in its fiscal 2006. The purchase price
exceeded the fair value of the acquired net assets and, accordingly,
$14.1
million was allocated to goodwill, none of which is tax deductible.
Subsequent
to the acquisition of GVI, the UK Office of Fair Trading (OFT) commenced
an
investigation of the transaction to determine whether it qualified for
consideration under the UK Enterprise Act. On December 15, 2006, the
OFT
referred the transaction to the UK Competition Commission for further
investigation under the Enterprise Act to determine whether the transaction
results in, or may be expected to result in, a substantial lessening
of
competition within any market in the UK for goods or services, particularly
gas
isotope ratio mass spectrometers, thermal ionization mass spectrometers
and
multicollector inductively coupled plasma mass spectrometers. Of GVI’s sales in
its fiscal 2006, $0.4 million were UK sales. The Competition Commission
must
prepare and publish its report within 24 weeks of the reference decision
unless
there are special reasons why it cannot do so. During the investigation,
the
company is subject to certain undertakings, which took effect
F-20
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
October
2006, that require it not to take any action that will lead to further
integration of the GVI business with the company or otherwise impair
the GVI
business from competing independently. The company is cooperating with
the
Competition Commission’s investigation. There can be no assurance as to the
outcome of this matter. Goodwill and other intangible assets associated
with the
acquisition of GVI totaled $22 million at December 31, 2006. Were the
Competition Commission to require the company to divest of GVI, charges
for
impairment of assets could result.
On
June
30, 2006, the company’s Analytical Technologies segment acquired EGS Gauging,
Inc. (EGS), a Massachusetts-based provider of flat polymer web gauging
products
for $28.4 million, net of cash acquired, and including contingent consideration
of $2.0 million based on 2006 revenues and operating results which was
earned
and accrued as an obligation at December 31, 2006 through an increase
to
goodwill. The acquisition broadened the segment’s gauging systems product
offerings. EGS’s revenues totaled $25 million in 2005. The purchase price
exceeded the fair value of the acquired net assets and, accordingly,
$16.1
million was allocated to goodwill, none of which is tax deductible.
In
addition to these acquisitions, the company acquired a small manufacturer
of
on-line elemental analyzer products in the third quarter of 2006 as well
as a
product line and a small distributor in the second quarter of 2006 for
aggregate
consideration of $11.8 million.
2005
In
August
2005, the company’s Analytical
Technologies
segment
acquired Ionalytics Corporation, a Canada-based provider of a dynamic
ion-filtering device used with mass spectrometers in bioanalysis, proteomics
and
drug discovery for $24.7 million, net of cash acquired. The acquisition
of
Ionalytics enabled the segment to broaden its mass spectrometry product
offerings. Ionalytics did not have material revenues in 2004 as its focus
was on
commercially introducing its principal product to market. The purchase
price
exceeded the fair value of the acquired net assets and, accordingly,
$6.8
million was allocated to goodwill, all of which is tax deductible.
In
May
2005, the company’s Laboratory Products and Services segment acquired the Kendro
Laboratory Products division of SPX Corporation for $837.1 million, net
of cash
acquired, including transaction costs. Kendro designs, manufactures,
markets and
services, on a global basis, a wide range of laboratory equipment for
sample
preparation, processing and storage, used primarily in life sciences
and drug
discovery laboratories as well as clinical laboratories. The acquisition
of
Kendro broadened the segment’s product offerings and access to customers.
Kendro’s revenues were $371 million in 2004. The purchase price exceeded the
fair value of the acquired assets and, accordingly, $453.2 million was
allocated
to goodwill, approximately $185 million of which is expected to be tax
deductible.
The
company obtained short-term bridge financing, which permitted it to borrow
$570
million to partially fund the purchase price of Kendro. The company used
existing cash balances to fund the remainder of the purchase price.
Subsequently, the company used a combination of short- and long-term
debt
instruments to refinance the bridge loan (Note 10).
In
April
2005, the company’s Analytical Technologies segment completed the acquisition of
Rupprecht and Patashnick Co., Inc. (R&P), a New York-based provider of
continuous particulate monitoring instrumentation for the ambient air,
emissions
monitoring and industrial hygiene markets for $31.0 million in cash,
net of cash
acquired. The acquisition of R&P enabled the segment to broaden its air
monitoring product offerings. R&P’s revenues totaled $17 million in 2004.
The agreement calls for additional consideration of up to $3 million
through
2007 based on achieving targeted sales levels and payment of 7% of specified
product sales thereafter through 2009. The purchase price exceeded the
fair
value of the acquired net assets and, accordingly, $15.5 million was
allocated
to goodwill, none of which is tax deductible.
F-21
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
In
March
2005, the Analytical Technologies segment acquired Niton LLC, a
Massachusetts-based provider of portable X-ray analyzers to the metals,
petrochemical and environmental markets for $43.0
million in cash, net of cash acquired and including contingent purchase
price
that has been earned. The agreement under which the company acquired
Niton
called for contingent consideration of up to $2.0 million through 2006
based on
post-acquisition results. Of the total $2.0 million, $1.0 million was
earned in
2005 and paid in 2006 and $1.0 million was earned in 2006 and accrued
at
December 31, 2006 through an increase to goodwill. The acquisition of
Niton
enabled the segment to expand its X-ray products to include a portable
line.
Niton’s revenues in 2004 totaled $36 million. The purchase price exceeded the
fair value of the acquired net assets and, accordingly, $17.4 million
was
allocated to goodwill, all of which is tax deductible.
2004
In
September 2004, the Analytical Technologies segment broadened its informatics
offerings by acquiring InnaPhase Corporation, a Pennsylvania-based supplier
of
laboratory information management systems for the pharmaceutical and
biotechnology markets, for $64.7 million, net of cash acquired. In February
2005
the company received a post-closing adjustment of $0.5 million as a refund
of
part of the purchase price. The purchase price exceeded the fair value
of the
acquired net assets and, accordingly, $39.8 million was allocated to
goodwill,
none of which is tax deductible. InnaPhase had revenues of $17.7 million
in
2004, prior to it being acquired.
In
April
2004, the Analytical
Technologies segment expanded its service capabilities by acquiring US
Counseling Services, Inc. (USCS), a Wisconsin-based supplier of equipment
asset
management services to the pharmaceutical, healthcare and related industries,
for $74.7 million, net of cash acquired. The purchase price exceeded
the fair
value of the acquired net assets and, accordingly, $54.2 million was
allocated
to goodwill, all of which is tax deductible. USCS reported revenues of
$57
million in 2003.
In
addition, in September 2004, the Analytical Technologies segment acquired
a
manufacturer and distributor of air quality instruments in China for
$3.7
million in cash.
The
company’s acquisitions have historically been made at prices above the fair
value of the acquired assets, resulting in goodwill, due to expectations
of
synergies of combining the businesses. These synergies include elimination
of
duplicative facilities, functions and staffing; use of the company’s existing
infrastructure such as sales force, distribution channels and customer
relations
to expand sales of the acquired businesses’ products; and use of the
infrastructure of the acquired businesses to cost effectively expand
sales of
company products.
These
acquisitions have been accounted for using the purchase method of accounting,
and the acquired companies’ results have been included in the accompanying
financial statements from their respective dates of acquisition. Allocation of
the purchase price for acquisitions was based on estimates of the fair
value of
the net assets acquired and, for acquisitions completed in 2006, is subject
to
adjustment upon finalization of the purchase price allocation. The company
is
not aware of any information that indicates the final purchase price
allocations
will differ materially from the preliminary estimates, although for Fisher,
the
company expects to complete any outstanding asset valuations in the first
quarter of 2007 and to finalize its rationalization plans for certain
product
lines, headcount and facilities no later than one year from the date
of
acquisition.
F-22
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
Had
the
merger with Fisher and acquisition of Kendro been completed as of the
beginning
of 2005, the company’s pro forma results for 2006 and 2005 would have been as
follows (in millions
except per share amounts):
|
2006
|
2005
(a)
|
|
||||||
|
Revenues
|
$
|
8,894
|
$
|
8,026
|
||||
|
Net
Income
|
$
|
411
|
$
|
211
|
||||
|
Earnings
per Share from Continuing Operations:
|
||||||||
|
Basic
|
$
|
.99
|
$
|
.46
|
||||
|
Diluted
|
$
|
.96
|
$
|
.45
|
||||
|
Earnings
per Share:
|
||||||||
|
Basic
|
$
|
1.00
|
$
|
.52
|
||||
|
Diluted
|
$
|
.96
|
$
|
.50
|
|
(a)
|
Includes
$120.7 million pre-tax charge to cost of revenues for the sale
of Fisher
inventories revalued at the date of acquisition, $15.2 million
pre-tax
charge for Fisher’s in-process research and development and $36.7 million
pre-tax charge for accelerated vesting of equity-based awards
resulting
from the change in control occurring at the date of the Fisher
merger.
|
The
company’s results for 2006 and 2005 would not have been materially different
from its reported results had its other acquisitions occurred at the
beginning
of 2005.
The
components of the preliminary purchase price allocation for Fisher are
as
follows:
|
(In
thousands)
|
|||||
|
Fair
Value of Common Stock Issued to Fisher Shareholders
|
$
|
9,777,837
|
|||
|
Fair Value of Fisher Stock Options and Warrants Converted into
Options in
Company Common Stock
|
502,277
|
||||
|
Debt
Assumed
|
2,284,657
|
||||
| Transaction Costs | 37,511 |
(b)
|
|||
|
Cash
Acquired
|
(391,975
|
)
|
|||
|
$
|
12,210,307
|
||||
|
Allocation:
|
|||||
|
Current
assets
|
$
|
1,915,772
|
|||
|
Property,
plant and equipment
|
954,187
|
||||
|
Acquired
intangible assets
|
7,186,759
|
||||
|
Goodwill
|
6,444,231
|
||||
|
Other
assets
|
312,836
|
||||
|
Liabilities
assumed
|
(4,056,695
|
)
|
|||
|
Fair
value of convertible debt allocable to equity
|
(546,783
|
)
|
|||
|
$
|
12,210,307
|
|
(b)
|
Of
the transactions costs, $32,107 was paid in 2006 and $5,404
was accrued at
December 31, 2006.
|
F-23
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
The
acquired intangible assets from the merger with Fisher are as
follows:
|
(In
thousands)
|
|||||
|
Indefinite
Lives:
|
|||||
|
Trademarks
|
$
|
1,326,913
|
|||
|
Definite
Lives:
|
|||||
|
Customer
relationships
|
4,326,965
|
||||
|
Product
technology
|
839,348
|
||||
|
Tradenames
|
693,533
|
||||
|
$
|
7,186,759
|
The
weighted-average amortization periods for intangible assets with definite
lives
are: 14 years for customer relationships, 9 years for product technology
and 10
years for tradenames. The weighted-average amortization period for all
intangible assets with definite lives acquired in the merger with Fisher
is 13
years.
The
company has allocated $15.2 million of the purchase price for Fisher
to
in-process research and development, which represents the estimated fair
value
at November 9, 2006 related to in-process projects that have not yet
reached
technological feasibility and have no alternative future uses as of the
date of
the merger. The company has recorded as expense the value attributable
to these
projects at the date of the merger.
The
company uses the income approach to determine the fair values of its
purchased
research and development. This approach determines fair value by estimating
the
after-tax cash flows attributable to an in-process project over its useful
life
and then discounting these after-tax cash flows back to a present value.
In
determining the value of the in-process projects, the company considers,
among
other factors, the in-process projects’ stage of completion, the complexity of
the work completed as of the acquisition date, the costs already incurred,
the
projected costs to complete, the contribution of core technologies and
other
acquired assets, the expected introduction date and the estimated useful
life of
the technology. The company bases the discount rate used to arrive at
a present
value as of the date of acquisition on the time value of money and life
science
technology investment risk factors. The company believes that the estimated
purchased research and development amounts so determined represent the
fair
value at the date of acquisition and do not exceed the amount a third
party
would pay for the projects.
F-24
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
The
components of the preliminary purchase price allocation for the company’s other
2006 acquisitions are as follows:
|
Cohesive
|
GVI
|
EGS
|
Other
|
Total
|
|||||||||||||
|
|
(In
thousands)
|
||||||||||||||||
|
Purchase
Price:
|
|||||||||||||||||
|
Cash
paid (a)
|
$
|
70,500
|
$
|
22,470
|
$
|
27,817
|
$
|
11,788
|
$
|
132,575
|
|||||||
|
Purchase
price payable (receivable)
|
—
|
(4,624
|
)
|
2,000
|
—
|
(2,624
|
)
|
||||||||||
|
Cash
acquired
|
(336
|
)
|
(377
|
)
|
(1,417
|
)
|
(14
|
)
|
(2,144
|
)
|
|||||||
|
$
|
70,164
|
$
|
17,469
|
$
|
28,400
|
$
|
11,774
|
$
|
127,807
|
||||||||
|
Allocation:
|
|||||||||||||||||
|
Current
assets
|
$
|
5,200
|
$
|
10,753
|
$
|
7,385
|
$
|
1,525
|
$
|
24,863
|
|||||||
|
Property,
plant and equipment
|
995
|
337
|
806
|
60
|
2,198
|
||||||||||||
|
Acquired
intangible assets
|
28,874
|
7,780
|
14,635
|
6,420
|
57,709
|
||||||||||||
|
Goodwill
|
36,959
|
14,058
|
16,113
|
6,057
|
73,187
|
||||||||||||
|
Other
assets
|
13,359
|
—
|
786
|
1,626
|
15,771
|
||||||||||||
|
Liabilities
assumed
|
(15,223
|
)
|
(15,459
|
)
|
(11,325
|
)
|
(3,914
|
)
|
(45,921
|
)
|
|||||||
|
$
|
70,164
|
$
|
17,469
|
$
|
28,400
|
$
|
11,774
|
$
|
127,807
|
||||||||
(a) Includes transaction costs.
Acquired intangible assets for 2006 acquisitions other than Fisher are as follows (in thousands):
|
|
Cohesive
|
GVI
|
EGS
|
Other
|
Total
|
||||||||||||
|
|
(In thousands) | ||||||||||||||||
|
Definite
Lives:
|
|||||||||||||||||
|
Customer
relationships
|
$
|
19,376
|
$
|
4,215
|
$
|
9,217
|
$
|
3,045
|
$
|
35,853
|
|||||||
|
Product
technology
|
9,498
|
3,565
|
5,418
|
3,375
|
21,856
|
||||||||||||
|
$
|
28,874
|
$
|
7,780
|
$
|
14,635
|
$
|
6,420
|
$
|
57,709
|
||||||||
The
weighted-average amortization periods for intangible assets with definite
lives
acquired in 2006; excluding those acquired in the merger with Fisher,
are: 9
years for customer relationships and 6 years for product technology.
The
weighted-average amortization period for all intangible assets with definite
lives acquired in 2006, including the merger with Fisher, is 13
years.
F-25
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
The
components of the purchase price allocation for 2005 acquisitions, as
revised in
2006 for finalization of the purchase price allocation, are as
follows:
|
Niton
|
R&P
|
Kendro
|
Ionalytics
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
|
Purchase Price:
|
|||||||||||||||||
|
Cash
paid
(a)
|
$
|
41,716
|
$
|
32,798
|
$
|
839,264
|
$
|
26,980
|
$
|
940,758
|
|||||||
|
Purchase
price payable (b)
|
2,000
|
—
|
522
|
—
|
2,522
|
||||||||||||
|
Cash
acquired
|
(764
|
)
|
(1,817
|
)
|
(2,672
|
)
|
(2,287
|
)
|
(7,540
|
)
|
|||||||
|
$
|
42,952
|
$
|
30,981
|
$
|
837,114
|
$
|
24,693
|
$
|
935,740
|
||||||||
|
Allocation:
|
|||||||||||||||||
|
Current
assets
|
$
|
13,240
|
$
|
6,766
|
$
|
122,960
|
$
|
645
|
$
|
143,611
|
|||||||
|
Property,
plant and equipment
|
2,157
|
449
|
62,284
|
170
|
65,060
|
||||||||||||
|
Acquired
intangible assets
|
17,741
|
15,796
|
330,432
|
18,276
|
382,245
|
||||||||||||
|
Goodwill
|
17,385
|
15,532
|
453,165
|
6,827
|
492,909
|
||||||||||||
|
Other
assets
|
181
|
—
|
2,533
|
—
|
2,714
|
||||||||||||
|
Liabilities
assumed
|
(7,752
|
)
|
(7,562
|
)
|
(134,260
|
)
|
(1,225
|
)
|
(150,799
|
)
|
|||||||
|
$
|
42,952
|
$
|
30,981
|
$
|
837,114
|
$
|
24,693
|
$
|
935,740
|
||||||||
| (a) |
Includes
acquisition expenses.
|
| (b) |
Of
the purchase price payable, $1,522 was paid in 2006 and $1,000
was accrued
at December 31, 2006.
|
Acquired
intangible assets for 2005 acquisitions are as follows:
|
Niton
|
R&P
|
Kendro
|
Ionalytics | Total | |||||||||||||
|
(In
thousands)
|
|||||||||||||||||
|
Customer
Relationships
|
$
|
11,468
|
$
|
12,904
|
$
|
287,355
|
$
|
—
|
$
|
311,727
|
|||||||
|
Product
Technology
|
6,273
|
2,892
|
43,077
|
18,276
|
70,518
|
||||||||||||
|
$
|
17,741
|
$
|
15,796
|
$
|
330,432
|
$
|
18,276
|
$
|
382,245
|
||||||||
The
weighted-average amortization periods for intangible assets acquired
in 2005
are: 5 years for customer relationships and 6 years for product technology.
The
weighted-average amortization period for all intangible assets acquired
in 2005
is approximately 5 years.
F-26
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
The
components of the purchase price allocation for 2004 acquisitions are
as
follows:
|
InnaPhase
|
USCS
|
Other
|
Total
|
|||||||||||
|
(In
thousands)
|
||||||||||||||
|
Purchase Price:
|
||||||||||||||
|
Cash paid (a)
|
$
|
66,467
|
$
|
77,785
|
$
|
3,650
|
$
|
147,902
|
||||||
|
Cash acquired
|
(1,777
|
)
|
(3,115
|
)
|
—
|
(4,892
|
)
|
|||||||
|
$
|
64,690
|
$
|
74,670
|
$
|
3,650
|
$
|
143,010
|
|||||||
|
Allocation:
|
||||||||||||||
|
Current assets
|
$
|
4,975
|
$
|
5,711
|
$
|
75
|
$
|
10,761
|
||||||
|
Property, plant and equipment
|
761
|
367
|
—
|
1,128
|
||||||||||
|
Acquired intangible assets
|
36,089
|
34,700
|
3,610
|
74,399
|
||||||||||
|
Goodwill
|
39,753
|
54,211
|
—
|
93,964
|
||||||||||
|
Other assets
|
4,465
|
3
|
—
|
4,468
|
||||||||||
|
Liabilities assumed
|
(21,353
|
)
|
(20,322
|
)
|
(35
|
)
|
(41,710
|
)
|
||||||
|
$
|
64,690
|
$
|
74,670
|
$
|
3,650
|
$
|
143,010
|
|||||||
| (a) |
Includes
acquisition expenses.
|
Acquired
intangible assets for 2004 acquisitions are as follows:
|
InnaPhase
|
USCS
|
Other
|
Total
|
|||||||||||
|
(In
thousands)
|
||||||||||||||
|
Customer
Relationships
|
$
|
22,676
|
$
|
34,700
|
$
|
1,805
|
$
|
59,181
|
||||||
|
Product
Technology
|
13,413
|
—
|
1,805
|
15,218
|
||||||||||
|
$
|
36,089
|
$
|
34,700
|
$
|
3,610
|
$
|
74,399
|
|||||||
The
weighted-average amortization periods for intangible assets acquired
in 2004
are: 5 years for customer relationships and 7 years for product technology.
The
weighted-average amortization period for all intangible assets acquired
in 2004
is 6 years.
The
company has undertaken restructuring activities at acquired businesses.
These
activities, which were accounted for in accordance with EITF Issue No.
95-3,
“Recognition of Liabilities in Connection with a Purchase Business Combination,”
have primarily included reductions in staffing levels and the abandonment
of
excess facilities. In connection with these restructuring activities,
as part of
the cost of acquisitions, the company established reserves as detailed
below,
primarily for severance and excess facilities. In accordance with EITF
Issue No.
95-3, the company finalizes its restructuring plans no later than one
year from
the respective dates of the acquisitions. Upon finalization of restructuring
plans or settlement of obligations for less than the expected amount,
any excess
reserves are reversed with a corresponding decrease in goodwill or other
intangible assets when no goodwill exists. Accrued acquisition expenses
are
included in other accrued expenses in the accompanying balance sheet.
F-27
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
The
changes in accrued acquisition expenses for acquisitions completed during
2006
are as follows:
|
Severance
|
Abandonment
of
Excess
Facilities
|
Other
|
Total
|
||||||||||||||||||
|
(In
thousands)
|
|||||||||||||||||||||
|
Reserves established
|
$
|
26,750
|
$
|
3,072
|
$
|
1,283
|
$ |
31,105
|
|||||||||||||
|
Payments
|
(721
|
)
|
—
|
—
|
(721
|
) | |||||||||||||||
|
Currency translation
|
24
|
—
|
—
|
24
|
|||||||||||||||||
|
Balance
at December 31, 2006
|
$
|
26,053
|
$
|
3,072
|
$
|
1,283
|
$ |
30,408
|
|||||||||||||
The principal acquisition expenses for 2006 acquisitions were for severance for approximately 219 employees across all functions and plans to abandon two facilities in the U.S., primarily related to the company’s merger with Fisher.
The
changes in accrued acquisition expenses for acquisitions completed prior
to 2006
are as follows:
|
Severance
|
Abandonment
of
Excess
Facilities
|
Other
|
Total
|
|||||||||||
|
(In
thousands)
|
||||||||||||||
|
Balance
at December 31, 2003
|
$
|
4,998
|
$
|
10,565
|
$
|
253
|
$
|
15,816
|
||||||
|
Reserves
established
|
896
|
4
|
317
|
1,217
|
||||||||||
| Payments | (3,285 |
)
|
(568 | ) | (503 | ) | (4,356 | ) | |||||
|
Decrease
recorded as a reduction in goodwill
|
— | (4,644 | ) | — | (4,644 | ) | |||||||
|
Currency translation
|
639
|
512
|
45
|
1,196
|
|||||||||
|
Balance at December 31, 2004
|
3,248
|
5,869
|
112
|
9,229
|
|||||||||
|
Reserved established
|
3,557
|
373
|
79
|
4,009
|
|||||||||
|
Payments
|
(3,652
|
)
|
(118
|
)
|
(19
|
)
|
(3,789
|
)
|
|
Decrease recorded as a reduction in goodwill
|
— | (2,111 | ) | (81 | ) | (2,192 | ) | ||||||
|
Currency translation
|
(520
|
)
|
(456
|
)
|
(18
|
)
|
(994
|
)
|
|||||
|
Balance at December 31, 2005
|
2,633
|
3,557
|
73
|
6,263
|
|||||||||
|
Reserved established
|
3,213
|
479
|
629
|
4,321
|
|||||||||
|
Payments
|
(2,832
|
)
|
(1,383
|
)
|
(94
|
)
|
(4,309
|
)
|
|
Decrease recorded as a reduction in
goodwill
|
(1,340 | ) | (218 | ) | (488 | ) | (2,046 | ) | |||||
|
Divestiture of product line
|
—
|
(199
|
)
|
—
|
(199
|
)
|
|||||||
|
Currency translation
|
533
|
499
|
(39
|
)
|
993
|
||||||||
|
Balance at December 31, 2006
|
$
|
2,207
|
$
|
2,735
|
$
|
81
|
$
|
5,023
|
F-28
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
2. Merger,
Acquisitions and Dispositions (continued)
The
principal acquisition expenses for pre-2005 acquisitions were for severance
for
approximately 1,038 employees across all functions and for abandoned
facilities,
primarily related to the company’s acquisitions of Life Sciences International
PLC in 1997, the product-monitoring businesses of Graseby Limited in
1998,
Spectra-Physics AB in 1999 and Jouan in 2003. The abandoned facilities
for the
1997 and 1998 acquisitions include three operating facilities in England
with
leases expiring through 2014. In some instances, the facilities are subleased
but certain restoration obligations are payable at the end of the lease.
The
amounts accrued for abandoned facilities also include closure of a Jouan
manufacturing facility in Denmark, with a lease expiring in 2007. In
2004 and
2005, the company reached favorable settlements of lease obligations
for several
abandoned sites and recorded the benefit as a reduction of goodwill.
The amounts
captioned as “other” primarily represent employee relocation, contract
termination and other exit costs.
Dispositions
The
company sold its point of care and rapid diagnostics business in 2005
and
Spectra-Physics in 2004 (Note 16). The company sold non-core businesses
and
product lines for net cash proceeds of $8.6 million and $5.7 million
in 2006 and
2005, respectively, and recorded $0.6 million and $0.3 million of pre-tax
gains
in 2006 and 2005, respectively, which are included in restructuring and
other
costs, net, in the accompanying statement of income.
Note
3. Business
Segment and Geographical Information
Following
the merger with Fisher, the company reorganized management responsibility
and
manages the combined company in two segments. Prior year results have
been
reclassified to conform to the new segments. The company’s segments are as
follows:
Analytical
Technologies: serves research scientists, as well as customers in healthcare
and
clinical laboratories, in manufacturing and in the field, with a suite
of
advanced analytical technologies, including scientific instruments, robotics
and
software for creating advanced integrated workflows. The segment also
includes a
range of diagnostic reagents and instruments used by hospitals and reference
laboratories.
Laboratory
Products and Services: serves life science, healthcare and safety markets
with a
broad portfolio of products and consumables used for routine laboratory
processes, as well as a range of biopharma outsourcing services such
as clinical
packaging and biological sample management. The segment also includes
the
company’s extensive customer channels network consisting of catalog, e-commerce
and other sales avenues.
Business
segment information captioned as Other in the following tables represents
results of a unit that marketed and manufactured molecular beam epitaxy
equipment. The unit was part of the company’s former Optical Technologies
segment and was sold in 2003. Results after 2003 primarily represent
revisions
to estimates of abandoned lease obligations, net of subtenant
rents.
The
company’s management evaluates operating segment performance based on operating
income before certain charges to cost of revenues, 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;
amortization of acquisition-related intangible assets; and charges for
acceleration of equity-based compensation following the merger with Fisher.
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.
F-29
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
3. Business
Segment and Geographical Information (continued)
Business
Segment Information
|
2006
|
2005
|
2004
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Revenues:
|
|||||||||||
|
Analytical
Technologies
|
$
|
2,425,821
|
$
|
2,006,744
|
$
|
1,814,647
|
|||||
|
Laboratory
Products and Services
|
1,406,637
|
626,283
|
391,348
|
||||||||
|
Eliminations
|
(40,841
|
)
|
—
|
—
|
|||||||
|
Consolidated
revenues
|
$
|
3,791,617
|
$
|
2,633,027
|
$
|
2,205,995
|
|||||
|
Operating
Income:
|
|||||||||||
|
Analytical
Technologies (a)
|
$
|
383,640
|
$
|
284,666
|
$
|
237,018
|
|||||
|
Laboratory
Products and Services (a)
|
189,229
|
86,600
|
42,515
|
||||||||
|
Other
|
—
|
148
|
—
|
||||||||
|
Subtotal
reportable segments (a)
|
572,869
|
371,414
|
279,533
|
||||||||
|
Cost
of revenues charges
|
(77,625
|
)
|
(13,387
|
)
|
(3,361
|
)
|
|||||
|
Restructuring
and other costs, net
|
(45,712
|
)
|
(16,900
|
)
|
(15,829
|
)
|
|||||
|
Amortization
of acquisition-related intangible assets
|
(170,826
|
)
|
(77,640
|
)
|
(22,831
|
)
|
|||||
|
Equity-based
compensation acceleration charge
|
(36,747
|
)
|
—
|
—
|
|||||||
|
Consolidated
operating income (c)(d)
|
241,959
|
263,487
|
237,512
|
||||||||
|
Other
(expense) income, net (b)
|
(32,589
|
)
|
22,411
|
21,707
|
|||||||
|
Income
from continuing operations before provision for income
taxes
|
$
|
209,370
|
$
|
285,898
|
$
|
259,219
|
|||||
|
Total
Assets:
|
|||||||||||
|
Analytical
Technologies
|
$
|
8,305,500
|
$
|
2,614,572
|
$
|
2,708,045
|
|||||
|
Laboratory
Products and Services
|
12,536,105
|
1,626,759
|
704,911
|
||||||||
|
Corporate/Other
(e)
|
420,633
|
10,238
|
163,769
|
||||||||
|
Consolidated
total assets
|
$
|
21,262,238
|
$
|
4,251,569
|
$
|
3,576,725
|
|||||
|
Amortization:
|
|||||||||||
|
Analytical
Technologies
|
$
|
56,630
|
$
|
24,055
|
$
|
12,393
|
|||||
|
Laboratory
Products and Services
|
114,196
|
53,580
|
10,435
|
||||||||
|
Corporate/Other
|
—
|
5
|
3
|
||||||||
|
Consolidated
amortization
|
$
|
170,826
|
$
|
77,640
|
$
|
22,831
|
|||||
|
Depreciation:
|
|||||||||||
|
Analytical
Technologies
|
$
|
36,611
|
$
|
29,712
|
$
|
32,351
|
|||||
|
Laboratory
Products and Services
|
33,336
|
15,920
|
10,959
|
||||||||
|
Consolidated
depreciation
|
$
|
69,947
|
$
|
45,632
|
$
|
43,310
|
|||||
F-30
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
3. Business
Segment and Geographical Information (continued)
|
2006
|
2005
|
2004
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||
|
Capital
Expenditures (f):
|
|||||||||||||||
|
Analytical
Technologies
|
$
|
47,940
|
$
|
29,807
|
$
|
41,425
|
|||||||||
|
Laboratory
Products and Services
|
24,098
|
13,877
|
5,122
|
||||||||||||
|
Corporate/Other
|
4,759
|
2,270
|
3,438
|
||||||||||||
|
Consolidated
capital expenditures
|
$
|
76,797
|
$
|
45,954
|
$ |
49,985
|
|||||||||
Geographical
Information
|
2006
|
2005
|
2004
|
||||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Revenues
(g):
|
||||||||||||||||
|
United
States
|
$
|
2,359,015
|
$
|
1,566,826
|
$
|
1,272,153
|
||||||||||
|
Germany
|
641,791
|
463,833
|
316,386
|
|||||||||||||
|
England
|
416,602
|
324,924
|
324,728
|
|||||||||||||
|
Other
|
1,201,523
|
1,228,407
|
790,327
|
|||||||||||||
|
Transfers
among geographical areas (h)
|
(827,314
|
)
|
(950,963
|
)
|
(497,599
|
)
|
||||||||||
|
$
|
3,791,617
|
$
|
2,633,027
|
$ |
2,205,995
|
|||||||||||
|
Long-lived
Assets (i):
|
||||||||||||||||
|
United
States
|
$
|
800,690
|
$
|
130,235
|
$ |
126,176
|
||||||||||
|
Germany
|
84,263
|
64,053
|
39,994
|
|||||||||||||
|
England
|
145,337
|
21,627
|
23,285
|
|||||||||||||
|
Other
|
226,437
|
64,739
|
71,586
|
|||||||||||||
|
$
|
1,256,727
|
$
|
280,654
|
$
|
261,041
|
|||||||||||
|
Export
Sales Included in United States Revenues Above (j)
|
$
|
304,644
|
$
|
469,879
|
$ |
383,600
|
||||||||||
|
(a)
|
Represents
operating income before certain charges to cost of revenues;
restructuring
and other costs, net; amortization of acquisition-related intangibles;
and
equity-based compensation acceleration
expense.
|
|
(b)
|
The
company does not allocate other income and expenses to its
segments. Other
income and expense includes $27.6 million and $9.6 million
of income in
2005 and 2004, respectively, primarily related to the sale
of the
company’s investments in Thoratec, Newport and FLIR (Note
4).
|
|
(c)
|
Consolidated
operating income in 2006 includes stock option compensation expense of
$61.9 million ($6.9 million in cost of revenues, $51.3 million
in selling,
general and administrative expenses and $3.7 million in research
and
development expenses).
|
|
(d)
|
Had
stock option expense been recorded in 2005 and 2004, consolidated
operating income on a pro forma basis would have been lower
by $20.9
million in 2005 and by $17.8 million in
2004.
|
|
(e)
|
Total
assets for corporate include $32.9 million and $5.6 million
in 2006 and
2004, respectively, of assets of discontinued operations. Corporate
assets consist primarily of cash and cash equivalents, short-term
investments and property and equipment at the company’s corporate
office.
|
|
(f)
|
Includes
non-cash additions in 2005 of $2.4 million associated with
asset
retirement obligations.
|
|
(g)
|
Revenues
are attributed to countries based on selling
location.
|
F-31
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
3. Business
Segment and Geographical Information (continued)
|
(h)
|
Transfers
among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
|
|
(i)
|
Includes
property, plant and equipment, net.
|
|
(j)
|
In
general, export revenues are denominated in U.S.
dollars.
|
Note
4. Other
Income (Expense),
Net
The
components of other income (expense), net, in the accompanying statement
of
income are as follows:
| 2006 | 2005 | 2004 | ||||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Interest
Income
|
$
|
16,419
|
$
|
11,569
|
$
|
9,021
|
||||||||||
|
Interest
Expense (Note 10)
|
(51,930
|
)
|
(26,715
|
)
|
(10,979
|
) | ||||||||||
|
Gain
on Investments, Net (Note 9)
|
733
|
35,319
|
20,838
|
|||||||||||||
|
Equity
in Earnings of Unconsolidated Subsidiaries
|
1,829
|
168
|
733
|
|||||||||||||
|
Other
Items, Net
|
360
|
2,070
|
2,094
|
|||||||||||||
|
$
|
(32,589
|
)
|
$
|
22,411
|
$
|
21,707
|
||||||||||
In
July
2004, the company received 3,220,000 shares of Newport Corporation common
stock
upon the sale of Spectra-Physics to Newport. In June 2005, the company
reached
an agreement with Newport under which Newport purchased all of the 3,220,000
shares of Newport common stock. Newport purchased the shares for $13.56
per
share, which resulted in aggregate proceeds of $43.7 million. The company
recorded a loss on the sale of $1.3 million. The Newport shares had been
subject
to resale restrictions that would have fully lapsed by January
2006.
As
a
result of the divestiture of Thermo Cardiosystems Inc. in 2001, the company
acquired shares of Thoratec Corporation. The company sold 4,436,000 and
1,250,000 shares of Thoratec common stock during 2005 and 2004 and realized
gains of $28.9 million and $9.6 million, respectively. At December 31,
2005, the
company no longer owned shares of Thoratec.
Gain
on
investments, net, also includes portfolio gains from the company’s day-to-day
investing activities. In addition to gains from the sale of available-for-sale
investments, $1.5 million of gains arose in 2005 from the sale of investments
that had been classified as Other Assets.
Note
5. Employee
Benefit Plans
Stock-based
Compensation Plans
The
company has stock-based compensation plans for its key employees, directors
and
others. These plans permit the grant of a variety of stock and stock-based
awards, including restricted stock, stock options, stock bonus shares
or
performance-based shares, as determined by the compensation committee
of the
company’s Board of Directors or in limited circumstances, by the company’s
option committee, which consists of its chief executive officer. Options
granted
prior to July 2000 under these plans vested over 0-10 years and had terms
ranging from 3-12 years. Options granted in or after July 2000 under
these plans
generally vested over 3-5 years with terms of 7-10 years, assuming continued
employment with certain exceptions. The company practice is to grant
options at
fair market value. The company also has a directors’ stock option plan that
provides for the annual grant of stock options of the company to outside
directors. These options generally vest
F-32
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
over
three years, assuming continued service on the board, and expire seven
years
after the date of grant. The
company generally issues new shares of its common stock to satisfy option
exercises. The merger with Fisher resulted in a change in control and
consequently, the vesting of substantially all of Thermo Electron’s options
accelerated except for those of the company’s chief executive officer who waived
acceleration. As a result, substantially all shares became immediately
exercisable and shares acquired upon exercise cease to be subject to
transfer
restrictions and the company’s repurchase rights. The acceleration resulted in a
pre-tax charge of $33.8 million, recorded as follows, $3.8 million in
cost of
revenues, $27.9 million in selling, general and administrative expenses
and $2.1
million in research and development expenses. Grants of stock options
on or
after November 9, 2006, provide that upon a future change in control
of the
company and qualifying termination of an option holder’s employment, all options
held by the optionee become immediately exercisable unless an employment
or
other agreement with the employee provides for different treatment of
options.
In
December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No.123R, “Share-based
Payment,” which
requires compensation costs related to share-based transactions, including
employee share options, to be recognized in the financial statements
based on
fair value. SFAS No. 123R revises SFAS No. 123, as amended,
“Accounting for Stock-Based Compensation,” and supersedes APB Opinion
No. 25, “Accounting for Stock Issued to Employees.”
Effective
January 1, 2006, the company adopted the provisions of SFAS No. 123R using
the modified prospective application transition method. Under this transition
method, the compensation cost recognized beginning January 1, 2006 includes
compensation cost for (i) all share-based payments granted prior to, but
not yet vested as of January 1, 2006, based on the grant-date fair value
estimated in accordance with the original provisions of SFAS No. 123, and
(ii) all share-based payments granted subsequent to December 31, 2005 based
on the grant-date fair value estimated in accordance with the provisions
of SFAS
No. 123R. Compensation cost is recognized ratably over the requisite
vesting period or, for 2006 grants, to the retirement date for retirement
eligible employees, if earlier. Use of the date of retirement eligibility
to
record the expense associated with awards granted to retirement eligible
employees did not materially affect the company’s results of operations in the
year ended 2006. Prior period amounts have not been restated for the
adoption of
SFAS No. 123R.
As
a
result of the adoption of SFAS No. 123R, the company’s results for the year
ended December 31, 2006 include incremental share-based compensation
pre-tax
expense of $61.9 million related to stock options, including $33.8 million
due
to the acceleration of vesting described above. The total stock-based
compensation cost of $69.4 million including restricted stock awards, has
been included in the statements of income within the applicable operating
expense where the company reports the option holders’ compensation cost. The
company has recognized a related tax benefit associated with its share-based
compensation expense totaling $23.1 million in the year ended December
31, 2006.
The incremental expense, net of the related tax benefit, resulted in
a $.24
decrease in basic earnings per share and a $.23 decrease in diluted earnings
per
share in 2006. In 2006, the adoption of SFAS No. 123R also resulted in
the
inclusion of $17.4 million of excess tax benefits from exercised stock
options
in cash flows from financing activities that would have been reflected
in cash
flows from operating activities prior to adoption of SFAS No. 123R.
In
accordance with SFAS No. 123R, SFAS No. 109 and EITF Topic D-32, “Intraperiod
Tax Allocation of the Tax Effect of Pretax Income from Continuing Operations,”
the company has elected to recognize any excess income tax benefits from
stock
option exercises in additional paid-in capital only if an incremental
income tax
benefit would be realized after considering all other tax attributes
presently
available to the company. The company measures the tax benefit associated
with
excess tax deductions related to stock-based compensation expense by
multiplying
the excess tax deductions by the statutory tax rates. As of December
31, 2006,
there is approximately $42 million of gross net operating losses, the
tax
benefit of which will be recorded to additional paid-in capital when
realized.
The company uses the incremental tax benefit approach for utilization
of tax
attributes.
F-33
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
Stock
Options—
The
fair value of each option grant is estimated using the Black-Scholes
option
pricing model. The fair value is then amortized on a straight-line basis
over
the requisite service periods of the awards, which is generally the vesting
period. Use of a valuation model requires management to make certain
assumptions
with respect to selected model inputs. Expected volatility was calculated
based
on the historical volatility of the company’s stock. The average expected life
was estimated using the simplified method for “plain vanilla” options as
permitted by SAB 107. The risk-free interest rate is based on U.S. Treasury
zero-coupon issues with a remaining term which approximates the expected
life
assumed at the date of grant. The compensation expense recognized for
all
equity-based awards is net of estimated forfeitures. Forfeitures are
estimated
based on an analysis of actual option forfeitures.
The
weighted average assumptions used in the Black-Scholes option pricing
model are
as follows:
|
Years
Ended
|
|||||||||||
|
2006
|
2005
|
2004
|
|||||||||
|
Expected
Stock Price Volatility
|
26%
|
|
32%
|
|
31%
|
|
|||||
|
Risk
Free Interest Rate
|
4.4%
|
|
3.9%
|
|
3.2%
|
|
|||||
|
Expected
Life of Options (years)
|
4.7
|
4.4
|
4.6
|
||||||||
|
Expected
Annual Dividend per Share
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||
The
weighted average per share grant-date fair values of options granted
during the
years ended 2006, 2005 and 2004 were $12.40, $9.04 and $8.79, respectively.
The
total intrinsic value of options exercised during the same periods was
$224.3
million, $20.7 million and $47.4 million, respectively. The intrinsic value
is the difference between the market value of the shares on the exercise
date
and the exercise price of the option.
As
a
result of the merger with Fisher, options to purchase 9,661,000 shares
of Fisher
common stock were converted into options to purchase 19,322,000 shares
of
company stock. These options had a fair value at the merger date of $394.5
million, which was recorded as part of the merger consideration. Of the
total
options issued in connection with the merger, options to purchase 1,621,000
shares of company common stock were not fully vested. The fair value
of these
options ($15.1 million) was treated as a reduction of the merger consideration
and will be recorded as compensation cost over the vesting period.
F-34
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
A
summary
of option activity as of December 31, 2006 and changes during the three
years
then ended is presented below:
|
Shares
(In thousands)
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(In
years)
|
|
Aggregate
Intrinsic
Value
(a)
(In
thousands)
|
|
|||||||||
|
Outstanding
at December 31, 2003
|
15,915
|
$
|
20.83
|
|||||||||||
|
Granted
|
1,671
|
27.77
|
||||||||||||
|
Exercised
|
(3,920
|
)
|
16.77
|
|||||||||||
|
Canceled/expired
|
(2,773
|
)
|
32.51
|
|||||||||||
|
Outstanding
at December 31, 2004
|
10,893
|
20.38
|
||||||||||||
|
Granted
|
3,458
|
27.47
|
||||||||||||
|
Exercised
|
(1,658
|
)
|
16.49
|
|||||||||||
|
Canceled/expired
|
(609
|
)
|
26.20
|
|||||||||||
|
Outstanding
at December 31, 2005
|
12,084
|
22.65
|
||||||||||||
|
Granted
|
8,868
|
40.53
|
||||||||||||
|
Issued in connection with Fisher merger
|
19,322
|
21.75
|
||||||||||||
|
Exercised
|
(9,454
|
)
|
19.07
|
|||||||||||
|
Canceled
|
(233
|
)
|
30.45
|
|||||||||||
|
Expired
|
(57
|
)
|
32.67
|
|||||||||||
|
Outstanding
at December 31, 2006
|
30,530
|
28.30
|
5.3
|
$
|
518,575
|
|||||||||
|
Vested and Exercisable at December 31, 2006
|
11,249
|
26.08
|
4.5
|
$
|
216,152
|
(a) Market price per share on December 31, 2006 was $45.29.
As
of
December 31, 2006, there was $91.4 million ($58.4 million, net of tax) of total
unrecognized compensation cost related to unvested stock options granted
(including unvested awards converted from outstanding Fisher options).
The cost
is expected to be recognized over a weighted average period of 3.1
years.
Restricted
Share Awards —
The
company awards to a number of key employees restricted company common
stock or
restricted units that convert into an equivalent number of shares of
common
stock assuming continued employment, with some exceptions. The awards
generally
vest in equal annual installments over two to three years, assuming continued
employment, with some exceptions. The fair market value of the award
at the time
of the grant is amortized to expense over the period of vesting. Recipients
of
restricted shares have the right to vote such shares and receive dividends,
whereas recipients of restricted units have no voting rights but are
entitled to
receive dividend equivalents. The fair value of restricted share/unit
awards is
determined based on the number of shares/units granted and the market
value of
the company’s shares on the grant date. Following the change in control that
occurred as a result of the Fisher merger, vesting accelerated on outstanding
restricted stock awards and the company recorded a pretax charge of $2.9
million
in 2006.
F-35
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
During
the years ended December 31, 2006, 2005 and 2004, the company granted
401,900,
146,000 and 60,000 share awards respectively, at a weighted average fair
value
of $42.66, $27.91 and $27.99, respectively, per share on the grant
date.
In
2006,
the company awarded certain key employees 134,000 restricted shares of
common
stock, the vesting of which is contingent upon meeting certain operating
targets. The company is recognizing the cost of the awards over the contingent
vesting period of 4-5 years. The ultimate value of the awards will be
determined
when they are earned. The company established an initial value for the
awards
based on the fair market value at the date of grant and marks them to
market for
changes in fair market value. In 2006, the company recognized $0.2 million
of
cost associated with the awards and at December 31, 2006, the awards
had a value
of $6.1 million. Should the performance targets not be met, any recognized
compensation cost would be reversed.
As
a
result of the merger with Fisher, restricted units convertible into 468,000
shares of Fisher common stock were converted into restricted units convertible
into 936,000 shares of company stock. These restricted units had a fair
value at
the merger date of $36.4 million, which was recorded as part of the merger
consideration. The restricted units issued in connection with the merger
were
not fully vested. The fair value of the unvested portion of these units
($29.1
million) was treated as a reduction of the merger consideration and will
be
recorded as compensation cost over the vesting period.
A summary
of the status of the company’s restricted shares/units as of December 31, 2006
and changes during the year then ended are presented below:
| Unvested Restricted Share/Unit Awards |
Shares
(In
thousands)
|
Weighted
Average
Grant-Date
Fair
Value
|
|||||||||
|
Unvested
at December 31, 2005
|
199
|
$
|
27.03
|
||||||||
|
Granted
|
402
|
42.66
|
|||||||||
|
Issued
in connection with Fisher merger
|
936
|
38.93
|
|||||||||
|
Vesting
|
(268
|
)
|
29.62
|
||||||||
|
1,269
|
$
|
40.21
|
|||||||||
As
of
December 31, 2006, there was $41.9 million ($26.1 million, net of tax) of
total unrecognized compensation cost related to unvested restricted share
awards. That cost is expected to be recognized over a weighted average
period of
2.5 years. The total fair value of shares vested during 2006, 2005 and
2004 was
$7.9 million, $2.1 million and $1.5 million, respectively. Prior to 2006,
the
company recorded the unrecognized compensation cost associated with restricted
stock awards as a separate account within shareholders equity. Upon the
adoption
of SFAS No. 123R in 2006, the balance of the deferred compensation was
eliminated against capital in excess of par value on the balance
sheet.
F-36
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
Prior
to
January 1, 2006, the company accounted for stock-based compensation plans
in accordance with the provisions of APB Opinion No. 25, as permitted by
SFAS No. 123, and accordingly did not recognize compensation expense for
the issuance of stock options with an exercise price equal to or greater
than
the market price at the date of grant. Had compensation cost for awards
granted
after 1994 under the company’s stock-based compensation plans been determined
based on the fair value at the grant dates consistent with the method
set forth
under SFAS No. 123, and had the fair value of awards been amortized on
a
straight-line basis over the vesting period, the effect on certain financial
information of the company for 2005 and 2004 would have been as
follows:
|
2005
|
2004
|
|||||||
|
(In
thousands except
per
share amounts)
|
||||||||
|
Income
from Continuing Operations:
|
||||||||
|
As
reported
|
$
|
198,301
|
$
|
218,367
|
||||
|
Add: Stock-based employee compensation expense included in
reported
results, net of tax
|
1,822
|
1,142
|
||||||
|
Deduct:
Total stock-based employee compensation expense determined
under the
fair-value-based
method for all awards, net of tax
|
(15,422
|
)
|
(12,710
|
)
|
||||
|
Pro
forma
|
$
|
184,701
|
$
|
206,799
|
||||
|
Basic
Earnings per Share from Continuing Operations:
|
||||||||
|
As
reported
|
$
|
1.23
|
$
|
1.34
|
||||
|
Pro
forma
|
$
|
1.14
|
$
|
1.27
|
||||
|
Diluted
Earnings per Share from Continuing Operations:
|
||||||||
|
As
reported
|
$
|
1.21
|
$
|
1.31
|
||||
|
Pro
forma
|
$
|
1.13
|
$
|
1.24
|
||||
|
Net
Income:
|
||||||||
|
As
reported
|
$
|
223,218
|
$
|
361,837
|
||||
|
Add: Stock-based employee compensation expense included in
reported net
income, net of tax
|
1,822
|
1,142
|
||||||
|
Deduct:
Total stock-based employee compensation expense determined
under the
fair-value-based
method for all awards, net of tax
|
(15,422
|
)
|
(12,607
|
)
|
||||
|
Pro
forma
|
$
|
209,618
|
$
|
350,372
|
||||
|
Basic
Earnings per Share:
|
||||||||
|
As
reported
|
$
|
1.38
|
$
|
2.22
|
||||
|
Pro
forma
|
$
|
1.30
|
$
|
2.15
|
||||
|
Diluted
Earnings per Share:
|
||||||||
|
As
reported
|
$
|
1.36
|
$
|
2.17
|
||||
|
Pro
forma
|
$
|
1.28
|
$
|
2.10
|
||||
F-37
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
Employee
Stock Purchase Plans
Qualifying
employees are eligible to participate in an employee stock purchase plan
sponsored by the company. Under this program, through 2005 shares of
the
company’s common stock could be purchased at 85% of the lower of the fair market
value at the beginning or end of the purchase period, and the shares
purchased
were subject to a one-year resale restriction. Shares are purchased through
payroll deductions of up to 10% of each participating employee’s gross wages. In
early 2007, 2006 and 2005, the company issued 59,000, 115,000 and 136,000
shares, respectively, of its common stock for the 2006, 2005 and 2004
plan
years, which ended on December 31. Beginning in 2006, shares may be purchased
under the program at 95% of the fair market value at the end of the purchase
period and the shares purchased are not subject to a holding
period.
The
company had a plan in England under which employees could purchase shares
of the
company’s common stock through payroll deductions. No material issuances
occurred in 2004 under the plan. Following the issuance of 30,000 shares
under
the plan in 2005, the plan was discontinued.
401(k)
Savings Plan and Other Defined Contribution Plans
The
company’s 401(k) savings and other defined contribution plans cover the majority
of the company’s eligible U.S. and certain non U.S. employees. Contributions to
the plans are made by both the employee and the company. Company contributions
are based on the level of employee contributions. Certain
of the company’s subsidiaries offer retirement plans in lieu of participation in
the company’s 401(k) savings plans. Company contributions to these plans are
based on formulas determined by the company. For the years ended December
31,
2006, 2005 and 2004, the company charged to expense $26.9 million, $22.2
million
and $17.7 million, respectively, related to its defined contribution
plans.
Defined
Benefit Pension Plans
Employees
of a number of 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. Following the merger with Fisher, the company also has
a cash
balance pension plan that was amended prior to the merger to eliminate
future
compensation credits and a postretirement healthcare program for which
certain
employees are eligible to participate. The costs of the healthcare program
are
funded on a self-insured and insured-premium basis.
In
accordance with Statement of Financial Accounting Standards No. 87, “Employers’
Accounting for Pensions” (FAS 87) and Statement of Financial Accounting
Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions” (FAS 106), when an employer is acquired as part of a merger, any
excess of projected benefit obligation over the plan assets is recognized
as a
liability and any excess of plan assets over the projected benefit obligation
is
recognized as a plan asset. The recognition of a new liability or a new
asset
results in the elimination of (a) previously existing unrecognized net
gain or
loss, (b) unrecognized prior service cost and (c) unrecognized net transition
obligation. Fisher’s pension obligations were recorded by the company at the
date of merger pursuant to these rules. The funding of Fisher’s plans is not
directly affected by the merger.
The
company funds annually, at a minimum, the statutorily required minimum
amount as
actuarially determined. During 2006 and 2005, the company made contributions
of
approximately $50.4 million and $17.1 million, respectively. The increase
in
contributions from 2005 to 2006 is principally a result of funding benefit
payments due following the merger with Fisher.
F-38
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
Fisher
also maintained a supplemental nonqualified executive retirement program
(SERP)
for certain of its executives. Accrual of future benefits under the plan
ceased
following the merger. The benefit obligation related to this program
is
approximately $37 million at December 31, 2006. Assets of approximately
$33
million at December 31, 2006 are set aside in a rabbi trust established
for this
program, of which $24.4 million was included in other current assets,
while the
remainder was included in other assets in the accompanying balance sheet.
The
following table provides a reconciliation of benefit obligations and
plan assets
of the company’s domestic and non-U.S. pension plans (in thousands):
|
Domestic
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
|||||||||||||
|
2006
|
2005
|
2006
|
2005
|
|||||||||||
|
Change in Projected Benefit Obligations
|
||||||||||||||
|
Benefit
Obligation at Beginning of Year
|
$
|
28,922
|
$
|
25,654
|
$
|
292,668
|
$
|
250,395
|
||||||
|
Business
combination
|
386,331
|
—
|
329,095
|
27,189
|
||||||||||
|
Service
costs
|
1,792
|
957
|
5,487
|
6,498
|
||||||||||
|
Interest
costs
|
4,649
|
1,477
|
15,754
|
11,923
|
||||||||||
|
Plan
amendment
|
—
|
—
|
1,453
|
—
|
||||||||||
|
Plan participants’ contribution
|
—
|
—
|
1,213
|
—
|
||||||||||
|
Actuarial (gains) losses
|
(11,071
|
)
|
1,443
|
(2,456
|
)
|
37,750
|
||||||||
|
Benefits paid
|
(3,819
|
)
|
(609
|
)
|
(11,573
|
)
|
(6,199
|
)
|
||||||
|
Currency translation and other
|
—
|
—
|
40,473
|
(34,888
|
)
|
|||||||||
|
Benefit
Obligation at End of Year
|
$
|
406,804
|
$
|
28,922
|
$
|
672,114
|
$
|
292,668
|
||||||
|
Accumulated
Benefit Obligation
|
$
|
380,316
|
$
|
24,320
|
$
|
630,693
|
$
|
281,480
|
||||||
|
Change in Fair Value of Plan Assets
|
||||||||||||||
|
Fair Value of Plan Assets at Beginning of Year
|
$
|
19,897
|
$
|
18,625
|
$
|
177,575
|
$
|
170,386
|
||||||
|
Business
combination
|
378,758
|
—
|
279,188
|
—
|
||||||||||
|
Actual return on plan assets
|
14,983
|
890
|
14,218
|
18,985
|
||||||||||
|
Employer
contribution
|
1,935
|
991
|
8,920
|
16,155
|
||||||||||
|
Plan participants’ contributions
|
—
|
—
|
1,213
|
—
|
||||||||||
|
Benefits
paid
|
(3,819
|
)
|
(609
|
)
|
(11,573
|
)
|
(6,199
|
)
|
||||||
|
Currency translation and other
|
—
|
—
|
26,437
|
(21,752
|
)
|
|||||||||
|
Fair
Value of Plan Assets at End of Year
|
$
|
411,754
|
$
|
19,897
|
$
|
495,978
|
$
|
177,575
|
||||||
F-39
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
The
following table presents the funded status of the domestic and non-U.S.
pension
plans as of December 31, 2006 after the adoption of SFAS No. 158 (in
thousands):
|
Domestic
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
|||||||
|
2006
|
2006
|
|||||||
|
Funded
Status
|
||||||||
|
Projected
benefit obligation
|
$
|
(406,804
|
)
|
$
|
(672,114
|
)
|
||
|
Fair
value of plan assets
|
411,754
|
495,978
|
||||||
|
Funded
(unfunded) status
|
$
|
4,950
|
$
|
(176,136
|
)
|
|||
|
Amounts Recognized in Consolidated Balance Sheet Consist
of:
|
||||||||
|
Noncurrent asset
|
$
|
19,906
|
$
|
1,411
|
||||
|
Current
liability
|
(398
|
)
|
(2,091
|
)
|
||||
|
Noncurrent liability
|
(14,558
|
)
|
(175,456
|
)
|
||||
|
Net amount recognized
|
$
|
4,950
|
$
|
(176,136
|
)
|
|||
|
Amounts Recognized in Accumulated Other Comprehensive (Income)
Loss
Consist of:
|
||||||||
|
Net
actuarial (gain) loss
|
$
|
(11,580
|
)
|
$
|
71,580
|
|||
|
Prior
service costs (credit)
|
38
|
91
|
||||||
|
Transition
obligation (asset)
|
—
|
19
|
||||||
|
Net
amount recognized
|
$
|
(11,542
|
)
|
$
|
71,690
|
F-40
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
The
following table presents the funded status of the domestic and non-U.S.
pension
plans as of December 31, 2005 prior to adoption of SFAS No. 158 (in
thousands):
|
Domestic
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
|||||||
|
2005
|
2005
|
|||||||
|
Funded
Status
|
||||||||
|
Funded
(unfunded) status
|
$
|
(9,025
|
)
|
$
|
(115,093
|
)
|
||
|
Unrecognized net actuarial (gain) loss
|
8,928
|
69,386
|
||||||
|
Unrecognized prior service costs
|
39
|
1,013
|
||||||
|
Unrecognized net transition obligation
|
—
|
18
|
||||||
|
Net
amount recognized
|
$
|
(58
|
)
|
$
|
(44,676
|
)
|
||
|
Amounts recognized in Consolidated Balance Sheet Consist
of:
|
||||||||
|
Prepaid
benefit asset
|
$
|
—
|
$
|
—
|
||||
|
Accrued
benefit liability
|
(4,423
|
)
|
(107,952
|
)
|
||||
|
Intangible
asset
|
39
|
18
|
||||||
|
Accumulated
other comprehensive income
|
4,326
|
63,258
|
||||||
|
Net
amount recognized
|
$
|
(58
|
)
|
$
|
(44,676
|
)
|
||
The
actuarial assumptions used to compute the funded (unfunded) status for
the plans
are based upon information available as of December 31, 2006 and 2005
and are as
follows:
|
Domestic
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
|||||||||||||
|
2006
|
2005
|
2006
|
2005
|
|||||||||||
|
Weighted Average Assumptions Used to Determine Projected Benefit
Obligations
|
||||||||||||||
|
Discount rate
|
5.77%
|
|
5.50%
|
|
4.65%
|
|
4.26%
|
|
||||||
|
Average rate of increase in employee compensation
|
4.04%
|
|
4.50%
|
|
3.44%
|
|
3.03%
|
|
||||||
F-41
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
The
actuarial assumptions used to compute the net periodic pension benefit
cost
(income) are based upon information available as of the beginning of
the year,
as presented in the following table:
|
Domestic
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
|||||||||||||||||||
|
2006
|
2005
|
2004
|
2006
|
2005
|
2004
|
|||||||||||||||
|
Weighted Average Assumptions Used to Determine the Net Benefit
Cost
(Income)
|
||||||||||||||||||||
|
Discount
rate
|
5.50%
|
|
6.00%
|
|
6.25%
|
|
4.54%
|
|
4.79%
|
|
5.15%
|
|
||||||||
|
Average rate of increase in employee compensation
|
4.03%
|
|
4.50%
|
|
4.50%
|
|
3.39%
|
|
3.00%
|
|
3.20%
|
|
||||||||
|
Expected long-term rate of return on assets
|
7.81%
|
|
9.00%
|
|
9.00%
|
|
5.80%
|
|
5.88%
|
|
6.55%
|
|
||||||||
The
following table provides a reconciliation of benefit obligations and
plan assets
of the company’s SERP and other postretirement benefit plans (in thousands):
|
SERP
Benefits
|
Postretirement
Benefits
|
|||||||
|
2006
|
2006
|
|||||||
|
Change in Benefit Obligations
|
||||||||
|
Benefit
Obligation at Beginning of Year
|
$
|
—
|
$
|
—
|
||||
|
Business
combination
|
76,072
|
29,599
|
||||||
|
Service
costs
|
79
|
107
|
||||||
|
Interest
costs
|
442
|
236
|
||||||
|
Plan participants’ contribution
|
—
|
218
|
||||||
|
Actuarial (gains) losses
|
(426
|
)
|
(522
|
)
|
||||
|
Benefits paid
|
(39,249
|
)
|
(549
|
)
|
||||
|
Currency translation and other
|
—
|
(208
|
)
|
|||||
|
Benefit Obligation at End of Year
|
$
|
36,918
|
$
|
28,881
|
||||
|
Accumulated
Benefit Obligation
|
$
|
36,529
|
||||||
|
Change in Fair Value of Plan Assets
|
||||||||
|
Fair Value of Plan Assets at Beginning of Year
|
$
|
—
|
$
|
—
|
||||
|
Employer
contribution
|
39,249
|
331
|
||||||
|
Plan participants’ contributions
|
—
|
218
|
||||||
|
Benefits
paid
|
(39,249
|
)
|
(549
|
)
|
||||
|
Fair Value of Plan Assets at End of Year
|
$
|
—
|
$
|
—
|
F-42
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
|
SERP
Benefits
|
Postretirement
Benefits
|
|||||||
|
2006
|
2006
|
|||||||
|
Funded
Status
|
||||||||
|
Benefit obligation
|
$
|
(36,918
|
)
|
$
|
(28,881
|
)
|
||
|
Fair
value of plan assets
|
—
|
—
|
||||||
|
Funded (unfunded status)
|
(36,918
|
)
|
(28,881
|
)
|
||||
|
Amounts recognized in Consolidated Balance Sheet Consist
of:
|
||||||||
|
Noncurrent asset
|
$
|
—
|
$
|
—
|
||||
|
Current liability
|
(24,705
|
)
|
(2,068
|
)
|
||||
|
Noncurrent liability
|
(12,213
|
)
|
(26,813
|
)
|
||||
|
Net
amount recognized
|
(36,918
|
)
|
(28,881
|
)
|
||||
|
Amounts Recognized in Accumulated Other Comprehensive Income
Consist
of:
|
||||||||
|
Net actuarial (gain) loss
|
$
|
(426
|
)
|
$
|
(522
|
)
|
||
|
Prior service cost (credit)
|
—
|
—
|
||||||
|
Transition obligation (asset)
|
—
|
—
|
||||||
|
Net amount recognized
|
$
|
(426
|
)
|
$
|
(522
|
)
|
||
|
Weighted Average Assumptions Used to Determine Benefit
Obligations
|
||||||||
|
Discount rate
|
5.75%
|
|
5.62%
|
|
||||
|
Average
rate of increase in employee compensation
|
4.00%
|
|
—%
|
|
||||
|
Initial
healthcare cost trend rate
|
11.29%
|
|
||||||
|
Ultimate
healthcare cost trend rate
|
5.70%
|
|
||||||
The
ultimate healthcare cost trend rates for the postretirement benefit plans
are
expected to be reached between 2012 and 2016.
|
SERP
Benefits
|
Postretirement
Benefits
|
|||||||
|
2006
|
2006
|
|||||||
|
Weighted Average Assumptions Used to Determine the Net Benefit
Cost
(Income)
|
||||||||
|
Discount rate
|
5.50%
|
|
5.44%
|
|
||||
|
Average
rate of increase in employee compensation
|
4.00%
|
|
—%
|
|
||||
F-43
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
The
discount rate reflects the rate the company would have to pay to purchase
high-quality investments that would provide cash sufficient to settle
its
current pension
obligations. The discount rate is determined based on a range of factors,
including the rates of return on high-quality, fixed-income corporate
bonds and
the related expected duration of the obligations or, in certain instances,
the
company has used a hypothetical portfolio of high quality instruments
with
maturities that mirror the benefit obligation in order to accurately
estimate
the discount rate relevant to a particular plan.
The
expected long-term rate of return on plan assets reflects the average
rate of
earnings expected on the funds invested, or to be invested, to provide
for the
benefits included in the projected benefit obligations. In determining
the
expected long-term rate of return on plan assets, the company considers
the
relative weighting of plan assets, the historical performance of total
plan
assets and individual asset classes and economic and other indicators
of future
performance. In addition, the company may consult with and consider the
opinions
of financial and other professionals in developing appropriate return
benchmarks.
Asset
management objectives include maintaining an adequate level of diversification
to reduce interest rate and market risk and providing adequate liquidity
to meet
immediate and future benefit payment requirements.
The
expected rate of compensation increase reflects the long-term average
rate of
salary increases and is based on historic salary increase experience
and
management’s expectations of future salary increases.
The
amounts in accumulated other comprehensive income expected to be recognized
as
components of net periodic benefit cost in 2007 are as follows
(in
thousands):
|
Domestic
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
|||||||
|
Net
actuarial (gain) loss
|
$
|
357
|
$
|
2,990
|
||||
|
Net
prior service (credit) costs
|
5
|
103
|
||||||
|
Net
transition (asset) obligation
|
—
|
1
|
||||||
|
$
|
362
|
$
|
3,094
|
|||||
There
are
no amounts in accumulated other comprehensive income related to the SERP
and
postretirement benefit plans expected to be recognized in net periodic
benefit
cost in 2007.
The
projected benefit obligation and fair value of plan assets for the company’s
qualified and non-qualified pension plans with projected benefit obligations
in
excess of plan assets are as follows (in thousands):
|
Pension
Plans
|
||||||||
|
2006
|
2005
|
|||||||
|
Pension
Plans with Projected Benefit Obligations in Excess of Plan
Assets
|
||||||||
|
Projected benefit obligation
|
$
|
704,933
|
$
|
321,590
|
||||
|
Fair value of plan assets
|
475,512
|
197,472
|
||||||
F-44
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
The
accumulated benefit obligation and fair value of plan assets for the
company’s
qualified and non-qualified pension plans with accumulated benefit obligations
in excess of plan assets are as follows (in thousands):
|
Pension
Plans
|
||||||||
|
2006
|
2005
|
|||||||
|
Pension Plans with Accumulated Benefit Obligations in Excess
of Plan
Assets
|
||||||||
|
Accumulated benefit obligation
|
$
|
507,298
|
$
|
304,511
|
||||
|
Fair value of plan assets
|
322,923
|
195,977
|
||||||
The
company has other postretirement benefit plans discussed elsewhere in
this note
with an accumulated post-retirement benefit obligation of $28.9 million
that is
unfunded. The plans are excluded from the above table.
The
measurement date used to determine benefit information is December 31
for all
plan assets and benefit obligations.
The
net
periodic pension benefit cost (income) includes the following components
for the
years ended December 31, 2006, 2005 and 2004 (in thousands):
|
Domestic
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
|||||||||||||||||||
|
2006
|
2005
|
2004
|
2006
|
2005
|
2004
|
|||||||||||||||
|
Components of net periodic benefit cost (income)
|
||||||||||||||||||||
|
Service cost-benefits earned
|
$
|
1,792
|
$
|
957
|
$
|
1,013
|
$
|
5,487
|
$
|
6,498
|
$
|
4,514
|
||||||||
|
Interest cost on benefit obligation
|
4,649
|
1,477
|
1,402
|
15,754
|
11,923
|
9,789
|
||||||||||||||
|
Expected return on plan assets
|
(6,065
|
)
|
(1,736
|
)
|
(1,611
|
)
|
(13,316
|
)
|
(9,700
|
)
|
(8,187
|
)
|
||||||||
|
Recognized actuarial net (gain) loss
|
518
|
266
|
227
|
3,296
|
2,321
|
2,331
|
||||||||||||||
|
Amortization of prior service benefit
|
2
|
2
|
—
|
2,607
|
4,053
|
—
|
||||||||||||||
|
Amortization of net transition asset
|
—
|
—
|
—
|
1
|
1
|
1
|
||||||||||||||
|
Settlement/curtailment (gain) loss
|
—
|
—
|
—
|
5
|
—
|
—
|
||||||||||||||
|
Special termination benefit recognized
|
—
|
—
|
—
|
34
|
—
|
—
|
||||||||||||||
|
Net periodic benefit cost (income)
|
$
|
896
|
$
|
966
|
$
|
1,031
|
$
|
13,868
|
$
|
15,096
|
$
|
8,448
|
||||||||
F-45
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
The
SERP
and other postretirement benefits include the following components for
the years
ended December 31, 2006 (in thousands):
|
SERP
Benefits
|
Other
Postretirement
Benefits
|
|||||||
|
2006
|
2006
|
|||||||
|
Components
of Net Periodic Benefit Cost (Income)
|
||||||||
|
Service
cost-benefits earned
|
$
|
79
|
$
|
107
|
||||
|
Interest
cost on benefit obligation
|
442
|
236
|
||||||
|
Net periodic benefit cost (income)
|
$
|
521
|
$
|
343
|
During
the second quarter of 2005, the company merged two defined benefit plans
in the
U.K. and provided the participating employees with a defined contribution
plan
while limiting future benefits under the combined defined benefit plan.
The
transaction met the criteria of a plan curtailment although no gain or
loss
resulted. In connection with the transaction, the company contributed
$10.9
million to the combined U.K. defined benefit plan.
Contributions,
consisting primarily of voluntary contributions to the company’s plans, are
estimated at between $20 million and $30 million for 2007.
Expected
benefit payments are estimated using the same assumptions used in determining
the company’s benefit obligation at December 31, 2006. Benefit payments will
depend on future employment and compensation levels, average years employed
and
average life spans, among other factors, and changes in any of these
factors
could significantly affect these estimated future benefit payments. Estimated
future benefit payments during the next five years and in the aggregate
for the
five fiscal years thereafter, are as follows (in thousands):
|
Domestic
Pension
Benefits
|
Non-U.S.
Pension
Benefits
|
SERP
Benefits
|
Other
Post-
Retirement
Benefits
|
|||||||||||
|
Year
end December 31,
|
||||||||||||||
|
2007
|
$
|
20,330
|
$
|
16,168
|
$
|
25,800
|
$
|
2,005
|
||||||
|
2008
|
20,660
|
16,915
|
1,200
|
1,925
|
||||||||||
|
2009
|
21,960
|
17,936
|
1,400
|
1,941
|
||||||||||
|
2010
|
22,047
|
18,312
|
400
|
1,964
|
||||||||||
|
2011
|
22,918
|
20,411
|
400
|
1,885
|
||||||||||
|
2012-2016
|
131,266
|
117,284
|
3,000
|
9,525
|
The
company’s investment policy for its pension plans is to balance risk and return
through a diversified portfolio to reduce interest rate and market risk.
Maturities are managed so that sufficient liquidity exists to meet immediate
and
future benefit payment requirements.
F-46
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
5. Employee
Benefit Plans (continued)
For
the
company’s plans, the asset allocation at the respective year ends by asset
category was as follows:
|
2006
|
2005
|
||||||
|
Equity Securities
|
57%
|
43%
|
|||||
|
Debt Securities
|
32%
|
31%
|
|||||
|
Insurance Policies
|
4%
|
|
13%
|
|
|||
|
Real Estate
|
2%
|
|
4%
|
|
|||
|
Cash and Other
|
5%
|
|
9%
|
|
|||
|
100%
|
|
100%
|
|
||||
The
weighted-average asset allocation presented above approximates target
allocation
before consideration of updated targets for the November 9, 2006 merger
with
Fisher due to the proximity of that transaction to year end. Decisions
regarding
investment policy are made with an understanding of the effect of asset
allocation on funded status, future contributions and projected expenses.
A
change
in the assumed healthcare cost trend rate by one percentage point effective
January 2006 would change the accumulated postretirement benefit obligation
as
of December 31, 2006 and the 2006 aggregate of service and interest costs,
as
follows (in thousands):
|
One
Percentage Point
|
Increase
|
Decrease
|
||||||
|
Effect
on total of service and interest cost components
|
$
|
76
|
$
|
61
|
||||
|
Effect
on postretirement healthcare benefit obligation
|
$
|
2,256
|
$
|
1,771
|
||||
Note
6. Income
Taxes
The
components of income from continuing operations before provision for
income
taxes are as follows:
|
2006
|
2005
|
2004
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
U.S.
|
$
|
23,343
|
$
|
155,881
|
$
|
109,812
|
|||||
|
Non-U.S.
|
186,027
|
130,017
|
149,407
|
||||||||
|
$
|
209,370
|
$
|
285,898
|
$
|
259,219
|
||||||
F-47
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
6. Income
Taxes (continued)
The
components of the provision for income taxes of continuing operations
are as
follows:
|
2006
|
2005
|
2004
|
|||||||||
|
|
(In
thousands)
|
||||||||||
|
Income
Tax Provision/(Benefit):
|
|||||||||||
|
Federal
|
$
|
45,030
|
$
|
44,805
|
$
|
10,759
|
|||||
|
Non-U.S.
|
77,740
|
56,521
|
29,636
|
||||||||
|
State
|
4,404
|
1,840
|
(6,363
|
)
|
|||||||
|
127,174
|
103,166
|
34,032
|
|||||||||
|
Deferred
Income Tax Provision/(Benefit):
|
|||||||||||
|
Federal
|
(43,807
|
)
|
(1,366
|
)
|
7,494
|
||||||
|
Non-U.S.
|
(29,468
|
)
|
(13,660
|
)
|
(679
|
)
|
|||||
|
State
|
(10,845
|
)
|
(543
|
)
|
5
|
||||||
|
(84,120
|
)
|
(15,569
|
)
|
6,820
|
|||||||
|
$
|
43,054
|
$
|
87,597
|
$
|
40,852
|
||||||
The
income tax provision (benefit) included in the accompanying statement
of income
is as follows:
|
2006
|
2005
|
2004
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Continuing
Operations
|
$
|
43,054
|
$
|
87,597
|
$
|
40,852
|
|||||
|
Discontinued
Operations
|
1,379
|
16,341
|
(73,049
|
)
|
|||||||
|
$
|
44,433
|
$
|
103,938
|
$
|
(32,197
|
)
|
|||||
The
company receives a tax deduction upon the exercise of nonqualified stock
options
by employees for the difference between the exercise price and the market
price
of the underlying common stock on the date of exercise. The provision
for income
taxes that is currently payable does not reflect $17.4 million, $6.6
million and
$16.0 million, of such benefits of the company that have been allocated
to
capital in excess of par value in 2006, 2005 and 2004, respectively.
F-48
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
6. Income
Taxes (continued)
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:
|
2006
|
2005
|
2004
|
|||||||||
|
|
(In
thousands)
|
||||||||||
|
Provision
for Income Taxes at Statutory Rate
|
$
|
73,280
|
$
|
100,064
|
$
|
90,727
|
|||||
|
Increases
(Decreases) Resulting From:
|
|||||||||||
|
Tax
return reassessments and settlements
|
1,959
|
3,988
|
(33,782
|
)
|
|||||||
|
Non-U.S.
tax rate and tax law differential
|
(30,744
|
)
|
(7,129
|
)
|
(14,360
|
)
|
|||||
|
Income
tax credits
|
(5,906
|
)
|
(5,610
|
)
|
(4,555
|
)
|
|||||
|
Extraterritorial
income exclusion
|
(4,858
|
)
|
(4,450
|
)
|
(3,396
|
)
|
|||||
|
Manufacturing
deduction
|
(2,469
|
)
|
(862
|
)
|
—
|
||||||
|
Basis difference of businesses sold or terminated
|
2,351
|
—
|
2,847
|
||||||||
|
State
income taxes, net of federal tax
|
(4,662
|
)
|
1,293
|
1,885
|
|||||||
|
Nondeductible
expenses
|
13,932
|
530
|
863
|
||||||||
|
Other,
net
|
171
|
(227
|
)
|
623
|
|||||||
|
$
|
43,054
|
$
|
87,597
|
$
|
40,852
|
||||||
Net
deferred tax asset (liability)
in the accompanying balance sheet consists of the following:
|
2006
|
2005
|
|||||||
|
(In
thousands)
|
||||||||
|
Deferred
Tax Asset (Liability):
|
||||||||
|
Net
operating loss and credit carryforwards
|
$
|
387,289
|
$
|
159,907
|
||||
|
Reserves
and accruals
|
166,971
|
51,504
|
||||||
|
Inventory
basis difference
|
1,577
|
17,928
|
||||||
|
Accrued
compensation
|
127,241
|
37,711
|
||||||
|
Depreciation
and amortization
|
(2,788,423
|
)
|
(81,128
|
)
|
||||
|
Available-for-sale
investments
|
7,224
|
—
|
||||||
|
Other,
net
|
7,111
|
4,271
|
||||||
|
(2,091,010
|
)
|
190,193
|
||||||
|
Less:
Valuation allowance
|
195,247
|
63,545
|
||||||
|
$
|
(2,286,257
|
)
|
$
|
126,648
|
||||
The
company estimates the degree to which tax assets and loss carryforwards
will
result in a benefit based on expected profitability by tax jurisdiction
and
provides a valuation allowance for tax assets and loss and credit carryforwards
that it believes will more likely than not go unused. At December 31,
2006,
$174.5
million of the company’s valuation allowance relates to deferred tax assets for
which any subsequently recognized tax benefits will reduce goodwill of
an
acquired business.
F-49
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
6. Income
Taxes (continued)
During
2004 and early 2005, the Internal Revenue Service (IRS) and the company
reached
a final settlement of the audit of the company’s tax returns for the 1998
through 2000 tax years. In addition, in 2004, audits of state tax returns
were
completed. In 2004, the company recorded tax benefits that had not previously
been recognized of $33.8 million in continuing operations and $52.7 million
in
discontinued operations (Note 16) associated with the completion of the
tax
audits.
In
addition to the tax benefit of $52.7 million, discussed above, the company’s tax
benefit from discontinued operations in 2004 included amounts pertaining
to
Spectra-Physics (Note 16).
At
December 31, 2006, the company had federal, state and non-U.S. net operating
loss carryforwards of $347.4 million, $617.6 million and $455.8 million,
respectively. Use of the carryforwards is limited based on the future
income of
certain subsidiaries. The federal and state net operating loss carryforwards
expire in the years 2007 through 2026. Of the non-U.S. net operating
loss
carryforwards, $48.7 million expire in the years 2007 through 2026, and
the
remainder do not expire. The company also had $65.2 million of federal
foreign
tax credit carryforwards as of December 31, 2006, which expire in the
years 2007
through 2016.
A
provision has not been made for U.S. or additional non-U.S. taxes on
$1.50
billion of undistributed earnings of international subsidiaries that
could be
subject to taxation if remitted to the U.S. because the company plans
to keep
these amounts permanently reinvested overseas except for instances where
the
company can remit such earnings to the U.S. without an associated net
tax
cost.
Note
7. Earnings
per Share
| 2006 | 2005 | 2004 | |||||||||
|
(In
thousands except
per
share amounts)
|
|||||||||||
| Income from Continuing Operations | $ |
166,316
|
$
|
198,301 |
$
|
218,367 | |||||
|
Income
from Discontinued Operations
|
543
|
—
|
43,018
|
||||||||
|
Gain
on Disposal of Discontinued Operations, Net
|
2,076
|
24,917
|
100,452
|
||||||||
|
Net
Income for Basic Earnings per Share
|
168,935
|
223,218
|
361,837
|
||||||||
|
Effect
of Convertible Debentures
|
1,597
|
1,606
|
1,606
|
||||||||
|
Income Available to Common Shareholders, as Adjusted for Diluted
Earnings
per Share
|
$
|
170,532
|
$
|
224,824
|
$
|
363,443
|
|||||
|
Basic
Weighted Average Shares
|
196,057
|
161,587
|
163,133
|
||||||||
|
Effect
of:
|
|||||||||||
|
Convertible
debentures
|
3,256
|
1,846
|
1,846
|
||||||||
|
Stock
options, restricted stock awards and warrants
|
4,359
|
1,901
|
2,662
|
||||||||
|
Diluted
Weighted Average Shares
|
203,672
|
165,334
|
167,641
|
||||||||
F-50
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
7. Earnings
per Share (continued)
|
2006
|
2005
|
2004
|
|||||||||
|
(In
thousands except
per
share amounts)
|
|||||||||||
|
Basic
Earnings per Share:
|
|||||||||||
|
Continuing
operations
|
$
|
.85
|
$
|
1.23
|
$
|
1.34
|
|||||
|
Discontinued
operations
|
.01
|
.15
|
.88
|
||||||||
|
$
|
.86
|
$
|
1.38
|
$
|
2.22
|
||||||
|
Diluted
Earnings per Share:
|
|||||||||||
|
Continuing
operations
|
$
|
.82
|
$
|
1.21
|
$
|
1.31
|
|||||
|
Discontinued
operations
|
.01
|
.15
|
.86
|
||||||||
|
$
|
.84
|
$
|
1.36
|
$
|
2.17
|
||||||
Options
to purchase 3,783,000, 1,391,000 and 1,078,000 shares of common stock
were not
included in the computation of diluted earnings per share for 2006, 2005
and
2004, respectively, because the options’ exercise prices were greater than the
average market price for the common stock and their effect would have
been
antidilutive.
Under
Emerging Issues Task Force (EITF) No. 04-08 “The Effect of Contingently
Convertible Instruments on Diluted Earnings Per Share,” and EITF No. 90- 19
“Convertible Bonds with Issuer Option to Settle for Cash upon Conversion,”
because of the company’s obligation to settle the par value of its convertible
notes in cash, the company is not required to include any shares underlying
the
convertible notes in its diluted weighted average shares outstanding
until the
average stock price per share for the period exceeds the $23.73, $29.55,
and
$40.20 conversion price for the 2.50% Senior Convertible Notes due 2023,
the
Floating Rate Senior Convertible Debentures due 2033 and the 3.25% Senior
Convertible Subordinated Notes due 2024, respectively, and only to the
extent of
the additional shares the company may be required to issue in the event
the
company’s conversion obligation exceeds the principal amount of the notes or
debentures converted. At such time, only the number of shares that would
be
issuable (under the treasury stock method of accounting for share dilution)
are
included, which is based upon the amount by which the average stock price
exceeds the conversion price.
The
table
below discloses the effect of increases in the company’s stock price on the
amount of shares to be included in the earnings per share calculation.
The
trigger price is the common stock price at which the securities become
convertible. The table assumes normal conversion for the 2.50% Senior
Convertible Notes due 2023, the Floating Rate Senior Convertible Debentures
due
2033 and the 3.25% Senior Convertible Subordinated Notes due 2024 in
which the
principal amount is paid in cash, and the excess up to the conversion
value is
paid in shares of the company’s stock as follows:
|
|
2.50%
Senior
Convertible
Notes
|
Floating
Rate Senior
Convertible
Debentures
|
3.25%
Senior
Convertible
Subordinated
Notes
|
||||||||
|
Principal
Outstanding
(in millions)
|
$
|
300.0
|
$
|
344.5
|
$
|
329.3
|
|||||
|
Conversion
Price Per Share
|
23.73
|
29.55
|
40.20
|
||||||||
|
Trigger
Price
|
28.48
|
38.41
|
48.24
|
F-51
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
7. Earnings
per Share (continued)
|
(Share
amounts in thousands)
|
Total
Potential Shares
|
|||||||||||||
|
Future
Common Stock Price
|
2.50%
Senior
Convertible
Notes
|
Floating
Rate
Senior
Convertible
Debentures
|
3.25%
Senior
Convertible
Subordinated
Notes
|
Potential
Share
Increase
|
||||||||||
|
$23.73
|
—
|
—
|
—
|
—
|
||||||||||
|
$24.73
|
510
|
—
|
—
|
510
|
||||||||||
|
$29.55
|
2,489
|
—
|
—
|
2,489
|
||||||||||
|
$30.55
|
2,821
|
384
|
—
|
3,205
|
||||||||||
|
$40.20
|
5,178
|
3,091
|
—
|
8,269
|
||||||||||
|
$41.20
|
5,360
|
3,299
|
199
|
8,858
|
||||||||||
|
$50.00
|
6,641
|
4,771
|
1,605
|
13,017
|
||||||||||
|
$55.00
|
7,186
|
5,397
|
2,204
|
14,787
|
||||||||||
|
$60.00
|
7,641
|
5,919
|
2,703
|
16,263
|
||||||||||
Note
8. Comprehensive
Income
Comprehensive
income combines net income and other comprehensive items. Other comprehensive
items represents certain amounts that are reported as components of
shareholders’ equity in the accompanying balance sheet, including currency
translation adjustments, unrealized gains and losses, net of tax, on
available-for-sale investments and hedging instruments and pension and
other
postretirement benefit liability adjustments.
Accumulated
other comprehensive items in the accompanying balance sheet consists
of the
following:
|
2006
|
2005
|
|||||||
|
Cumulative
Translation Adjustment
|
$
|
193,599
|
$
|
75,030
|
||||
|
Net Unrealized Loss on Available-for-sale Investments (net
of tax benefit
of $19)
|
(33
|
)
|
—
|
|||||
|
Net Unrealized Losses on Hedging Instruments (net of tax benefit
of $1,004
in 2006 and $1,123 in 2005)
|
(1,712
|
)
|
(1,916
|
)
|
||||
|
Pension and Other Postretirement Benefit Liability Adjustments
(net of tax
benefit of $17,504 in 2006
and $21,649 in 2005)
|
(41,696
|
)
|
(45,935
|
)
|
||||
|
$
|
150,158
|
$
|
27,179
|
The
amounts of available-for-sale investments reclassified out of other
comprehensive income into net income were $5.7 million and ($5.4) million
for
the years ended December 31, 2005 and 2004, respectively, all net of
tax. No
amounts were reclassified in 2006.
F-52
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
9. Short-term
Investments
The
aggregate market value, cost basis and gross unrealized gains and losses
of
short-term available-for-sale investments by major security type are
as
follows:
|
|
Market
Value
|
Cost
Basis
(a)
|
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
of
Investments
with
Unrealized
Losses
|
|||||||||||
|
(In thousands)
|
|||||||||||||||||
|
2006
|
|||||||||||||||||
|
Equity
Securities
|
$
|
11,702
|
$
|
11,755
|
$
|
344
|
$
|
396
|
$
|
10,603
|
|||||||
|
Auction
Rate Securities
|
8,500
|
8,500
|
—
|
—
|
—
|
||||||||||||
|
$
|
20,202
|
$
|
20,255
|
$
|
344
|
$
|
396
|
$
|
10,603
|
||||||||
|
2005
|
|||||||||||||||||
|
Auction
Rate Securities
|
$
|
80,661
|
$
|
80,661
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||
(a) The
cost
basis for equity securities acquired as part of the Fisher merger is the fair
market value of the securities on the date of the merger.
The
cost
of available-for-sale investments that were sold was based on specific
identification in determining realized gains and losses recorded in the
accompanying statement of income. The net gain on the sale of available-for-sale
investments resulted from gross realized gains of $0.7 million, $35.1
million
and $21.0 million in 2006, 2005 and 2004, respectively, and gross realized
losses of $1.3 million and $0.2 million in 2005 and 2004,
respectively.
The
company’s investments in auction rate securities are recorded at cost, which
approximates fair value due to their variable interest rates. The interest
rates
generally reset every 7 to 28 days. Despite the long-term nature of their
stated
contractual maturities, all of which are over 10 years, the company has
the
ability to quickly liquidate investments in auction rate securities.
All income
generated from these investments has been recorded as interest
income.
In
addition to available-for-sale investments, the company had $3.5 million
of
trading securities at December 31, 2006, consisting of debt and equity
securities. Trading gains and losses associated with this portfolio were
not
material in 2006.
F-53
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
10. Debt
and Other Financing Arrangements
|
2006
|
2005
|
|||||||
|
(In
thousands except
per
share amounts)
|
||||||||
|
Revolving
Credit Facility
|
$
|
322,000
|
$
|
—
|
||||
|
Euro
Credit Facility
|
—
|
124,236
|
||||||
|
Money
Market Loans
|
136,000
|
—
|
||||||
|
5%
Senior Notes, Due 2015
|
250,000
|
250,000
|
||||||
|
7
5/8% Senior Notes, Due 2008
|
129,284
|
130,542
|
||||||
|
2.50% Senior Convertible Notes, Due 2023 Convertible at $23.73
per
Share
|
299,995
|
—
|
||||||
|
Floating Rate Senior Convertible Debentures, Due 2033 Convertible
at
$29.55 per Share
|
344,541
|
—
|
||||||
|
3.25%
Senior Subordinated Convertible Notes, Due 2024 Convertible
at $40.20 per
Share
|
329,269
|
—
|
||||||
|
6
3/4% Senior Subordinated Notes, Due 2014
|
308,069
|
—
|
||||||
|
6
1/8% Senor Subordinated Notes, Due 2015
|
500,000
|
—
|
||||||
|
3.25% Subordinated Convertible Debentures, Due 2007, Convertible
at $41.84
per Share
|
7,438
|
77,234
|
||||||
|
Other
|
37,407
|
16,755
|
||||||
|
2,664,003
|
598,767
|
|||||||
|
Less:
Current Maturities
|
483,298
|
130,137
|
||||||
|
$
|
2,180,705
|
$
|
468,630
|
|||||
The
annual repayment
requirements for long-term obligations are as follows (in
thousands):
| 2007 |
$
|
483,298 | |||
|
2008
|
136,128
|
||||
|
2009
|
2,677
|
||||
|
2010
|
1,711
|
||||
|
2011
|
1,623
|
||||
|
2012
and thereafter
|
2,038,566
|
||||
|
$
|
2,664,003
|
See
Note
13 for fair value information pertaining to the company’s long-term
obligations.
Short-term
obligations and current maturities of long-term obligations in the accompanying
balance sheet included $467.3 million and $128.5 million at year-end
2006 and
2005, respectively, of short-term bank borrowings and borrowings under
lines of
credit of certain of the company’s subsidiaries. The borrowings outstanding at
year-end 2005 include amounts under the company’s euro facility, described
below, which terminated in November 2006. The weighted average interest
rate for
short-term borrowings was 5.6% and 2.4% at December 31, 2006 and 2005,
respectively. In addition to available borrowings under the company’s five-year
revolving credit agreements and a money market loan fund arrangement,
all
discussed below, the company had unused lines of credit of $227.8 million
as of
December 31, 2006. These unused lines of credit generally provide for
short-term
unsecured borrowings at various interest rates.
F-54
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
10. Debt
and Other Financing Arrangements (continued)
On
November 9, 2006, in connection with the merger with Fisher, the company
entered
into a new $1 billion multi-currency credit facility, discussed below.
The
company used proceeds from this facility to prepay Fisher debt. The company
also
terminated its $250 million revolving credit and 175 million euro credit
facilities. There were no outstanding balances when those facilities
were
terminated.
In
connection with the Fisher merger, the company assumed three issuances
of
convertible debt as well as two issuances of fixed-rate debt, described
below.
The company became a co-obligor of this debt. The debt was recorded at
the
merger date at its fair value. The excess of the fair value over the
principal
value of the convertible debt, or $546.8 million, was deemed to arise
from the
value of the conversion features and was allocated to additional paid-in
capital.
On
December 15, 2006, the company provided a notice to the holders of the
3.25%
subordinated convertible debentures
due 2007
that the debentures would be redeemed on January 5, 2007. The holders’ right to
convert the debentures into common shares of the company expired on December
28,
2006. The holders of $69.8 million in aggregate principal amount converted
their
debentures into common shares. On January 5, 2007, the remaining debentures
totaling $7.4 million in aggregate principal amount were redeemed at
par plus
accrued interest.
During
2005, the company completed the following significant transactions:
| · |
In
May 2005, the company issued $250 million aggregate principal
amount of 5%
Senior Notes due 2015. The proceeds of the notes were used,
in part, to
finance the Kendro acquisition.
|
| · |
In
May 2005, the company entered into an arrangement that provides
an
uncommitted line
of credit of up to
$250 million through
a series of short-term money market loans funded on an ongoing
basis in
the secondary market.
|
| · |
In
June 2005, the company entered into a five year 175 million
euro revolving
credit facility. The facility was terminated on November 9,
2006.
|
| · |
The
company repaid $570 million of bridge loan financing with cash
and new
debt described above.
|
Credit
Facilities
In
November 2006, the company entered into a revolving credit facility (the
“Revolving Credit Facility”) with a bank group that provides for up to $1
billion of unsecured multi-currency revolving credit that will expire
in August
2011. The agreement allows for the company to request a one year extension
of
the facility at the end of the first and second years. The company also
has the
right to request an increase in the size of the facility by up to $500
million.
The agreement calls 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 rate at
December 31, 2006, was 5.63% under the more favorable of the two rates.
The
Revolving Credit Facility allows for the issuance of letters of credit,
which
reduces the amount available for borrowing. The agreement contains affirmative,
negative and financial covenants, and events of default customary for
financings
of this type. The financial covenant requires the company to maintain
total
leverage below a certain maximum level. The credit agreement permits
the company
to use the facility for working capital; acquisitions; repurchases of
common
stock, debentures and other securities; the refinancing of debt; and
general
corporate purposes. As of December 31, 2006, there were $322 million
of
borrowings under the revolver and $42.9 million in letters of credit
outstanding, resulting in $635.1 million of borrowings available under
the
Revolving Credit Facility.
F-55
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
10. Debt
and Other Financing Arrangements (continued)
Money
Market Loans
The
company has an uncommitted line of credit of up to $250 million through
a series
of short-term money market loans funded on an ongoing basis in the secondary
market. Such money market loans have maturity periods of overnight to
364 days
and bear varying rates of interest based on the maturity date and market
rate at
the time of issuance. As of December 31, 2006, the company has $136 million
outstanding with varying dates of maturity in 2007.
2.50%
Senior Convertible Notes due 2023
At
the
closing date of the merger with Fisher, the company assumed $300.0 million
aggregate principal amount of 2.50% Senior Convertible Notes due 2023.
Interest
on the notes is payable on April 1 and October 1 of each year. The notes
are
convertible at the option of the holder upon the occurrence of certain
events at
a price of $23.73 per share. Upon assuming the debt, the company provided
a
co-obligation in respect of payment of interest and principal of the
notes and
amended the conversion feature such that the notes are convertible into
common
shares of the company. The company will be required to deliver cash to
holders
upon conversion, up to the principal amount of the notes converted. The
company
will have the option to satisfy any amount of conversion obligation in
excess of
the principal amount in cash and/or shares of common stock. The notes
may be
redeemed, in whole or in part, at the company’s option on or after October 2,
2010, at 100% of the principal amount plus accrued interest. In addition,
holders of the notes have the option, subject to certain conditions,
to require
the company to purchase any notes held by them for 100% of the principal
amount
plus accrued interest on October 1, 2010, October 1, 2015, and October
1, 2020,
or upon a change of control.
Floating
Rate Senior Convertible Debentures due 2033
At
the
closing date of the merger with Fisher, the company assumed $344.5 million
aggregate principal amount of Floating Rate Senior Convertible Debentures
due
2033. Interest on the notes is payable on March 15, June 15, September
15 and
December 15 of each year at an annual rate of LIBOR minus 1.25%. Additional
quarterly interest equal to 0.0625% of the market value of the notes
will be
paid commencing with the quarterly interest period beginning December
15, 2009,
if the market value of the notes during specified testing periods is
120% or
more of the principal value. The notes are convertible at the option
of the
holder upon the occurrence of certain events at a price of $29.55 per
share.
Upon assuming the debt, the company provided a co-obligation in respect
of
payment of interest and principal of the notes and amended the conversion
feature such that the notes are convertible into common shares of the
company.
The company will be required to deliver cash to holders upon conversion,
up to
the principal amount of notes converted. The company will have the option
to
satisfy any amount of conversion obligation in excess of the principal
amount in
cash and/or shares of common stock. The notes may be redeemed, in whole
or in
part, at the company’s option on or after March 15, 2010, at 100% of the
principal amount plus accrued interest. In addition, holders of the notes
have
the option, subject to certain conditions, to require the company to
purchase
any notes held by them for 100% of the principal amount plus accrued
interest on
December 15, 2008, March 15, 2010, December 15, 2014, December 15, 2019,
December 15, 2024, and December 15, 2029, or upon a change of
control.
3.25%
Senior Subordinated Convertible Notes due 2024
At
the
closing date of the merger with Fisher, the company assumed $330.0 million
aggregate principal amount of 3.25% Senior Subordinated Convertible Notes
due
2024. Interest on the notes is payable on March 1 and September 1 of
each year.
The notes are convertible at the option of the holder upon the occurrence
of
certain events at a price of $40.20 per share. Upon assuming the debt,
the
company provided a co-obligation in respect of payment of interest and
principal
of the notes and amended the conversion feature such that the notes are
convertible into common shares of the company. The company will be required
to
deliver cash to holders
F-56
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
10. Debt
and Other Financing Arrangements (continued)
upon
conversion, up to the principal amount of notes converted. The company
will have
the option to satisfy any amount of conversion obligation in excess of
the
principal amount in cash and/or shares of common stock. The notes may
be
redeemed, in whole or in part, at the company’s option, on or after March 2,
2011, at 100% of the principal amount plus accrued interest. In addition,
holders of the notes have the option, subject to certain conditions,
to require
us to purchase any notes held by them for 100% of the principal amount
plus
accrued interest on March 1, 2011, March 1, 2016 and March 1, 2021, or
upon a
change of control.
3.25%
Subordinated
Convertible Debentures, Due 2007
At
December 31, 2006, the company had $7.4 million aggregate principal amount
of
3.25% Subordinated Convertible Debentures
due
2007. Interest on the notes was payable on May 1 and November 1 of each
year.
The notes had been convertible at the option of the holder upon the occurrence
of certain events at a price of $41.84 per share. In December 2006, the
company
provided notice to the holders that the debentures would be redeemed
on January
5, 2007. The holders’ right to convert the debentures into common shares of the
company expired on December 28, 2006. The holders of $69.8 million in
principal
converted their debentures into 1,668,000 shares. On January 5, 2007,
the
remaining debentures totaling $7.4 million in aggregate principal amount
were
redeemed at par plus accrued interest.
5%
Senior Notes due 2015
The
company has $250 million principal amount of 5% Senior Notes due 2015.
Interest
on the notes is payable on June 1 and December 1 of each year. The notes
may be
redeemed at any time at a redemption price of 100% of the principal amount
plus
a specified make-whole premium plus accrued interest. The company is
subject to
certain affirmative and negative covenants.
Prior
to
issuing this debt, the
company entered into forward starting pay fixed swap agreements with
several
banks 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 was
probable and that such debt would carry semi-annual interest payments
over a
10-year term, the swaps hedged the cash flow risk for each of the semi-annual
fixed-rate interest payments on $250 million of principal amount of the
10-year
fixed-rate debt issue (or any subsequent refinancing of such debt). The
change
in the fair value of the hedge upon termination was $2.0 million, net
of tax,
and was classified as a reduction of accumulated other comprehensive
items
within shareholders’ equity and is being amortized to interest expense over the
term of the debt through 2015.
7
5/8% Senior Notes due 2008
The
company has $128.7 million principal amount of 7 5/8% Senior Notes due
2008.
Interest on the notes is payable on April 30 and October 30 of each year.
The
notes may be redeemed at any time at a redemption price of 100% of the
principal
amount plus a specified make-whole premium plus accrued interest. The
company is
subject to certain affirmative and negative covenants.
During
2002, the company entered into interest-rate swap arrangements for the
$128.7
million of notes with the objective of reducing interest costs. The arrangements
provide that the company will receive a fixed interest rate of 7 5/8%,
and will
pay a variable rate of 3 month LIBOR plus 2.19% (7.55% as of December
31, 2006).
The swaps have terms expiring at the maturity of the debt. The swaps
are
designated as fair-value hedges and as such, are carried at fair value,
which
resulted in an increase in both other long-term assets and long-term
debt of
$0.6 million and $1.8 million at December 31, 2006 and 2005, respectively.
The
swap arrangements are with different counterparties than the holders
of the
underlying debt. Management believes that any credit risk associated
with the
swaps is remote based on the creditworthiness of the financial institutions
issuing the swaps.
F-57
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
10. Debt
and Other Financing Arrangements (continued)
6
3/4% Senior Subordinated Notes due 2014
At
the
closing date of the merger with Fisher, the company assumed $300 million
principal amount of 6 3/4% Senior Subordinated Notes due 2014. Interest
on the
notes is payable on February 15 and August 15 of each year. The notes
may be
redeemed, in whole or in part, at the company’s option, on or after August 15,
2009, at specified redemption prices plus accrued interest. At any period
prior
to August 15, 2009, the company may redeem the notes at a redemption
price of
100% of the principal amount plus a specified make-whole premium plus
accrued
interest. Also, on or prior to August 15, 2007, the company, at its option,
may
redeem up to 40% of the aggregate principal amount of the notes at a
redemption
price equal to 106.75% of the principal amount plus accrued interest
with the
proceeds of one or more equity offerings. If a change of control occurs
and the
notes fail to maintain at least a BBB- rating by S&P and a Baa3 rating by
Moody’s, each holder of notes may require the company to repurchase some or
all
of its notes at a purchase price equal to 101% of the principal amount
plus
accrued interest.
6
1/8% Senior Subordinated Notes due 2015
At
the
closing date of the merger with Fisher, the company assumed $500 million
principal amount of 6 1/8% Senior Subordinated Notes due 2015. Interest
on the
notes is payable on January 1 and July 1 of each year. The notes may
be
redeemed, in whole or in part, at the company’s option, on or after July 1,
2010, at specified redemption prices plus accrued interest. At any period
prior
to July 1, 2010, the company may redeem the notes at a redemption price
of 100%
of the principal amount plus a specified make-whole premium plus accrued
interest. Also, on or prior to July 1, 2008, the company, at its option,
may
redeem up to 40% of the aggregate principal amount of the notes at a
redemption
price equal to 106.125% of the principal amount plus accrued interest
with the
proceeds of one or more equity offerings. If a change of control occurs
and the
notes fail to maintain at least a BBB- rating by S&P and a Baa3 rating by
Moody’s, each holder of notes may require the company to repurchase some or
all
of its notes at a purchase price equal to 101% of the principal amount
plus
accrued interest.
Note
11. Commitments
and Contingencies
Operating
Leases
The
company leases certain logistics, office, and manufacturing facilities.
Income
from continuing operations includes expense from operating leases of
$48.5
million, $46.5 million and $40.3 million in 2006, 2005 and 2004, respectively.
The following is a summary of annual future minimum lease and rental
commitments
under noncancelable operating leases as of December 31, 2006 (in
thousands):
|
Operating
Leases
|
|||||
|
2007
|
$
|
92,111
|
|||
|
2008
|
75,357
|
||||
|
2009
|
58,951
|
||||
|
2010
|
44,397
|
||||
|
2011
|
31,177
|
||||
|
Thereafter
|
85,089
|
||||
|
Future
Minimum Lease Payments
|
$
|
387,082
|
F-58
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
11. Commitments
and Contingencies (continued)
Purchase
Obligations
The
company has entered into unconditional purchase obligations, in the ordinary
course of business, that include agreements to purchase goods or services
that
are enforceable and legally binding and that specify all significant
terms
including: fixed or minimum quantities to be purchased; fixed, minimum
or
variable price provisions; and the approximate timing of the transaction.
Purchase obligations exclude agreements that are cancelable at any time
without
penalty. The aggregate amount of the company’s unconditional purchase
obligations totaled $119.0 million at December 31, 2006 and the full
amount of
these obligations is expected to be settled during 2007.
Letters
of Credit, Guarantees and Other Commitments
Outstanding
letters of credit and bank guarantees totaled $76.6 million at December
31,
2006, including $4.7 million for businesses that have been sold. The
expiration
of these credits and guarantees ranges through 2013.
Outstanding
surety bonds and other guaranties totaled $37.2 million at December 31,
2006.
The expiration of these bonds and guaranties ranges through 2012.
The
letters of credit, bank guarantees and surety bonds principally secure
performance obligations, and allow the holder to draw funds up to the
face
amount of the letter of credit, bank guarantee or surety bond if the
applicable
business unit does not perform as contractually required. With respect
to
letters of credit, guarantees and surety bonds that were issued for businesses
that were sold, the buyer is obligated to indemnify the company in the
event
such letters of credit and/or surety bonds are drawn.
In
connection with the sale of businesses of the company, the buyers have
assumed
certain contractual obligations of such businesses and have agreed to
indemnify
the company with respect to those assumed liabilities. In the event a
third
party to a transferred contract does not recognize the transfer of obligations
or a buyer defaults on its obligations under the transferred contract,
the
company could be liable to the third party for such obligations. However,
in
such event, the company would be entitled to indemnification by the
buyer.
The
company has funding commitments totaling $15.4 million at December 31,
2006,
related to investments it owns.
Indemnifications
In
conjunction with certain transactions, primarily divestitures, the company
has
agreed to indemnify the other parties with respect to certain liabilities
related to the businesses that were sold or leased properties that were
abandoned (e.g., retention of certain environmental, tax, employee and
product
liabilities). The scope and duration of such indemnity obligations vary
from
transaction to transaction. Where appropriate, an obligation for such
indemnifications is recorded as a liability. Generally, a maximum obligation
cannot be reasonably estimated. Other than obligations recorded as liabilities
at the time of divestiture, historically the company has not made significant
payments for these indemnifications.
In
connection with the company’s efforts to reduce the number of facilities that it
occupies, the company has vacated some of its leased facilities or sublet
them
to third parties. When the company sublets a facility to a third party,
it
remains the primary obligor under the master lease agreement with the
owner of
the facility. As a result, if a third party vacates the sublet facility,
the
company would be obligated to make lease or other payments under the
master
lease agreement. The company believes that the financial risk of default
by
sublessors is individually and in the aggregate not material to the company’s
financial position or results of operations.
F-59
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
11. Commitments
and Contingencies (continued)
In
connection with the sale of products in the ordinary course of business,
the
company often makes representations affirming, among other things, that
its
products do not infringe on the intellectual property rights of others
and
agrees to indemnify customers against third-party claims for such infringement.
The company has not been required to make material payments under such
provisions.
Litigation
and Related Contingencies
On
September 3, 2004, Applera Corporation, MDS Inc. and Applied Biosystems/MDS
Scientific Instruments filed a lawsuit against the company in U.S. federal
court. These plaintiffs allege that the company’s mass spectrometer systems,
including its triple quadrupole and certain of its ion trap systems,
infringe a
patent of the plaintiffs. The plaintiffs seek damages, including treble
damages
for alleged willful infringement, attorneys’ fees, prejudgment interest and
injunctive relief. In the opinion of management, an unfavorable outcome
of this
matter could have a material adverse effect on the company’s financial position
as well as its results of operations and cash flows.
On
December 8, 2004 and February 23, 2005, the company asserted in two lawsuits
against a combination of Applera Corporation, MDS Inc. and Applied
Biosystems/MDS Scientific Instruments that one or more of these parties
infringe
two patents of the company.
There
are
various other lawsuits and claims pending against the company involving
contract, product liability and other issues. In view of the company’s financial
condition and the accruals established for related 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 insured events that have already occurred.
The accrued
liabilities are based on management’s judgment as to the probability of losses,
opinions of legal counsel and, where applicable, actuarially determined
estimates. The reserve estimates are adjusted as additional information
becomes
known or payments are made.
When
a
range of probable loss can be estimated the company accrues the most
likely
amount, or at least the minimum of the range of probable loss. The range
of
probable loss for matters at Fisher related to workers compensation,
general,
automobile and product liabilities at December 31, 2006, was approximately
$128
million to $252 million on an undiscounted basis. Having assumed these
liabilities in the merger with Fisher, the company was required to discount
the
estimate of loss to fair (present) value, $83 million at December 31,
2006. This
reserve includes estimated defense costs and is gross of estimated amounts
due
from insurers of $39 million at December 31, 2006, also recorded at their
fair
value at the date of merger. The assets and liabilities assumed at the
acquisition date were ascribed a fair value based on the present value
of
expected future cash flows, using a discount rate equivalent to the risk
free
rate of interest for monetary assets with comparable maturities (weighted
average discount rate of 4.67%). The discount on the liabilities of
approximately $48 million and the discount on the assets of approximately
$28
million (net discount $20 million) will be accreted to interest expense
over the
expected settlement period which is estimated to be between 10 and 20
years. In
addition to the reserves recorded due to the merger with Fisher, as of
December
31, 2006, the company had product liability reserves of $23 million
(undiscounted) relating to divested businesses. The process of estimating
losses
involves a considerable degree of judgment by management and the ultimate
amount
of expense could vary. However, the company believes that the amounts
reserved
are adequate based on available information.
In
the
ordinary course of business, the company has purchased insurance coverage
from
third-party insurance carriers to minimize loss and manage risk from
certain
worker injury, general, automobile and product liability. Insurance contracts
do
not relieve the company of its primary obligation with respect to any
losses
F-60
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
11. Commitments
and Contingencies (continued)
incurred.
The collectibility 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, principally at businesses acquired
in the
merger with Fisher. 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 relate
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’s liability for environmental matters associated with businesses
acquired in the merger with Fisher was recorded at its fair value and
as such,
was discounted to its present value. 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. Having assumed these environmental liabilities
in
the merger with Fisher, the company was required to discount the estimate
of
loss to fair (present) value, $23.2 million. This fair value was ascribed
by
using a discount rate of 4.73%, which was the risk free interest rate
for
monetary assets with maturities comparable to that of the environmental
liability. The discount of $10.0 million will be accreted by charges
to interest
expense over the estimated maturity period of 30 years. At December 31,
2006,
the environmental liability was approximately $24 million. Accrued liabilities
for environmental matters were not material prior to 2006.
Management
believes that this accrual is adequate for the environmental 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
12. Common
and Preferred Stock
At
December 31, 2006, the company had reserved 73,303,563 unissued shares
of its
common stock for possible issuance under stock-based compensation plans
and for
possible conversion of the company’s convertible debentures.
The
company has 50,000 shares of authorized but unissued $100 par value preferred
stock.
The
company has distributed rights under a shareholder rights plan adopted
by the
company’s Board of Directors to holders of outstanding shares of the company’s
common stock. Each right entitles the holder to purchase one hundred-thousandth
of a share (a Unit) of Series B Junior Participating Preferred Stock,
$100 par
value, at a purchase price of $200 per Unit, subject to adjustment. The
rights
will not be exercisable until the earlier of (i) 10 business days following
a
public
F-61
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
12. Common
and Preferred Stock (continued)
announcement
that a person or group of affiliated or associated persons (an Acquiring
Person)
has acquired, or obtained the right to acquire, beneficial ownership
of 15% or
more of the outstanding shares of common stock (the Stock Acquisition
Date), or
(ii) 10 business days following the commencement of a tender offer or
exchange
offer for 15% or more of the outstanding shares of common stock.
In
the
event that a person becomes the beneficial owner of 15% or more of the
outstanding shares of common stock, except pursuant to an offer for all
outstanding shares of common stock that at least 75% of the Board of
Directors
determines to be fair to, and otherwise in the best interests of, stockholders,
each holder of a right (except for the Acquiring Person) will thereafter
have
the right to receive, upon exercise, that number of shares of common
stock (or,
in certain circumstances, units of preferred stock, cash, property or
other
securities of the company) which equals the exercise price of the right
divided
by one-half of the current market price of the common stock. In the event
that,
at any time after any person has become an Acquiring Person, (i) the
company is acquired in a merger or other business combination transaction
in
which the company is not the surviving corporation or its common stock
is
changed or exchanged (other than a merger that follows an offer approved
by the
Board of Directors), or (ii) 50% or more of the company’s assets or earning
power is sold or transferred, each holder of a right (except for the
Acquiring
Person) shall thereafter have the right to receive, upon exercise, the
number of
shares of common stock of the acquiring company that equals the exercise
price
of the right divided by one-half of the current market price of such
common
stock.
At
any
time until the Stock Acquisition Date, the company may redeem the rights
in
whole, but not in part, at a price of $.01 per right (payable in cash
or stock).
The rights expire on September 29, 2015, unless earlier redeemed or
exchanged.
As
a
result of the merger with Fisher, warrants to purchase 1,653,585 shares
of
Fisher common stock were converted into warrants to purchase 3,307,170
shares of
company common stock. These warrants had a fair value of $113.2 million
at the
merger date, which was recorded as part of the merger consideration.
As of
December 31, 2006, there were warrants outstanding to purchase 3,307,170
shares
of company common stock at an exercise price of $4.83 per share and exercisable
through January 2008.
Note
13. Fair
Value of Financial Instruments
The
company’s financial instruments consist mainly of cash and cash equivalents,
short-term available-for-sale investments, accounts receivable, notes
receivable, short-term obligations and current maturities of long-term
obligations, accounts payable, long-term obligations and forward
currency-exchange contracts.
Available-for-sale
investments are carried at fair value in the accompanying balance sheet.
The
fair values were determined based on quoted market prices (Note 9).
F-62
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
13. Fair
Value of Financial Instruments
(continued)
The
carrying amount and fair value of the company’s notes receivable, long-term
obligations and forward currency-exchange contracts are as follows:
|
2006
|
2005
|
|||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||
|
(In
thousands)
|
||||||||||||||
|
Notes
Receivable
|
$
|
49,328
|
$
|
50,432
|
$
|
48,420
|
$
|
50,941
|
||||||
|
Long-term
Obligations:
|
||||||||||||||
|
Convertible
obligations
|
$
|
973,805
|
$
|
1,587,160
|
$
|
77,234
|
$
|
76,075
|
||||||
|
Senior
notes
|
379,284
|
367,096
|
380,542
|
377,291
|
||||||||||
|
Senior
subordinated notes
|
808,069
|
814,126
|
—
|
—
|
||||||||||
|
Other
|
19,547
|
19,547
|
10,854
|
10,854
|
||||||||||
|
$
|
2,180,705
|
$
|
2,787,929
|
$
|
468,630
|
$
|
464,220
|
|||||||
|
Forward
Currency-exchange Contracts Receivable (Payable)
|
$
|
(60
|
)
|
$
|
(60
|
)
|
$
|
173
|
$
|
173
|
||||
The
fair
value of the notes receivable (principally the note receivable from Newport)
was
determined based on borrowing rates available to companies of comparable
credit
worthiness at December 31, 2006 and 2005. In February 2007, the company
received
full payment of the note receivable from Newport.
The
fair
value of long-term obligations was determined based on quoted market
prices and
on borrowing rates available to the company at the respective year ends.
The
notional amounts of forward currency-exchange contracts outstanding totaled
$72.2 million and $94.8 million at year-end 2006 and 2005, respectively.
The
fair value of such contracts is the estimated amount that the company
would
receive upon liquidation of the contracts, taking into account the change
in
currency exchange rates.
F-63
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
14. Supplemental
Cash Flow Information
|
2006
|
2005
|
2004
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Cash Paid For
|
|||||||||||
|
Interest
|
$
|
42,635
|
$
|
23,025
|
$
|
11,003
|
|||||
|
Income taxes
|
$
|
124,599
|
$
|
90,385
|
$
|
36,279
|
|||||
|
Noncash
Activities
|
|||||||||||
|
Fair value of assets of acquired businesses and product
lines
|
$
|
16,992,281
|
$
|
1,093,079
|
$
|
189,612
|
|||||
|
Cash acquired in Fisher merger, net of transaction costs
|
359,868
|
—
|
—
|
||||||||
|
Cash paid for acquired businesses and product lines
|
(134,097
|
)
|
(940,758
|
)
|
(147,902
|
)
|
|||||
|
Fair value of common stock issued
|
(9,777,837
|
)
|
—
|
—
|
|||||||
|
Fair value of options and warrants
|
(502,277
|
)
|
—
|
—
|
|||||||
|
Fair value of convertible debt allocable to equity
|
(546,783
|
)
|
—
|
—
|
|||||||
|
Liabilities
assumed of acquired businesses and product lines
|
$
|
6,391,155
|
$
|
152,321
|
$
|
41,710
|
|||||
|
Fair value of common stock and note received from sale of discontinued
operations
|
$
|
—
|
$
|
—
|
$
|
89,974
|
|||||
|
Conversion
of subordinated convertible debentures
|
$
|
69,656
|
$
|
—
|
$
|
—
|
|||||
|
Issuance of restricted stock
|
$
|
18,759
|
$
|
4,076
|
$
|
1,679
|
|||||
Note
15. Restructuring
and Other Costs, Net
In
response to a downturn in markets served by the company and in connection
with
the company’s overall reorganization, restructuring actions were initiated in
2003, and to a lesser extent, 2004 in a number of business units to reduce
costs
and redundancies, principally through headcount reductions and consolidation
of
facilities. Restructuring and other costs recorded in 2005 were primarily
for
reductions in staffing levels at existing businesses resulting from the
integration of Kendro and the consolidation of two facilities in Texas.
The 2005
costs also include charges associated with actions initiated prior to
2005 that
could not be recorded until incurred and adjustments to previously provided
reserves due to changes in estimates of sub-tenant rentals from abandoned
facilities. The restructuring actions undertaken in 2003 and 2004 were
substantially complete at the end of 2004. Restructuring costs in 2006
include
charges to close a plant in Massachusetts and consolidate its operations
with
those of an acquired Kendro facility in North Carolina, charges for
consolidation of a U.K. facility into an existing factory in Germany,
the move
of manufacturing operations in New Mexico to other plants in the U.S.
and Europe
and remaining costs of prior actions. The company is finalizing its plan
for
potential restructuring actions that may be undertaken at Fisher or within
existing businesses with which Fisher is being integrated. Such actions
may
include rationalization of product lines, consolidation of facilities
and
reductions in staffing levels. The cost of actions at Fisher businesses
is being
charged to the cost of the acquisition while the cost of actions at existing
businesses being integrated with Fisher is charged to expense. The company
has
identified actions at existing businesses totaling $5 million that will
be
undertaken in 2007 and expects to identify additional actions as it completes
its plans for integrating Fisher. The company expects to finalize its
restructuring plans related to the Fisher merger no later than one year
from the
date of merger. The company has finalized its plans for integrating Kendro
with
its existing business and expects that charges to expense will ultimately
total
$16 million, of which approximately $15 million has been recorded as
of December
31, 2006 with the balance to be recorded as incurred.
F-64
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
15. Restructuring
and Other Costs, Net
(continued)
2006
The
company recorded net restructuring and other costs by segment for 2006
as
follows:
|
Analytical
Technologies
|
Laboratory
Products and
Services
|
Other | Corporate | Total | ||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
| Cost of Revenues | $ | 43,228 | $ | 34,397 | $ | — | $ | — | $ | 77,625 | ||||||||||
|
Restructuring and Other Costs, Net
|
30,251
|
7,141
|
9
|
8,311
|
45,712
|
|||||||||||||||
|
$
|
73,479
|
$
|
41,538
|
$
|
9
|
$
|
8,311
|
$
|
123,337
|
|||||||||||
The
components of net restructuring and other costs by segment are as
follows:
Analytical
Technologies
The
Analytical Technologies segment recorded $73 million of net restructuring
and
other charges in 2006. The segment recorded charges to cost of revenues
of $43
million, primarily for the sale of inventories revalued at the date of
acquisition, and $30 million of other costs, net. These other costs consisted
of
$16 million of cash
costs, principally associated with the consolidation of a U.K. facility
into an
existing factory in Germany and the move of manufacturing operations
in New
Mexico to other plants in the U.S. and Europe, including $9
million
of severance for 209 employees across all functions;
$5
million of abandoned-facility costs, primarily for charges associated
with
facilities vacated in prior periods where estimates have changed; and
$2 million
of other cash costs, primarily relocation expenses associated with facility
consolidations. These severance and other cash costs were net of reversals
of $1
million, principally due to lower costs resulting from employee attrition.
In
addition, the segment recorded a charge of $15 million for in-process
research
and development at Fisher on the merger date. The segment also recorded
a net
gain of $1 million on the sale of two product lines.
Laboratory
Products and Services
The
Laboratory Products and Services segment recorded $42 million of net
restructuring and other charges in 2006. The segment recorded charges
to cost of
revenues of $35 million, consisting of $3 million for accelerated depreciation
at facilities closing due to real estate consolidation and $32 million
for the
sale of inventories revalued at the date of acquisition; and $7 million
of other
costs, net. These other costs consisted of $6 million of cash costs,
principally
associated with close of a plant in Massachusetts and the consolidation
of its
operations with those of an existing factory, including $3 million of
severance
for 123 employees across all functions; $2 million of abandoned-facility
costs;
and $1 million of other cash costs, primarily retention and relocation
expenses.
These severance, facility and other cash costs were net of reversals
of $1
million, principally due to lower costs resulting from employee attrition.
In
addition, the segment recorded a net charge of $1 million for the writedown
to
estimated disposal value and the sale of abandoned assets.
F-65
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
15. Restructuring
and Other Costs, Net
(continued)
Corporate
The
company recorded $8 million of restructuring and other charges at its
U.S. and
European administrative offices in 2006, all of which were cash costs.
These
cash costs were primarily for pre-merger integration expenses and retention
agreements with certain Fisher employees. Retention costs are accrued
ratably
over the period the employees must work to qualify for the payment.
2005
The
company recorded net restructuring and other costs by segment for 2005
as
follows:
|
Analytical
Technologies
|
Laboratory
Products
and
Services
|
Other
|
Corporate
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
|
Cost
of Revenues
|
$
|
1,240
|
$
|
12,147
|
$
|
—
|
$
|
—
|
$
|
13,387
|
|||||||
|
Restructuring and Other Costs, Net
|
10,246
|
5,148
|
(613
|
) |
2,119
|
16,900
|
|||||||||||
|
$
|
11,486
|
$
|
17,295
|
$
|
(613
|
) |
$
|
2,119
|
$
|
30,287
|
|||||||
The
components of net restructuring and other costs by segment are as
follows:
Analytical Technologies
The
Analytical Technologies segment recorded $11 million of net restructuring
and
other charges in 2005. The segment recorded charges to cost of revenues
of $1.2
million, consisting of $0.7 million for the sale of inventories revalued
at the
date of acquisition and $0.5 million for accelerated depreciation at
facilities
closing due to real estate consolidation; and $10 million of other costs,
net.
These other costs consisted of $13 million of cash costs, including $6
million
of severance for 174 employees across all functions; $6 million of
abandoned-facility costs, primarily for charges associated with facilities
vacated in prior periods where estimates of sub-tenant rental income
have
changed or for costs that could not be recorded until incurred and for
the 2005
consolidation of two operating facilities in Texas; and $1 million of
other cash
costs, primarily retention and relocation expenses associated with facility
consolidations. These severance and other cash costs were net of reversals
of $1
million, principally due to lower costs resulting from employee attrition.
These
costs were offset by gains of $3 million from the sale of four abandoned
buildings.
Laboratory
Products and Services
The
Laboratory Products and Services segment recorded $17 million of net
restructuring and other charges in 2005. The segment recorded charges
to cost of
revenues of $12 million for the sale of inventories revalued at the date
of
acquisition; and $5 million of other costs, net. These other costs consisted
of
$8 million of cash costs, principally associated with the integration
of Kendro
with existing businesses, including $7 million of severance for 75 employees
across all functions; and $1 million of other cash costs, primarily retention
and relocation expenses. In addition, the segment recorded charges of
$2 million
primarily for the writedown to estimated disposal value of a building
in France
held for sale. These costs were offset by gains of $5 million from the
sale of
two abandoned buildings.
Other
The
company reversed previously established reserves of $1 million in 2005
as a
result of revising its estimate of lease obligations due to sub-leasing
an
abandoned facility of a divested business.
F-66
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
15. Restructuring
and Other Costs, Net (continued)
Corporate
The
company recorded $2 million of restructuring and other charges at its
U.S. and
European administrative offices in 2005, all of which were cash costs.
These
cash costs were primarily for severance for 18 employees.
2004
Restructuring
and other costs recorded in 2004 include charges associated with new
actions and
actions initiated prior to 2004 that could not be recorded until incurred.
These
charges totaled $19 million and are detailed by segment below.
The
company recorded net restructuring and other costs by segment for 2004
as
follows:
|
Analytical
Technologies
|
Laboratory
Products
and
Services
|
Other
|
Corporate
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
|
Cost
of Revenues
|
$
|
1,292
|
$
|
2,069
|
$
|
—
|
$
|
—
|
$
|
3,361
|
|||||||
|
Restructuring and Other Costs, Net
|
12,875
|
516
|
163
|
2,275
|
15,829
|
||||||||||||
|
$
|
14,167
|
$
|
2,585
|
$
|
163
|
$
|
2,275
|
$
|
19,190
|
||||||||
The
components of net restructuring and other costs by segment are as
follows:
Analytical
Technologies
The
Analytical Technologies segment recorded $14 million of net restructuring
and
other charges in 2004. The segment recorded charges to cost of revenues
of $1.3
million, consisting of $0.2 million for the sale of inventories revalued
at the
date of acquisition, and $1.1 million of accelerated depreciation on
fixed
assets being abandoned due to facility consolidations; and $13 million
of other
costs. These other costs consisted of $12 million of cash costs, including
$7
million of severance for 223 employees across all functions;
$4
million
of abandoned-facility costs, primarily for charges associated with facilities
vacated in prior periods where estimates of sub-tenant rental income
have
changed or for costs that could not be recorded until incurred; and $1
million
of other cash costs, primarily relocation
expenses. These severance and other cash costs were net of reversals
of
$1
million,
principally due to lower costs resulting from employee attrition. In
addition,
the segment recorded charges of $1
million,
primarily for abandoned equipment and the sale of two abandoned buildings.
Laboratory
Products and Services
The
Laboratory Products and Services segment recorded $3 million of net
restructuring and other charges in 2004. The segment recorded charges
to cost of
revenues of $2 million for the sale of inventories revalued at the date
of
acquisition of Jouan; and $1 million of other costs. These other costs
consisted
of $3 million of cash costs, including $2 million of severance for 64
employees
across all functions and $1 million of abandoned-facility costs, primarily
for
charges associated with facilities vacated in prior periods where estimates
of
sub-tenant rental income have changed or for costs that could not be
recorded
until incurred. These costs were offset by a gain of $3
million
on the sale of a product line.
F-67
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
15. Restructuring
and Other Costs, Net (continued)
Corporate
The
company recorded $2 million of restructuring and other charges at its
U.S. and
European administrative offices in 2004, all of which were cash costs.
These
cash costs included $1 million of severance and $1 million of third-party
advisory fees. While the company no longer has any public subsidiaries,
it has
numerous non-U.S. subsidiaries through which the formerly public subsidiaries
conducted business. The third-party advisory fees were incurred to simplify
this
legal structure. The principal aspects of this project were completed
in
2004.
The
following table summarizes the cash components of the company’s restructuring
plans. The noncash components and other amounts reported as restructuring
and
other costs, net, in the accompanying statement of income have been summarized
in the notes to the tables.
|
Severance
|
Employee
Retention
(a)
|
Abandonment
of
Excess
Facilities
|
Other
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
|
Pre-2005
Restructuring Plans
|
|||||||||||||||||
|
Balance at December 31, 2003
|
$
|
9,223
|
$
|
197
|
$
|
12,774
|
$
|
259
|
$
|
22,453
|
|||||||
|
Costs
incurred in 2004 (c)
|
10,923
|
148
|
5,317
|
2,278
|
18,666
|
||||||||||||
|
Reserves reversed (b)
|
(950
|
)
|
(69
|
)
|
(122
|
)
|
(161
|
)
|
(1,302
|
)
|
|||||||
|
Payments
|
(14,308
|
)
|
(213
|
)
|
(8,972
|
)
|
(2,327
|
)
|
(25,820
|
)
|
|||||||
|
Currency translation
|
914
|
—
|
829
|
79
|
1,822
|
||||||||||||
|
Balance at December 31, 2004
|
5,802
|
63
|
9,826
|
128
|
15,819
|
||||||||||||
|
Costs incurred in 2005 (d)
|
2,427
|
—
|
4,374
|
712
|
7,513
|
||||||||||||
|
Reserves reversed (b)
|
(652
|
)
|
—
|
(587
|
)
|
(17
|
)
|
(1,256
|
)
|
||||||||
|
Payments
|
(5,774
|
)
|
(63
|
)
|
(4,796
|
)
|
(234
|
)
|
(10,867
|
)
|
|||||||
|
Currency translation
|
(554
|
)
|
—
|
(703
|
)
|
—
|
(1,257
|
)
|
|||||||||
|
Balance at December 31, 2005
|
1,249
|
—
|
8,114
|
589
|
9,952
|
||||||||||||
|
Costs incurred in 2006 (e)
|
171
|
—
|
3,989
|
60
|
4,220
|
||||||||||||
|
Reserves reversed (b)
|
(53
|
)
|
—
|
(693
|
)
|
—
|
(746
|
)
|
|||||||||
|
Payments
|
(1,085
|
)
|
—
|
(2,867
|
)
|
(83
|
)
|
(4,035
|
)
|
||||||||
|
Currency translation
|
92
|
—
|
437
|
2
|
531
|
||||||||||||
|
Balance at December 31, 2006
|
$
|
374
|
$
|
—
|
$
|
8,980
|
$
|
568
|
$
|
9,922
|
|||||||
|
2005
Restructuring Plans
|
|||||||||||||||||
|
Costs incurred in 2005 (d)
|
$
|
13,427
|
$
|
433
|
$
|
1,773
|
$
|
1,423
|
$
|
17,056
|
|||||||
|
Reserves
reversed (b)
|
(69
|
)
|
—
|
—
|
—
|
(69
|
)
|
||||||||||
|
Payments
|
(6,983
|
)
|
(121
|
)
|
(639
|
)
|
(1,065
|
)
|
(8,808
|
)
|
|||||||
|
Currency translation
|
(243
|
)
|
1
|
(3
|
)
|
(1
|
)
|
(246
|
)
|
||||||||
|
Balance at December 31, 2005
|
6,132
|
313
|
1,131
|
357
|
7,933
|
||||||||||||
|
Costs incurred in 2006 (e)
|
6,047
|
373
|
904
|
802
|
8,126
|
||||||||||||
|
Reserves reversed (b)
|
(570
|
)
|
—
|
(188
|
)
|
—
|
(758
|
)
|
|||||||||
|
Payments
|
(11,084
|
)
|
(457
|
)
|
(1,551
|
)
|
(1,149
|
)
|
(14,241
|
)
|
|||||||
|
Currency translation
|
936
|
18
|
86
|
35
|
1,075
|
||||||||||||
|
Balance at December 31, 2006
|
$
|
1,461
|
$
|
247
|
$
|
382
|
$
|
45
|
$
|
2,135
|
|||||||
F-68
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
15. Restructuring
and Other Costs, Net (continued)
|
Severance
|
Employee
Retention (a)
|
Abandonment
of Excess
Facilities
|
Other | Total | |||||||||||||
|
2006 Restructuring Plans
|
|||||||||||||||||
|
Costs
incurred in 2006 (e)
|
$
|
7,000
|
$
|
855
|
$
|
3,230
|
$
|
8,248
|
$
|
19,333
|
|||||||
|
Payments
|
(3,018
|
)
|
(85
|
)
|
(575
|
)
|
(8,264
|
)
|
(11,942
|
)
|
|||||||
|
Currency translation
|
61
|
—
|
24
|
16
|
101
|
||||||||||||
|
Balance at December 31, 2006
|
$
|
4,043
|
$
|
770
|
$
|
2,679
|
$
|
—
|
$
|
7,492
|
|||||||
| (a) |
Employee-retention
costs are accrued ratably over the period through which employees
must
work to qualify for a payment. The pre-2002 awards were based
on specified
percentages of employees’ salaries and were generally awarded to help
ensure continued employment at least through completion of
the company’s
reorganization plan.
|
| (b) |
Represents
reductions in cost of plans as described in the discussion
of
restructuring actions by segment.
|
| (c) |
Excludes
noncash charges, net, of $1.2 million and other income, net,
of $2.7
million.
|
(d) Excludes
net gains of $7.8 million from the sale of six abandoned buildings, noncash
charges of $1.7 million and a gain of $0.3 million from the sale of a
small
non-core business.
(e) Excludes
noncash charges, net, of $17.4 million and net gains from the sale of
abandoned
assets of $1.9 million.
The
company expects to pay accrued restructuring costs as follows: severance,
employee-retention obligations and other costs, which principally consist
of
cancellation/termination fees, primarily through 2007; and abandoned-facility
payments, over lease terms expiring through 2013.
Note
16. Discontinued
Operations
During
2006, the company committed to a plan to dispose of Genevac Limited (Genevac),
a
Fisher business which is a manufacturer of solvent evaporation technology.
The
decision follows the U.S. Federal Trade Commission (FTC) consent order
which
requires divesture of Genevac for FTC approval of the Thermo Fisher merger
under
the Hart-Scott-Rodino Antitrust Improvements Act. The results of discontinued
operations also include the results of Systems Manufacturing Corporation,
a
Fisher business which provides consoles, workstations and server enclosures
for
information technology operations and data centers. The assets and liabilities
of these entities were not material at December 31, 2006. For the period
from
November 9, 2006 through December 31, 2006, these entities had net income
of
$0.5 million which is classified as income from discontinued operations
in the
accompanying statements of operations.
The
Company had $2.1 million of gains from the disposal of discontinued operations
in 2006, including primarily additional proceeds from the sale of several
businesses prior to 2004, net of a charge for settlement of an indemnification
claim that arose from a divested business.
In
2005,
the company recorded after-tax gains of $24.9 million from the disposal
of
discontinued operations. In September 2005, the Analytical Technologies
segment
sold its point of care and rapid diagnostics business for $53.1 million
in cash
after determining it was not a strategic fit in the long-term. The company
recorded an after-tax gain of $16.8 million as a result of the sale.
Revenues
and pre-tax loss of the divested business totaled $29.7 million and $0.7
million, respectively, in 2004
F-69
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
16. Discontinued
Operations (continued)
and
revenues and pre-tax income totaled $26.6 million and $1.0 million,
respectively, in 2005 through the date of sale. Due to the immateriality
of the
operating results of this business relative to consolidated results,
the company
has not reclassified the historical results and accounts of this business
to
discontinued operations. In August 2005, the company sold a building
of a
previously divested business for net proceeds of $7.3 million in cash,
which
approximated its carrying value. In addition, the company recorded after-tax
gains of $8.1 million from the disposal of discontinued operations. The
gains
represent additional proceeds from the sale of businesses divested prior
to
2004, including the sale of abandoned real estate and post-closing adjustments,
settlement of litigation and an arbitration award related to divested
businesses.
During
2004, the company’s discontinued operations (principally Spectra-Physics) had
revenues and net income of $118.9 million and $4.5 million, respectively.
In
addition, the company recorded a $38.5 million tax benefit related to
Spectra-Physics, described below. During 2003, the company’s discontinued
operations had revenues and a net loss of $197.8 million and $2.5 million,
respectively. Liabilities of discontinued operations principally represent
remaining obligations of the discontinued businesses including litigation,
severance and lease obligations.
Spectra-Physics
In
July
2004, the company sold its Optical Technologies segment, Spectra-Physics,
to
Newport for initial consideration of $300 million, subject to a post-closing
balance sheet adjustment. As a result of Newport assuming non-U.S. debt
of
Spectra-Physics that had earlier been expected to be retained by the
company and
as a result of the post-closing adjustment process, the company paid
$25.1
million to Newport, making the net selling price approximately $275 million.
The
company sold this operating unit to focus on its core businesses that
provide
analytical instrumentation to laboratory and industrial customers. The
net
selling price of $275 million exceeded Spectra-Physics’ book value and was
comprised of $175 million in cash; a 5% note in the principal amount
of $50
million, due in 2009; and $50 million in Newport common stock, with the
number
of issued shares determined based on the 20-trading day average price
prior to
closing. The fair value of the note and Newport common stock at the date
of
closing aggregated approximately $90 million. The note receivable from
Newport
is classified as noncurrent other assets in the accompanying balance
sheet. In
February 2007, Newport repaid the note in full. Under the terms of the
agreement, the company had agreed to certain restrictions on the sale
of the
Newport shares it received in this transaction, however, this restriction
was
subsequently removed and as of December 31, 2005, the company no longer
owned
shares of Newport common stock. The company retained a small manufacturing
unit
in New York.
As
a
result of the decision to sell Spectra-Physics, a previously unrecognized
tax
asset arising from the difference between the book and tax basis of
Spectra-Physics became realizable and the company recorded a tax benefit
as
income from discontinued operations totaling $38.5 million in 2004. In
addition,
the company recorded a gain on the sale of Spectra-Physics of $45.9 million,
net
of a tax provision of $15.9 million.
Other
In
January 2000, the company announced its intention to sell several of
its
businesses, including its power-generation business and its Trex Medical
and
ThermoLase units. The company classified these businesses as discontinued
operations.
The
tax
returns of the company and its former Trex Medical and ThermoLase businesses
were under audit by the IRS. In 2004 and early 2005, the IRS and the
company
reached final settlements of the audits and the company determined that
previously unrecognized tax benefits associated with the divested businesses
totaling $52.7 million were realizable. These tax benefits were recorded
as a
gain on disposal of discontinued operations in 2004.
In
addition to the 2004 gains discussed above, the company had $1.3 million
of
after-tax gains and $0.6 million of tax benefits associated with discontinued
operations.
F-70
THERMO
FISHER SCIENTIFIC INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Note
17. Unaudited
Quarterly Information
|
2006
|
||||||||||||||
| First (a) | Second (b) | Third (c) | Fourth (d) | |||||||||||
|
(In
thousands except per share amounts)
|
||||||||||||||
|
Revenues
|
$
|
684,287
|
$
|
713,468
|
$
|
724,962
|
$
|
1,668,900
|
||||||
|
Gross
Profit
|
312,624
|
324,492
|
336,885
|
594,059
|
||||||||||
|
Income from Continuing Operations
|
43,619
|
48,943
|
48,833
|
24,921
|
||||||||||
|
Net
Income
|
46,906
|
47,880
|
48,833
|
25,316
|
||||||||||
|
Earnings per Share from Continuing Operations:
|
||||||||||||||
|
Basic
|
.27
|
.30
|
.31
|
.08
|
||||||||||
|
Diluted
|
.26
|
.30
|
.30
|
.08
|
||||||||||
|
Earnings
per Share:
|
||||||||||||||
|
Basic
|
.29
|
.30
|
.31
|
.08
|
||||||||||
|
Diluted
|
.28
|
.29
|
.30
|
.08
|
||||||||||
Amounts reflect aggregate restructuring and other items, net, and nonoperating
items, net, as follows:
|
(a)
|
Costs
of $3.6 million and after-tax income of $3.3 million related
to the
company’s discontinued operations.
|
|
(b)
|
Costs
of $6.0 million and after-tax loss of $1.1 million related
to the
company’s discontinued operations.
|
|
(c)
|
Costs
of $7.2 million.
|
|
(d)
|
Costs
of $106.5 million and after-tax income of $0.4 million related
to the
company’s discontinued operations.
|
|
2005
|
||||||||||||||
| First (a) | Second (b) | Third (c) | Fourth (d) | |||||||||||
|
(In
thousands except per share amounts)
|
||||||||||||||
|
Revenues
|
$
|
559,208
|
$
|
653,621
|
$
|
679,411
|
$
|
740,787
|
||||||
|
Gross
Profit
|
259,234
|
287,455
|
305,699
|
342,560
|
||||||||||
|
Income
from Continuing Operations
|
45,583
|
56,760
|
40,597
|
55,361
|
||||||||||
|
Net
Income
|
48,856
|
60,223
|
57,734
|
56,405
|
||||||||||
|
Earnings per Share from Continuing Operations:
|
||||||||||||||
|
Basic
|
.28
|
.35
|
.25
|
.34
|
||||||||||
|
Diluted
|
.28
|
.35
|
.25
|
.34
|
||||||||||
|
Earnings
per Share:
|
||||||||||||||
|
Basic
|
.30
|
.37
|
.36
|
.35
|
||||||||||
|
Diluted
|
.30
|
.37
|
.35
|
.34
|
||||||||||
Amounts
reflect aggregate restructuring and other items, net, and nonoperating
items,
net, as follows:
|
(a)
|
Income
of $0.3 million and after-tax income of $3.3 million related
to the
company’s discontinued operations.
|
|
(b)
|
Costs
of $13.7 million, net gains of $27.6 million from the sale
of shares of
Newport and Thoratec and after-tax income of $3.5 million related
to
the company’s discontinued
operations.
|
|
(c)
(d)
|
Costs
of $12.2 million and after-tax income of $17.1 million related
to the
company’s discontinued operations.
Costs
of $4.6 million and after-tax income of $1.0 million related
to the
company’s discontinued operations.
|
F-71
THERMO
FISHER SCIENTIFIC INC.
SCHEDULE
II - VALUATION AND QUALIFYING
ACCOUNTS
|
Balance
at
Beginning
of
Year
|
Provision
Charged
to
Expense
|
Accounts
Recorvered
|
Accounts
Written
Off
|
Other
(a)
|
Balance
at
End
of
Year
|
||||||||||||||
|
Allowance
for Doubtful Accounts
|
|||||||||||||||||||
|
Year
Ended December 31, 2006
|
$
|
21,841
|
$
|
576
|
$
|
840
|
$
|
(7,319
|
)
|
$
|
29,073
|
$
|
45,011
|
||||||
|
Year
Ended December 31, 2005
|
$
|
22,844
|
$
|
3,467
|
$
|
163
|
$
|
(8,687
|
)
|
$
|
4,054
|
$
|
21,841
|
||||||
|
Year
Ended December 31, 2004
|
$
|
24,212
|
$
|
3,045
|
$
|
116
|
$
|
(6,978
|
)
|
$
|
2,449
|
$
|
22,844
|
||||||
|
Balance
at
Beginning
of
Year
|
Established
as
Cost of
Acquisitions
|
Activitiy
Charged
to
Reserve
|
Other
(c)
|
Balance
at
End
of
Year
|
||||||||||||
|
Accrued
Acquisition Expenses (b)
|
||||||||||||||||
|
Year
Ended December 31, 2006
|
$
|
6,263
|
$
|
35,426
|
$
|
(5,030
|
)
|
$
|
(1,228
|
)
|
$
|
35,431
|
||||
|
Year
Ended December 31, 2005
|
$
|
9,229
|
$
|
4,009
|
$
|
(3,789
|
)
|
$
|
(3,186
|
)
|
$
|
6,263
|
||||
|
Year
Ended December 31, 2004
|
$
|
15,816
|
$
|
1,217
|
$
|
(4,356
|
)
|
$
|
(3,448
|
)
|
$
|
9,229
|
||||
|
Balance at
Beginning
of Year
|
Provision
Charged
to
Expense
(e)
|
Activity
Charged to
Reserve
|
Other (f) |
Balance
at End
of
Year
|
||||||||||||
|
Accrued
Restructuring Costs (d)
|
||||||||||||||||
|
Year
Ended December 31, 2006
|
$
|
17,885
|
$
|
30,175
|
$
|
(30,218
|
)
|
$
|
1,707
|
$
|
19,549
|
|||||
|
Year
Ended December 31, 2005
|
$
|
15,819
|
$
|
23,244
|
$
|
(19,675
|
)
|
$
|
(1,503
|
)
|
$
|
17,885
|
||||
|
Year
Ended December 31, 2004
|
$
|
22,453
|
$
|
17,364
|
$
|
(25,820
|
)
|
$
|
1,822
|
$
|
15,819
|
|
(a)
|
Includes
allowance of businesses acquired and sold during the year as
described in
Note 2 and the effect of currency
translation.
|
|
(b)
|
The
nature of activity in this account is described in Note
2.
|
|
(c)
|
Represents
reversal of accrued acquisition expenses and corresponding
reduction of
goodwill or other intangible assets resulting from finalization
of
restructuring plans and the effect of currency
translation.
|
| (d) |
The
nature of activity in this account is described in Note
15.
|
| (e) |
In
2005, excludes $1.7 million of noncash costs, net, primarily
for asset
writedowns, and excludes other income, net of $8.0 million.
In 2004,
excludes $1.1 million of noncash costs, net, primarily for
asset
writedowns, and excludes other income, net, of $2.7 million.
|
(f) Represents the effect of currency translation.