10-Q 1 tmoq114.htm THERMO FISHER SCIENTIFIC INC., FORM 10-Q, DATED MARCH 29, 2014 tmoq114.htm
 
 


 

UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
____________________________________________________

FORM 10-Q

x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended March 29, 2014

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

Commission File Number 1-8002

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

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

Registrant’s telephone number, including area code: (781) 622-1000
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

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

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

Large accelerated filer x     Accelerated filer o     Non-accelerated filer o     Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
 
Class
 
Outstanding at March 29, 2014
Common Stock, $1.00 par value
 
398,938,297

 



 
 

 
 
 
 
THERMO FISHER SCIENTIFIC INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 29, 2014
 
TABLE OF CONTENTS

     
   
Page
 
PART I
 
     
Item 1.
Financial Statements
3
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
33
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
43
     
Item 4.
Controls and Procedures
43
     
 
PART II
 
     
Item 1.
Legal Proceedings
44
     
Item 1A.
Risk Factors
44
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
50
     
Item 6.
Exhibits
50
 
 
 
 
2

 
 
 
THERMO FISHER SCIENTIFIC INC.

PART I          FINANCIAL INFORMATION
 
Item 1.           Financial Statements
 
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
   
March 29,
   
December 31,
 
(In millions)
 
2014
   
2013
 
             
Assets
           
Current Assets:
           
Cash and cash equivalents
  $ 1,497.2     $ 5,826.0  
Short-term investments, at quoted market value (cost of $25.7 and $4.6)
    25.5       4.5  
Accounts receivable, less allowances of $84.5 and $54.1
    2,695.5       1,942.3  
Inventories
    2,060.5       1,494.5  
Deferred tax assets
    230.1       192.5  
Other current assets
    797.3       420.9  
                 
Total current assets
    7,306.1       9,880.7  
                 
Property, Plant and Equipment, at Cost, Net
    2,488.7       1,767.4  
                 
Acquisition-related Intangible Assets, Net
    15,976.4       7,071.3  
                 
Other Assets
    833.0       640.7  
                 
Goodwill
    19,529.5       12,503.3  
                 
Total Assets
  $ 46,133.7     $ 31,863.4  
 
 
 
 
3

 
 
 
THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)
 
   
March 29,
   
December 31,
 
(In millions except share amounts)
 
2014
   
2013
 
             
Liabilities and Shareholders' Equity
           
Current Liabilities:
           
Short-term obligations and current maturities of long-term obligations
  $ 2,165.7     $ 987.7  
Accounts payable
    828.8       691.5  
Accrued payroll and employee benefits
    518.5       432.0  
Accrued income taxes
    401.9        
Deferred revenue
    336.6       198.9  
Other accrued expenses
    1,140.0       815.9  
                 
Total current liabilities
    5,391.5       3,126.0  
                 
Deferred Income Taxes
    3,985.6       1,609.9  
                 
Other Long-term Liabilities
    1,129.1       771.8  
                 
Long-term Obligations
    15,196.9       9,499.6  
                 
Shareholders' Equity:
               
Preferred stock, $100 par value, 50,000 shares authorized; none issued
               
Common stock, $1 par value, 1,200,000,000 shares authorized; 406,820,005 and
               
369,598,265 shares issued
    406.8       369.6  
Capital in excess of par value
    11,292.9       8,222.6  
Retained earnings
    9,236.3       8,753.3  
Treasury stock at cost, 7,881,708 and 7,636,887 shares
    (442.6 )     (412.2 )
Accumulated other comprehensive items
    (62.8 )     (77.2 )
                 
Total shareholders' equity
    20,430.6       16,856.1  
                 
Total Liabilities and Shareholders' Equity
  $ 46,133.7     $ 31,863.4  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
 
 
4

 
 
 
THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions except per share amounts)
 
2014
   
2013
 
             
Revenues
           
Product revenues
  $ 3,375.4     $ 2,723.5  
Service revenues
    528.1       468.0  
                 
Total revenues
    3,903.5       3,191.5  
                 
Costs and Operating Expenses:
               
Cost of product revenues
    1,933.3       1,533.1  
Cost of service revenues
    350.2       322.1  
Selling, general and administrative expenses
    1,177.0       829.5  
Research and development expenses
    149.7       98.2  
Restructuring and other costs (income), net
    (582.2 )     21.5  
                 
Total costs and operating expenses
    3,028.0       2,804.4  
                 
Operating Income
    875.5       387.1  
Other Expense, Net
    (101.1 )     (44.2 )
                 
Income from Continuing Operations Before Income Taxes
    774.4       342.9  
Provision for Income Taxes
    (231.3 )     (2.1 )
                 
Income from Continuing Operations
    543.1       340.8  
Loss from Discontinued Operations (net of income tax benefit of $0.2)
          (0.4 )
Loss on Disposal of Discontinued Operations, Net (net of income tax benefit of $2.8)
          (4.2 )
                 
Net Income
  $ 543.1     $ 336.2  
                 
Earnings per Share from Continuing Operations
               
Basic
  $ 1.38     $ .95  
Diluted
  $ 1.36     $ .94  
                 
Earnings per Share
               
Basic
  $ 1.38     $ .94  
Diluted
  $ 1.36     $ .93  
                 
Weighted Average Shares
               
Basic
    393.3       358.1  
Diluted
    398.4       361.7  
                 
Cash Dividends Declared per Common Share
  $ .15     $ .15  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
 
 
5

 
 
 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions)
 
2014
   
2013
 
             
Comprehensive Income
           
Net Income
  $ 543.1     $ 336.2  
                 
Other Comprehensive Items:
               
Currency translation adjustment
    14.3       (179.3 )
Unrealized gains on available-for-sale investments:
               
Unrealized holding gains arising during the period (net of tax provision of $0.4)
          1.2  
Reclassification adjustment for gains included in net income (net of tax provision
     of $2.5)
          (8.0 )
Unrealized gains and losses on hedging instruments:
               
Reclassification adjustment for losses included in net income (net of tax benefit of
     $0.4 and $0.5)
    0.7       0.8  
Pension and other postretirement benefit liability adjustment:
               
Pension and other postretirement benefit liability adjustments arising during the
     period (net of tax (benefit) provision of ($0.6) and $1.6)
    (1.9 )     4.5  
Amortization of net loss and prior service benefit included in net periodic pension
     cost (net of tax benefit of $0.6 and $0.9)
    1.3       1.9  
                 
Total other comprehensive items
    14.4       (178.9 )
                 
Comprehensive Income
  $ 557.5     $ 157.3  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
                 
 
 
 
 
 
 
6

 
 
 
THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions)
 
2014
   
2013
 
             
Operating Activities
           
    Net income
  $ 543.1     $ 336.2  
    Loss from discontinued operations
          0.4  
    Loss on disposal of discontinued operations
          4.2  
                 
    Income from continuing operations
    543.1       340.8  
                 
    Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
               
    Depreciation and amortization
    365.6       251.0  
    Change in deferred income taxes
    (207.0 )     (16.0 )
    Gains on sale of businesses
    (758.5 )      
    Non-cash stock-based compensation
    25.2       20.4  
    Tax benefits from stock-based compensation awards
    (48.4 )     (16.2 )
    Non-cash charges for sale of inventories revalued at the date of acquisition
    147.6       11.9  
    Other non-cash expenses (income), net
    16.5       (1.2 )
    Changes in assets and liabilities, excluding the effects of acquisitions and dispositions:
               
    Accounts receivable
    (192.6 )     (130.8 )
    Inventories
    (32.1 )     (67.9 )
    Other assets
    4.2       (27.2 )
    Accounts payable
    (9.8 )     42.5  
    Other liabilities
    267.2       (88.6 )
    Contributions to retirement plans
    (18.8 )     (19.6 )
                 
    Net cash provided by continuing operations
    102.2       299.1  
    Net cash used in discontinued operations
    (1.0 )     (0.8 )
                 
    Net cash provided by operating activities
    101.2       298.3  
                 
Investing Activities
               
    Acquisitions, net of cash acquired
    (13,056.3 )     (3.8 )
    Purchase of property, plant and equipment
    (104.7 )     (66.0 )
    Proceeds from sale of property, plant and equipment
    3.4       3.0  
    Proceeds from sale of investments
    33.0        
    Proceeds from sale of businesses, net of cash divested
    1,056.6        
    Other investing activities, net
    0.1       (0.4 )
                 
    Net cash used in investing activities
  $ (12,067.9 )   $ (67.2 )
 
 
 
 
7

 
 
 
THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions)
 
2014
   
2013
 
             
Financing Activities
           
Net proceeds from issuance of long-term debt
  $ 4,999.8     $  
Increase in commercial paper, net
    208.1        
Repayment of long-term obligations
    (600.9 )     (0.5 )
Increase (decrease) in short-term notes payable
    5.1       (1.5 )
Purchases of company common stock
          (89.8 )
Dividends paid
    (54.9 )     (54.0 )
Net proceeds from issuance of company common stock
    2,942.0        
Net proceeds from issuance of company common stock under employee stock plans
    87.5       101.8  
Tax benefits from stock-based compensation awards
    48.4       16.2  
                 
Net cash provided by (used in) financing activities
    7,635.1       (27.8 )
                 
Exchange Rate Effect on Cash
    2.8       (50.4 )
                 
(Decrease) Increase in Cash and Cash Equivalents
    (4,328.8 )     152.9  
Cash and Cash Equivalents at Beginning of Period
    5,826.0       805.6  
                 
Cash and Cash Equivalents at End of Period
  $ 1,497.2     $ 958.5  
                 
See Note 13 for supplemental cash flow information.
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
 
 
8

 
 
 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
 
                                       
Accumulated
       
               
Capital in
                     
Other
   
Total
 
   
Common Stock
   
Excess of
   
Retained
   
Treasury Stock
   
Comprehensive
   
Shareholders'
 
(In millions)
 
Shares
   
Amount
   
Par Value
   
Earnings
   
Shares
   
Amount
   
Items
   
Equity
 
                                                 
Balance at December 31, 2012
    413.5     $ 413.5     $ 10,501.1     $ 7,697.3       56.0     $ (2,996.8 )   $ (150.4 )   $ 15,464.7  
                                                                 
Issuance of shares under employees'
    and directors' stock plans
    3.0       3.0       102.7             0.3       (18.9 )           86.8  
Stock-based compensation
                20.4                               20.4  
Tax benefit related to employees'
    and directors' stock plans
                14.1                               14.1  
Purchases of company common
    stock
                            1.3       (89.8 )           (89.8 )
Dividends declared
                      (54.0 )                       (54.0 )
Net income
                      336.2                         336.2  
Other comprehensive items
                                        (178.9 )     (178.9 )
                                                                 
Balance at March 30, 2013
    416.5     $ 416.5     $ 10,638.3     $ 7,979.5       57.6     $ (3,105.5 )   $ (329.3 )   $ 15,599.5  
                                                                 
                                                                 
Balance at December 31, 2013
    369.6     $ 369.6     $ 8,222.6     $ 8,753.3       7.6     $ (412.2 )   $ (77.2 )   $ 16,856.1  
Issuance of shares under employees'
    and directors' stock plans
    2.3       2.3       89.5             0.3       (30.4 )           61.4  
Issuance of shares
    34.9       34.9       2,907.4                               2,942.3  
Stock-based compensation
                25.2                               25.2  
Tax benefit related to employees'
    and directors' stock plans
                48.2                               48.2  
Dividends declared
                      (60.1 )                       (60.1 )
Net income
                      543.1                         543.1  
Other comprehensive items
                                        14.4       14.4  
                                                                 
Balance at March 29, 2014
    406.8     $ 406.8     $ 11,292.9     $ 9,236.3       7.9     $ (442.6 )   $ (62.8 )   $ 20,430.6  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
 
9

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1.           Nature of Operations and Summary of Significant Accounting Policies
 
Nature of Operations
 
Thermo Fisher Scientific Inc. (the company or Thermo Fisher) enables customers to make the world healthier, cleaner and safer by providing analytical instruments, equipment, reagents and consumables, software and services for research, manufacturing, analysis, discovery and diagnostics. Markets served include pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions and government agencies, as well as environmental and industrial process control settings. On February 3, 2014, the company acquired Life Technologies Corporation (Note 2).
 
Interim Financial Statements
 
The interim consolidated financial statements presented herein have been prepared by the company, are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at March 29, 2014, the results of operations for the three-month periods ended March 29, 2014, and March 30, 2013, and the cash flows for the three-month periods ended March 29, 2014, and March 30, 2013. Interim results are not necessarily indicative of results for a full year.
 
The consolidated balance sheet presented as of December 31, 2013, has been derived from the audited consolidated financial statements as of that date. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all information that is included in the annual financial statements and notes of the company. The consolidated financial statements and notes included in this report should be read in conjunction with the 2013 financial statements and notes included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 27, 2014.
 
Note 1 to the consolidated financial statements for 2013 describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the company’s significant accounting policies during the three months ended March 29, 2014.
 
Presentation
 
Certain reclassifications of prior year amounts have been made to conform to the current year presentation.
 
Warranty Obligations
 
Product warranties are included in other accrued expenses in the accompanying balance sheet. The changes in the carrying amount of warranty obligations are as follows:
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions)
 
2014
   
2013
 
             
Beginning Balance
  $ 49.8     $ 48.7  
Provision charged to income
    19.0       17.8  
Usage
    (18.4 )     (18.9 )
Acquisitions
    7.2        
Adjustments to previously provided warranties, net
    0.6       0.2  
Other, net
    (0.4 )     (0.7 )
                 
Ending Balance
  $ 57.8     $ 47.1  
 
 
 
10

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Inventories
 
The components of inventories are as follows:
 
   
March 29,
   
December 31,
 
(In millions)
 
2014
   
2013
 
             
Raw Materials
  $ 452.1     $ 347.4  
Work in Process
    218.6       157.7  
Finished Goods
    1,389.8       989.4  
                 
Inventories
  $ 2,060.5     $ 1,494.5  
                 
Property, Plant and Equipment
 
Property, plant and equipment consists of the following:
 
   
March 29,
   
December 31,
 
(In millions)
 
2014
   
2013
 
             
Land
  $ 294.6     $ 212.2  
Buildings and Improvements
    1,012.9       821.0  
Machinery, Equipment and Leasehold Improvements
    2,528.1       2,047.9  
                 
Property, Plant and Equipment, at Cost
    3,835.6       3,081.1  
Less: Accumulated Depreciation and Amortization
    1,346.9       1,313.7  
                 
Property, Plant and Equipment, at Cost, Net
  $ 2,488.7     $ 1,767.4  
                 
Acquisition-related Intangible Assets
 
Acquisition-related intangible assets are as follows:
 
   
March 29, 2014
   
December 31, 2013
 
         
Accumulated
               
Accumulated
       
(In millions)
 
Gross
   
Amortization
   
Net
   
Gross
   
Amortization
   
Net
 
                                     
Definite Lived
  $ 18,730.6     $ (4,598.4 )   $ 14,132.2     $ 10,121.8     $ (4,388.2 )   $ 5,733.6  
Indefinite Lived
    1,844.2             1,844.2       1,337.7             1,337.7  
                                                 
Acquisition-related Intangible Assets
  $ 20,574.8     $ (4,598.4 )   $ 15,976.4     $ 11,459.5     $ (4,388.2 )   $ 7,071.3  
                                                 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates were made in estimating future cash flows to assess potential impairment of assets and in determining the fair value of acquired intangible assets (Note 2) and the ultimate loss from abandoning leases at facilities being exited (Note 14). Actual results could differ from those estimates.
 
 
 
 
 
11

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Recent Accounting Pronouncements
 
         In April 2014, the FASB issued new guidance on reporting discontinued operations and disclosures of disposals. Under the new guidance, only disposals representing a strategic shift in operations will be presented as discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of the company that does not qualify for discontinued operations reporting. This guidance is effective for the company in 2015. Adoption of this standard is not expected to have a material impact on the company’s consolidated financial position, results of operations or cash flows.
 
Note 2.           Acquisitions and Dispositions
 
    The company’s acquisitions have historically been made at prices above the fair value of the acquired identifiable assets, resulting in goodwill, due to expectations of the synergies that will be realized by combining the businesses. These synergies include the elimination of redundant facilities, functions and staffing; use of the company’s existing commercial infrastructure to expand sales of the acquired businesses’ products; and use of the commercial infrastructure of the acquired businesses to cost-effectively expand sales of company products.
 
Acquisitions have been accounted for using the purchase method of accounting, and the acquired companies’ results have been included in the accompanying financial statements from their respective dates of acquisition. Acquisition transaction costs are recorded in selling, general and administrative expenses. The net assets acquired have been recorded based on estimates of fair value and, for acquisitions completed within the past year, are subject to adjustment upon finalization of the valuation process. The company is not aware of any information that indicates the final valuations will differ materially from preliminary estimates.
 
2014
 
On February 3, 2014, the Life Sciences Solutions segment completed the acquisition of Life Technologies Corporation for a total purchase price of $15.30 billion, net of cash acquired, including the assumption of $2.28 billion of debt. The company issued debt and common stock in late 2013 and early 2014 to partially fund the acquisition (Notes 9 and 11). Life Technologies provides innovative products and services to customers conducting scientific research and genetic analysis, as well as those in applied markets, such as forensics and food safety testing. The acquisition of Life Technologies extends customer reach and broadens the company’s offerings in biosciences; genetic, medical and applied sciences; and bioproduction. Life Technologies’ revenues totaled $3.87 billion in 2013. The purchase price exceeded the fair value of the identifiable net assets and, accordingly, $7.14 billion was allocated to goodwill, substantially none of which is tax deductible.
 
In addition, in 2014, the Life Sciences Solutions segment acquired an animal health diagnostics company for $32 million.
 
 
 
 
 
12

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
    The components of the purchase price and net assets acquired for 2014 acquisitions are as follows:
 
                   
(In millions)
 
Life
Technologies
   
Other
   
Total
 
                   
Purchase Price
                 
Cash paid
  $ 13,487.3     $ 41.6     $ 13,528.9  
Debt assumed
    2,279.7             2,279.7  
Cash acquired
    (463.0 )     (9.6 )     (472.6 )
                         
    $ 15,304.0     $ 32.0     $ 15,336.0  
                         
Net Assets Acquired
                       
Current assets
  $ 1,766.5     $ 16.0     $ 1,782.5  
Property, plant and equipment
    753.5       1.2       754.7  
Definite-lived intangible assets:
                       
Customer relationships
    5,864.0       5.7       5,869.7  
Product technology
    2,624.6       5.7       2,630.3  
Tradenames and other
    240.6             240.6  
Indefinite-lived intangible assets:
                       
Tradenames
    448.2             448.2  
In-process research and development
    58.4             58.4  
Goodwill
    7,140.9       13.8       7,154.7  
Other assets
    228.4             228.4  
Liabilities assumed
    (3,821.1 )     (10.4 )     (3,831.5 )
                         
    $ 15,304.0     $ 32.0     $ 15,336.0  
                         
    The weighted-average amortization periods for intangible assets acquired in 2014 are 16 years for customer relationships, 11 years for product technology and 9 years for definite-lived tradenames and other. The weighted average amortization period for all definite-lived intangible assets acquired in 2014 is 14 years.
 
Unaudited Pro Forma Information
 
The company acquired Life Technologies in February 2014. Had the acquisition of Life Technologies been completed as of the beginning of 2013, the company’s pro forma results for 2014 and 2013 would have been as follows:
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions except per share amounts)
 
2014
   
2013
 
             
Revenues
  $ 4,176.4     $ 4,115.0  
                 
Income from Continuing Operations
  $ 730.5     $ 13.3  
                 
Net Income
  $ 730.5     $ 8.7  
                 
Earnings per Share from Continuing Operations:
               
Basic
  $ 1.84     $ 0.03  
Diluted
  $ 1.82     $ 0.03  
                 
Earnings per Share:
               
Basic
  $ 1.84     $ 0.02  
Diluted
  $ 1.82     $ 0.02  
 
 
 
13

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
    Pro forma results include non-recurring pro forma adjustments that were directly attributable to the business combination, as follows:
 
·  
Pre tax charge to selling, general and administrative expenses of $197.2 million in the three months ended March 30, 2013, for acquisition-related transaction costs incurred by the company and Life Technologies;
 
·  
Pre tax charge to cost of revenues of $246.0 million in the three months ended March 30, 2013, for the sale of Life Technologies inventories revalued at the date of acquisition;
 
·  
Pre tax charge of $91.7 million in the three months ended March 30, 2013, for monetizing equity awards held by Life Technologies’ employees at the date of acquisition;
 
·  
Pre tax charge of $37.6 million in the three months ended March 30, 2013, to conform the accounting policies of Life Technologies with the company's accounting policies; and
 
·  
Pre tax reduction of revenues of $2.5 million and $11.6 million in the three months ended March 29, 2014 and March 30, 2013, respectively, for revaluing Life Technologies’ deferred revenue obligations to fair value.
 
These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated or that may result in the future.
 
The company’s results would not have been materially different from its pro forma results had the company’s other 2014 acquisition occurred at the beginning of 2013.
 
Dispositions
 
On March 21, 2014, the company sold its sera and media, gene modulation and magnetic beads businesses to GE Healthcare for $1.05 billion, net of cash divested, subject to a post-closing adjustment. The sale of these businesses resulted in a pre-tax gain of approximately $757 million, included in restructuring and other costs (income), net. The businesses fell principally in the Life Sciences Solutions segment. Divestiture of these businesses was a condition to obtaining antitrust approval for the Life Technologies acquisition. Revenues and operating income of the businesses sold were approximately $250 million and $64 million, respectively, for the year ended December 31, 2013 and $61 million and $12 million, respectively, in 2014 through the date of sale.
 
    The assets and liabilities of the businesses sold were as follows at December 31, 2013:
 
   
December 31,
 
(In millions)
 
2013
 
       
Current Assets
  $ 74.3  
Long-term Assets
    229.3  
Current Liabilities
    6.4  
Long-term Liabilities
    22.0  
         
 
 
 
14

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 3.           Business Segment and Geographical Information
 
With the completion of the Life Technologies acquisition, the company established a new reporting segment, called Life Sciences Solutions. Effective January 1, 2014, the company’s financial performance is reported in four segments reflecting the following changes:
 
·  
The new Life Sciences Solutions segment consists of the majority of the former Life Technologies businesses and Thermo Fisher biosciences businesses.
 
·  
Thermo Fisher’s global chemicals business has moved from the biosciences business in the Analytical Technologies segment to the Laboratory Products and Services segment.
 
·  
Thermo Fisher’s Analytical Technologies segment has been renamed the Analytical Instruments segment to reflect the transfer of the biosciences businesses to other segments, as mentioned above.
 
·  
Two small specialty diagnostics businesses within Life Technologies have become part of the Specialty Diagnostics segment.
 
Prior period segment information has been reclassified to reflect these transfers. As Life Technologies was acquired on February 3, 2014, its results are not included in the company’s results prior to that date. A description of each segment follows.
 
Life Sciences Solutions: provides a portfolio of reagents, instruments and consumables used in biological and medical research, discovery and production of new drugs and vaccines as well as diagnosis of disease. These products and services are used by customers in life science research, drug discovery and diagnostics markets.
 
Analytical Instruments: provides a broad offering of instruments, consumables, software and services that are used for a range of applications in the laboratory, on the production line and in the field. These products and services are used by customers in pharmaceutical, biotechnology, academic, government, environmental and other research and industrial markets, as well as the clinical laboratory.
 
Specialty Diagnostics: provides a wide range of diagnostic test kits, reagents, culture media, instruments and associated products used to increase the speed and accuracy of diagnoses. These products are used primarily by customers in healthcare, clinical, pharmaceutical, industrial and food safety laboratories.
 
Laboratory Products and Services: provides virtually everything needed for the laboratory, including a combination of self-manufactured and sourced products and an extensive service offering. These products and services are used by customers in pharmaceutical, biotechnology, academic, government and other research and industrial markets, as well as the clinical laboratory.
 
The company’s management evaluates segment operating performance based on operating income before certain charges/credits to cost of revenues and selling, general and administrative expenses, principally associated with acquisition accounting; restructuring and other costs/income including costs arising from facility consolidations such as severance and abandoned lease expense and gains and losses from the sale of real estate and product lines; and amortization of acquisition-related intangible assets. The company uses this measure because it helps management understand and evaluate the segments’ core operating results and facilitates comparison of performance for determining compensation.
 
 
 
15

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Business Segment Information
 
               
     
Three Months Ended
 
     
March 29,
   
March 30,
 
(In millions)
 
2014
   
2013
 
               
Revenues
           
 
Life Sciences Solutions
  $ 835.5     $ 172.6  
 
Analytical Instruments
    769.9       740.1  
 
Specialty Diagnostics
    813.7       805.6  
 
Laboratory Products and Services
    1,590.5       1,556.3  
 
Eliminations
    (106.1 )     (83.1 )
                   
 
Consolidated revenues
    3,903.5       3,191.5  
                   
Segment Income
               
 
Life Sciences Solutions (a)
    244.6       41.0  
 
Analytical Instruments (a)
    130.9       120.5  
 
Specialty Diagnostics (a)
    221.0       222.9  
 
Laboratory Products and Services (a)
    234.0       230.7  
                   
 
Subtotal reportable segments (a)
    830.5       615.1  
                   
 
Cost of revenues charges
    (168.5 )     (13.2 )
 
Selling, general and administrative charges, net
    (82.8 )     (1.3 )
 
Restructuring and other income (costs), net
    582.2       (21.5 )
 
Amortization of acquisition-related intangible assets
    (285.9 )     (192.0 )
                   
 
Consolidated operating income
    875.5       387.1  
 
Other expense, net (b)
    (101.1 )     (44.2 )
                   
 
Income from continuing operations before income taxes
  $ 774.4     $ 342.9  
                   
Depreciation
               
 
Life Sciences Solutions
  $ 24.0     $ 4.1  
 
Analytical Instruments
    10.4       10.2  
 
Specialty Diagnostics
    18.8       18.5  
 
Laboratory Products and Services
    26.5       26.2  
                 
 
Consolidated depreciation
  $ 79.7     $ 59.0  
 
 
(a)
Represents operating income before certain charges to cost of revenues and selling, general and administrative expenses; restructuring and other costs, net; and amortization of acquisition-related intangibles.
 
(b)
The company does not allocate other expense, net to its segments.
 
 
 
 
 
16

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 4.           Other Expense, Net
 
The components of other expense, net, in the accompanying statement of income are as follows:
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions)
 
2014
   
2013
 
             
Interest Income
  $ 11.9     $ 7.2  
Interest Expense
    (117.8 )     (64.4 )
Other Items, Net
    4.8       13.0  
                 
Other Expense, Net
  $ (101.1 )   $ (44.2 )
                 
Other Items, Net
 
In 2014, other items, net includes a $4 million gain from the sale of an equity investment. In 2013, the company irrevocably contributed appreciated available-for-sale investments that had a fair value of $27 million to two of its U.K. defined benefit plans, resulting in realization of a previously unrecognized gain of $11 million.
 
Note 5.           Stock-based Compensation Expense
 
    The components of stock-based compensation expense are as follows:
 
             
 
Three Months Ended
 
 
March 29,
 
March 30,
 
(In millions)
2014
 
2013
 
             
Stock Option Awards
  $ 10.7     $ 9.6  
Restricted Unit Awards
    14.5       10.8  
                 
Total Stock-based Compensation Expense
  $ 25.2     $ 20.4  
                 
    As of March 29, 2014, there was $117 million of total unrecognized compensation cost related to unvested stock options granted. The cost is expected to be recognized through 2018 with a weighted average amortization period of 2.9 years.
 
    As of March 29, 2014, there was $159 million of total unrecognized compensation cost related to unvested restricted stock unit awards. The cost is expected to be recognized through 2017 with a weighted average amortization period of 2.7 years.
 
    During the first three months of 2014, the company made equity compensation grants to employees consisting of 0.9 million service- and performance-based restricted stock units and options to purchase 2.4 million shares.
 
Certain pre-acquisition equity awards of Life Technologies were converted to rights to receive future cash payments over the remaining vesting period. In addition to stock-based compensation, which is included in the above table, in the first three months of 2014, the company recorded expense for cash-in-lieu of equity of $7.1 million related to these arrangements.
 
 
 
 
 
17

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 6.           Pension and Other Postretirement Benefit Plans
 
    Employees of a number of the company’s non-U.S. and certain U.S. subsidiaries participate in defined benefit pension plans covering substantially all full-time employees at those subsidiaries. Some of the plans are unfunded, as permitted under the plans and applicable laws. The company also maintains postretirement healthcare programs at several acquired businesses where certain employees are eligible to participate. The costs of the postretirement healthcare programs are funded on a self-insured and insured-premium basis.
 
    Net periodic benefit costs for the company’s defined benefit pension plans include the following components:
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions)
 
2014
   
2013
 
             
Service Cost - Benefits Earned
  $ 4.6     $ 3.6  
Interest Cost on Benefit Obligation
    20.1       12.0  
Expected Return on Plan Assets
    (21.1 )     (13.2 )
Amortization of Net Loss
    1.9       2.8  
Amortization of Prior Service Benefit
          (0.1 )
Special Termination Benefits
          0.1  
                 
Net Periodic Benefit Cost
  $ 5.5     $ 5.2  
                 
Note 7.           Income Taxes    
     
    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:
 
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions)
 
2014
   
2013
 
             
Provision for Income Taxes at Statutory Rate
  $ 271.0     $ 120.0  
                 
Increases (Decreases) Resulting From:
               
Foreign rate differential
    (6.1 )     (61.3 )
Impact of change in tax laws and apportionment on deferred taxes
    (20.5 )     (0.5 )
Foreign and research and development tax credits
          (52.9 )
Manufacturing deduction
          (7.1 )
State income taxes, net of federal tax
    23.3       (1.0 )
Nondeductible expenses
          1.8  
Provision (reversal) of tax reserves, net
    25.3        
Basis difference on disposal of businesses
    (61.9 )      
Other, net
    0.2       3.1  
                 
    $ 231.3     $ 2.1  
                 
    The company’s unrecognized tax benefits increased to $259.8 million at March 29, 2014, from $134.2 million at December 31, 2013. Of the total increase, $100.3 million resulted from the acquisition of Life Technologies and $25.3 million resulted from the provision of tax reserves, primarily related to divested businesses.
 
 
 
 
18

 
 
 
 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 8.           Earnings per Share
   
Three Months Ended
 
   
March 29,
   
March 30,
 
(In millions except per share amounts)
 
2014
   
2013
 
             
Income from Continuing Operations
  $ 543.1     $ 340.8  
Loss from Discontinued Operations
          (0.4 )
Loss on Disposal of Discontinued Operations, Net
          (4.2 )
                 
Net Income
  $ 543.1     $ 336.2  
                 
Basic Weighted Average Shares
    393.3       358.1  
Plus Effect of:
               
Equity forward arrangement
    0.7        
Stock options and restricted units
    4.4       3.6  
                 
Diluted Weighted Average Shares
    398.4       361.7  
                 
Basic Earnings per Share:
               
Continuing operations
  $ 1.38     $ .95  
Discontinued operations
          (.01 )
                 
    $ 1.38     $ .94  
                 
Diluted Earnings per Share:
               
Continuing operations
  $ 1.36     $ .94  
Discontinued operations
          (.01 )
                 
    $ 1.36     $ .93  
                 
    Options to purchase 2.4 million and 1.9 million shares of common stock were not included in the computation of diluted earnings per share for the first three months of 2014 and 2013, respectively, because their effect would have been antidilutive.
 
 
 
 
19

 
 
 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 9.           Debt and Other Financing Arrangements
 
   
Effective
             
   
Interest Rate at
   
March 29,
   
December 31,
 
(Dollars in millions)
 
March 29, 2014
   
2014
   
2013
 
                   
Commercial Paper
    0.54 %   $ 458.6     $ 250.0  
Term Loan
    1.62 %     4,700.0        
2.05% Senior Notes, Due 2014
                  300.0  
3.25% Senior Notes, Due 2014
    1.53 %     400.0       400.0  
4.40% Senior Notes, Due 2015
    0.74 %     500.0        
3.20% Senior Notes, Due 2015
    1.56 %     450.0       450.0  
5.00% Senior Notes, Due 2015
    5.13 %     250.0       250.0  
3.50% Senior Notes, Due 2016
    1.05 %     400.0        
3.20% Senior Notes, Due 2016
    3.21 %     900.0       900.0  
2.25% Senior Notes, Due 2016
    2.29 %     1,000.0       1,000.0  
1.30% Senior Notes, Due 2017
    1.04 %     900.0       900.0  
1.85% Senior Notes, Due 2018
    1.85 %     500.0       500.0  
2.40% Senior Notes, Due 2019
    2.44 %     900.0       900.0  
6.00% Senior Notes, Due 2020
    2.98 %     750.0        
4.70% Senior Notes, Due 2020
    4.70 %     300.0       300.0  
5.00% Senior Notes, Due 2021
    3.25 %     400.0        
4.50% Senior Notes, Due 2021
    4.58 %     1,000.0       1,000.0  
3.60% Senior Notes, Due 2021
    4.29 %     1,100.0       1,100.0  
3.15% Senior Notes, Due 2023
    3.21 %     800.0       800.0  
4.15% Senior Notes, Due 2024
    4.07 %     1,000.0       1,000.0  
5.30% Senior Notes, Due 2044
    5.30 %     400.0       400.0  
Other
            64.7       41.9  
                         
Total Borrowings at Par Value
            17,173.3       10,491.9  
Fair Value Hedge Accounting Adjustments
            7.4       12.9  
Unamortized Premium (Discount), Net
            181.9       (17.5 )
                         
Total Borrowings at Carrying Value
            17,362.6       10,487.3  
Less: Short-term Obligations and Current Maturities
            2,165.7       987.7  
                         
Long-term Obligations
          $ 15,196.9     $ 9,499.6  
                         
    The effective interest rates for the fixed-rate debt include the stated interest on the notes, the accretion of any discount or amortization of any premium and, if applicable, adjustments related to hedging.
 
See Note 12 for fair value information pertaining to the company’s long-term obligations.
 
Credit Facilities
 
The company has a revolving credit facility with a bank group that provides for up to $1.50 billion of unsecured multi-currency revolving credit. The facility expires in July 2018. 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 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 a Consolidated Leverage Ratio of debt to EBITDA (as defined in the agreement) below 5.5 to 1.0 until August 2014 and decreasing, based on the passage of time, to 3.5 to 1.0, by August 2015 and an Interest Coverage Ratio of EBITDA (as defined in the agreement) to interest expense of 3.0 to 1.0. 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. The credit agreement allows for the issuance of letters of credit, which reduces the amount available for borrowing. If the company borrows under this facility, it intends to leave undrawn an amount equivalent to outstanding commercial paper to provide a source of funds in the event that commercial paper markets are not available. As of March 29, 2014, no borrowings were outstanding under the facility, although available capacity was reduced by approximately $53 million as a result of outstanding letters of credit.
 
 
 
 
 
20

 
 
 
THERMO FISHER SCIENTIFIC INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Commercial Paper Program
 
The company has a U.S. commercial paper program pursuant to which it may issue and sell unsecured, short-term promissory notes (CP Notes). Maturities may not exceed 397 days from the date of issue and the CP Notes rank pari passu with all of the company’s other unsecured and unsubordinated indebtedness. CP Notes are issued on a private placement basis under customary terms in the commercial paper market and are not redeemable prior to maturity nor subject to voluntary prepayment. CP Notes are issued at a discount from par, or, alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. As of March 29, 2014, outstanding borrowings under this program were $459 million, with a weighted average remaining period to maturity of 45 days. The weighted average interest rate on the outstanding CP Notes as of March 29, 2014 was 0.54%.
 
Term Loan
 
In connection with the acquisition of Life Technologies, the company entered into a 3-year unsecured term loan agreement. The term loan 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 term loan agreement contains affirmative, negative and financial covenants, and events of default customary for financings of this type. The financial covenants require the company to maintain a Consolidated Leverage Ratio of debt to EBITDA (as defined in the agreements) below 5.5 to 1.0 until August 2014 and decreasing, based on the passage of time, to 3.5 to 1.0, by August 2015. The company must also maintain a minimum interest coverage ratio of 3.0 to 1.0. As of March 29, 2014, outstanding borrowings under the term loan agreement were $4.70 billion. The company must make minimum periodic payments totaling $500 million, $1.00 billion and $1.00 billion in 2014, 2015 and 2016, respectively. The remaining balance is due in February 2017. Borrowings may be prepaid without penalty.
 
Senior Notes
 
Interest on each of the senior notes is payable semi-annually. Each of the notes may be redeemed at any time at a redemption price of 100% of the principal amount plus a specified make-whole premium plus accrued interest. The company is subject to certain affirmative and negative covenants under the indentures governing the senior notes, the most restrictive of which limits the ability of the company to pledge principal properties as security under borrowing arrangements.
 
The 4.40% Senior Notes due 2015, 3.50% Senior Notes due 2016, 6.00% Senior Notes due 2020 and 5.00% Senior Notes due 2021 were assumed by the company in connection with the Life Technologies acquisition. The fair value of these senior notes on the date of acquisition exceeded the par value by $207 million which was recorded as part of the carrying value of the underlying debt and will be amortized as a reduction of interest expense over the remaining terms of the respective debt instruments. This adjustment does not affect cash interest payments.
 
Interest Rate Swap Arrangements
 
In 2013, upon the issuance of $900 million principal amount of 1.30% Senior Notes due 2017, the company entered into LIBOR-based interest rate swap arrangements with various banks. The aggregate amount of the swaps is equal to the principal amount of the 1.30% Notes and the payment dates of the swaps coincide with the payment dates of the 1.30% Notes. The swap contracts provide for the company to pay a variable interest rate of one-month LIBOR plus a spread of 0.6616% (0.8161% at March 29, 2014) and to receive a fixed rate of 1.30%. The variable interest rate resets monthly. The swaps have been accounted for as a fair value hedge of the 1.30% Notes. See Note 12 for additional information.
 
 
 
 
21

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 10.         Commitments and Contingencies
 
    There are various lawsuits and claims pending against the company involving product liability, contract, commercial and other issues. The company establishes a liability that is an estimate of amounts needed to pay damages in the future for events that have already occurred. The company accrues the most likely amount or at least the minimum of the range of probable loss when a range of probable loss can be estimated. The accrued liabilities are based on management’s judgment as to the probability of losses for asserted and unasserted claims and, where applicable, actuarially determined estimates. The reserve estimates are adjusted as additional information becomes known or payments are made.
 
    The company records estimated amounts due from insurers as an asset. Although the company believes that the amounts reserved and estimated recoveries are probable and appropriate based on available information, including actuarial studies of loss estimates, the process of estimating losses and insurance recoveries involves a considerable degree of judgment by management and the ultimate amounts could vary materially. Insurance contracts do not relieve the company of its primary obligation with respect to any losses incurred. The collectability of amounts due from its insurers is subject to the solvency and willingness of the insurer to pay, as well as the legal sufficiency of the insurance claims. Management monitors the financial condition and ratings of its insurers on an ongoing basis.
 
    The company is currently involved in various stages of investigation and remediation related to environmental matters. The company cannot predict all potential costs related to environmental remediation matters and the possible impact on future operations given the uncertainties regarding the extent of the required cleanup, the complexity and interpretation of applicable laws and regulations, the varying costs of alternative cleanup methods and the extent of the company’s responsibility. Expenses for environmental remediation matters related to the costs of permit requirements and installing, operating and maintaining groundwater-treatment systems and other remedial activities related to historical environmental contamination at the company’s domestic and international facilities were not material in any period presented. The company records accruals for environmental remediation liabilities, based on current interpretations of environmental laws and regulations, when it is probable that a liability has been incurred and the amount of such liability can be reasonably estimated. The company calculates estimates based upon several factors, including reports prepared by environmental specialists and management’s knowledge of and experience with these environmental matters. The company includes in these estimates potential costs for investigation, remediation and operation and maintenance of cleanup sites.
 
    On February 3, 2014, the company acquired Life Technologies. Life Technologies and its subsidiaries are party to several lawsuits in which plaintiffs claim infringement of their intellectual property, including the following:
 
On June 6, 2004, Enzo Biochem, Enzo Life Sciences and Yale University filed a complaint against Life Technologies in United States District Court for the District of Connecticut. The plaintiffs allege patent infringement by Applera’s labeled DNA terminator products used in DNA sequencing and fragment analysis. The plaintiff sought damages for alleged willful infringement, attorneys’ fees, costs, prejudgment interest, and injunctive relief. In November 2012, the jury awarded damages of $48.5 million. Prejudgment interest of $12.4 million was also granted. The $60.9 million judgment and interest was accrued by Life Technologies and the liability was assumed by the company as of the date of the acquisition. The case is currently on appeal to the United States Court of Appeal for the Federal Circuit.
 
On January 30, 2012, Enzo Life Sciences filed a complaint against Life Technologies in United States District Court for the District of Delaware. The plaintiff alleges patent infringement by Life Technologies’ Taqman probes and assays, Dynabead oligo-dT beads, NCode oligonucleotide array products, Ion Torrent beads and chips and SOLiD beads and chips. The plaintiff seeks damages for alleged willful infringement, attorneys’ fees, costs, prejudgment interest and injunctive relief.
 
 
 
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THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
On May 26, 2010, Promega Corp. & Max-Planck-Gesellschaft Zur Forderung Der Wissenschaften EV filed a complaint against Life Technologies in the United States District Court for the Western District of Wisconsin. The plaintiffs allege patent infringement by sales and uses of Applied Biosystems’ short tandem repeat DNA identification products outside the scope of a 2006 license agreement. The plaintiff sought damages for alleged willful infringement, attorneys’ fees, costs, prejudgment interest, and injunctive relief. Although a jury initially found willful infringement and assessed damages at $52 million, the District Court subsequently overturned the verdict on the grounds that the plaintiff had failed to prove infringement. The District Court entered judgment in favor of Life Technologies, and the case is currently on appeal to the United States Court of Appeals for the Federal Circuit. The $52 million award was accrued by Life Technologies and the liability was assumed by the company as of the date of the acquisition.
 
On September 29, 2009, Life Technologies filed a complaint against Illumina, Inc. and Solexa, Inc. in the United States District Court for the District of Delaware alleging infringement of patents relating to clonal amplification of nucleic acids by Illumina’s next generation Genome Analyzer, HiSeq, and MiSeq DNA sequencing systems. Illumina asserted counterclaims in that case alleging infringement of patents relating to optical tracking, generating linked pairs of nucleic acid segments, and genome-wide variation analysis by Life Technologies’ next generation SOLiD sequencing system and Ion Torrent’s semiconductor sequencing system. On April 6, 2011, the case was transferred to the United States District Court for the Southern District of California. Life Technologies seeks damages for alleged willful infringement, attorneys’ fees, costs, pre- and post-judgment interest, and injunctive relief. On its counterclaims, Illumina seeks damages for alleged infringement, attorneys’ fees, costs, pre- and post-judgment interest, and injunctive relief.
 
On December 27, 2011, Illumina Inc. filed a complaint against Life Technologies in the United States District Court for the Southern District of California alleging infringement of a patent relating to methods for making bead arrays by Ion Torrent’s semiconductor sequencing systems. Plaintiff seeks damages for alleged willful infringement, attorneys’ fees, costs, pre- and post-judgment interest, and injunctive relief.
 
On April 26, 2012, Esoterix Genetic Laboratories filed a complaint against Life Technologies in the United States District Court for the Middle District of North Carolina alleging infringement of patents relating to detection of subpopulations of cells with mutated sequences and multiplexed DNA amplification by Life Technologies’ OpenArray systems, next generation SOLiD sequencing system, and Ion Torrent semiconductor sequencing systems. Plaintiff seeks damages for alleged willful infringement, attorneys’ fees, costs, prejudgment interest, and injunctive relief.
 
On October 31, 2012, Esoterix Genetic Laboratories and The Johns Hopkins University filed a complaint against Life Technologies in the United States District Court for the Middle District of North Carolina alleging infringement of patents relating to methods of determining a ratio of genetic sequences in a population of genetic sequences and methods of determining allelic imbalances in a biological sample by Life Technologies’ OpenArray systems, next generation SOLiD sequencing system, and Ion Torrent semiconductor sequencing systems. Plaintiffs seek damages for alleged willful infringement, attorneys’ fees, costs, prejudgment interest, and injunctive relief.
 
On June 3, 2013, Unisone Strategic IP filed a complaint against Life Technologies in the United States District Court for the Southern District of California alleging patent infringement by Life Technologies’ supply chain management system software, which operates with product “supply centers” installed at customer sites. Plaintiff seeks damages for alleged willful infringement, attorneys’ fees, costs, and injunctive relief.
 
An unfavorable outcome that differs materially from current reserve estimates for one or more of the matters described above could have a material adverse effect on the company’s results of operations, financial position or cash flows.
 
 
 
 
 
23

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 11.         Comprehensive Income and Shareholders’ Equity
 
Comprehensive Income
 
Comprehensive income combines net income and other comprehensive items. Other comprehensive items represent certain amounts that are reported as components of shareholders’ equity in the accompanying balance sheet.
 
Changes in each component of accumulated other comprehensive items, net of tax are as follows:
 
(In millions)
 
Currency
Translation
Adjustment
   
Unrealized
Gains
 (Losses) on
Available-for-
Sale
Investments
   
Unrealized
Gains
 (Losses) on
Hedging
Instruments
   
Pension and
 Other
Postretirement
Benefit
 Liability
 Adjustment
   
Total
 
                               
Balance at December 31, 2013
  $ 112.0     $ 1.3     $ (23.9 )   $ (166.6 )   $ (77.2 )
Other comprehensive income (loss)
      before reclassifications
    14.3                   (1.9 )     12.4  
Amounts reclassified from
      accumulated other
      comprehensive items
                0.7       1.3       2.0  
                                         
Net other comprehensive items
    14.3             0.7       (0.6 )     14.4  
                                         
Balance at March 29, 2014
  $ 126.3     $ 1.3     $ (23.2 )   $ (167.2 )   $ (62.8 )
                                         
 
 
 
24

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
    The amounts reclassified out of accumulated other comprehensive items are as follows:
 
                   
Three Months Ended
         
Affected Line Item in the
March 29,
March 30,
(In millions)
 
 Statement of Income
 
2014
 
2013
                             
Amounts Reclassified From Accumulated Other
      Comprehensive Items
                     
 
Unrealized gains and losses on available-for-sale investments:
                 
   
Realized gain on sale or transfer of available-for-
      sale investments
 
Other Expense, Net
 
$
 —
 
$
 (10.5)
   
Tax provision
 
Provision for Income Taxes
   
 —
   
 2.5