XNYS:TMO Thermo Fisher Scientific Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

XNYS:TMO Fair Value Estimate
Premium
XNYS:TMO Consider Buying
Premium
XNYS:TMO Consider Selling
Premium
XNYS:TMO Fair Value Uncertainty
Premium
XNYS:TMO Economic Moat
Premium
XNYS:TMO Stewardship
Premium
 
 
 


 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
____________________________________________________

FORM 10-Q

x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended June 30, 2012

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

Commission File Number 1-8002

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

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
 
Class
 
Outstanding at June 30, 2012
Common Stock, $1.00 par value
 
365,551,976





 
 

 

 
THERMO FISHER SCIENTIFIC INC.
 
PART I            FINANCIAL INFORMATION

Item 1.             Financial Statements
 
CONSOLIDATED BALANCE SHEET
(Unaudited)

           
June 30,
 
December 31,
(In millions)
 
2012 
 
2011 
                     
Assets
           
Current Assets:
           
 
Cash and cash equivalents
 
$
 732.3 
 
$
 1,016.3 
 
Short-term investments, at quoted market value (cost of $4.8 and $4.8)
   
 4.3 
   
 4.3 
 
Accounts receivable, less allowances of $54.3 and $65.8
   
 1,803.5 
   
 1,783.1 
 
Inventories
   
 1,390.7 
   
 1,330.1 
 
Deferred tax assets
   
 177.9 
   
 157.8 
 
Other current assets
   
 558.3 
   
 530.3 
                     
             
 4,667.0 
   
 4,821.9 
                     
Property, Plant and Equipment, at Cost, Net
   
 1,602.5 
   
 1,611.3 
                     
Acquisition-related Intangible Assets, Net
 
 7,516.5 
   
 7,815.9 
                     
Other Assets
   
 545.5 
   
 611.3 
                     
Goodwill
   
 12,029.8 
   
 11,973.3 
                     
           
$
 26,361.3 
 
$
 26,833.7 

 
2

 

 
THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED BALANCE SHEET (Continued)
(Unaudited)

           
June 30,
 
December 31,
(In millions except share amounts)
 
2012 
 
2011 
                     
Liabilities and Shareholders' Equity
           
Current Liabilities:
           
 
Short-term obligations and current maturities of long-term obligations
 
$
 786.2 
 
$
 1,272.8 
 
Accounts payable
   
 652.6 
   
 612.3 
 
Accrued payroll and employee benefits
   
 299.9 
   
 324.4 
 
Deferred revenue
   
 215.3 
   
 192.5 
 
Other accrued expenses
   
 749.2 
   
 711.1 
                     
             
 2,703.2 
   
 3,113.1 
                     
Deferred Income Taxes
   
 2,108.1 
   
 2,229.3 
                     
Other Long-term Liabilities
   
 709.7 
   
 698.0 
                     
Long-term Obligations
   
 5,745.9 
   
 5,755.2 
                     
Shareholders' Equity:
           
 
Preferred stock, $100 par value, 50,000 shares authorized; none issued
           
 
Common stock, $1 par value, 1,200,000,000 shares authorized; 408,744,991 and
      406,416,940 shares issued
   
 408.7 
   
 406.4 
 
Capital in excess of par value
   
 10,258.0 
   
 10,152.0 
 
Retained earnings
   
 7,131.6 
   
 6,716.3 
 
Treasury stock at cost, 43,193,015 and 35,033,919 shares
   
 (2,246.2)
   
 (1,837.1)
 
Accumulated other comprehensive items
   
 (457.7)
   
 (399.5)
                     
             
 15,094.4 
   
 15,038.1 
                     
           
$
 26,361.3 
 
$
 26,833.7 

 

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

 
3

 

 
THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
 
       
Three Months Ended
 
Six Months Ended
       
June 30,
July 2,
 
June 30,
July 2,
(In millions except per share amounts)
 
2012 
 
2011 
 
2012 
 
2011 
                             
Revenues
                       
 
Product revenues
 
$
 2,678.7 
 
$
 2,432.6 
 
$
 5,307.5 
 
$
 4,733.4 
 
Service revenues
   
 429.4 
   
 421.4 
   
 857.4 
   
 803.2 
                             
         
 3,108.1 
   
 2,854.0 
   
 6,164.9 
   
 5,536.6 
                             
Costs and Operating Expenses:
                       
 
Cost of product revenues
   
 1,497.9 
   
 1,425.1 
   
 2,999.9 
   
 2,748.4 
 
Cost of service revenues
   
 288.9 
   
 267.9 
   
 554.0 
   
 510.9 
 
Selling, general and administrative expenses
 
 835.0 
   
 772.9 
   
 1,659.3 
   
 1,477.1 
 
Research and development expenses
   
 94.2 
   
 83.2 
   
 185.9 
   
 157.9 
 
Restructuring and other costs, net
   
 24.3 
   
 39.8 
   
 36.5 
   
 55.0 
                             
         
 2,740.3 
   
 2,588.9 
   
 5,435.6 
   
 4,949.3 
                             
Operating Income
   
 367.8 
   
 265.1 
   
 729.3 
   
 587.3 
Other Expense, Net
   
 (49.4)
   
 (10.3)
   
 (99.8)
   
 (33.0)
                             
Income from Continuing Operations Before Provision for
      Income Taxes
   
 318.4 
   
 254.8 
   
 629.5 
   
 554.3 
Provision for Income Taxes
   
 (26.0)
   
 (37.7)
   
 (56.3)
   
 (89.7)
                             
Income from Continuing Operations
   
 292.4 
   
 217.1 
   
 573.2 
   
 464.6 
(Loss) Income from Discontinued Operations (net of
     income tax (benefit) provision of $(4.9), $0.3, $(7.2)
     and $3.7)
   
 (7.5)
   
 0.5 
   
 (11.3)
   
 5.7 
(Loss) Gain on Disposal of Discontinued Operations, Net
      (net of income tax (benefit) provision of $(23.3),
      $191.2, $(23.1) and $190.9)
 
 (51.1)
   
 305.8 
   
 (50.8)
   
 305.3 
                             
Net Income
 
$
 233.8 
 
$
 523.4 
 
$
 511.1 
 
$
 775.6 
                             
Earnings per Share from Continuing Operations
                       
 
Basic
 
$
.80 
 
$
.57 
 
$
1.56 
 
$
1.21 
 
Diluted
 
$
.79 
 
$
.56 
 
$
1.55 
 
$
1.19 
                             
Earnings per Share
                       
 
Basic
 
$
.64 
 
$
1.37 
 
$
1.39 
 
$
2.01 
 
Diluted
 
$
.63 
 
$
1.36 
 
$
1.38 
 
$
1.99 
                             
Weighted Average Shares
                       
 
Basic
   
 367.0 
   
 381.9 
   
 367.1 
   
 385.3 
 
Diluted
   
 369.2 
   
 385.9 
   
 369.6 
   
 390.3 
                             
Cash Dividend Declared per Common Share
 
$
.13 
 
$
 — 
 
$
.26 
 
$
 — 



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

 
4

 

 
THERMO FISHER SCIENTIFIC INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
 
       
Three Months Ended
 
Six Months Ended
       
June 30,
 
July 2,
 
June 30,
 
July 2,
(In millions)
 
2012 
 
2011 
 
2012 
 
2011 
                             
Comprehensive Income (Loss)
                       
 
Net Income
 
$
 233.8 
 
$
 523.4 
 
$
 511.1 
 
$
 775.6 
                             
 
Other Comprehensive Items:
                       
   
Currency translation adjustment
   
 (310.6)
   
 96.1 
   
 (62.1)
   
 215.9 
   
Unrealized gains on available-for-sale investments
     (net of tax provision of $0.1, $0.2, $0.1 and $0.4)
 
 0.1 
   
 0.8 
   
 0.1 
   
 1.2 
   
Unrealized gains on hedging instruments (net of
     tax provision of $0.5, $3.7, $1.0 and $3.7)
   
 0.8 
   
 5.9 
   
 1.6 
   
 6.0 
   
Pension and other postretirement benefit liability
     adjustments (net of tax (provision) benefit of
     $(1.2), $0.3, $(1.1) and $0.3)
   
 2.9 
   
 (0.8)
   
 2.2 
   
 (0.7)
                             
         
 (306.8)
   
 102.0 
   
 (58.2)
   
 222.4 
                             
       
$
 (73.0)
 
$
 625.4 
 
$
 452.9 
 
$
 998.0 


 

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

 
5

 


THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
           
Six Months Ended
           
June 30,
 
July 2,
(In millions)
 
2012 
 
2011 
                     
Operating Activities
           
 
Net Income
 
$
 511.1 
 
$
 775.6 
 
Loss (income) from discontinued operations
   
 11.3 
   
 (5.7)
 
Loss (gain) on disposal of discontinued operations
   
 50.8 
   
 (305.3)
                     
 
Income from continuing operations
   
 573.2 
   
 464.6 
                     
 
Adjustments to reconcile income from continuing operations to net cash provided by
   operating activities:
           
   
Depreciation and amortization
   
 484.1 
   
 385.2 
   
Change in deferred income taxes
   
 (115.2)
   
 (78.6)
   
Non-cash stock-based compensation
   
 37.5 
   
 41.9 
   
Non-cash charges for sale of inventories revalued at the date of acquisition
   
 37.9 
   
 16.6 
   
Tax benefits from stock-based compensation awards
   
 (8.2)
   
 (15.4)
   
Other non-cash expenses, net
   
 19.9 
   
 24.7 
   
Changes in assets and liabilities, excluding the effects of acquisitions and dispositions:
           
     
Accounts receivable
   
 (11.4)
   
 (67.9)
     
Inventories
   
 (103.3)
   
 (62.4)
     
Other assets
   
 (61.5)
   
 (8.7)
     
Accounts payable
   
 47.9 
   
 57.4 
     
Other liabilities
   
 19.4 
   
 (63.8)
     
Contributions to retirement plans
   
 (11.6)
   
 (12.8)
                     
       
Net cash provided by continuing operations
   
 908.7 
   
 680.8 
       
Net cash (used in) provided by discontinued operations
   
 (9.2)
   
 12.5 
                     
       
Net cash provided by operating activities
   
 899.5 
   
 693.3 
                     
Investing Activities
           
 
Acquisitions, net of cash acquired
   
 (178.7)
   
 (2,091.3)
 
Purchase of property, plant and equipment
   
 (134.7)
   
 (117.4)
 
Proceeds from sale of property, plant and equipment
   
 7.7 
   
 3.2 
 
Proceeds from sale of businesses, net of cash divested
   
 — 
   
 13.8 
 
Other investing activities, net
   
 1.0 
   
 (2.9)
                     
       
Net cash used in continuing operations
   
 (304.7)
   
 (2,194.6)
       
Net cash provided by discontinued operations
 
 — 
   
 828.7 
                     
       
Net cash used in investing activities
 
$
 (304.7)
 
$
 (1,365.9)

 
6

 

 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)

           
Six Months Ended
           
June 30,
 
July 2,
(In millions)
 
2012 
 
2011 
                     
Financing Activities
           
 
Net proceeds from issuance of long-term debt
 
$
 0.2 
 
$
 2,174.4 
 
Decrease in commercial paper, net
   
 (499.5)
   
 — 
 
Settlement of convertible debt
   
 — 
   
 (452.0)
 
Redemption and repayment of long-term obligations
   
 (1.5)
   
 (0.5)
 
Purchases of company common stock
   
 (400.0)
   
 (762.5)
 
Dividends paid
   
 (47.7)
   
 — 
 
Net proceeds from issuance of company common stock
   
 63.8 
   
 141.8 
 
Tax benefits from stock-based compensation awards
   
 8.2 
   
 15.4 
 
Increase in short-term notes payable
   
 15.2 
   
 9.2 
 
Other financing activities, net
   
 (7.7)
   
 — 
                     
       
Net cash (used in) provided by financing activities
   
 (869.0)
   
 1,125.8 
                     
Exchange Rate Effect on Cash
   
 (9.8)
   
 (14.2)
                     
(Decrease) Increase in Cash and Cash Equivalents
   
 (284.0)
   
 439.0 
Cash and Cash Equivalents at Beginning of Period
   
 1,016.3 
   
 917.1 
                     
Cash and Cash Equivalents at End of Period
 
$
 732.3 
 
$
 1,356.1 
                     
See Note 12 for supplemental cash flow information.

 

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

 
7

 

 
THERMO FISHER SCIENTIFIC INC.
 
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
 
                                     
Accumulated
     
               
Capital in
                   
Other
 
Total
   
Common Stock
 
Excess of
 
Retained
 
Treasury Stock
Comprehensive
Shareholders'
(In millions)
 
Shares
 
Amount
 
Par Value
 
Earnings
 
Shares
 
Amount
 
Items
 
Equity
                                                 
Balance at December 31, 2010
   
 401.8 
 
$
 401.8 
 
$
 10,019.7 
 
$
 5,386.4 
   
 10.4 
 
$
 (490.5)
 
$
 43.6 
 
$
 15,361.0 
                                                 
Issuance of shares under employees'
    and directors' stock plans
 
 4.1 
   
 4.1 
   
 141.0 
   
 — 
   
 0.1 
   
 (8.8)
   
 — 
   
 136.3 
Settlement of convertible debt
   
 — 
   
 — 
   
 (122.8)
   
 — 
   
 — 
   
 — 
   
 — 
   
 (122.8)
Stock-based compensation
   
 — 
   
 — 
   
 41.9 
   
 — 
   
 — 
   
 — 
   
 — 
   
 41.9 
Tax benefit related to employees'
    and directors' stock plans
 
 — 
   
 — 
   
 13.8 
   
 — 
   
 — 
   
 — 
   
 — 
   
 13.8 
Purchases of company common
    stock
   
 — 
   
 — 
   
 — 
   
 — 
   
 13.5 
   
 (762.5)
   
 — 
   
 (762.5)
Net income
   
 — 
   
 — 
   
 — 
   
 775.6 
   
 — 
   
 — 
   
 — 
   
 775.6 
Other comprehensive items
   
 — 
   
 — 
   
 — 
   
 — 
   
 — 
   
 — 
   
 222.4 
   
 222.4 
                                                 
Balance at July 2, 2011
   
 405.9 
 
$
 405.9 
 
$
 10,093.6 
 
$
 6,162.0 
   
 24.0 
 
$
 (1,261.8)
 
$
 266.0 
 
$
 15,665.7 
                                                 
                                                 
Balance at December 31, 2011
   
 406.4 
 
$
 406.4 
 
$
 10,152.0 
 
$
 6,716.3 
   
 35.0 
 
$
 (1,837.1)
 
$
 (399.5)
 
$
 15,038.1 
Issuance of shares under employees'
    and directors' stock plans
 
 2.3 
   
 2.3 
   
 65.0 
   
 — 
   
 0.2 
   
 (9.1)
   
 — 
   
 58.2 
Stock-based compensation
   
 — 
   
 — 
   
 37.5 
   
 — 
   
 — 
   
 — 
   
 — 
   
 37.5 
Tax benefit related to employees'
    and directors' stock plans
 
 — 
   
 — 
   
 6.0 
   
 — 
   
 — 
   
 — 
   
 — 
   
 6.0 
Purchases of company common
    stock
   
 — 
   
 — 
   
 — 
   
 — 
   
 8.0 
   
 (400.0)
   
 — 
   
 (400.0)
Dividend declared
   
 — 
   
 — 
   
 — 
   
 (95.8)
   
 — 
   
 — 
   
 — 
   
 (95.8)
Net income
   
 — 
   
 — 
   
 — 
   
 511.1 
   
 — 
   
 — 
   
 — 
   
 511.1 
Other comprehensive items
   
 — 
   
 — 
   
 — 
   
 — 
   
 — 
   
 — 
   
 (58.2)
   
 (58.2)
Other
   
 — 
   
 — 
   
 (2.5)
   
 — 
   
 — 
   
 — 
   
 — 
   
 (2.5)
                                                 
Balance at June 30, 2012
   
 408.7 
 
$
 408.7 
 
$
 10,258.0 
 
$
 7,131.6 
   
 43.2 
 
$
 (2,246.2)
 
$
 (457.7)
 
$
 15,094.4 


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

 
8

 

 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.
 Nature of Operations and Summary of Significant Accounting Policies
 
Nature of Operations
 
Thermo Fisher Scientific Inc. (the company) enables customers to make the world healthier, cleaner and safer by providing analytical instruments, equipment, reagents and consumables, software and services for research, manufacturing, analysis, discovery and diagnostics. Markets served include pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions and government agencies, as well as environmental and industrial process control settings.
 
Interim Financial Statements
 
The interim consolidated financial statements presented herein have been prepared by Thermo Fisher Scientific Inc. (the company or Thermo Fisher), are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at June 30, 2012, the results of operations for the three- and six-month periods ended June 30, 2012, and July 2, 2011, and the cash flows for the six-month periods ended June 30, 2012, and July 2, 2011. Interim results are not necessarily indicative of results for a full year.
 
The consolidated balance sheet presented as of December 31, 2011, has been derived from the audited consolidated financial statements as of that date. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all of the information that is included in the annual financial statements and notes of the company. The consolidated financial statements and notes included in this report should be read in conjunction with the financial statements and notes included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission (SEC).
 
Note 1 to the consolidated financial statements in the Company’s Form 10-K for 2011 describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the company’s significant accounting policies during the six months ended June 30, 2012.
 
Discontinued Operations
 
The results of the company’s laboratory workstations business have been classified and presented as discontinued operations in the accompanying financial statements (Note 14). Prior period results have been adjusted to conform to this presentation. The discontinued operations have been excluded from the following notes unless they were material. In such instances, the amounts related to the discontinued operations have been separately disclosed.
 
 
 
9

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Warranty Obligations
 
Product warranties are included in other accrued expenses in the accompanying balance sheet. The changes in the carrying amount of warranty obligations are as follows:
 
           
Six Months Ended
           
June 30,
July 2,
(In millions)
 
2012 
 
2011 
             
Beginning Balance
 
$
 42.2 
 
$
 41.7 
 
Provision charged to income
   
 29.6 
   
 24.6 
 
Usage
   
 (28.4)
   
 (27.3)
 
Acquisitions
   
 — 
   
 2.9 
 
Adjustments to previously provided warranties, net
   
 — 
   
 (0.3)
 
Other, net
   
 (0.9)
   
 1.9 
                     
Ending Balance
 
$
 42.5 
 
$
 43.5 

Inventories
 
The components of inventories are as follows:
 
           
June 30,
 
December 31,
(In millions)
   
2012 
 
2011 
             
Raw Materials
 
$
 346.4 
 
$
 335.2 
Work in Process
   
 142.8 
   
 129.3 
Finished Goods
   
 901.5 
   
 865.6 
                     
   
$
 1,390.7 
 
$
 1,330.1 

Property, Plant and Equipment
 
Property, plant and equipment consists of the following:
 
           
June 30,
 
December 31,
(In millions)
   
2012 
 
2011 
             
Land
 
$
 179.1 
 
$
 179.9 
Buildings and Improvements
   
 752.7 
   
 747.4 
Machinery, Equipment and Leasehold Improvements
   
 1,720.6 
   
 1,647.6 
                     
             
 2,652.4 
   
 2,574.9 
Less: Accumulated Depreciation and Amortization
   
 1,049.9 
   
 963.6 
                     
   
$
 1,602.5 
 
$
 1,611.3 
 

 
 
10

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Acquisition-related Intangible Assets
 
Acquisition-related intangible assets are as follows:
 
       
June 30, 2012
 
December 31, 2011
           
Accumulated
           
Accumulated
     
(In millions)
 
Gross
 
Amortization
 
Net
 
Gross
 
Amortization
 
Net
                                       
Definite Lives
 
$
 9,694.4 
 
$
 (3,525.9)
 
$
 6,168.5 
 
$
 9,637.2 
 
$
 (3,169.3)
 
$
 6,467.9 
Indefinite Lives
   
 1,348.0 
   
 — 
   
 1,348.0 
   
 1,348.0 
   
 — 
   
 1,348.0 
                                         
       
$
 11,042.4 
 
$
 (3,525.9)
 
$
 7,516.5 
 
$
 10,985.2 
 
$
 (3,169.3)
 
$
 7,815.9 
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates were made in estimating future cash flows to assess potential impairment of assets, and in determining the ultimate loss from selling discontinued operations and abandoning leases at facilities being exited (Note 13). Actual results could differ from those estimates.
 
Recent Accounting Pronouncements
 
In December 2011, the FASB issued new guidance which requires enhanced disclosures on offsetting amounts within the balance sheet, including disclosing gross and net information about instruments and transactions eligible for offset or subject to a master netting or similar agreement. The guidance is effective for the company beginning January 1, 2013 and is to be applied retrospectively. The adoption of this guidance, which is related to disclosure only, will not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
In September 2011, the FASB modified existing rules to allow entities to use a qualitative approach to test goodwill for impairment. The revised guidance permits an entity to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If impairment is deemed more likely than not, management would perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This guidance was effective for the company on January 1, 2012. Adoption of this standard did not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
In June 2011, the FASB issued new guidance pertaining to the presentation of comprehensive income. The new rule eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The standard is intended to provide a more consistent method of presenting non-owner transactions that affect the company’s equity. Under the new guidance, an entity can present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. The new guidance was effective for the company on January 1, 2012 and did not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
In May 2011, the FASB amended existing rules covering fair value measurement and disclosure to clarify guidance and minimize differences between U.S. GAAP and International Financial Reporting Standards (IFRS). The new guidance requires entities to provide information about valuation techniques and unobservable inputs used in Level 3 fair value measurements and provide a narrative description of the sensitivity of Level 3 measurements to changes in unobservable inputs. The guidance was effective for the company on January 1, 2012 and did not have an impact on the company’s consolidated financial position, results of operations or cash flows.
 
 
 
11

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 2.
 Acquisitions and Dispositions
 
On May 1, 2012, the Laboratory Products and Services segment acquired Doe & Ingalls Management, LLC, a North Carolina-based channel for specialty production chemicals and provider of customized supply-chain services to the life sciences and microelectronics industries, for $175 million, net of cash acquired, (subject to a post-closing adjustment) plus up to $3 million of contingent consideration. The acquisition expands the segment’s products and services that address the production market. Revenues of Doe & Ingalls totaled approximately $110 million in 2011. The purchase price exceeded the fair value of the acquired net assets and, accordingly, $81 million was allocated to goodwill, $53 million of which is tax deductible.
 
In the first six months of 2012, the Specialty Diagnostics segment acquired a business that holds proprietary technology for tests to diagnose pre-eclampsia and eclampsia, for $2.5 million plus contingent consideration of up to $5 million.
 
The company made contingent purchase price and post closing adjustment payments totaling $2.4 million in the first six months of 2012, for acquisitions completed prior to 2012. The contingent purchase price payments were contractually due to the sellers upon achievement of certain performance criteria at the acquired businesses.
 
The company’s acquisitions have historically been made at prices above the fair value of the acquired identifiable assets, resulting in goodwill, due to expectations of the synergies that will be realized by combining the businesses. These synergies include the elimination of redundant facilities, functions and staffing; use of the company’s existing commercial infrastructure to expand sales of the acquired businesses’ products; and use of the commercial infrastructure of the acquired businesses to cost-effectively expand sales of company products.
 
Acquisitions have been accounted for using the purchase method of accounting, and the acquired companies’ results have been included in the accompanying financial statements from their respective dates of acquisition. Acquisition transaction costs are recorded in selling, general and administrative expenses. The net assets acquired have been recorded based on estimates of fair value and, for acquisitions completed within the past year, are subject to adjustment upon finalization of the valuation process. The company is not aware of any information that indicates the final valuations will differ materially from the preliminary estimates.
 
(In millions)
 
Doe & Ingalls
       
Purchase Price
     
 
Cash paid
 
$
 173.8 
 
Purchase price payable
   
 1.0 
 
Fair value of contingent consideration
   
 1.5 
           
     
$
 176.3 
       
Net Assets Acquired
     
 
Current assets
 
$
 21.7 
 
Property, plant and equipment
   
 11.6 
 
Intangible assets:
     
   
Customer relationships
   
 68.2 
   
Product technology
   
 1.1 
   
Tradenames and other
   
 16.8 
 
Goodwill
   
 81.3 
 
Other assets
   
 0.4 
 
Liabilities assumed
   
 (24.8)
           
     
$
 176.3 
 
 
 
12

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
The weighted-average amortization periods for intangible assets acquired in 2012 are 13 years for customer relationships, 8 years for product technology and 8 years for tradenames and other. The weighted average amortization period for all intangible assets acquired in 2012 is 12 years.
 
The company acquired Dionex Corporation in May 2011 and the Phadia group in August 2011. Had the acquisitions of Dionex and Phadia been completed as of the beginning of 2010, the company’s pro forma results for 2011 would have been as follows:
 
       
Three
Months
 
Six
Months
       
Ended
 
Ended
(In millions except per share amounts)
 
July 2, 2011
 
July 2, 2011
             
Revenues
 
$
 3,064.2 
 
$
 6,012.9 
                 
Income from Continuing Operations
 
$
 255.6 
 
$
 520.8 
                 
Net Income
 
$
 561.9 
 
$
 831.8 
                 
Earnings per Share from Continuing Operations:
           
 
Basic
 
$
 0.67 
 
$
 1.35 
 
Diluted
 
$
 0.66 
 
$
 1.33 
                 
Earnings per Share:
           
 
Basic
 
$
 1.47 
 
$
 2.16 
 
Diluted
 
$
 1.46 
 
$
 2.13 

Pro forma results include non-recurring pro forma adjustments that were directly attributable to the business combinations including a pre-tax reduction in revenue of $0.1 million and $1.2 million in the three and six months ended July 2, 2011, respectively, due to the impact of revaluing Dionex deferred revenue obligations to fair value.
 
Additionally, the following non-recurring pro forma adjustments relating to charges recorded in 2011 have been assumed to have occurred in 2010 for pro forma purposes:
 
                 •
Pre-tax increase in income of $21.6 million for the three and six months ended July 2, 2011, relating to monetizing equity awards held by Dionex employees at the date of acquisition.
 
                 •
Pre-tax increase in income of $14.5 million for the three and six months ended July 2, 2011, for the sale of Dionex inventories revalued at the date of acquisition.
 
                 •
Pre-tax increase in income of $59.9 million and $62.9 million in the three and six months ended July 2, 2011, respectively, for acquisition-related transaction costs incurred by both the company and the acquirees.
 
The company’s results would not have been materially different from its pro forma results had the company’s other 2012 and 2011 acquisitions occurred at the beginning of 2011 or 2010, respectively.
 
 
 
13

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Dispositions
 
On April 4, 2011, the company sold, in separate transactions, its Athena Diagnostics business for $740 million in cash and its Lancaster Laboratories business for $180 million in cash and escrowed proceeds of $20 million, due in October 2012. The sale of these businesses resulted in an after-tax gain of approximately $304 million or $0.79 per diluted share in the second quarter of 2011. The results of both businesses have been included in the accompanying financial statements as discontinued operations. Operating results of these businesses in the first quarter of 2011 were as follows:
 
(In millions)
 
2011 
       
Revenues
 
$
 54.3 
Pre-tax Income
   
 9.1 

Note 3.
 Business Segment and Geographical Information
 
The company’s continuing operations fall into three business segments as follows:
 
Analytical Technologies: provides a broad offering of instruments, reagents, consumables, software and services that are used for a range of applications in the laboratory, on the production line and in the field. These products and services are used by customers in pharmaceutical, biotechnology, academic, government and other research and industrial markets, as well as the clinical laboratory.
 
Specialty Diagnostics: provides a wide range of diagnostic test kits, reagents, culture media, instruments and associated products used to increase the speed and accuracy of diagnoses. These products are used primarily by customers in healthcare, clinical, pharmaceutical, industrial and food safety laboratories.
 
Laboratory Products and Services: provides virtually everything needed for the laboratory, including a combination of self-manufactured and sourced products and an extensive service offering. These products and services are used by customers in pharmaceutical, biotechnology, academic, government and other research and industrial markets, as well as the clinical laboratory.
 
The company’s management evaluates segment operating performance based on operating income before certain charges/credits to cost of revenues and selling, general and administrative expenses, principally associated with acquisition accounting; restructuring and other costs/income including costs arising from facility consolidations such as severance and abandoned lease expense and gains and losses from the sale of real estate and product lines; and amortization of acquisition-related intangible assets. The company uses this measure because it helps management understand and evaluate the segments’ core operating results and facilitates comparison of performance for determining compensation.
 
 
 
14

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Business Segment Information
 
       
Three Months Ended
 
Six Months Ended
       
June 30,
July 2,
 
June 30,
July 2,
(In millions)
 
2012 
 
2011 
 
2012 
 
2011 
                             
Revenues
                       
 
Analytical Technologies
 
$
 999.5 
 
$
 929.2 
 
$
 2,005.7 
 
$
 1,759.4 
 
Specialty Diagnostics
   
 731.9 
   
 570.6 
   
 1,463.8 
   
 1,147.9 
 
Laboratory Products and Services
   
 1,519.7 
   
 1,483.9 
   
 2,980.1 
   
 2,886.5 
 
Eliminations
   
 (143.0)
   
 (129.7)
   
 (284.7)
   
 (257.2)
                             
   
Consolidated revenues
   
 3,108.1 
   
 2,854.0 
   
 6,164.9 
   
 5,536.6 
                             
Segment Income
                       
 
Analytical Technologies (a)
   
 174.9 
   
 159.0 
   
 360.2 
   
 296.0 
 
Specialty Diagnostics (a)
   
 199.3 
   
 135.9 
   
 386.2 
   
 278.7 
 
Laboratory Products and Services (a)
   
 215.9 
   
 214.6 
   
 420.2 
   
 413.6 
                             
   
Subtotal reportable segments (a)
   
 590.1 
   
 509.5 
   
 1,166.6 
   
 988.3 
                             
 
Cost of revenues charges
   
 (12.8)
   
 (15.4)
   
 (39.4)
   
 (18.3)
 
Selling, general and administrative (charges) income,
     net
   
 (1.8)
   
 (38.0)
   
 5.9 
   
 (41.1)
 
Restructuring and other costs, net
   
 (24.3)
   
 (39.8)
   
 (36.5)
   
 (55.0)
 
Amortization of acquisition-related intangible assets
   
 (183.4)
   
 (151.2)
   
 (367.3)
   
 (286.6)
                             
   
Consolidated operating income
   
 367.8 
   
 265.1 
   
 729.3 
   
 587.3 
 
Other expense, net (b)
   
 (49.4)
   
 (10.3)
   
 (99.8)
   
 (33.0)
                             
 
Income from continuing operations before provision
     for income taxes
 
$
 318.4 
 
$
 254.8 
 
$
 629.5 
 
$
 554.3 
                             
Depreciation
                       
 
Analytical Technologies
 
$
 16.1 
 
$
 15.1 
 
$
 32.8 
 
$
 28.6 
 
Specialty Diagnostics
   
 17.9 
   
 10.0 
   
 35.6 
   
 19.7 
 
Laboratory Products and Services
   
 24.2 
   
 25.4 
   
 48.4 
   
 50.3 
                         
   
Consolidated depreciation
 
$
 58.2 
 
$
 50.5 
 
$
 116.8 
 
$
 98.6 
 
(a)  Represents operating income before certain charges to cost of revenues and selling, general and administrative expenses; restructuring and other costs, net; and
       amortization of acquisition-related intangibles.
(b)  The company does not allocate other expense, net to its segments.
 
 
15

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 4.
 Other Expense, Net
 
The components of other expense, net, in the accompanying statement of income are as follows:
 
       
Three Months Ended
 
Six Months Ended
       
June 30,
July 2,
 
June 30,
July 2,
(In millions)
 
2012 
 
2011 
 
2012 
 
2011 
                             
Interest Income
 
$
 6.7 
 
$
 6.6 
 
$
 13.1 
 
$
 11.6 
Interest Expense
   
 (57.4)
   
 (38.9)
   
 (115.1)
   
 (66.7)
Other Items, Net
   
 1.3 
   
 22.0 
   
 2.2 
   
 22.1 
                             
   
$
 (49.4)
 
$
 (10.3)
 
$
 (99.8)
 
$
 (33.0)

Other Items, Net
 
In the three and six months ended July 2, 2011, other items, net includes $33 million of gains on currency exchange contracts associated with the acquisition of Phadia, offset in part by $10 million of fees associated with a short-term financing commitment to fund the Phadia acquisition.
 
Note 5.            Stock-based Compensation Expense
 
The components of pre-tax stock-based compensation expense for the company’s continuing operations are as follows:
 
       
Three Months Ended
 
Six Months Ended
       
June 30,
July 2,
 
June 30,
July 2,
(In millions)
 
2012 
 
2011 
 
2012 
 
2011 
                             
Stock Option Awards
 
$
 10.1 
 
$
 12.3 
 
$
 20.2 
 
$
 25.3 
Restricted Share/Unit Awards
   
 10.2 
   
 8.0 
   
 17.3 
   
 16.6 
                             
Total Stock-based Compensation Expense
 
$
 20.3 
 
$
 20.3 
 
$
 37.5 
 
$
 41.9 
 
    Stock-based compensation expense is included in the accompanying statement of income as follows:
 
       
Three Months Ended
 
Six Months Ended
       
June 30,
July 2,
 
June 30,
July 2,
(In millions)
 
2012 
 
2011 
 
2012 
 
2011 
                             
Cost of Revenues
 
$
 1.4 
 
$
 1.4 
 
$
 2.6 
 
$
 2.9 
Selling, General and Administrative Expenses
   
 18.5 
   
 18.4 
   
 34.0 
   
 38.0 
Research and Development Expenses
   
 0.4 
   
 0.5 
   
 0.9 
   
 1.0 
                             
Total Stock-based Compensation Expense
 
$
 20.3 
 
$
 20.3 
 
$
 37.5 
 
$
 41.9 
 
    As of June 30, 2012, there was $96 million of total unrecognized compensation cost related to unvested stock options granted. The cost is expected to be recognized through 2016 with a weighted average amortization period of 2.7 years.
 
As of June 30, 2012, there was $76 million of total unrecognized compensation cost related to unvested restricted stock unit awards. The cost is expected to be recognized through 2015 with a weighted average amortization period of 2.3 years.
 
 
 
16

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
During the first six months of 2012, the company made equity compensation grants to employees consisting of  1.0 million restricted stock units and options to purchase 2.8 million shares.
 
Note 6.
 Pension and Other Postretirement Benefit Plans
 
Employees of a number of the company’s non-U.S. and certain U.S. subsidiaries participate in defined benefit pension plans covering substantially all full-time employees at those subsidiaries. Some of the plans are unfunded, as permitted under the plans and applicable laws. The company also maintains postretirement healthcare programs at several acquired businesses where certain employees are eligible to participate. The costs of the postretirement healthcare programs are funded on a self-insured and insured-premium basis.
 
Net periodic benefit costs for the company’s defined benefit pension plans include the following components:
 
       
Three Months Ended
 
Six Months Ended
         
June 30,
 
July 2,
   
June 30,
 
July 2,
(In millions)
 
2012 
 
2011 
 
2012 
 
2011 
                         
Service Cost - Benefits Earned
 
$
 2.9 
 
$
 3.0 
 
$
 6.0 
 
$
 6.1 
Interest Cost on Benefit Obligation
   
 12.7 
   
 13.7 
   
 25.5 
   
 27.1 
Expected Return on Plan Assets
   
 (13.8)
   
 (14.4)
   
 (27.6)
   
 (28.7)
Amortization of Net Loss
   
 1.7 
   
 0.1 
   
 3.4 
   
 1.5 
Settlement/Curtailment Gain
   
 (0.1)
   
 — 
   
 (0.1)
   
 — 
Special Termination Benefits
   
 0.3 
   
 0.1 
   
 0.5 
   
 0.1 
                             
Net Periodic Benefit Cost
 
$
 3.7 
 
$
 2.5 
 
$
 7.7 
 
$
 6.1 
 
   Net periodic benefit costs for the company's other postretirement benefit plans include the following components:
 
       
Three Months Ended
 
Six Months Ended
         
June 30,
 
July 2,
   
June 30,
 
July 2,
(In millions)
 
2012 
 
2011 
 
2012 
 
2011 
                         
Service Cost - Benefits Earned
 
$
 0.2 
 
$
 0.2 
 
$
 0.4 
 
$
 0.4 
Interest Cost on Benefit Obligation
   
 0.5 
   
 0.5 
   
 1.0 
   
 1.0 
Amortization of Net Gain
   
 — 
   
 (0.1)
   
 — 
   
 (0.2)
                             
Net Periodic Benefit Cost
 
$
 0.7 
 
$
 0.6 
 
$
 1.4 
 
$
 1.2 
 
 
 
 
17

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 7.   Earnings per Share
 
       
Three Months Ended
 
Six Months Ended
       
June 30,
July 2,
 
June 30,
July 2,
(In millions except per share amounts)
 
2012 
 
2011 
 
2012 
 
2011 
                             
Income from Continuing Operations
 
$
 292.4 
 
$
 217.1 
 
$
 573.2 
 
$
 464.6 
(Loss) Income from Discontinued Operations
   
 (7.5)
   
 0.5 
   
 (11.3)
   
 5.7 
(Loss) Gain on Disposal of Discontinued Operations, Net
   
 (51.1)
   
 305.8 
   
 (50.8)
   
 305.3 
                             
Net Income
 
$
 233.8 
 
$
 523.4 
 
$
 511.1 
 
$
 775.6 
                             
                             
Basic Weighted Average Shares
   
 367.0 
   
 381.9 
   
 367.1 
   
 385.3 
Plus Effect of:
                       
 
Convertible debentures
   
 — 
   
 — 
   
 — 
   
 1.1 
 
Stock options and restricted units
   
 2.2 
   
 4.0 
   
 2.5 
   
 3.9 
                             
Diluted Weighted Average Shares
   
 369.2 
   
 385.9 
   
 369.6 
   
 390.3 
                             
Basic Earnings per Share:
                       
 
Continuing operations
 
$
.80 
 
$
.57 
 
$
1.56 
 
$
1.21 
 
Discontinued operations
   
(.16)
   
.80 
   
(.17)
   
.81 
                             
       
$
.64 
 
$
1.37 
 
$
1.39 
 
$
2.01 
                             
Diluted Earnings per Share:
                       
 
Continuing operations
 
$
.79 
 
$
.56 
 
$
1.55 
 
$
1.19 
 
Discontinued operations
   
(.16)
   
.79 
   
(.17)
   
.80 
                             
       
$
.63 
 
$
1.36 
 
$
1.38 
 
$
1.99 

Options to purchase 10.0 million, 3.7 million, 9.6 million and 6.0 million shares of common stock were not included in the computation of diluted earnings per share for the second quarter of 2012 and 2011 and the first six months of 2012 and 2011, respectively, because their effect would have been antidilutive.
 
Note 8.
 Debt and Other Financing Arrangements
 
Credit Facilities
 
On April 11, 2012, the company terminated both of its prior revolving credit agreements and entered into new revolving credit facilities with a bank group that provide for up to $2.0 billion of unsecured multi-currency revolving credit. The new credit facilities include a $1 billion 5-year credit agreement, with an optional $500 million increase, and a $500 million 364-day credit agreement. The agreements call for interest at either a LIBOR-based rate or a rate based on the prime lending rate of the agent bank, at the company’s option. The agreements contain affirmative, negative and financial covenants, and events of default customary for financings of this type. The financial covenant requires the company to maintain a Consolidated Leverage Ratio of debt to EBITDA (as defined in the agreements) below 3.5 to 1.0. The credit agreements permit the company to use the facilities for working capital; acquisitions; repurchases of common stock, debentures and other securities; the refinancing of debt; and general corporate purposes. The 5-year credit agreement allows for the issuance of letters of credit, which reduces the amount available for borrowing. If the company borrows under these facilities, it intends to leave undrawn an amount equivalent to outstanding commercial paper ($400 million at June 30, 2012) to provide a source of funds in the event that commercial paper markets are not available. As of June 30, 2012, no borrowings were outstanding under either facility, although available capacity was reduced by approximately $49 million as a result of outstanding letters of credit.
 
 
 
18

 
 
THERMO FISHER SCIENTIFIC INC.

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

 
19

 
 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
Note 10.
 Comprehensive Income and Shareholders’ Equity
 
Comprehensive Income
 
Comprehensive income combines net income and other comprehensive items. Other comprehensive items represent certain amounts that are reported as components of shareholders’ equity in the accompanying balance sheet.
 
Accumulated other comprehensive items in the accompanying balance sheet consist of the following:
 
           
June 30,
 
December 31,
(In millions)
 
2012 
 
2011 
                     
Cumulative Translation Adjustment
 
$
 (268.4)
 
$
 (206.3)
Net Unrealized Gain on Available-for-sale Investments, Net of Tax
   
 7.1 
   
 7.0 
Net Unrealized Losses on Hedging Instruments, Net of Tax
   
 (34.6)
   
 (36.2)
Pension and Other Postretirement Benefit Liability Adjustments, Net of Tax
   
 (161.8)
   
 (164.0)
                     
           
$
 (457.7)
 
$
 (399.5)

The unrealized losses on hedging instruments relate to the company’s 5% Senior Notes due 2015 and 3.60% Senior Notes due 2021. The losses are being amortized as an increase in interest expense over the term of the related debt. The after-tax charges recognized in net income were $1.6 million and $0.1 million in the first six months of 2012 and 2011, respectively.
 
The after-tax pension and other postretirement benefit liability adjustments recognized in net income in the first six months of 2012 and 2011 were $2.2 million and $1.0 million, respectively.
 
Note 11.          Fair Value Measurements and Fair Value of Financial Instruments
 
Fair Value Measurements
 
The company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2012. The company’s financial assets and liabilities carried at fair value are primarily comprised of investments in money market funds, mutual funds holding publicly traded securities, derivative contracts used to hedge the company’s currency and interest rate risks and other investments in unit trusts and insurance contracts held as assets to satisfy outstanding retirement liabilities.
 
The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
 
Level 1: Quoted market prices in active markets for identical assets or liabilities that the company has the ability to access.
 
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates and yield curves.
 
Level 3: Inputs are unobservable data points that are not corroborated by market data.
 
 
 
20

 
 
THERMO FISHER SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 
The following table presents information about the company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012:
 
     
June 30,
 
Quoted Prices in Active Markets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
(In millions)
 
2012 
 
(Level 1)
 
(Level 2)
 
(Level 3)
                             
Assets
                       
 
Cash equivalents
 
$
 60.7 
 
$
 60.7 
 
$
 — 
 
$
 — 
 
Investments in mutual funds, unit trusts and other
    similar instruments
   
 35.5 
   
 35.5 
   
 — 
   
 — 
 
Insurance contracts
   
 58.0 
   
 — 
   
 58.0 
   
 — 
 
Auction rate securities
   
 4.3 
   
 — 
   
 — 
   
 4.3 
 
Derivative contracts
   
 1.6 
   
 — 
   
 1.6 
   
 — 
                             
   
Total Assets
 
$
 160.1 
 
$
 96.2 
 
$
 59.6 
 
$
 4.3 
                             
Liabilities
                       
 
Derivative contracts
 
$
 4.5 
 
$
 — 
 
$
 4.5 
 
$
 — 
 
Contingent consideration
   
 4.6 
   
 — 
   
 — 
   
 4.6 
                             
   
Total Liabilities
 
$
 9.1 
 
$
 — 
 
$
 4.5 
 
$
 4.6 
 
    The following table presents information about the company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011:
 
     
December 31,
 
Quoted Prices in Active Markets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
(In millions)
 
2011 
 
(Level 1)
 
(Level 2)
 
(Level 3)
                             
Assets
                       
 
Cash equivalents
 
$
 377.1 
 
$
 377.1 
 
$
 — 
 
$
 — 
 
Investments in mutual funds, unit trusts and other
    similar instruments
   
 35.6 
   
 35.6 
   
 — 
   
 — 
 
Insurance contracts
   
 56.7 
   
 — 
   
 56.7 
   
 — 
 
Auction rate securities
   
 4.3 
   
 — 
   
 — 
   
 4.3 
 
Derivative contracts
   
 0.9 
   
 — 
   
 0.9 
   
 — 
                             
   
Total Assets
 
$
 474.6 
 
$
 412.7 
 
$
 57.6