
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, academic and government, industrial and applied, as well as healthcare and diagnostics.

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 April 2, 2016, the results of operations for the three-month periods ended April 2, 2016, and March 28, 2015, and the cash flows for the three-month periods ended April 2, 2016, and March 28, 2015. Interim results are not necessarily indicative of results for a full year.

The consolidated balance sheet presented as of December 31, 2015, has been derived from the audited consolidated financial statements as of that date. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all information that is included in the annual financial statements and notes thereto of the company. The consolidated financial statements and notes included in this report should be read in conjunction with the 2015 financial statements and notes included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).

Note 1 to the consolidated financial statements for 2015 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 April 2, 2016.

Inventories

The components of inventories are as follows:



	April 2,		December 31,
(In millions)	2016		2015

Raw Materials	$	467.9	$	421.1
Work in Process	259.7		236.8
Finished Goods	1,427.3		1,333.8

Inventories	$	2,154.9	$	1,991.7

Property, Plant and Equipment

Property, plant and equipment consists of the following:



	April 2,		December 31,
(In millions)	2016		2015

Land	$	277.5	$	276.4
Buildings and Improvements	1,075.6		1,050.5
Machinery, Equipment and Leasehold Improvements	2,877.9		2,786.8

Property, Plant and Equipment, at Cost	4,231.0		4,113.7
Less: Accumulated Depreciation and Amortization	1,747.9		1,664.9

Property, Plant and Equipment, Net	$	2,483.1	$	2,448.8

Acquisition-related Intangible Assets

Acquisition-related intangible assets are as follows:



	Balance at April 2, 2016							Balance at December 31, 2015
(In millions)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net

Definite Lived:
Customer relationships	$	12,364.7	$	(4,320.6	)	$	8,044.1	$	11,844.4	$	(4,086.9	)	$	7,757.5
Product technology	5,083.5		(1,932.4		)	3,151.1		4,799.8		(1,819.0		)	2,980.8
Tradenames	1,370.9		(579.6		)	791.3		1,316.7		(548.2		)	768.5
Other	33.6		(33.6		)	—		33.2		(33.0		)	0.2

	18,852.7		(6,866.2		)	11,986.5		17,994.1		(6,487.1		)	11,507.0
Indefinite Lived:
Tradenames	1,234.8		—			1,234.8		1,234.8		—			1,234.8
In-process research and development	16.5		—			16.5		16.5		—			16.5

	1,251.3		—			1,251.3		1,251.3		—			1,251.3

Acquisition-related Intangible Assets	$	20,104.0	$	(6,866.2	)	$	13,237.8	$	19,245.4	$	(6,487.1	)	$	12,758.3

Warranty Obligations

The liability for warranties is included in other accrued expenses in the accompanying balance sheet. The changes in the carrying amount of standard product warranty obligations are as follows:



	Three Months Ended
	April 2,			March 28,
(In millions)	2016			2015

Beginning Balance	$	55.8		$	57.5
Provision charged to income	21.9			17.2
Usage	(20.3		)	(18.3		)
Acquisitions	1.1			0.5
Adjustments to previously provided warranties, net	(0.6		)	(0.1		)
Currency translation	1.0			(1.9		)

Ending Balance	$	58.9		$	54.9

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 fair value of acquired intangible assets (Note 2) and the ultimate loss from abandoning leases at facilities being exited (Note 14). Actual results could differ from those estimates.

Recent Accounting Pronouncements

In March 2016, the FASB issued new guidance which affects the accounting for stock-based compensation. The new guidance simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for the company in 2017. Early adoption is permitted. The company is currently evaluating the impact the standard will have on its consolidated financial statements.

In February 2016, the FASB issued new guidance which requires lessees to record most leases on their balance sheets as lease liabilities, initially measured at the present value of the future lease payments, with corresponding right-of-use assets. The new guidance also sets forth new disclosure requirements related to leases. The guidance is effective for the company in 2019 and most be adopted using a modified retrospective method. Early adoption is permitted. The company is currently evaluating the impact the standard will have on its consolidated financial statements.

In January 2016, the FASB issued new guidance which affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. This guidance retains the current accounting for classifying and measuring investments in debt securities and loans, but requires equity investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring consolidation. The guidance also changes the accounting for investments without a readily determinable fair value and that do not qualify for the practical expedient permitted by the guidance to estimate fair value. A policy election can be made for these investments whereby estimated fair value may be measured at cost and adjusted in subsequent periods for any impairment or changes in observable prices of identical or similar investments. The guidance is effective for the company in 2018. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the company’s consolidated financial statements.

In September 2015, the FASB issued new guidance which eliminates the requirement for an acquirer in a business combination to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new guidance also sets forth new disclosure requirements related to the adjustments. The guidance is effective for the company in 2016. Adoption of this standard did not have a material impact on the company’s consolidated balance sheet.

In July 2015, the FASB issued new guidance which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance does not apply to inventory that is measured using last-in, first-out (LIFO). The guidance is effective for the company in 2017. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the company’s consolidated financial statements.

In April 2015, the FASB issued new guidance which requires the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability, consistent with the current treatment of debt discounts. The guidance is effective for the company in 2016. As a result of adoption of this standard, debt issuance costs of $55 million were reclassified from other assets to reduce long-term debt as of December 31, 2015.

In May 2014, the FASB issued new revenue recognition guidance which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity's nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is currently effective for the company in 2018. Early adoption is permitted in 2017. The company is currently evaluating the impact the standard will have on its consolidated financial statements.