UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(mark one)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended ~~July 1, 2006~~June 30, 2007

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, P.O. Box 9046
Waltham, Massachusetts	02454-9046
(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 is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of ~~“accelerated filer”~~"accelerated filer" and ~~“large~~"large accelerated ~~filer”~~filer" in Rule 12b-2 of the Exchange Act. Large Accelerated Filer x Accelerated Filer o Non-Accelerated Filer 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 ~~July 28, 2006~~June 30, 2007
	Common Stock, $1.00 par value		~~157,593,971~~426,580,049

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Consolidated Balance Sheet

~~(Unaudited)~~

Assets

		July 1,		December 31,	June 30,		December 31,
(In thousands)		2006		2005
(In millions)					2007		2006
					(Unaudited)

Current Assets:
Cash and cash equivalents	$	189,716	$	214,326	$	951.2	$	667.4
Short-term available-for-sale investments, at quoted market value (amortized cost of $8,267 and $80,661)		8,267		80,661
Accounts receivable, less allowances of $22,548 and $21,841		544,520		565,564
Short-term investments, at quoted market value (amortized cost of $25.7 and $23.8)						22.7		23.8
Accounts receivable, less allowances of $49.8 and $45.0						1,422.5		1,392.7
Inventories:
Raw materials and supplies		150,543		133,774
Raw materials						318.8		307.7
Work in process		56,896		50,043		132.6		121.7
Finished goods		188,721		175,575		731.8		735.1
Deferred tax assets		80,487		79,586		194.5		209.2
Other current assets		61,072		54,371		233.0		201.9

		1,280,222		1,353,900		4,007.1		3,659.5

Property, Plant and Equipment, at Cost		541,852		515,385		1,585.4		1,533.0
Less: Accumulated depreciation and amortization		258,610		234,731		356.9		276.3

		283,242		280,654		1,228.5		1,256.7

Acquisition-related Intangible Assets		405,011		450,740
Acquisition-related Intangible Assets, net of Accumulated Amortization of $577.1 and $276.4						7,208.0		7,511.6

Other Assets		216,907		200,080		276.9		309.4

Goodwill		1,990,821		1,966,195		8,551.6		8,525.0

	$	4,176,203	$	4,251,569	$	21,272.1	$	21,262.2

THERMO FISHER SCIENTIFIC INC.

~~THERMO ELECTRON CORPORATION~~

Consolidated Balance Sheet (continued)

~~(Unaudited)~~

Liabilities and Shareholders’ Equity

		July 1,			December 31,		June 30,			December 31,
(In thousands except share amounts)		2006			2005
(In millions except share amounts)							2007			2006
							(Unaudited)

Current Liabilities:
Short-term obligations and current maturities of long-term obligations	$	171,540		$	130,137		$	24.8		$	483.3
Accounts payable		147,635			153,475			622.3			630.8
Accrued payroll and employee benefits		98,199			114,707			215.7			253.3
Accrued income taxes		21,860			55,147			66.1			60.3
Deferred revenue		101,913			85,592			139.9			121.3
Customer deposits		39,342			38,229
Accrued warranty costs (Note 10)		36,326			33,453
Other accrued expenses (Notes 2 and 11)		167,139			180,922
Other accrued expenses (Notes 2, 10 and 11)								534.2			603.3

		783,954			791,662			1,603.0			2,152.3

Deferred Income Taxes		43,468			65,015			2,445.4			2,557.5

Other Long-term Liabilities		144,313			132,950			514.2			459.9

Long-term Obligations:
Senior notes (Note 9)		379,529			380,542
Subordinated convertible obligations		77,234			77,234
Other		10,699			10,854

		467,462			468,630
Long-term Obligations (Note 9)								2,177.7			2,180.7

Shareholders’ Equity:
Preferred stock, $100 par value, 50,000 shares authorized; none issued
Common stock, $1 par value, 350,000,000 shares authorized; 183,154,779 and 181,817,452 shares issued		183,155			181,817
Common stock, $1 par value, 1,200,000,000 shares authorized; 434,228,110 and 424,240,292 shares issued								434.2			424.2
Capital in excess of par value		1,459,872			1,421,382			12,056.2			11,810.4
Retained earnings		1,699,261			1,604,475			2,076.2			1,773.4
Treasury stock at cost, 25,597,876 and 19,335,163 shares		(666,120	)		(437,707	)
Deferred compensation		—			(3,834	)
Treasury stock at cost, 7,648,061 and 7,635,184 shares								(254.5	)		(246.4	)
Accumulated other comprehensive items (Note 6)		60,838			27,179			219.7			150.2

		2,737,006			2,793,312			14,531.8			13,911.8

	$	4,176,203		$	4,251,569		$	21,272.1		$	21,262.2

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

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Consolidated Statement of Income

(Unaudited)

	Three Months Ended						Three Months Ended
	July 1,			July 2,			June 30,			July 1,
(In thousands except per share amounts)		2006			2005
(In millions except per share amounts)							2007			2006

Revenues	$	713,468		$	653,621		$	2,385.9		$	713.5

Costs and Operating Expenses:
Cost of revenues		388,976			366,166			1,449.3			388.9
Selling, general and administrative expenses		206,919			192,593			626.6			206.9
Research and development expenses		40,620			39,432			58.7			40.7
Restructuring and other costs, net (Note 11)		4,780			2,216			8.3			4.8

		641,295			600,407			2,142.9			641.3

Operating Income		72,173			53,214			243.0			72.2
Other Income (Expense), Net (Note 4)		(3,383	)		25,504
Other Expense, Net (Note 4)								(20.7	)		(3.4	)

Income from Continuing Operations Before Provision for Income Taxes		68,790			78,718			222.3			68.8
Provision for Income Taxes		(19,847	)		(21,958	)		(34.4	)		(19.8	)

Income from Continuing Operations		48,943			56,760			187.9			49.0
Gain (Loss) on Disposal of Discontinued Operations (includes income tax benefit of $623 in 2006, net of income tax provision of $2,034 in 2005; Note 13)		(1,063	)		3,463
Loss on Disposal of Discontinued Operations (includes income tax provision of $1.8 in 2007 and income tax benefit of $0.6 in 2006; Note 14)								(24.0	)		(1.1	)

Net Income	$	47,880		$	60,223		$	163.9		$	47.9

Earnings per Share from Continuing Operations (Note 5):
Basic	$	.30		$	.35		$	.44		$	.30

Diluted	$	.30		$	.35		$	.42		$	.30

Earnings per Share (Note 5):
Basic	$	.30		$	.37		$	.39		$	.30

Diluted	$	.29		$	.37		$	.37		$	.29

Weighted Average Shares (Note 5):
Basic		161,289			161,255			424.0			161.3

Diluted		165,523			164,658			446.5			165.5

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

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Consolidated Statement of Income

(Unaudited)

	Six Months Ended						Six Months Ended
		July 1,			July 2,		June 30,			July 1,
(In thousands except per share amounts)		2006			2005
(In millions except per share amounts)							2007			2006

Revenues	$	1,397,755		$	1,212,829		$	4,724.1		$	1,397.8

Costs and Operating Expenses:
Cost of revenues		760,639			666,140			2,907.6			760.6
Selling, general and administrative expenses		409,367			356,094			1,246.9			409.4
Research and development expenses		79,357			75,760			118.5			79.4
Restructuring and other costs, net (Note 11)		8,374			1,945			15.7			8.4

		1,257,737			1,099,939			4,288.7			1,257.8

Operating Income		140,018			112,890			435.4			140.0
Other Income (Expense), Net (Note 4)		(7,162	)		28,808
Other Expense, Net (Note 4)								(47.4	)		(7.1	)

Income from Continuing Operations Before Provision for Income Taxes		132,856			141,698			388.0			132.9
Provision for Income Taxes		(40,294	)		(39,355	)		(61.3	)		(40.3	)

Income from Continuing Operations		92,562			102,343			326.7			92.6
Gain on Disposal of Discontinued Operations, Net (net of income tax provision of $1,303 and $4,272; Note 13)		2,224			6,736
Income from Discontinued Operations (net of income tax provision of $0.1 in 2007; Note 14)								0.1			—
(Loss) Gain on Disposal of Discontinued Operations (includes income tax provision of $1.8 and $1.3; Note 14)								(24.0	)		2.2

Net Income	$	94,786		$	109,079		$	302.8		$	94.8

Earnings per Share from Continuing Operations (Note 5):
Basic	$	.57		$	.64		$	.77		$	.57

Diluted	$	.56		$	.63		$	.74		$	.56

Earnings per Share (Note 5):
Basic	$	.58		$	.68		$	.72		$	.58

Diluted	$	.57		$	.67		$	.68		$	.57

Weighted Average Shares (Note 5):
Basic		162,167			161,106			422.0			162.2

Diluted		166,253			164,694			443.8			166.3

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

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Consolidated Statement of Cash Flows

(Unaudited)

	Six Months Ended						Six Months Ended
		July 1,			July 2,		June 30,			July 1,
(In thousands)		2006			2005
(In millions)							2007			2006

Operating Activities:
Net income	$	94,786		$	109,079		$	302.8		$	94.8
Gain on disposal of discontinued operations, net		(2,224	)		(6,736	)
Income from discontinued operations								(0.1	)		—
Loss (Gain) on disposal of discontinued operations								24.0			(2.2	)

Income from continuing operations		92,562			102,343			326.7			92.6

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		76,437			47,435			372.4			76.4
Change in deferred income taxes		(10,703	)		(1,438	)		(10.3	)		(10.7	)
Gain on sale of product lines, net		(207	)		(119	)
Gain on investments, net		(525	)		(32,066	)
Noncash equity compensation		12,937			1,339			26.1			13.0
Noncash charges for sale of inventories revalued at the date of acquisition								47.6			—
Other noncash expenses, net		1,096			13,513			18.8			0.2
Changes in current accounts, excluding the effects of acquisitions and dispositions:
Accounts receivable		36,601			6,154			(41.7	)		36.6
Inventories		(28,440	)		(15,200	)		(57.8	)		(28.4	)
Other current assets		(3,796	)		2,303			(25.6	)		(3.8	)
Accounts payable		(11,691	)		(11,521	)		(17.2	)		(11.7	)
Other current liabilities		(64,525	)		(22,187	)		(82.6	)		(64.5	)

Net cash provided by continuing operations		99,746			90,556			556.4			99.7
Net cash used in discontinued operations		(1,528	)		(1,577	)		(2.3	)		(1.5	)

Net cash provided by operating activities		98,218			88,979			554.1			98.2

Investing Activities:
Acquisitions, net of cash acquired		(26,574	)		(914,923	)		(39.1	)		(26.6	)
Refund of acquisition purchase price								4.6			—
Proceeds from sale of available-for-sale investments		151,012			349,863			1.7			151.0
Purchases of available-for-sale investments		(77,850	)		(148,450	)		(1.8	)		(77.9	)
Purchases of property, plant and equipment		(21,800	)		(16,441	)		(71.8	)		(21.8	)
Proceeds from sale of property, plant and equipment		2,071			9,534			14.1			2.1
Proceeds from sale of product lines		8,875			5,661			—			8.9
Collection of notes receivable		2,805			—			48.2			2.8
Proceeds from sale of other investments		816			280
Increase in other assets		(8,481	)		(1,535	)		(18.3	)		(8.1	)
Other		(546	)		(64	)

Net cash provided by (used in) continuing operations		30,328			(716,075	)
Net cash (used in) provided by continuing operations								(62.4	)		30.4
Net cash provided by discontinued operations		5,333			5,327			28.8			5.3

Net cash provided by (used in) investing activities	$	35,661		$	(710,748	)
Net cash (used in) provided by investing activities							$	(33.6	)	$	35.7

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Consolidated Statement of Cash Flows (continued)

(Unaudited)

Six Months Ended
July 1, July 2,
(In thousands) 2006 2005

Financing Activities:
   Purchases of company common stock

$
(228,001
)
$
—

Net proceeds from issuance of long-term debt

—

247,450

Increase in short-term notes payable

36,664

219,150

   Net proceeds from issuance of company common stock

22,072

8,721

   Borrowings under short-term bridge financing agreement

—

570,000

   Repayment of bridge financing agreement

—

(570,000
)
   Tax benefits from exercised stock options (Note 7)

5,589

—

Other

(38
)

(2,161
)

Net cash provided by (used in) financing activities

(163,714
)

473,160

Exchange Rate Effect on Cash of Continuing Operations
5,225

(18,533
)

Decrease in Cash and Cash Equivalents
(24,610
)

(167,142
)
Cash and Cash Equivalents at Beginning of Period
214,326

326,886

Cash and Cash Equivalents at End of Period
$
189,716

$
159,744

Noncash Investing Activities:
Fair value of assets of acquired businesses

$
37,527

$
1,076,315

Cash paid for acquired businesses

(28,005
)

(920,135
)

Liabilities of acquired businesses

$
9,522

$
156,180

	Six Months Ended
	June 30,			July 1,
(In millions)	2007			2006

Financing Activities:
(Decrease) increase in short-term notes payable	$	(452.5	)	$	36.6
Purchases of company common stock		—			(228.0	)
Net proceeds from issuance of company common stock		223.6			22.1
Tax benefits from exercised stock options		17.0			5.6
Redemption and repayment of long-term obligations		(8.7	)		—

Net cash used in financing activities		(220.6	)		(163.7	)

Exchange Rate Effect on Cash of Continuing Operations		(16.1	)		5.2

Increase (Decrease) in Cash and Cash Equivalents		283.8			(24.6	)
Cash and Cash Equivalents at Beginning of Period		667.4			214.3

Cash and Cash Equivalents at End of Period	$	951.2		$	189.7

Supplemental Cash Flow Information:
Fair value of assets of acquired businesses	$	39.8		$	36.1
Cash paid for acquired businesses		(30.8	)		(26.6	)

Liabilities assumed of acquired businesses	$	9.0		$	9.5

Conversion of subordinated convertible debentures	$	0.4		$	—

Issuance of restricted stock	$	11.9		$	0.9

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

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Notes to Consolidated Financial Statements

(Unaudited)

General

The interim consolidated financial statements presented herein have been prepared by Thermo ~~Electron Corporation~~Fisher Scientific Inc. (the company or Thermo ~~or the Registrant)~~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 ~~July 1, 2006,~~June 30, 2007, the results of operations for the three- and six-month periods ended June 30, 2007, and July 1, 2006, ~~and July 2, 2005,~~ and the cash flows for the six-month periods ended June 30, 2007, and July 1, ~~2006, and July 2, 2005.~~2006. Certain prior-period amounts have been reclassified to conform to the presentation in the current financial statements. Interim results are not necessarily indicative of results for a full year.

The consolidated balance sheet presented as of December 31, ~~2005,~~2006, 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, ~~2005,~~2006, filed with the Securities and Exchange Commission (SEC).

2.	~~Merger and~~ Acquisitions

The company and Fisher Scientific International Inc. announced on May 8, 2006 that the boards of directors of both companies had unanimously approved a definitive agreement to combine the two companies in a tax-free, stock-for-stock exchange. Fisher is a leading provider of products and services to the scientific research community and clinical laboratories. Fisher provides a suite of products and services to customers worldwide from biochemicals, cell-culture media and proprietary RNAi technology to rapid-diagnostic tests, safety products and other consumable supplies. Fisher had revenues of $5.4 billion in 2005. The transaction is subject to approval by both companies' shareholders as well as regulatory approvals and other customary closing conditions. The transaction is expected to close in the fourth quarter of 2006. The combined company will be named Thermo Fisher Scientific Inc.

Under the terms of the agreement, Fisher shareholders will receive two shares of Thermo common stock for each share of Fisher common stock they own. Based on Thermo's average closing price for the two trading days before and after the announcement date of $38.93 per share, this exchange represents a value of $77.86 per Fisher share, or an aggregate equity value of $10.3 billion. The company will also assume Fisher’s debt ($2.2 billion at June 30, 2006). Upon completion of the transaction, Thermo's shareholders will own approximately 39 percent of the combined company, and Fisher’s shareholders will own approximately 61 percent. Based upon current members of Thermo’s board of directors and senior management representing a majority of the composition of the combined company’s board and senior management and the Fisher shareholders receiving a premium (as of the date preceding the merger announcement) over the fair market value of Fisher common stock on such date, Thermo is considered to be the acquirer for accounting purposes.

On ~~June 30, 2006,~~January 15, 2007, the company’s ~~Measurement and Control~~Analytical Technologies segment acquired ~~EGS Gauging, Inc.,~~the Spectronex AG and Flux AG businesses (Spectronex/Flux) of Swiss Analytic Group AG. These Switzerland-based businesses include a ~~Massachusetts-based provider~~distributor of ~~flat polymer web gauging products for $26.3~~mass spectrometry, chromatography and surface science instruments and a manufacturer of high performance liquid chromatography pumps and software. The purchase price totaled $24 million, net of cash ~~acquired, subject to a post-closing adjustment.~~acquired. The acquisition broadened the segment’s mass spectrometry offerings. Revenues of Spectronex/Flux totaled $22 million in fiscal 2006. The purchase price includes $24.0 million paid at the closing and $2.3 million payable in the third quarter of 2006. The agreement calls for contingent consideration of up to $2.0 million based on 2006 revenues and operating results. The acquisition of EGS enables the segment to broaden its gauging systems product offerings. EGS’s revenues totaled $25 million in 2005. Having completed the acquisition of EGS on the last business day of the company’s fiscal quarter, the balance sheet of EGS has been included in the accompanying financial statements, however, no results of operations or cash flows have been included. The company has undertaken an assessment to determine the fair value of EGS’s identifiable intangible assets and to complete the purchase price allocation. Pending the results of that review, which the company expects to substantially complete during the third quarter of 2006, the excess of the purchase price overexceeded the fair value of the acquired ~~tangible~~net assets ~~or $22.4~~and, accordingly, $9 million ~~has been recorded as an increase~~was allocated to goodwill, none of which is tax deductible.

~~THERMO ELECTRON CORPORATION~~

2.	~~Merger and Acquisitions (continued)~~

In addition to the acquisition of ~~EGS,~~Spectronex/Flux, the ~~company~~Analytical Technologies segment acquired a small manufacturer of electrostatic discharge products and the Laboratory Products and Services segment acquired a cell culture product line ~~and a small distributor~~ in the ~~second~~first six months of 2007, for aggregate consideration of $7 million. The company also paid transaction costs and post-closing and contingent purchase price adjustments aggregating $8 million in the first half of 2007, for various acquisitions completed prior to 2007. The company obtained a refund of $5 million in the first quarter of ~~2006 for an aggregate of $2.7 million. The product line acquisition is subject~~2007, related to a post-closing adjustment ~~that~~for the ~~company does not expect will be material.~~2006 acquisition of GV Instruments Limited (GVI).

The company’s acquisitions have historically been made at prices above the fair value of the acquired assets, resulting in goodwill, due to expectations of synergies of combining the businesses. These synergies include elimination of duplicative facilities, functions and staffing; use of the company’s existing infrastructure such as sales force, distribution channels and customer relations to expand sales of the acquired businesses’ products; and use of the infrastructure of the acquired businesses to cost effectively expand sales of company ~~products; and elimination of duplicative facilities, functions and staffing.~~products.

These acquisitions have been accounted for using the purchase method of accounting, and the acquired companies’ results have been included in the accompanying financial statements from their respective dates of acquisition. Allocation of the purchase price for acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions completed ~~in 2006,~~within the past year, is subject to adjustment upon finalization of the purchase price allocation. The company is not aware of any information that indicates the final purchase price allocations will differ materially from the preliminary estimates.

THERMO FISHER SCIENTIFIC INC.

2.	Acquisitions (continued)

The components of the preliminary purchase price allocation for ~~2006~~2007 acquisitions are as follows:

(In thousands)		EGS			Other			Total
(In millions)										Spectronex/Flux			Other			Total

Purchase Price:
Cash paid (a)	$	25,363		$	2,642		$	28,005		$	25.8		$	6.8		$	32.6
Cash acquired		(1,417	)		(14	)		(1,431	)		(1.8	)		—			(1.8	)
Purchase price payable		2,343			91			2,434

	$	26,289		$	2,719		$	29,008		$	24.0		$	6.8		$	30.8

Allocation:
Current assets	$	8,381		$	14		$	8,395		$	8.1		$	1.8		$	9.9
Property, plant and equipment		768			16			784			0.4			0.3			0.7
Acquired intangible assets (b)		—			2,857			2,857
Acquired intangible assets											14.8			3.4			18.2
Goodwill		22,431			844			23,275			9.1			1.9			11.0
Other assets		785			—			785
Liabilities assumed		(6,076	)		(1,012	)		(7,088	)		(8.4	)		(0.6	)		(9.0	)

	$	26,289		$	2,719		$	29,008		$	24.0		$	6.8		$	30.8

(a)	Includes transaction costs.

~~(b)~~

~~The acquired intangible assets for EGS will be determined in the third quarter of 2006, following finalization of the purchase price allocation.~~

Acquired intangible assets for ~~2006~~2007 acquisitions are as ~~follows (in thousands):~~follows:

(In millions)			Spectronex/Flux		Other		Total

Customer Relationships	$	446	$	12.9	$	1.5	$	14.4
Product Technology		2,411		1.5		1.9		3.4
Tradenames				0.4		—		0.4

	$	2,857	$	14.8	$	3.4	$	18.2

The weighted-average amortization periods for ~~intangible assets~~the customer relationships, product technology and tradenames acquired in ~~2006 are: 5~~2007 are 6 years ~~for customer relationships and 5 years for product technology. The weighted-average amortization period for all intangible assets acquired in 2006 is 5 years.~~each.

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

2.	~~Merger~~Acquisitions (continued)

During the first quarter of 2007, the company refined estimates recorded in the fourth quarter of 2006 of acquisition-related intangible assets related to the November 2006 merger with Fisher Scientific International Inc. and the December 2006 acquisition of Cohesive Technologies Inc. and finalized the determination of such intangible assets. The purchase price allocations for Fisher and Cohesive, as revised, are as follows:

(In millions)	Fisher			Cohesive

Fair Value of Common Stock Issued to Fisher Shareholders	$	9,777.8		$	—
Fair Value of Fisher Stock Options and Warrants Converted into Options in Company Common Stock		502.3			—
Debt Assumed		2,284.7			—
Cash Paid Including Transaction Costs		39.0			71.3
Cash Acquired		(392.0	)		(0.3	)

	$	12,211.8		$	71.0

Allocation:
Current assets	$	1,914.3		$	5.6
Property, plant and equipment		944.8			1.0
Acquired intangible assets		7,082.0			37.0
Goodwill		6,552.4			32.9
Other assets		333.2			—
Liabilities assumed		(4,068.1	)		(5.5	)
Fair value of convertible debt allocable to equity		(546.8	)		—

	$	12,211.8		$	71.0

The acquired intangible assets from the merger with Fisher and the acquisition of Cohesive are as follows:

(In millions)	Fisher		Cohesive

Indefinite Lives:
Trademarks	$	1,326.9	$	—

Definite Lives:
Customer relationships		4,275.3		19.0
Product technology		844.8		14.6
Tradenames		635.0		3.4

	$	7,082.0	$	37.0

The weighted-average amortization periods for intangible assets with definite lives are: 14 years for customer relationships, 9 years for product technology and 10 years for tradenames. The weighted-average amortization period for all intangible assets with definite lives in the above table is 13 years.

The company will finalize the purchase price allocation for Fisher no later than one year from the date of merger. The company does not expect the purchase price allocation will change materially, however, certain restructuring actions (Note 11) are being finalized and additional information is being sought concerning several matters including pre-acquisition litigation claims. The resolution of these matters could result in changes to the purchase price allocation.

THERMO FISHER SCIENTIFIC INC.

2.	Acquisitions (continued)

In ~~May 2005,~~November 2006, the ~~Company’s Life and Laboratory Sciences segment acquired the Kendro Laboratory Products division of SPX Corporation.~~company merged with Fisher. Had the ~~acquisition of Kendro~~merger with Fisher been completed as of the beginning of ~~2005,~~2006, the company’s pro forma results for ~~2005~~2006 would have been as follows:

Three Months Ended Six Months Ended
(In thousands except per share amounts) July 2, 2005 July 2, 2005

Revenues
$
688,080

$
1,341,148

Net Income
$
54,880

$
97,463

Earnings per Share from Continuing Operations:
Basic

$
.32

$
.56

Diluted

$
.31

$
.56

Earnings Per Share:
Basic

$
.34

$
.60

Diluted

$
.34

$
.60

		Three Months Ended			Six Months Ended
(In millions except per share amounts)		July 1, 2006 (a)			July 1, 2006 (b)


Revenues	$	2,188.7	$	4,285.1

Net Income	$	99.4	$	93.1

Earnings per Share from Continuing Operations:
Basic	$	.24	$	.22
Diluted	$	.23	$	.21

Earnings Per Share:
Basic	$	.24	$	.23
Diluted	$	.23	$	.22

(a)	Includes $17 million pre-tax charge to cost of revenues for sale of Fisher inventories revalued at the date of merger.

(b)

Includes $114 million pre-tax charge to cost of revenues for the sale of Fisher inventories revalued at the date of merger, $15 million pre-tax charge for Fisher’s in-process research and development and $37 million pre-tax charge for accelerated vesting of equity-based awards resulting from the change in control occurring at the date of the Fisher merger.

The company’s results for 2006 ~~and 2005~~ would not have been materially different from its reported results had the company’s other 2006 and 2007 acquisitions occurred at the beginning of ~~2005.~~2006.

The Audit Committee of the company’s Board of Directors has completed a voluntary investigation of the historical stock option granting practices and related accounting treatment at Fisher. The Audit Committee engaged independent outside legal counsel and accounting consultants to assist it in conducting the investigation. The investigation covered option grants made to all Fisher employees, executives and directors during the period from January 1998 to May 2006, and included a review of Fisher’s stock option granting practices, accounting policies, related accounting records and other documentation, as well as interviews with people knowledgeable about Fisher’s stock options. The Audit Committee concluded that during portions of this period Fisher followed practices that led to the setting of grant dates retrospectively for certain stock options granted to employees and executives, primarily new hires who received an exercise price set at the lowest closing price in a window, typically of up to 30 trading days prior to the date the grant was approved. In addition, certain grant dates, although not set retrospectively, were not sufficiently supported by documentation.Although the Audit Committee’s investigation resulted in the company revising the measurement date of certain Fisher stock options for financial accounting purposes, no adjustments are required to the company’s reported compensation expense or to the retained earnings balance on the company’s balance sheet as a result of prior stock option grants made at Fisher due to purchase accounting treatment of the company’s acquisition of Fisher. The company concluded that the impact of these non-cash charges was not material to the historical Fisher income statements and balance sheets incorporated by reference in the company’s Form 8-K reporting the acquisition of Fisher.

In addition, due to the historical composition of the former Fisher compensation committee in certain years, the company believes that United States tax deductions taken by Fisher with respect to stock option grants and bonuses for certain Fisher executives in prior years may not be deductible under limitations imposed by Internal Revenue Code (“IRC”) Section 162(m). Section 162(m) limits the deductibility of compensation above $1 million to certain executive officers of public companies when such compensation is not performance-based or if the compensation is not granted by a board committee comprised solely of directors who meet specified independence tests. As part of its voluntary investigation, the Audit Committee found that certain stock options and bonuses granted to Fisher executives may not qualify for deduction by Fisher under Section 162(m). The company expects that the resolution of these issues will not be material to either the company or Fisher.

THERMO FISHER SCIENTIFIC INC.

2.Acquisitions (continued)

The company intends to take actions in the second half of 2007 to address certain adverse tax consequences that may be incurred by the holders of option grants for which the Audit Committee has determined it is necessary to adjust measurement dates for financial accounting purposes. The primary adverse tax consequence is that re-measured stock options vesting after December 31, 2004, subject the option holder to a penalty tax under IRC Section 409A. The cost to the company of this option remediation program is not expected to exceed $4 million.

The company has undertaken restructuring activities at acquired businesses. These activities, which were accounted for in accordance with Emerging Issues Task Force (EITF) Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination,” have primarily included reductions in staffing levels and the abandonment of excess facilities. In connection with these restructuring activities, as part of the cost of acquisitions, the company established reserves, primarily for severance and excess facilities. In accordance with EITF Issue No. 95-3, the company finalizes its restructuring plans no later than one year from the respective dates of the acquisitions. Upon finalization of restructuring plans or settlement of obligations for less than the expected amount, any excess reserves are reversed with a corresponding decrease in goodwill or other intangible assets when no goodwill exists. Accrued acquisition expenses are included in other accrued expenses in the accompanying balance sheet.

No accrued acquisition expenses have been established for ~~the acquisitions completed in 2006.~~2007 acquisitions.

The changes in accrued acquisition expenses for acquisitions completed during ~~2005~~2006 are as follows:

(In thousands) Severance
Abandonment
of Excess
Facilities
Other Total

Balance at December 31, 2005

$
2,494

$
345

$
73

$
2,912

Reserves established

3,213

479

629

4,321

Payments

(1,636
)

(76
)

—

(1,712
)
Decrease recorded as a reduction in goodwill

(415
)

—

(488
)

(903
)
Currency translation

314

20

5

339

Balance at July 1, 2006

$
3,970

$
768

$
219

$
4,957

~~THERMO ELECTRON CORPORATION~~

2.	~~Merger and Acquisitions (continued)~~

(In millions)	Severance			Abandonment of Excess Facilities			Other				Total

Balance at December 31, 2006	$	26.0		$	3.1		$	1.3		$	30.4
Reserves established		9.7			3.7			2.0			15.4
Payments		(24.1	)		(0.2	)		(0.5	)		(24.8	)
Decrease recorded as a reduction in goodwill		(0.1	)		(0.5	)		—			(0.6	)
Currency translation		0.1			—			—			0.1

Balance at June 30, 2007	$	11.6		$	6.1		$	2.8		$	20.5

The ~~accrued~~principal acquisition expenses ~~consist primarily of~~for 2006 acquisitions were for severance for approximately ~~156~~284 employees across all functions ~~at Kendro, relocation costs~~ and cost associated with various facility ~~obligations for a building vacated in Tennessee. The company expects~~consolidations, primarily related to ~~pay amounts accrued for severance and other through 2006 and facility costs through~~ the ~~expiration of the lease in 2007.~~company’s merger with Fisher.

The changes in accrued acquisition expenses for acquisitions completed prior to ~~2005~~2006 are as follows:

(In thousands)
Severance
Abandonment
of Excess
Facilities
Total

Balance at December 31, 2005

$
139

$
3,212

$
3,351

Payments

—

(1,145
)

(1,145
)
Divestiture

—

(199
)

(199
)
Decrease recorded as a reduction in goodwill

(15
)

(29
)

(44
)
Currency translation

9

185

194

Balance at July 1, 2006

$
133

$
2,024

$
2,157

(In millions)	Severance			Abandonment of Excess Facilities			Other			Total

Balance at December 31, 2006	$	2.2		$	2.7		$	0.1	$	$5.0
Payments		(1.6	)		(0.6	)		—		(2.2	)
Decrease recorded as a reduction in goodwill		(0.2	)		—			—		(0.2	)

Balance at June 30, 2007	$	0.4		$	2.1		$	0.1	$	$2.6

The remaining amounts accrued for pre-2006 acquisitions include severance related to the company’s acquisition ~~expenses relate primarily to severance for approximately 160 employees across all functions at Jouan, acquired~~of Kendro in ~~December 2003,~~2005 and ~~for~~ abandoned facilities primarily related to the company’s acquisitions of Life Sciences International PLC in 1997, the product monitoring businesses of Graseby Limited in 1998 and Kendro in 2005. The abandoned facilities for the 1997 and 1998 acquisitions include three ~~abandoned~~ operating facilities in England with leases expiring through ~~2014, and~~2014. In some instances, the ~~closure~~facilities have been subleased but certain restoration obligations are payable at the end of ~~a Jouan manufacturing facility in Denmark, with a lease expiring in 2007.~~the lease. The ~~company expects to pay~~remaining amounts accrued for abandoned facilities also include facility obligations for a Kendro building vacated in Tennessee. The amounts captioned as “other” primarily represent employee relocation, contract termination and other exit costs. The severance and other expenses primarily through 2006 and amounts accrued for abandonment of excess facilities through 2014. The liability for the abandoned facilities is net of estimated sublease income and includes an estimate of restoration costs ~~required at the termination of the lease.~~are expected to be paid in 2007.

3.	~~Business Segment Information~~

~~The company’s continuing operations fall into two business segments: Life and Laboratory Sciences and Measurement and Control.~~

Life and
Laboratory
Sciences
Measurement and Control
Eliminations
and Other
Corporate Total
(In thousands)

Three Months Ended July 1, 2006

Revenues
$ 539,286
$
174,182

$
—

$
—

$
713,468

Adjusted operating income (a)
$ 93,398
$
24,736

$
(3,512
)
$
(10,748
)
$
103,874
(b)
Cost of revenues charges
1,266
—

—

—

1,266

Restructuring and other items
2,571
2,094

7

108

4,780

Stock option compensation expense
2,808
704

(3,512
)

—

—

Amortization
24,197
1,456

—

2

25,655

Operating income
62,556
20,482

(7
)

(10,858
)

72,173
(b)
Other expense, net

(3,383
)

Income from continuing operations before provision for
income taxes

$
68,790

Depreciation
$ 9,656
$
2,222

$
—

$
1,584

$
13,462

~~THERMO ELECTRON CORPORATION~~

3.	~~Business Segment Information (continued)~~

Life and
Laboratory
Sciences
Measurement and Control
Eliminations
and Other
Corporate Total
(In thousands)

Three Months Ended July 2, 2005

Revenues
$ 487,462
$
166,159

$
—

$
—

$
653,621

Adjusted operating income (a)
$ 77,920
$
15,829

$
—

$
(7,745
)
$
86,004
(c)
Cost of revenues charges
11,232
233

—

—

11,465

Restructuring and other items
(160 )
2,168

(502
)

710

2,216

Amortization
17,773
1,335

—

1

19,109

Operating income
49,075
12,093

502

(8,456
)

53,214
(c)
Other income, net

25,504

    Income from continuing operations before provision for
                income taxes

$
78,718

Depreciation
$ 7,764
$
2,045

$
—

$
951

$
10,760

Six Months Ended July 1, 2006

Revenues
$ 1,051,641
$
346,114

$
—

$
—

$
1,397,755

Adjusted operating income (a)
$ 179,548
$
49,135

$
(6,407
)
$
(21,402
)
$
200,874
(b)
Cost of revenues charges
1,266
—

—

—

1,266

Restructuring and other items
5,617
2,634

9

114

8,374

Stock option compensation expense
5,060
1,347

(6,407
)

—

—

Amortization
48,292
2,920

—

4

51,216

Operating income
119,313
42,234

(9
)

(21,520
)

140,018
(b)
Other expense, net

(7,162
)

    Income from continuing operations before provision for
                income taxes

$
132,856

Depreciation
$ 17,589
$
4,347

$
—

$
3,285

$
25,221

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

3.	Business Segment Information ~~(continued)~~

Following the merger with Fisher in November 2006, the company reorganized management responsibility and its continuing operations now fall into two business segments: Analytical Technologies and Laboratory Products and Services. Prior year results have been reclassified to conform to the new segments.

Life and
Laboratory
Sciences
Measurement and Control Eliminations and Other Corporate Total
(In thousands)

Six Months Ended July 2, 2005

Revenues
$ 880,767
$
332,062

$
—

$
—

$
1,212,829

Adjusted operating income (a)
$ 134,630
$
36,022

$
—

$
(17,829
)
$
152,823
(c)
Cost of revenues charges
11,232
233

—

—

11,465

Restructuring and other items
(1,894 )
3,202

(573
)

1,210

1,945

Amortization
24,387
2,134

—

2

26,523

Operating income
100,905
30,453

573

(19,041
)

112,890
(c)
Other income, net

28,808

Income from continuing operations before provision for
income taxes

$
141,698

Depreciation
$ 14,543
$
4,461

$
—

$
1,908

$
20,912

Three Months Ended

Six Months Ended

June 30,

July 1,

June 30,

July 1,

(In millions)

2007

2006

2007

2006


Revenues:
Analytical Technologies	$	1,038.5		$	531.5		$	2,044.7		$	1,036.1
Laboratory Products and Services		1,433.7			182.0			2,850.2			361.7
Eliminations		(86.3	)		—			(170.8	)		—

Consolidated revenues	$	2,385.9		$	713.5		$	4,724.1		$	1,397.8

Operating Income:
Analytical Technologies (a)	$	205.7		$	77.5		$	395.5		$	149.0
Laboratory Products and Services (a)		198.9			26.4			384.6			51.9

Subtotal reportable segments (a)		404.6			103.9			780.1			200.9

Cost of revenues charges		(11.2	)		(1.3	)		(47.6	)		(1.3	)
Restructuring and other costs, net		(8.3	)		(4.8	)		(15.7	)		(8.4	)
Amortization of acquisition-related intangible assets		(142.1	)		(25.6	)		(281.4	)		(51.2	)

Consolidated operating income		243.0			72.2			435.4			140.0
Other expense, net (b)		(20.7	)		(3.4	)		(47.4	)		(7.1	)

Income from continuing operations before provision for income taxes	$	222.3		$	68.8		$	388.0		$	132.9

Equity-based Compensation Expense:
Analytical Technologies	$	5.7		$	5.1		$	12.2		$	9.7
Laboratory Products and Services		6.6			1.8			13.9			3.3

Consolidated equity-based compensation expense	$	12.3		$	6.9		$	26.1		$	13.0

Amortization:
Analytical Technologies	$	56.7		$	6.5		$	109.3		$	13.0
Laboratory Products and Services		85.4			19.1			172.1			38.2

Consolidated amortization	$	142.1		$	25.6		$	281.4		$	51.2

Depreciation:
Analytical Technologies	$	20.4		$	7.5		$	40.8		$	14.7
Laboratory Products and Services		24.6			5.9			50.2			10.5

Consolidated depreciation	$	45.0		$	13.4		$	91.0		$	25.2

(a)	Represents operating income before certain charges to cost of revenues; restructuring and other costs, ~~net;~~net and amortization of acquisition-related ~~intangibles; and, for the segments, stock option compensation expense.~~intangibles.

(b)

~~Consolidated adjusted operating~~The company does not allocate other income and consolidated operating income in the second quarter of 2006 include pre-tax stock option compensation expense of $6.4 million, including $0.7 million in cost of revenues, $5.3 million in selling, general and administrative expenses and $0.4 million in research and development expenses. Consolidated adjusted operating income and consolidated operating income in the first six months of 2006 include pre-tax stock option compensation expense of $11.8 million, including $1.3 million in cost of revenues, $9.8 million in selling, general and administrative expenses and $0.7 million in research and development expenses. No stock option compensation expense has been capitalized in inventories due to ~~immateriality.~~

~~(c)~~

Had stock option expense been recorded in the second quarter of 2005, consolidated adjusted operating income and consolidated operating income on a pro forma basis would have been lower by $5.1 million, including $0.5 million in cost of revenues, $4.3 million in selling, general and administrative expenses and $0.3 million in research and development expenses. Had stock option expense been recorded in the first six months of 2005, consolidated adjusted operating income and consolidated operating income on a pro forma basis would have been lower by $10.5 million, including $1.2 million in cost of revenues, $8.7 million in selling, general and administrative expenses and $0.6 million in research and development expenses.its segments.

4.	~~Other Income (Expense), Net~~

~~The components of other income (expense), net, in the accompanying statement of income are as follows:~~

Three Months Ended Six Months Ended
(In thousands)
July 1,
2006

July 2,
2005

July 1,
2006

July 2,
2005

Interest Income
$
3,393

$
2,591

$
6,925

$
5,927

Interest Expense
(7,934
)

(7,287
)

(15,729
)

(10,442
)
Gain on Investments, Net
560

29,802

525

32,066

Other Items, Net
598

398

1,117

1,257

$
(3,383
)
$
25,504

$
(7,162
)
$
28,808

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

4.	Other ~~Income (Expense),~~Expense, Net ~~(continued)~~

The ~~company sold 4,436,000 shares~~components of ~~Thoratec Corporation common stock during~~other expense, net, in the ~~second quarter and first six months~~accompanying statement of ~~2005 and realized a gain of $28.9 million. The company obtained common shares of Thoratec~~income are as ~~part of the sale of Thermo Cardiosystems Inc. in 2001. At July 2, 2005, the company no longer owned shares of Thoratec.~~follows:

In July 2004, the company received 3,220,000 shares of Newport Corporation common stock upon the sale of Spectra-Physics to Newport. In June 2005, the company reached an agreement with Newport under which Newport purchased all of the 3,220,000 shares of Newport common stock. Newport purchased the shares for $13.56 per share, which resulted in aggregate proceeds of $43.7 million. The company recorded a loss on the sale of $1.3 million. The Newport shares had been subject to resale restrictions that would have fully lapsed by January 2006.

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
(In millions)	2007			2006			2007			2006

Interest Income	$	10.6		$	3.4		$	19.5		$	6.9
Interest Expense		(33.2	)		(8.0	)		(70.4	)		(15.7	)
Other Items, Net		1.9			1.2			3.5			1.7

	$	(20.7	)	$	(3.4	)	$	(47.4	)	$	(7.1	)

5.	Earnings per Share

Basic and diluted earnings per share were calculated as follows:

~~Three Months Ended~~

~~Six Months Ended~~

~~(In thousands except per share amounts)~~

~~July 1,~~

~~2006~~

~~July 2,~~

~~2005~~

~~July 1,~~

~~2006~~

~~July 2,~~

~~2005~~

										Three Months Ended						Six Months Ended
											June 30,			July 1,			June 30,			July 1,
(In millions)											2007			2006			2007			2006

Income from Continuing Operations	$	48,943		$	56,760	$	92,562	$	102,343	$	187.9		$	49.0		$	326.7		$	92.6
Gain (Loss) on Disposal of Discontinued Operations		(1,063	)		3,463		2,224		6,736
Income from Discontinued Operations											—			—			0.1			—
(Loss) Gain on Disposal of Discontinued Operations											(24.0	)		(1.1	)		(24.0	)		2.2

Net Income for Basic Earnings per Share		47,880			60,223		94,786		109,079		163.9			47.9			302.8			94.8
Effect of Convertible Debentures		402			402		803		803		—			0.4			—			0.8

Income Available to Common Shareholders, as Adjusted for Diluted Earnings per Share	$	48,282		$	60,625	$	95,589	$	109,882	$	163.9		$	48.3		$	302.8		$	95.6

Basic Weighted Average Shares		161,289			161,255		162,167		161,106		424.0			161.3			422.0			162.2
Effect of:
Stock options		2,318			1,515		2,171		1,704
Convertible debentures		1,846			1,846		1,846		1,846		13.7			1.8			12.7			1.8
Restricted stock awards and contingently issuable shares		70			42		69		38
Stock options, restricted stock awards and warrants											8.8			2.4			9.1			2.3

Diluted Weighted Average Shares		165,523			164,658		166,253		164,694		446.5			165.5			443.8			166.3

Basic Earnings per Share:
Continuing operations	$	.30		$	.35	$	.57	$	.64	$	.44		$	.30		$	.77		$	.57
Discontinued operations		(.01	)		.02		.01		.04		(.06	)		(.01	)		(.06	)		.01

	$	.30		$	.37	$	.58	$	.68	$	.39		$	.30		$	.72		$	.58

Diluted Earnings per Share:
Continuing operations	$	.30		$	.35	$	.56	$	.63	$	.42		$	.30		$	.74		$	.56
Discontinued operations		(.01	)		.02		.01		.04		(.05	)		(.01	)		(.05	)		.01

	$	.29		$	.37	$	.57	$	.67	$	.37		$	.29		$	.68		$	.57

Options to purchase ~~3,025,000, 4,508,000, 3,117,000~~5.8 million, 3.0 million, 5.8 million and ~~2,515,000~~3.1 million shares of common stock were not included in the computation of diluted earnings per share for the second quarter of ~~2006~~2007 and ~~2005~~2006 and the first six months of ~~2006~~2007 and ~~2005,~~2006, respectively, because their effect would have been antidilutive.

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

6.	Comprehensive Income

Comprehensive income combines net income and other comprehensive items. Other comprehensive items represents certain amounts that are reported as components of shareholders’ equity in the accompanying balance sheet, including currency translation adjustments; unrealized gains and losses, net of tax, on available-for-sale investments and hedging instruments; and ~~minimum~~ pension and other postretirement benefit liability ~~adjustment.~~adjustments. During the second quarter of ~~2006~~2007 and ~~2005,~~2006, the company had comprehensive income of ~~$77.2~~$168 million and ~~$38.2~~$77 million, respectively. During the first six months of ~~2006~~2007 and ~~2005,~~2006, the company had comprehensive income of ~~$128.4~~$372 million and ~~$42.3~~$128 million, respectively. The three- and six-month periods of 2005 were unfavorably affected by reductions in the cumulative translation adjustment of $32.5 million and $82.7 million, respectively, due to movements in currency exchange rates, the effects of which are recorded in shareholders’ equity. The three- and six-month periods of 2006 were favorably affected by increases in the cumulative translation adjustment of $31.6 million and $36.1 million, respectively, due to movements in currency exchange rates.

7.	~~Stock-based Compensation Plans and Stock-based~~Equity-based Compensation Expense

The ~~company~~components of pre-tax equity-based compensation are as follows:

	Three Months Ended				Six Months Ended
	June 30,		July 1,		June 30,		July 1,
(In millions)	2007		2006		2007		2006

Stock Option Awards	$	8.3	$	6.4	$	17.6	$	11.8
Restricted Share/Unit Awards		4.0		0.5		8.5		1.2

Total Equity-based Compensation Expense	$	12.3	$	6.9	$	26.1	$	13.0

Equity-based compensation expense is included in the accompanying statement of income as follows:

	Three Months Ended				Six Months Ended
	June 30,		July 1,		June 30,		July 1,
(In millions)	2007		2006		2007		2006

Cost of Revenues	$	0.8	$	0.7	$	2.1	$	1.3
Selling, General and Administrative Expenses		10.9		5.8		22.9		11.0
Research and Development Expenses		0.6		0.4		1.1		0.7

Total Equity-based Compensation Expense	$	12.3	$	6.9	$	26.1	$	13.0

No equity-based compensation expense has stock-based compensation plans for its key employees, directors and others. These plans permit the grant of a variety of stock and stock-based awards, including restricted stock, stock options, stock bonus shares or performance-based shares, as determined by the compensation committee of the company’s Board of Directors (the Board Committee) orbeen capitalized in ~~limited circumstances, by the company’s option committee, which consists of its chief executive officer. Generally, options granted prior~~inventories due to July 2000 under these plans are exercisable immediately, but shares acquired upon exercise are subject to certain transfer restrictions and the right of the company to repurchase the shares at the exercise price upon certain events, primarily termination of employment. The restrictions and repurchase rights lapse over periods ranging from 0-10 years, depending on the term of the option, which may range from 3-12 years. Options granted in or after July 2000 under these plans generally vest over three to five years, assuming continued employment with certain exceptions. Upon a change in control of the company, substantially all options, regardless of grant date, become immediately exercisable and shares acquired upon exercise cease to be subject to transfer restrictions and the company’s repurchase rights. If consummated, the merger with Fisher discussed in Note 2 will result in a change in control and the vesting of substantially all of the company’s options will accelerate except for those of the chief executive officer who has waived acceleration. Nonqualified options are generally granted at fair market value. Incentive stock options must be granted at not less than the fair market value of the company’s stock on the date of grant. The company also has a directors’ stock option plan that provides for the annual grant of stock options of the company to outside directors. Options awarded under this plan prior to 2003 are immediately exercisable and expire three to seven years after the date of grant. Options awarded in 2003 and thereafter vest over three years, assuming continued service on the board, and expire seven years after the date of grant. The company generally issues new shares of its common stock to satisfy option exercises.immateriality.

~~In December 2004,~~Equity-based compensation reduced diluted earnings per share by $.02, $.03, $.04 and $.05 in the ~~Financial Accounting Standards Board (FASB) issued Statement~~second quarter of ~~Financial Accounting Standards (SFAS) No.123R, “Share-based Payment,”~~2007 and 2006 and the first six months of 2007 and 2006, respectively.

~~which requires~~Unrecognized compensation ~~costs~~cost related to ~~share-based transactions, including employee share~~unvested stock options and restricted stock total approximately $46 million and $19 million, respectively, as of June 30, 2007, and is expected to be recognized ~~in the financial statements based on fair value. SFAS No. 123R revises SFAS No. 123, as amended, “Accounting for Stock-Based Compensation,”~~over weighted average periods of 3 years and ~~supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”~~2 years, respectively.

~~Effective January 1, 2006,~~During the first six months of 2007, the company ~~adopted the provisions of SFAS No. 123R using the modified prospective application transition method. Under this transition method, the~~made equity compensation cost recognized beginning January 1, 2006 includes compensation cost for (i) all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (ii) all share-based payments granted subsequent to December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Compensation cost is recognized ratably over the requisite vesting period or, for 2006 grants to ~~the retirement date for retirement eligible~~ employees ~~if earlier. Use~~consisting of ~~the date of retirement eligibility~~5,000 restricted shares and options to record the expense associated with awards granted to retirement eligible employees did not materially affect the company’s results of operations in the first half of 2006. Prior period amounts have not been restated for the adoption of SFAS No. 123R.purchase 301,000 shares.

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

7.	~~Stock-based Compensation Plans and Stock-based Compensation Expense (continued)~~

As a result of the adoption of SFAS No. 123R, the company’s results for the three and six months ended July 1, 2006 include incremental share-based compensation pre-tax expense of $6.4 million and $11.8 million, respectively, related to stock options. The total stock-based compensation cost of $6.9 million and $12.9 million, respectively, including restricted stock awards, has been included in the statements of income within the applicable operating expense where the company reports the option holders’ compensation cost. The company has recognized a related tax benefit associated with its share-based compensation expense totaling $2.2 million and $4.3 million in the three and six months ended July 1, 2006, respectively. The incremental expense, net of the related tax benefit, resulted in a $.03 decrease in both basic and diluted earnings per share in the second quarter of 2006 and a $.05 decrease in both basic and diluted earnings per share in the first six months of 2006. In the first six months of 2006, the adoption of SFAS No. 123R also resulted in the inclusion of $5.6 million of tax benefits from exercised stock options in cash flows from financing activities that would have been reflected in cash flows from operating activities prior to adoption of SFAS No. 123R.

~~Stock Options~~— The fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of the company’s stock. The average expected life was estimated using the simplified method for “plain vanilla” options as permitted by SAB 107. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term which approximates the expected life assumed at the date of grant. The compensation expense recognized for all equity-based awards is net of estimated forfeitures. Forfeitures are estimated based on an analysis of actual option forfeitures.

~~The weighted average assumptions used in the Black-Scholes option pricing model are as follows:~~

Six Months Ended

July 1,
2006

July 2,
2005

Expected Stock Price Volatility 28% 32%
Risk Free Interest Rate 4.7% 3.8%
Expected Life of Options (years) 4.5    4.3
Expected Annual Dividend per Share
$
—

$
—

The weighted average grant-date fair values of options granted during the first six months of 2006 and 2005 were $11.02 and $9.05, respectively. The total intrinsic value of options exercised during the same periods was $5.3 million and $6.6 million, respectively. The intrinsic value is the difference between the market value of the shares on the exercise date and the exercise price of the option.

~~THERMO ELECTRON CORPORATION~~

7.	~~Stock-based Compensation Plans and Stock-based Compensation Expense (continued)~~

~~A summary of option activity as of July 1, 2006 and changes during the six months then ended is presented below:~~

Shares
(In thousands)

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual Term
(In years)

Aggregate
Intrinsic
Value
(In thousands)

Outstanding at December 31, 2005
12,084

$
22.65

Granted

2,985

34.97

Exercised

(1,181
)

18.68

Canceled

(131
)

29.22

Expired

(29
)

63.45

Outstanding at July 1, 2006
13,728

25.58
4.7
$
158,026

Vested and Exercisable at July 1, 2006
6,723

21.85
3.2
$
102,452

As of July 1, 2006, there was $53.0 million ($35.7 million, net of tax) of total unrecognized compensation cost related to nonvested stock options granted. The cost is expected to be recognized over a weighted average period of 2.1 years. However, substantially all of the company’s equity awards would become fully vested upon the merger with Fisher, which would result in a charge for the unrecognized compensation at the date of the merger.

~~Restricted Share Awards~~ — The company awards to a number of key employees restricted company common stock or restricted units that convert into an equivalent number of shares of common stock assuming continued employment, with some exceptions. The awards generally vest in equal annual installments over two to three years, assuming continued employment, with some exceptions. The fair market value of the award at the time of the grant is amortized to expense over the period of vesting. Recipients of restricted shares have the right to vote such shares and receive dividends, whereas recipients of restricted units have no voting rights but are entitled to receive dividend equivalents. The fair value of restricted share awards is determined based on the number of shares granted and the market value of the company’s shares on the grant date. During the six months ended July 1, 2006, the company granted 27,500 share awards at a weighted average fair value of $34.31 per share on the grant date.

~~A summary of the status of the company’s restricted shares as of July 1, 2006 and changes during the six-months then ended are presented below:~~

Nonvested Restricted Share Awards Shares
Weighted Average
Grant-Date Fair
Value

Nonvested at December 31, 2005
199,334

$
27.03

Granted

27,500

34.31

Vested

(43,333
)

26.00

Nonvested at July 1, 2006
183,501

28.37

As of July 1, 2006, there was $3.6 million ($2.6 million, net of tax) of total unrecognized compensation cost related to nonvested restricted share awards. That cost is expected to be recognized over a weighted average period of 1.9 years. However, the restricted share awards would become fully vested upon the merger with Fisher, which would result in a charge for the unrecognized compensation at the date of the merger. The total fair value of shares vested during the first six months of 2006 and 2005 was $1.1 million in each period.

~~THERMO ELECTRON CORPORATION~~

7.	~~Stock-based Compensation Plans and Stock-based Compensation Expense (continued)~~

Prior to January 1, 2006, the company accounted for stock-based compensation plans in accordance with the provisions of APB Opinion No. 25, as permitted by SFAS No. 123, and accordingly did not recognize compensation expense for the issuance of options with an exercise price equal to or greater than the market price at the date of grant. Had compensation cost for awards granted after 1994 under the company’s stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, and had the fair value of awards been amortized on a straight-line basis over the vesting period, the effect on certain financial information of the company for the second quarter and first six months of 2005 would have been as follows:

Three Months Ended Six Months Ended
(In thousands except per share amounts) July 2, 2005 July 2, 2005

Income from Continuing Operations:
As reported

$
56,760

$
102,343

   Add: Stock-based employee compensation expense included in reported results, net of tax

454

870

   Deduct: Total stock-based employee compensation expense determined under the fair-
             value-based method for all awards, net of tax

(3,796
)

(7,678
)

Pro forma

$
53,418

$
95,535

Basic Earnings per Share from Continuing Operations:
As reported

$
.35

$
.64

Pro forma

$
.33

$
.59

Diluted Earnings per Share from Continuing Operations:
As reported

$
.35

$
.63

Pro forma

$
.33

$
.59

Net Income:
As reported

$
60,223

$
109,079

   Add: Stock-based employee compensation expense included in reported net income, net of tax

454

870

   Deduct: Total stock-based employee compensation expense determined under the fair-
          value-based method for all awards, net of tax

(3,796
)

(7,678
)

Pro forma

$
56,881

$
102,271

Basic Earnings per Share:
As reported

$
.37

$
.68

Pro forma

$
.35

$
.63

Diluted Earnings per Share:
As reported

$
.37

$
.67

Pro forma

$
.35

$
.63

~~THERMO ELECTRON CORPORATION~~

8.	Defined Benefit Pension Plans

~~Several~~Employees of a number of the company’s non-U.S. and certain U.S. subsidiaries ~~principally~~participate in ~~Germany and England, and one U.S. subsidiary have~~ defined benefit pension plans covering substantially all full-time employees at those subsidiaries. Some of the ~~company’s~~ plans are unfunded, as permitted under the plans and applicable laws. The company also has a postretirement healthcare program in which certain employees are eligible to participate. Net periodic benefit costs for the company’s pension plans ~~in the aggregate included~~include the following components:

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
(In thousands)	July 1, 2006			July 2, 2005			July 1, 2006			July 2, 2005
													June 30,			July 1,			June 30,			July 1,
(In millions)													2007			2006			2007			2006

Service Cost	$	1,478		$	1,764		$	2,909		$	3,460		$	4.1		$	1.5		$	8.2		$	2.9
Interest Cost on Benefit Obligation		3,670			3,349			7,207			6,570			14.0			3.7			27.9			7.2
Expected Return on Plan Assets		(3,087	)		(2,752	)		(6,068	)		(5,554	)		(14.7	)		(3.0	)		(29.3	)		(6.0	)
Recognized Net Actuarial Loss		928			636			1,823			1,281
Amortization of Net Loss														0.9			0.9			1.8			1.8
Amortization of Prior Service Costs		45			—			89			—			—			—			—			0.1

	$	3,034		$	2,997		$	5,960		$	5,757
Net Periodic Benefit Cost													$	4.3		$	3.1		$	8.6		$	6.0

~~During~~Net periodic benefit costs for the ~~second quarter of 2005, the company merged two defined~~company’s other postretirement benefit plans (which were assumed in the ~~U.K. and provided~~Fisher merger) include the participating employees with a defined contribution plan while limiting future benefits under the combined defined benefit plan. The transaction met the criteria of a plan curtailment although no gain or loss was realized. In connection with the plan merger, the company contributed $10.9 million to the combined U.K. defined benefit plan in 2005.following components:

		Three Months Ended			Six Months Ended
(In millions)		June 30, 2007			June 30, 2007


Service Cost	$	0.2	$	0.4
Interest Cost on Benefit Obligation		0.4		0.8

Net Periodic Benefit Cost	$	0.6	$	1.2

Swap Arrangement

During 2002, the company entered into interest-rate swap arrangements for its $128.7 million principal amount 7 5/8% senior notes, due in 2008, with the objective of reducing interest costs. The arrangements provide that the company will receive a fixed interest rate of 7 5/8% and will pay a variable rate of 90-day LIBOR plus 2.19% ~~(7.74%~~(7.55% as of ~~July 1, 2006)~~June 30, 2007). The swaps have terms expiring at the maturity of the debt. The swaps are designated as fair-value hedges and as such, are carried at fair value, which resulted in an ~~increase~~immaterial decrease in other long-term assets and long-term debt ~~totaling $0.8 million~~ at ~~July 1, 2006.~~June 30, 2007. The swap arrangements are with different counterparties than the holders of the underlying debt. Management believes that any credit risk associated with the swaps is remote based on the creditworthiness of the financial institutions issuing the swaps.

THERMO FISHER SCIENTIFIC INC.

10.	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						Six Months Ended
(In thousands)	July 1, 2006			July 2, 2005
							June 30,			July 1,
(In millions)							2007			2006

Beginning Balance	$	33,453		$	27,369		$	45.5		$	33.4
Provision charged to income		21,209			11,915			21.8			21.2
Usage		(18,230	)		(10,856	)		(18.8	)		(18.2	)
Acquisitions (divestitures)		(62	)		6,002
Acquisitions								0.6			—
Adjustments to previously provided warranties, net		(1,151	)		(1,603	)		—			(1.2	)
Other, net (a)		1,107			(1,951	)		1.1			1.1

Ending Balance	$	36,326		$	30,876		$	50.2		$	36.3

(a)	Primarily represents the effects of currency translation.

~~THERMO ELECTRON CORPORATION~~

11.	Restructuring and Other Costs, Net

~~In response~~Restructuring costs prior to ~~a downturn in markets served by the company and in connection with the company’s overall reorganization, restructuring~~2006 primarily related to actions ~~were initiated in 2003 and, to a lesser extent, 2004 in a number of business units~~ to reduce costs and redundancies, principally through headcount reductions and consolidation of facilities. Restructuring and other costs recorded in 2005 were primarily for reductions in staffing levels at existing businesses resulting from the integration of Kendro and the consolidation of two facilities in Texas as well as charges associated with actions initiated prior to 2005 that could not be recorded until incurred and adjustments to previously provided reserves due to changes in estimates of amounts due for abandoned facilities, net of expected sub-tenant rental income. Restructuring actions undertaken prior to 2005 were substantially complete at the end of 2004. Restructuring costs in 2006 ~~include~~included charges to close a plant in Massachusetts and consolidate its operations with those of an acquired Kendro facility in North Carolina, charges for consolidation of a U.K. facility into an existing factory in Germany, the move of manufacturing operations in New Mexico to other plants in the U.S. and Europe and remaining costs of prior actions. ~~Additional~~Restructuring costs in 2007 include charges ~~of approximately $5 million~~ for the ~~Massachusetts plant closure will be incurred~~consolidation of anatomical pathology operations currently in Pennsylvania with a Fisher site in Michigan, as well as consolidation of other U.S. operations and consolidation of a process control equipment site in the ~~remainder of 2006.~~UK with a plant in Germany. The company ~~has substantially finalized~~is finalizing its ~~plans~~plan for ~~integrating Kendro~~potential restructuring actions that may be undertaken at Fisher or within existing businesses with ~~its~~which Fisher is being integrated. Such actions may include rationalization of product lines, consolidation of facilities and reductions in staffing levels. The cost of actions at Fisher businesses is being charged to the cost of the acquisition while the cost of actions at existing ~~business and expects that charges~~businesses being integrated with Fisher is charged to expense will ultimately total approximately $16 million, of which approximately $11 million has been recorded as of July 1, 2006 with the balance to be recorded primarily over the reminder of 2006. Also, therestructuring expense. The company expects to ~~incur an additional $1 million~~finalize its restructuring plans related to the Fisher merger no later than one year from the date of ~~restructuring costs through the remainder of 2006 for charges associated with the actions undertaken prior to 2006 that cannot be recorded until incurred.~~merger.

During the second quarter of ~~2006,~~2007, the company recorded net restructuring and other costs by segment as follows:

(In thousands)	Life and Laboratory Sciences		Measurement and Control		Other		Corporate		Total

(In millions)											Analytical Technologies		Laboratory Products and Services		Corporate		Total

Cost of Revenues	$	1,266	$	—	$	—	$	—	$	1,266	$	11.2	$	—	$	—	$	11.2
Restructuring and Other Costs, Net		2,571		2,094		7		108		4,780		4.9		0.7		2.7		8.3

	$	3,837	$	2,094	$	7	$	108	$	6,046	$	16.1	$	0.7	$	2.7	$	19.5

THERMO FISHER SCIENTIFIC INC.

11.	Restructuring and Other Costs, Net (continued)

During the first six months of ~~2006,~~2007, the company recorded net restructuring and other costs by segment as follows:

~~(In thousands)~~

~~Life and~~

~~Laboratory~~

~~Sciences~~

~~Measurement~~

~~and Control~~

~~Other~~

~~Corporate~~

~~Total~~

Cost of Revenues
$
1,266

$
—

$
—

$
—

$
1,266

Restructuring and Other Costs, Net
5,617

2,634

9

114

8,374

$
6,883

$
2,634

$
9

$
114

$
9,640

~~THERMO ELECTRON CORPORATION~~

~~11.~~

~~Restructuring and Other Costs, Net (continued)~~

(In millions)	Analytical Technologies		Laboratory Products and Services		Corporate		Total

Cost of Revenues	$	40.3	$	7.3	$	—	$	47.6
Restructuring and Other Costs, Net		8.0		1.3		6.4		15.7

	$	48.3	$	8.6	$	6.4	$	63.3

The components of net restructuring and other costs by segment are as follows:

~~Life and Laboratory Sciences~~Analytical Technologies

The ~~Life and Laboratory Sciences~~Analytical Technologies segment recorded ~~$3.8~~$16.1 million of net restructuring and other charges in the second quarter of ~~2006.~~2007. The segment recorded charges to cost of revenues of ~~$1.3~~$11.2 million, primarily for ~~accelerated depreciation on fixed assets being abandoned due to facility consolidations~~the sale of inventories revalued at the date of acquisition, and ~~$2.5~~$4.9 million of other ~~costs.~~costs, net. These other costs consisted of ~~$3.2~~$4.8 million of cash costs, principally associated with ~~closing a plant in Massachusetts and consolidating its operations with those of an acquired Kendro~~ facility ~~in North Carolina,~~consolidations, including ~~$3.0~~$2.2 million of severance for ~~112~~approximately 215 employees ~~primarily in manufacturing functions,~~across all functions; $0.5 million of abandoned-facility costs; and ~~$0.2~~$2.1 million of other cash costs, primarily relocation ~~and retention expenses. These costs were offset by a gain of $0.7 million on the sale of abandoned equipment and an abandoned building.~~expenses associated with facility consolidations.

In the first quarter of ~~2006,~~2007, this segment recorded ~~$3.0~~$32.2 million of net restructuring and other charges. This amount consisted of ~~$2.9~~charges to cost of revenues of $29.1 million, primarily for the sale of inventories revalued at the date of acquisition, and $3.1 million of other costs, net. These other costs consisted of $3.0 million of cash costs, principally associated with ~~the consolidation of a U.K.~~ facility ~~into an existing factory in Germany,~~consolidations, including ~~$2.2~~$2.0 million of severance for 8110 employees across all functions; $0.4 million of ~~net~~ abandoned-facility ~~costs;~~costs, primarily for charges associated with facilities vacated in prior periods where estimates of sub-tenant rental income have changed or for costs that could not be recorded until incurred; and ~~$0.3~~$0.6 million of other cash costs, primarily relocation ~~expenses. In addition, the segment recorded a loss of $0.1 million on the disposal of a product line.~~expenses associated with facility consolidations.

~~Measurement~~Laboratory Products and ~~Control~~Services

The ~~Measurement~~Laboratory Products and ~~Control~~Services segment recorded ~~$2.1~~$0.7 million of net restructuring and other charges in the second quarter of ~~2006. The segment recorded $1.4~~2007. These costs consisted of $0.5 million of cash costs, ~~for cost reduction measures~~ including ~~$1.0~~$0.2 million of severance for 735 employees primarily in sales, service and ~~service~~manufacturing functions, and ~~revisions of prior estimates;~~ $0.3 ~~million of net abandoned-facility costs, primarily for costs that could not be recorded until incurred; and $0.1~~ million of other cash ~~costs, primarily relocation expenses. In addition, the segment recorded a pre-tax loss of $0.6 million on the disposal of a product line and a charge of $0.1 million for abandoned equipment.~~costs.

In the first quarter of ~~2006, the~~2007, this segment recorded ~~$0.5~~$7.9 million of net restructuring and other charges. ~~The segment recorded $1.3~~This amount consisted of charges to cost of revenues of $7.3 million, primarily for the sale of inventories revalued at the date of acquisition; and $0.6 million of other costs, net, all of which were cash costs. These cash costs ~~for cost reduction measures including $1.1~~consisted of $0.3 million of severance for 710 employees primarily in sales and service ~~functions, and revisions of prior estimates; $0.1~~functions; $0.2 million of ~~net~~ abandoned-facility ~~costs, primarily for costs that could not be recorded until incurred;~~costs; and $0.1 million of other cash ~~costs, primarily relocation expenses. In addition, the segment recorded a pre-tax gain of $0.8 million on the disposal of a product line.~~costs.

2118

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

11.	Restructuring and Other Costs, Net (continued)

Corporate

The company recorded $2.7 million of restructuring and other charges at its corporate offices in the second quarter of 2007, all of which were cash costs. These cash costs were primarily for merger-related expenses and retention agreements with certain Fisher employees. Retention costs are accrued ratably over the period the employees must work to qualify for the payment, generally through November 2007.

In the first quarter of 2007, the company recorded $3.7 million of restructuring and other charges at its corporate office, all of which were cash costs. These cash costs were primarily for merger-related expenses and retention agreements with certain Fisher employees.

General

The following table summarizes the cash components of the company’s restructuring plans. The noncash components and other amounts reported as restructuring and other costs, net, in the accompanying ~~2006~~2007 statement of income have been summarized in the notes to the table. Accrued restructuring costs are included in other accrued expenses in the accompanying balance sheet.

(In thousands) Severance
Employee
Retention (a)

Abandonment
of Excess
Facilities
Other Total

Pre-2005 Restructuring Plans

Balance at December 31, 2005

$
1,249

$
—

$
8,114

$
589

$
9,952

Costs incurred in 2006 (b)

12

—

732

54

798

Reserves reversed

—

—

(491
)

—

(491
)
Payments

(702
)

—

(1,422
)

(76
)

(2,200
)
Currency translation

50

—

208

1

259

Balance at July 1, 2006

$
609

$
—

$
7,141

$
568

$
8,318

2005 Restructuring Plans

Balance at December 31, 2005

$
6,132

$
313

$
1,131

$
357

$
7,933

Costs incurred in 2006 (b)

5,430

85

764

632

6,911

Reserves reversed

(387
)

—

(177
)

—

(564
)
Payments

(8,798
)

(259
)

(993
)

(845
)

(10,895
)
Currency translation

431

6

38

—

475

Balance at July 1, 2006

$
2,808

$
145

$
763

$
144

$
3,860

2006 Restructuring Plans

Costs incurred in 2006 (b)

$
2,191

$
58

$
—

$
132

$
2,381

Payments

(431
)

—

—

(132
)

(563
)

Balance at July 1, 2006

$
1,760

$
58

$
—

$
—

$
1,818

(In millions)	Severance			Employee Retention (a)			Abandonment of Excess Facilities			Other			Total

Pre-2006 Restructuring Plans
Balance at December 31, 2006	$	1.8		$	0.3		$	9.4		$	0.6		$	12.1
Costs incurred in 2007 (b)		1.2			—			0.4			0.1			1.7
Reserves reversed		(0.4	)		—			—			—			(0.4	)
Payments		(0.8	)		(0.3	)		(6.9	)		(0.1	)		(8.1	)

Balance at June 30, 2007	$	1.8		$	—		$	2.9		$	0.6		$	5.3

2006 Restructuring Plans
Balance at December 31, 2006	$	4.0		$	0.8		$	2.7		$	—		$	7.5
Costs incurred in 2007 (b)		0.3			2.5			0.9			1.3			5.0
Reserves reversed		(1.1	)		—			(0.2	)		—			(1.3	)
Payments		(2.5	)		(1.2	)		(1.8	)		(1.3	)		(6.8	)

Balance at June 30, 2007	$	0.7		$	2.1		$	1.6		$	—		$	4.4

2007 Restructuring Plans
Costs incurred in 2007 (b)	$	5.1		$	0.6		$	0.2		$	4.4		$	10.3
Payments		(3.9	)		(0.2	)		—			(4.0	)		(8.1	)

Balance at June 30, 2007	$	1.2		$	0.4		$	0.2		$	0.4		$	2.2

(a)	Employee-retention costs are accrued ratably over the period through which employees must work to qualify for a payment.

(b)

Excludes ~~a net gain~~non-cash items including $0.2 million and $0.2 million of ~~$0.5 million~~asset write downs in the ~~Life and Laboratory Sciences segment on the sale of abandoned assets~~Analytical Technologies and the ~~disposal of a product line and a gain of $0.2 million in the Measurement and Control segment on the disposal of product lines.~~Laboratory Products segments, respectively.

The company expects to pay accrued restructuring costs as follows: severance, employee-retention obligations and other costs, primarily through ~~2006;~~2007; and abandoned-facility payments, over lease terms expiring through ~~2012.~~2011.

THERMO FISHER SCIENTIFIC INC.

12.	Litigation and Related Contingencies

On September 3, 2004, Applera Corporation, MDS Inc. and Applied Biosystems/MDS Scientific Instruments filed a lawsuit against the company in U.S. federal court. These plaintiffs allege that the company’s mass spectrometer systems, including its triple quadrupole and certain of its ion trap systems, infringe a patent of the plaintiffs. The plaintiffs seek damages, including treble damages for alleged willful infringement, attorneys’ fees, prejudgment interest and injunctive relief.

~~THERMO ELECTRON CORPORATION~~

~~12.~~

~~Litigation (continued)~~

In the opinion of management, an unfavorable outcome of this matter could have a material adverse effect on the company’s financial position as well as its results of operations and cash flows.

On December 8, 2004 and February 23, 2005, the company asserted in two lawsuits against a combination of Applera Corporation, MDS Inc. and Applied Biosystems/MDS Scientific Instruments that one or more of these parties infringe two patents of the company.

The ~~company’s continuing and discontinued operations are~~company has a ~~defendant in~~reserve for environmental costs of approximately $24 million at June 30, 2007. Management believes that this accrual is adequate for environmental remediation costs the company expects to incur. As a ~~number of other pending legal proceedings incidental~~result, the company believes that the ultimate liability with respect to ~~present and former operations. The company does~~environmental remediation matters will not ~~expect the outcome of these proceedings, either individually or in the aggregate, to~~ have a material adverse effect on ~~its~~the company’s financial position or results of operations or cash flows in any quarterly or annual period. 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.

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 range of probable loss for matters at Fisher related to workers compensation, general, automobile and product liabilities at June 30, 2007, was approximately $168 million to $302 million on an undiscounted basis. Having assumed these liabilities in the merger with Fisher, the company was required to discount the estimate of loss to fair (present) value, $107 million at June 30, 2007. This reserve includes estimated defense costs and is gross of estimated amounts due from insurers of $53 million at June 30, 2007, also recorded at their fair value at the date of merger. The assets and liabilities assumed at the acquisition date were ascribed a fair value based on the present value of expected future cash flows, using a discount rate equivalent to the risk free rate of interest for monetary assets with comparable maturities (weighted average discount rate of 4.67%). The discount on the liabilities of approximately $64 million and the discount on the assets of approximately $37 million (net discount $27 million) will be accreted to interest expense over the expected settlement period which is estimated to be between 10 and 20 years. In addition to the reserves recorded due to the merger with Fisher, as of June 30, 2007, the company had product liability reserves of $23 million (undiscounted) relating to divested businesses. Although the company believes that the amounts reserved and estimated recoveries are appropriate based on available information, the process of estimating losses and insurance recoveries involves a considerable degree of judgment by management and the ultimate amounts could vary. For example, there are pending lawsuits with certain of Fisher's insurers concerning which state's laws should apply to the insurance policies and how such laws affect the policies. Should these actions resolve unfavorably, the estimated amount due from insurers of $53 million would require adjustment that could be material to the company's results of operations.

There are various other lawsuits and claims pending against the company involving contract, product liability and other issues. In view of the company’s financial condition and the accruals established for related matters, management does not believe that the ultimate liability, if any, related to these matters will have a material adverse effect on the company’s financial condition, results of operations or cash flows.

~~13.~~

~~Discontinued Operations~~

The company recorded an after-tax loss of $1.1 million in the second quarter of 2006 from the disposal of discontinued operations, substantially as a result of settling an indemnification claim that had arisen in a divested business. In the first quarter of 2006, the company recorded after-tax gains of $3.3 million from the disposal of discontinued operations. The gains represent additional proceeds from the sale of several businesses divested prior to 2004.

In the second quarter of 2005, the company settled litigation and received proceeds from an arbitration award related to divested businesses. In addition, the company recorded an increase in the net realizable value of a building held for sale after entering an agreement to sell the facility. The building had previously been written down to estimated disposal value. As a result of these transactions, the company recorded an after-tax gain on the disposal of discontinued operations of $3.5 million.

In the first quarter of 2005, the company recorded after-tax gains of $3.3 million from the disposal of discontinued operations. The gains represent additional proceeds from the sale of businesses divested prior to 2004, including the sale of abandoned real estate and post-closing adjustments.

~~14. Subsequent Events~~

~~Acquisition~~

On July 20, 2006, the company’s Life and Laboratory Sciences segment acquired GV Instruments Limited, a UK-based provider of isotope ratio mass spectrometry instruments and accessories used in earth sciences, medical and life sciences applications. The acquisition broadened the segment’s offerings of mass spectrometry products. The purchase price was 11.6 million British pounds sterling or $21.3 million, and is subject to a post-closing adjustment. GVI’s revenues in 2005 totaled $19 million.

~~Retirement of Treasury Stock~~

In July 2006, the company’s board of directors authorized the retirement of 20 million shares of treasury stock. Shares with a cost of $520.4 million were retired on July 28, 2006, through a reduction of capital in excess of par value.

2320

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

~~14. Subsequent Events (continued)~~

~~Recent Accounting Pronouncement~~

13.	Adoption of FASB Interpretation No. 48

In July 2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Under FIN 48, the financial statements ~~will~~ reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without discounting for the time value of money. FIN 48 also revises disclosure requirements and introduces a prescriptive, annual, tabular roll-forward of the unrecognized tax benefits.

The company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the company recognized no material adjustment in the liability for unrecognized tax benefits. As of the adoption date of January 1, 2007, the company had $88 million of unrecognized tax benefits, of which $38 million, if recognized, would affect the effective tax rate and the remaining $50 million, if recognized, would decrease goodwill. As of the adoption date the company had accrued interest expense and penalties related to the unrecognized tax benefits of $5 million which is included in the $88 million of unrecognized tax benefits. The company recognizes interest and penalties related to unrecognized tax benefits as a component of tax expense.

The company conducts business globally and, as a result, Thermo Fisher or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, China, Denmark, Finland, France, Germany, Italy, Japan, the United Kingdom and the United States. With few exceptions, the company is no longer subject to U.S. federal, state and local, or non-U.S., income tax examinations for years before 2001.

The company is currently under audit by the Internal Revenue Service for the 2001 to 2004 tax years. The IRS is also auditing the 2003, 2004 and 2005 pre-acquisition tax years of certain Fisher subsidiaries. It is likely that the examination phase of these audits will ~~become effective~~be completed within twelve months. There have been no significant changes to the status of these examinations during the quarter ended June 30, 2007 and the company does not currently expect any significant increases to previously recorded uncertain tax positions.

14.	Discontinued Operations

Subsequent to the 2006 acquisition of GVI, the UK Office of Fair Trading (OFT) commenced an investigation of the transaction to determine whether it qualified for consideration under the UK Enterprise Act. On December 15, 2006, the OFT referred the transaction to the UK Competition Commission for further investigation under the Enterprise Act to determine whether the transaction had resulted in, or may be expected to result in, a substantial lessening of competition within any market in the UK for goods or services, particularly gas isotope ratio mass spectrometers (Gas IRMS), thermal ionization mass spectrometers (TIMS) and multicollector inductively coupled plasma mass spectrometers. The Competition Commission published its final report on May 30, 2007, concluding that the company’s acquisition of GVI would lead to a substantial lessening of competition in the UK in the markets for Gas IRMS and TIMS products. The Competition Commission has also concluded that a divestiture remedy is therefore appropriate and has determined that the company be required to divest of either GVI as a whole, or its Gas IRMS and TIMS assets, to a purchaser approved by the Competition Commission. As a result of the requirement to divest of GVI, the company has recorded a non-cash after-tax impairment charge of $27 million. The loss primarily represents the carrying value of the business in excess of estimated disposal value. Due to the immateriality of the operating results of this business relative to consolidated results, the company has not reclassified the historical results and accounts of this business to discontinued operations.

THERMO FISHER SCIENTIFIC INC.

14.	Discontinued Operations (continued)

During the second quarter of 2007, the company received additional proceeds relating to the sale of a business divested in 2000 and recorded an after-tax gain of $3 million.

During 2006, the company committed to a plan to dispose of Genevac Limited (Genevac), a legacy Fisher business that is a manufacturer of solvent evaporation technology. The decision followed the U.S. Federal Trade Commission (FTC) consent order that required divesture of Genevac for FTC approval of the Thermo Fisher merger under the Hart-Scott-Rodino Antitrust Improvements Act. Genevac was sold on April 3, 2007, for net proceeds of $22 million in cash, subject to a post-closing adjustment. The results of discontinued operations also include the results of Systems Manufacturing Corporation (SMC), a legacy Fisher business that provides consoles, workstations and server enclosures for information technology operations and data centers. The operating results of Genevac and SMC and the assets and liabilities of SMC were not material at June 30, 2007, or for the period then ended. SMC was sold in July 2007 for cash proceeds of $2.5 million.

In the second quarter of 2006, the company recorded an after-tax loss of $1 million from the disposal of discontinued operations, substantially as a result of settling an indemnification claim that had arisen in a divested business.

In the first quarter of ~~2007.~~2006, the company recorded after-tax gains of $3 million, from the disposal of discontinued operations. The gains represented additional proceeds from the sale of several businesses prior to 2004.

15.	Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement applies to other accounting pronouncements that require or permit fair value measurements. This statement does not require any new fair value measurements. SFAS No. 157 is effective for the company in 2008. The company is currently evaluating the potential impact of adopting SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to measure eligible financial assets, financial liabilities and certain other assets and liabilities at fair value on an instrument-by-instrument basis. The fair value measurement election is irrevocable once made and subsequent changes in fair value must be recorded in earnings. The effect ~~that FIN 48~~of adoption will ~~have on its financial statements.~~be reported as a cumulative-effect adjustment to beginning retained earnings. SFAS No. 159 is effective for the company beginning January 1, 2008. The company is currently evaluating the impact of adopting this standard.

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates” and similar expressions are intended to identify forward-looking statements. While the company may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the company’s estimates change, and readers should not rely on those forward-looking statements as representing the company’s views as of any date subsequent to the date of the filing of this Quarterly Report. There are a number of important factors that could cause the actual results of the company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in this report on Form 10-Q.

THERMO FISHER SCIENTIFIC INC.

Overview of Results of Operations and Liquidity

The company develops, manufactures and ~~manufactures~~sells a broad range of products that are sold worldwide. The company expands the product lines and services it offers by developing and commercializing its own core technologies and by making strategic acquisitions of complementary businesses. ~~The~~Following the November 2006 merger with Fisher Scientific International Inc., the company’s continuing operations fall into two business segments: ~~Life~~Analytical Technologies and Laboratory ~~Sciences~~Products and ~~Measurement and Control.~~Services.

Revenues

Three Months Ended Six Months Ended
(Dollars in thousands) July 1, 2006 July 2, 2005 July 1, 2006 July 2., 2005

Life and Laboratory Sciences $ 539,286 75.6% $ 487,462 74.6% $ 1,051,641 75.2% $ 880,767 72.6%
Measurement and Control 174,182 24.4% 166,159 25.4% 346,114 24.8% 332,062 27.4%

$ 713,468 100% $ 653,621 100% $ 1,397,755 100% $ 1,212,829 100%

	Three Months Ended								Six Months Ended
(Dollars in millions)	June 30, 2007					July 1, 2006			June 30, 2007					July 1, 2006

Analytical Technologies	$	1,038.5		43.5%		$	531.5	74.5%	$	2,044.7		43.3%		$	1,036.1	74.1%
Laboratory Products and Services		1,433.7		60.1%			182.0	25.5%		2,850.2		60.3%			361.7	25.9%
Eliminations		(86.3	)	(3.6%	)		—	0.0%		(170.8	)	(3.6%	)		—	0.0%

	$	2,385.9		100%		$	713.5	100%	$	4,724.1		100%		$	1,397.8	100%

~~The company’s revenues grew by 9% during the second quarter of 2006 over the same period in 2005. Currency translation did not have a material effect on revenues~~Sales in the second quarter of 2007 were $2.39 billion, an increase of $1.67 billion from the second quarter of 2006. Sales increased principally due to the merger with Fisher as well as other acquisitions and, to a lesser extent, increased demand and the favorable effect of currency translation. If the merger with Fisher had occurred on January 1, 2006, revenues would have increased $197 million (9%), over pro forma 2006 revenues. Aside from the ~~effect~~effects of acquisitions ~~net of~~and divestitures made by both companies and currency translation (discussed in total and by segment below), revenues increased ~~5% (or 6% on a “same store” basis excluding acquired~~over pro forma 2006 revenues by $123 million (6%) due to higher revenues at existing businesses ~~in both periods until they have a full quarter of results in the prior comparative quarter). Revenues grew~~ as a result of increased demand, ~~for mass spectrometry and spectroscopy instruments, anatomical pathology products and process instruments~~discussed below, and, to a lesser extent, ~~increased prices.~~

~~THERMO ELECTRON CORPORATION~~

~~Overview of Results of Operations and Liquidity~~ ~~(continued)~~price increases.

The company’s strategy is to augment internal growth at existing businesses with complementary acquisitions such as those completed in ~~2006~~2007 and ~~2005. The~~2006. In addition to the merger with Fisher, the principal acquisitions included the Spectronex AG and Flux AG businesses of Swiss Analytic Group AG, a distributor of mass spectrometry, chromatography and surface science instruments and a manufacturer of high performance liquid chromography pumps and software in January 2007; Cohesive Technologies Inc., a provider of advanced sample extraction and liquid chromatography products in December 2006; and EGS Gauging, Inc., a provider of flat polymer web gauging products, which was acquired in June 2006; Ionalytics Corporation, a provider of an ion-filtering device used with mass spectrometers, which was acquired in August 2005; the Kendro Laboratory Products division of SPX Corporation, a provider of a wide range of laboratory equipment for sample preparation, processing and storage, which was acquired in May 2005; Rupprecht and Patashnick Co., Inc. (R&P), a provider of continuous particulate monitoring instrumentation for the ambient air, emissions monitoring and industrial hygiene markets, which was acquired in April 2005; and Niton LLC, a provider of portable X-ray analyzers to the metals, petrochemical and environmental markets, which was acquired in March 2005.2006.

In the second quarter of ~~2006,~~2007, the company’s operating income and operating income margin were ~~$72.2~~$243 million and 10.2%, respectively, compared with $72 million and 10.1%, respectively, ~~compared with $53.2 million and 8.1%, respectively,~~ in ~~2005.~~2006. (Operating income margin is operating income divided by revenues.) The increase in operating income ~~and operating income margin~~ was due to the ~~profit on incremental revenues from higher demand, $7.6 million of lower restructuring and other costs, including charges to cost of revenues~~Fisher merger and, to a lesser extent, higher profitability at existing businesses resulting from incremental revenues, price ~~increases.~~increases and productivity improvements. These ~~factors~~increases were offset in part by ~~$6.5~~$116 million of higher amortization expense ~~associated with~~as a result of acquisition-related intangible assets from the Fisher merger and ~~$6.4~~other acquisitions and $11 million of ~~stock option compensation expense.~~charges for the sale of inventories revalued at the date of the merger.

The company’s effective tax rate was 15.5% and 28.9% in the second quarter of 2007 and 2006, respectively. The decrease in the effective tax rate in the second quarter of 2007 compared with the second quarter of 2006 was primarily due to geographic changes in profits, in particular lower income in the United States due to charges and amortization associated with the Fisher merger, together with the impact of an enhanced tax credit for qualifying U.S. research costs and growth in lower tax regions such as Asia. The company currently expects its tax rate for the full year to be approximately 16%.

THERMO FISHER SCIENTIFIC INC.

Overview of Results of Operations and Liquidity (continued)

Income from continuing operations ~~decreased~~increased to ~~$48.9~~$188 million in the second quarter of 2007, from $49 million in the second quarter of 2006, ~~from $56.8 million in the second quarter of 2005,~~ primarily due to ~~a net gain~~the items discussed above that increased operating income in 2007, offset in part by higher interest expense, primarily associated with debt assumed in the ~~2005 period on the sale of shares of two large investments.~~Fisher merger.

During the first six months of ~~2006,~~2007, the company’s cash flow from operations totaled ~~$98.2~~$554 million, compared with ~~$89.0~~$98 million infor the first six months of ~~2005.~~2006. The increase resulted from cash flow from the Fisher businesses and, to a lesser extent, improved cash flow at existing businesses.

As of ~~July 1, 2006,~~June 30, 2007, the company’s outstanding debt totaled ~~$639.0 million,~~$2.20 billion, of which ~~59%~~approximately 93% is due in ~~2008~~2009 and thereafter. The company expects that its existing cash and short-term investments of $974 million as of June 30, 2007, and the company’s future cash flow from operations together with available unsecured ~~borrowings~~borrowing capacity of up to ~~$250~~$953 million under its existing 5-year revolving credit agreement, ~~and available unsecured borrowings under its 5-year euro facility~~ are sufficient to meet the working capital requirements of its existing ~~business~~businesses for the foreseeable future, including at least the next 24 months. The company expects to negotiate a new revolving credit agreement that would become effective at the time of the merger with Fisher (discussed below). The company expects to use the proceeds of the new credit facility to refinance existing debt of both companies, for working capital and for general corporate purposes.

~~Pending Merger~~

~~THERMO ELECTRON CORPORATION~~

~~Pending Merger~~ ~~(continued)~~

completion of the transaction, Thermo's shareholders will own approximately 39 percent of the combined company, and Fisher’s shareholders will own approximately 61 percent. Based upon current members of Thermo’s board of directors and senior management representing a majority of the composition of the combined company’s board and senior management and the Fisher shareholders receiving a premium (as of the date preceding the merger announcement) over the fair market value of Fisher common stock on such date, Thermo is considered to be the acquirer for accounting purposes.

Critical Accounting Policies

~~The company’s discussion and analysis~~Preparation of its financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires ~~the company~~management to make estimates and ~~judgments~~assumptions that affect the reported amounts of assets, liabilities, ~~revenue~~revenues and ~~expenses~~expenses. Management believes the most complex and ~~related disclosure~~sensitive judgments, because of ~~contingent liabilities. On an on-going basis,~~their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis and Note 1 to the Consolidated Financial Statements in the company’s Form 10-K for 2006, describe the significant accounting estimates and policies used in preparation of the consolidated financial statements. Actual results in these areas could differ from management’s estimates. As discussed below and in Note 13, the company evaluates its estimates, including those related to equity investments, bad debts, inventories, intangible assets, warranty obligations, income taxes, pension costs, stock-based compensation, contingencies and litigation, restructuring and saleadopted the provisions of ~~businesses. The company bases its estimates~~Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” on ~~historical experience, current market and economic conditions and other assumptions that management believes are reasonable. The results~~January 1, 2007. Other than this change, there have been no significant changes in the company’s critical accounting policies during the first six months of these estimates form the basis for judgments about the carrying value of assets and liabilities where the values are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.2007.

In the ordinary course of business there is inherent uncertainty in quantifying the company’s income tax positions. The company ~~believes~~assesses income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the ~~following represent its critical accounting policies~~facts, circumstances and ~~estimates used~~information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the company has recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the ~~preparation of its~~ financial ~~statements:~~statements. Where applicable, associated interest expense has also been recognized.

~~(a)~~

The company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to pay amounts due. Such allowances totaled $22.5 million at July 1, 2006. The company estimates the amount of customer receivables that are uncollectible based on the age of the receivable, the creditworthiness of the customer and any other information that is relevant to the judgment. If the financial condition of the company’s customers were to deteriorate, reducing their ability to make payments, additional allowances would be required.

~~(b)~~

The company writes down its inventories for estimated obsolescence for differences between the cost and estimated net realizable value taking into consideration usage in the preceding 12 months, expected demand and any other information that is relevant to the judgment. If ultimate usage or demand vary significantly from expected usage or demand, additional writedowns may be required.

~~(c)~~

The company periodically evaluates goodwill for impairment using forecasts of discounted future cash flows. Goodwill totaled $1.99 billion at July 1, 2006. Estimates of future cash flows require assumptions related to revenue and operating income growth, asset-related expenditures, working capital levels and other factors. Different assumptions from those made in the company’s analysis could materially affect projected cash flows and the company’s evaluation of goodwill for impairment. Should the fair value of the company’s goodwill decline because of reduced operating performance, market declines, or other indicators of impairment, or as a result of changes in the discount rate, charges for impairment of goodwill may be necessary.

~~(d)~~

The company estimates the fair value of acquisition-related intangible assets principally based on projections of cash flows that will arise from identifiable intangible assets of acquired businesses. The projected cash flows are discounted to determine the present value of the assets at the dates of acquisition.

Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values and annual amortization expense from those established at the dates of acquisition.

~~THERMO ELECTRON CORPORATION~~

~~Critical Accounting Policies~~ ~~(continued)~~

~~(e)~~

The company reviews other long-lived assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Other long-lived assets totaled $905.2 million at July 1, 2006, including $283.2 million of fixed assets. In testing a long-lived asset for impairment, assumptions are made concerning projected cash flows associated with the asset. Estimates of future cash flows require assumptions related to revenue and operating income growth and asset-related expenditures associated with the asset being reviewed for impairment. Should future cash flows decline significantly from estimated amounts, charges for impairment of other long-lived assets may be necessary.

~~(f)~~

In instances where the company sells equipment with a related installation obligation, the company generally recognizes revenue related to the equipment when title passes. The company recognizes revenue related to the installation when it performs the installation. The allocation of revenue between the equipment and the installation is based on relative fair value at the time of sale. Should the fair value of either the equipment or the installation change, the company’s revenue recognition would be affected. If fair value is not available for any undelivered element, revenue for all elements is deferred until delivery is completed.

~~(g)~~

In instances where the company sells equipment with customer-specified acceptance criteria, the company must assess whether it can demonstrate adherence to the acceptance criteria prior to the customer’s acceptance testing to determine the timing of revenue recognition. If the nature of customer-specified acceptance criteria were to change or grow in complexity such that the company could not demonstrate adherence, the company would be required to defer additional revenues upon shipment of its products until completion of customer acceptance testing.

~~(h)~~

The company’s software license agreements generally include multiple products and services, or “elements.” The company recognizes software license revenue based on the residual method after all elements have either been delivered or vendor specific objective evidence (VSOE) of fair value exists for any undelivered elements. In the event VSOE is not available for any undelivered element, revenue for all elements is deferred until delivery is completed. Revenues from software maintenance and support contracts are recognized on a straight-line basis over the term of the contract. VSOE of fair value of software maintenance and support is determined based on the price charged for the maintenance and support when sold separately. Revenues from training and consulting services are recognized as services are performed, based on VSOE, which is determined by reference to the price customers pay when the services are sold separately.

~~(i)~~

At the time the company recognizes revenue, it provides for the estimated cost of product warranties and returns based primarily on historical experience and knowledge of any specific warranty problems that indicate projected warranty costs may vary from historical patterns. The liability for warranty obligations of the company’s continuing operations totaled $36.3 million at July 1, 2006. Should product failure rates or the actual cost of correcting product failures vary from estimates, revisions to the estimated warranty liability would be necessary.

~~(j)~~

The company estimates the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction, and provides a valuation allowance for tax assets and loss carryforwards that it believes will more likely than not go unused. If it becomes more likely than not that a tax asset or loss carryforward will be used, the company reverses the related valuation allowance with an offset generally to goodwill as most of the tax attributes arose from acquisitions. The company’s tax valuation allowance totaled $65.5 million at July 1, 2006. Should the company’s actual future taxable income by tax jurisdiction vary from estimates, additional allowances or reversals thereof may be necessary.

~~THERMO ELECTRON CORPORATION~~

~~Critical Accounting Policies~~ ~~(continued)~~

~~(k)~~

The company provides a liability for future income tax payments in the worldwide tax jurisdictions in which it operates. Accrued income taxes totaled $21.9 million at July 1, 2006. Should tax return positions that the company expects are sustainable not be sustained upon audit, the company could be required to record an incremental tax provision for such taxes. Should previously unrecognized tax benefits ultimately be sustained, a reduction in the company’s tax provision would result.

~~(l)~~

The company estimates losses on contingencies and litigation for which a loss is probable and provides a reserve for losses that can be reasonably estimated. Should the ultimate losses on contingencies and litigation vary from estimates, adjustments to those reserves may be required.

~~(m)~~

One of the company’s U.S. subsidiaries and several non-U.S. subsidiaries sponsor defined benefit pension plans. Major assumptions used in the accounting for these employee benefit plans include the discount rate, expected return on plan assets and rate of increase in employee compensation levels. Assumptions are determined based on company data and appropriate market indicators in consultation with third party actuaries, and are evaluated each year as of the plans’ measurement date. Net periodic pension costs for defined benefit plans totaled $16.1 million in 2005 and the company’s unfunded benefit obligation totaled $124 million at year-end 2005. Should any of these assumptions change, they would have an effect on net periodic pension costs and the unfunded benefit obligation. For example, a 10% decrease in the discount rate would result in an annual increase in pension expense of approximately $3 million and an increase in the benefit obligation of approximately $31 million.

~~(n)~~

The fair value of each stock option granted by the company is estimated using the Black-Scholes option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Management estimates expected volatility based on the historical volatility of the company’s stock. The expected life of a grant is estimated using the simplified method for “plain vanilla” options as permitted by SAB 107. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term which approximates the expected life assumed at the date of grant. Changes in these input variables would affect the amount of expense associated with stock-based compensation. The compensation expense recognized for all equity-based awards is net of estimated forfeitures. The company estimates forfeiture rates based on historical analysis of option forfeitures. If actual forfeitures should vary from estimated forfeitures, adjustments to compensation expense may be required.

~~(o)~~

The company records restructuring charges for the cost of vacating facilities based on future lease obligations and expected sub-rental income. The company’s accrued restructuring costs for abandoned facilities in continuing operations totaled $7.9 million at July 1, 2006. Should actual cash flows associated with sub-rental income from vacated facilities vary from estimated amounts, adjustments may be required.

~~(p)~~

The company estimates the expected proceeds from any assets held for sale and, when necessary, records losses to reduce the carrying value of these assets to estimated realizable value. Should the actual or estimated proceeds, which would include post-closing purchase price adjustments, vary from current estimates, results could differ from expected amounts.

~~THERMO ELECTRON CORPORATION~~

Results of Operations

Second Quarter ~~2006~~2007 Compared With Second Quarter ~~2005~~2006

Continuing Operations

Sales in the second quarter of ~~2006~~2007 were ~~$713.5 million,~~$2.39 billion, an increase of ~~$59.8 million (9%)~~$1.67 billion from the second quarter of ~~2005.~~2006. Sales increased ~~$24.8 million~~principally due to ~~acquisitions, net of divestitures. The favorable effects of currency translation resulted in an increase in revenues of $0.2 million in 2006. Aside from~~ the ~~effect of~~merger with Fisher as well as other acquisitions net of divestitures, and currency translation, revenues increased $34.8 million (5%, or 6% on a “same store” basis excluding acquired businesses in both periods until they have a full quarter of results in the prior comparative quarter). The increase was primarily due to higher demand for mass spectrometry and spectroscopy instruments, anatomical pathology products and process instruments and, to a lesser extent, increased ~~prices. Sales growth was strong in each~~demand and the favorable effect of currency translation. If the ~~company’s principal geographic regions.~~

~~Operating Income Margin~~

Three Months Ended

July 1,
2006

July 2,
2005

Consolidated 10.1% 8.1%

~~Operating income was $72.2~~merger with Fisher had occurred on January 1, 2006, revenues would have increased $197 million in(9%) over pro forma 2006 revenues, including increases of a) $29 million due to acquisitions made by the ~~second quarter~~combined companies, net of ~~2006, compared with $53.2~~divestitures, b) $45 million ~~in the second quarter of 2005. Operating income margin increased to 10.1% in 2006 from 8.1% in 2005, primarily~~ due to the ~~profit on incremental~~favorable effect of currency translation and c) $123 million (6%) due to higher revenues ~~from higher~~at existing businesses as a result of increased demand and, to a lesser extent, price ~~increases~~increases. Growth was strong in Asia and ~~$7.6 million of lower restructuring~~Europe and, ~~other costs as discussed below. These increases~~ to ~~operating income were offset~~a lesser extent, in ~~part by $6.5 million of higher amortization expense for acquisition-related intangible assets and $6.4 million of stock option expense as discussed below.~~North America.

Restructuring and other costs recorded in 2005 were primarily for reductions in staffing levels at existing businesses resulting from the integration of Kendro and the consolidation of two facilities in Texas as well as charges associated with actions initiated prior to 2005 that could not be recorded until incurred and adjustments to previously provided reserves due to changes in estimates of amounts due for abandoned facilities, net of expected sub-tenant rental income. Restructuring actions undertaken prior to 2005 were substantially complete at the end of 2004. Restructuring costs inTHERMO FISHER SCIENTIFIC INC.

Second Quarter 2007 Compared With Second Quarter 2006 include charges to close a plant in Massachusetts and consolidate its operations with those of an acquired Kendro facility in North Carolina, charges for consolidation of a U.K. facility into an existing factory in Germany and remaining costs of prior actions. Additional charges of approximately $5 million for the Massachusetts plant closure will be incurred in the remainder of 2006. The company has substantially finalized its plans for integrating Kendro with its existing business and expects that charges to expense will ultimately total approximately $16 million, of which approximately $11 million has been recorded as of July 1, 2006 with the balance to be recorded primarily over the remainder of 2006. Also, the company expects to incur an additional $1 million of restructuring costs through the remainder of 2006 for charges associated with the actions undertaken prior to 2006 that cannot be recorded until incurred. (continued)

In the second quarter of ~~2006,~~2007, operating income and operating income margin were $243 million and 10.2%, respectively, compared with $72 million and 10.1%, respectively, in the second quarter of 2006. The increase in operating income was due to inclusion of the Fisher businesses and, to a lesser extent, higher profitability at existing businesses resulting from incremental revenues, price increases and productivity improvements. These increases were offset in part by $116 million of higher amortization expense as a result of acquisition-related intangible assets from the Fisher merger and $11 million of charges for the sale of inventories revalued at the date of the merger.

Restructuring and other costs were recorded during the second quarter of 2007 and 2006. Restructuring costs in the 2007 period include merger-related exit costs at existing businesses. The company is finalizing its plan for potential restructuring actions that may be undertaken at Fisher or within existing businesses with which Fisher is being integrated. Such actions may include rationalization of product lines, consolidation of facilities and reductions in staffing levels. The cost of actions at Fisher businesses is being charged to the cost of the acquisition, while the cost of actions at existing businesses being integrated with Fisher is charged to restructuring expense. The company expects to finalize its restructuring plans for Fisher no later than one year from the date of merger.

In the second quarter of 2007, the company recorded restructuring and other costs, net, of ~~$6.0~~$19 million, including ~~$1.3~~$11 million of charges to cost of revenues, ~~for accelerated depreciation on fixed assets being abandoned due~~substantially all related to ~~facility consolidations and $4.8~~the sale of inventories revalued at the date of acquisition (principally Fisher). The company incurred $8 million of cash costs, primarily for severance, abandoned facilities and relocation expenses at businesses that have been consolidated as well as merger-related costs, recorded as incurred (Note 11). In the second quarter of ~~2005,~~2006, the company recorded restructuring and other costs, net, of ~~$13.7~~$6 million, including ~~$11.5~~$1 million of charges to cost of revenues for ~~the sale of inventories revalued at the date of acquisition~~accelerated depreciation on fixed assets abandoned due to facility consolidations and ~~$3.5~~$5 million of cash costs, primarily for severance, abandoned facilities and relocation expenses at businesses that have been consolidated.

In addition to the charges above, the Laboratory Products and Services segment is contemplating closure of a manufacturing facility in France and is negotiating the terms of severance that would be payable to employees with the applicable works council. The operations of the factory would be consolidated with those of existing factories. The company ~~recorded a gain~~estimates future charges for real estate abandonment, moving costs, severance and asset write-offs associated with this action will total $16-18 million, although the exact amount and timing are dependent on the outcome of ~~$1.3 million primarily from~~negotiations with the ~~sale of an abandoned building.~~works council.

2925

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Second Quarter ~~2006~~2007 Compared With Second Quarter ~~2005~~2006 (continued)

As of January 1, 2006, the company adopted SFAS No. 123R “Share-based Payment.” The standard requires that companies record as expense the effect of equity-based compensation over the applicable vesting period. The company adopted the standard using the modified prospective application transition method. Under this transition method, the compensation cost recognized beginning January 1, 2006 includes compensation cost for (i) all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (ii) all share-based payments granted subsequent to December 31, 2005 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Compensation cost is recognized ratably over the requisite vesting period or, for 2006 grants, to the retirement date for retirement eligible employees, if earlier. Prior period amounts have not been restated. The company recorded $6.4 million of pre-tax expense in the second quarter of 2006 for stock options. As of July 1, 2006, the company had $56.6 million ($38.3 million, net of tax) of total unrecognized compensation costs related to nonvested equity awards. The cost is expected to be recognized over approximately 2 years. However, substantially all of the company’s equity awards would become fully vested upon the merger with Fisher, which would result in a charge for the unrecognized compensation at the date of the merger.

As of January 1, 2006, the company adopted SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 requires abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption of SFAS No. 151 did not materially affect the company’s financial statements.

In July 2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Under FIN 48, the financial statements will reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without discounting for the time value of money. FIN 48 also revises disclosure requirements and introduces a prescriptive, annual, tabular roll-forward of the unrecognized tax benefits. FIN 48 will become effective in the first quarter of 2007. The company is currently evaluating the effect that FIN 48 will have on its financial statements.

Segment Results

The company’s management evaluates segment operating ~~segment~~ performance based on measures that are not determined in accordance with U.S. generally accepted accounting principles including adjusted operating income and adjusted operating income margin. Adjusted operating income is segmentusing operating income before certain charges to cost of revenues, principally associated with acquisition accounting; restructuring and other costs/income including costs arising from facility consolidations such as severance and abandoned lease expense and gains and losses from the sale of real estate and product lines; and amortization of acquisition-related intangible ~~assets; and stock option compensation.~~assets. The company uses these measures because they help management understand and evaluate the segments’ core operating results and facilitate comparison of performance for determining ~~compensation. Adjusted operating income margin~~compensation (Note 3). Accordingly, the following segment data is ~~adjusted operating income divided by revenues.~~reported on this basis.

	Three Months Ended
	June 30,			July 1,
(In millions)	2007			2006

Revenues:
Analytical Technologies	$	1,038.5		$	531.5
Laboratory Products and Services		1,433.7			182.0
Eliminations		(86.3	)		—

Consolidated Revenues	$	2,385.9		$	713.5

Operating Income:
Analytical Technologies	$	205.7		$	77.5
Laboratory Products and Services		198.9			26.4

Subtotal Reportable Segments		404.6			103.9

Cost of Revenues Charges		(11.2	)		(1.3	)
Restructuring and Other Costs, Net		(8.3	)		(4.8	)
Amortization of Acquisition-related Intangible Assets		(142.1	)		(25.6	)

Consolidated Operating Income	$	243.0		$	72.2

Analytical Technologies

	Three Months Ended
	June 30,		July 1,
(Dollars in millions)	2007		2006		Change

Revenues	$	1,038.5	$	531.5		95%

Operating Income Margin		19.8%		14.6%		5.2 pts.

3026

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Second Quarter ~~2006~~2007 Compared With Second Quarter ~~2005~~2006 (continued)

~~Life and Laboratory Sciences~~

Three Months Ended
(Dollars in thousands)
July 1,
2006

July 2,
2005
Change

Revenues
$
539,286

$
487,462
10.6%

Operating Income Margin 11.6% 10.1% 1.5
Cost of revenues charges
0.2% 2.3% (2.1)
Restructuring and other costs (income), net
0.5% 0.0% 0.5
Stock option compensation expense
0.5% 0.0% 0.5
Amortization of acquisition-related intangible assets
4.5% 3.6% 0.9

Adjusted Operating Income Margin
17.3%

16.0%
1.3

Sales in the ~~Life and Laboratory Sciences~~Analytical Technologies segment increased ~~$51.8~~$507 million ~~(11%)~~ to ~~$539.3 million~~$1.04 billion in the second quarter of ~~2006. Sales~~2007 primarily due to the merger with Fisher and other acquisitions and, to a lesser extent, increased ~~$25.0~~revenues at existing businesses and favorable currency translation. Had the Fisher merger occurred on January 1, 2006, revenues would have increased $123 million ~~(5%~~over pro forma 2006 revenues, including increases of a) $25 million due to acquisitions made by the combined companies, net of divestitures, b) $27 million due to the favorable effect of currency translation and c) $71 million (8%) due to ~~the acquisition~~higher revenues at existing businesses as a result of ~~Kendro in May 2005, net of~~increased demand and, to a product line divestiture. Currency translation did not have a material effect on revenues in 2006. Excluding the changes in revenues resulting from the acquisition, net of a divestiture, revenues increased $26.8 million (6%).lesser extent, higher prices. The increase ~~was due to a broad-based increase~~ in demand was from life science and industrial customers ~~combined with~~in part due to strong market response to new ~~products and, to a lesser extent, price increases.~~products. Growth was particularly strong in sales of mass spectrometry and spectroscopy instruments as well as environmental monitoring instruments and, to a lesser extent, ~~anatomical pathology products.~~bioscience reagents and diagnostic tools.

~~Adjusted operating~~Operating income margin was ~~17.3%~~19.8% in the second quarter of ~~2006~~2007 and ~~16.0%~~14.6% in the second quarter of ~~2005.~~2006. The increase resulted from ~~higher~~profit on incremental revenues and, to a lesser extent, price ~~increases.~~

~~The reduction in charges to cost of revenues resulted from~~increases and productivity improvements, including cost-reduction measures following restructuring actions. Had the ~~inclusion in 2005 of an $11.5 million charge for the sale of inventories revalued at the date of the Kendro acquisition. The change in restructuring and other costs, net, was primarily due to costs in~~merger with Fisher occurred on January 1, 2006, ~~associated with a plant closure in Massachusetts. The increase in amortization of acquisition-related intangible assets was primarily due to the acquisition of Kendro.~~

~~Measurement and Control~~

		~~Three Months Ended~~
~~(Dollars in thousands)~~			~~July 1,~~ ~~2006~~			~~July 2,~~ ~~2005~~			~~Change~~

Revenues
$
174,182

$
166,159
4.8%

Operating Income Margin
11.8%

7.3%
4.5
Cost of revenues charges

0.0%

0.1%
(0.1)
Restructuring and other costs, net

1.2%

1.3%
(0.1)
Stock option compensation expense

0.4%

0.0%
0.4
Amortization of acquisition-related intangible assets

0.8%

0.8%
0.0

Adjusted Operating Income Margin
14.2%

9.5%
4.7

~~THERMO ELECTRON CORPORATION~~

~~Second Quarter 2006 Compared With Second Quarter 2005~~ ~~(continued)~~

~~Sales in the Measurement and Control segment increased $8.0 million (5%) to $174.2 million~~operating income margin would have been 17.0% in the second quarter of 2006.

Laboratory Products and Services

	Three Months Ended
	June 30,		July 1,
(Dollars in millions)	2007		2006		Change

Revenues	$	1,433.7	$	182.0		688%

Operating Income Margin		13.9%		14.5%		(0.6) pts.

Sales ~~decreased $0.2~~in the Laboratory Products and Services segment increased $1.25 billion to $1.43 billion in the second quarter of 2007 primarily due to the merger with Fisher and other acquisitions and, to a lesser extent, increased revenues at existing businesses and favorable currency translation. Had the Fisher merger occurred on January 1, 2006, revenues would have increased $83 million over pro forma 2006 revenues, including increases of a) $5 million due to ~~a divestiture,~~acquisitions made by the combined companies, net of ~~an acquisition. The~~divestitures, b) $19 million due to the favorable ~~effects~~effect of currency translation ~~resulted in an increase in revenues of $0.2~~and c) $59 million ~~in 2006. Excluding the changes in revenues resulting from~~(4%) due to increased revenue at existing businesses as a ~~divestiture, net of an acquisition, and currency translation, revenues increased $8.0 million (5%). The increase was primarily the~~ result of increased demand and, to a lesser extent, higher ~~demand~~prices. Sales made through the segment’s research market channel and revenues from ~~industrial customers,~~the company’s biopharma outsourcing offerings were particularly ~~from commodity markets including steel, petroleum and minerals.~~strong.

~~Adjusted operating~~Operating income margin ~~increased~~decreased to ~~14.2%~~13.9% in the second quarter of 2007 from 14.5% in the second quarter of 2006, ~~from 9.5%~~primarily due to the inclusion of Fisher revenues, which have a slightly lower operating margin than the company’s legacy laboratory equipment business, offset in part by price increases and productivity improvements, including restructuring actions. Had the merger with Fisher occurred on January 1, 2006, operating income margin would have been 12.5% in the second quarter of ~~2005, primarily due to higher sales volumes and, to a lesser extent, price increases.~~2006.

Other ~~Income (Expense),~~Expense, Net

The company reported other expense, net, of ~~$3.4~~$21 million and $3 million in the second quarter of 2007 and 2006, respectively (Note 4). Other expense, net, includes interest income, interest expense, equity in earnings of unconsolidated subsidiaries and other items, net. Interest income increased to $11 million in the second quarter of 2007 from $3 million in the same period of 2006, primarily due to higher invested cash balances from operating cash flow and, to a lesser extent, increased market interest rates. Interest expense increased to $33 million in the second quarter of 2007 from $8 million in the second quarter of 2006, and other income, net, of $25.5 million in the second quarter of 2005 (Note 4). Other income (expense), net, includes interest income, interest expense, gain on investments, net, and other items, net. Interest income was $3.4 million in 2006 and $2.6 million in 2005 and increased due to higher prevailing interest rates. Interest expense increased to $7.9 million in 2006 from $7.3 million in 2005,primarily as a result of ~~a full quarter~~debt assumed in ~~2006 of~~the merger with Fisher. The FASB is expected to issue proposed guidance on accounting for convertible debt ~~used to partially fund the acquisition of Kendro and, to a lesser extent, higher rates associated with~~instruments that, if enacted, could increase the company’s ~~variable rate~~reported interest expense in a manner that reflects interest rates of similar nonconvertible debt. ~~In the second quarter of 2005, the company had $29.8 million of net gains on sale of investments.~~ The ~~gains included $28.9 million from the sale of shares of Thoratec Corporation and a loss of $1.3 million on the sale of shares of Newport Corporation in addition to other gains on~~change would not affect the company’s ~~investment portfolio activity. Following these sales,~~cash interest payments. There can be no assurance at this time, however, as to the ~~company no longer owned shares~~content of ~~Thoratec or Newport.~~any final FASB rules on this topic.

THERMO FISHER SCIENTIFIC INC.

Second Quarter 2007 Compared With Second Quarter 2006 (continued)

Provision for Income Taxes

The company’s effective tax rate was ~~28.9%~~15.5% and ~~27.9%~~28.9% in the second quarter of ~~2006~~2007 and ~~2005,~~2006, respectively. The ~~increase resulted~~decrease in the effective tax rate in 2007 compared with 2006 was primarily ~~from stock option expense that is not tax-deductible~~due to geographic changes in ~~certain jurisdictions.~~profits, in particular lower income in the United States due to charges and amortization associated with the Fisher merger, together with the impact of an enhanced tax credit for qualifying U.S. research costs and growth in lower tax regions such as Asia. The company currently expects its tax rate for the full year to be approximately 16% prior to the adjustment discussed in the following paragraph.

On July 19, 2007, the United Kingdom enacted new tax legislation that will become effective on April 1, 2008, lowering its corporate tax rate. As a result of the enactment, the deferred tax balances of all the company’s UK entities will be adjusted to reflect the new tax rate in the third quarter of 2007. The company expects that Germany will enact new tax legislation in the third quarter of 2007, with an effective date of January 1, 2008, that will reduce the corporate tax rate. Upon enactment, the deferred tax balances of all the company’s German entities will be adjusted. As a result of the new tax rates in Germany and the UK, the company anticipates it will record a one-time reduction to its income tax provision of approximately $15 to $20 million in the third quarter of 2007.

Contingent Liabilities

At ~~July 1, 2006,~~the end of the second quarter of 2007, the company was contingently liable with respect to certain ~~lawsuits. An~~legal proceedings and related matters. As described under “Litigation and Related Contingencies” in Note 12, an unfavorable outcome in the ~~matter~~matters described ~~in the first paragraph of Note 12~~therein could materially affect the company’s financial position as well as its results of operations and cash flows.

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to measure eligible financial assets, financial liabilities and certain other assets and liabilities at fair value on an instrument-by-instrument basis. The fair value measurement election is irrevocable once made and subsequent changes in fair value must be recorded in earnings. The effect of adoption will be reported as a cumulative-effect adjustment to beginning retained earnings. SFAS No. 159 is effective for the company beginning January 1, 2008. The company is currently evaluating the impact of adopting this standard.

THERMO FISHER SCIENTIFIC INC.

Second Quarter 2007 Compared With Second Quarter 2006 (continued)

Discontinued Operations

During the second quarter of 2007, the company received additional proceeds relating to the sale of a business divested in 2000 and recorded an after-tax gain of $3 million.

During 2006, the company committed to a plan to dispose of Genevac Limited (Genevac), a legacy Fisher business that is a manufacturer of solvent evaporation technology. The decision followed the U.S. Federal Trade Commission (FTC) consent order that required divesture of Genevac for FTC approval of the Thermo Fisher merger under the Hart-Scott-Rodino Antitrust Improvements Act. Genevac was sold on April 3, 2007, for net proceeds of $22 million in cash, subject to a post-closing adjustment. The results of discontinued operations also include the results of Systems Manufacturing Corporation (SMC), a legacy Fisher business that provides consoles, workstations and server enclosures for information technology operations and data centers. The operating results of Genevac and SMC and assets and liabilities of SMC were not material at June 30, 2007, or for the period then ended. SMC was sold in July 2007 for cash proceeds of $2.5 million.

The company recorded an after-tax loss ~~from disposal~~ of ~~discontinued operations of $1.1~~$1 million in the second quarter of 2006. The loss represents the settlement of an indemnification claim that arose infrom a divested business.

In the second quarter of 2005, the company settled litigation and received proceeds from an arbitration award related to divested businesses. In addition, the company recorded an increase in the net realizable value of a building held for sale after entering an agreement to sell the facility. As a result of these transactions, the company recorded an after-tax gain on the disposal of discontinued operations of $3.5 million.

First ~~Six Months~~ ~~2006~~Six Months 2007 Compared With First Six Months ~~2005~~2006

Continuing Operations

Sales in the first six months of ~~2006~~2007 were ~~$1.398~~$4.72 billion, an increase of ~~$184.9 million (15%)~~$3.33 billion from the first six months of ~~2005.~~2006. Sales increased ~~$118.6~~principally due to the merger with Fisher as well as other acquisitions and, to a lesser extent, increased demand and the favorable effect of currency translation. If the merger with Fisher had occurred on January 1, 2006, revenues would have increased $439 million (10%) over pro forma 2006 revenues, including increases of a) $86 million due to acquisitions made by the combined companies, net of divestitures, b) $97 million due to the favorable effect of currency translation and c) $256 million (6%) due to ~~acquisitions, net~~higher revenues at existing businesses as a result of ~~divestitures. The unfavorable effects of currency translation resulted~~increased demand and, to a lesser extent, price increases. Growth was strong in Asia and Europe and, to a ~~decrease~~lesser extent, in ~~revenues of $21.3 million (2%) in 2006. Aside~~North America.

3229

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

First ~~Six Months~~ ~~2006~~Six Months 2007 Compared With First Six Months ~~2005~~2006 (continued)

~~from~~In the ~~effect~~first six months of ~~acquisitions, net of divestitures,~~2007, operating income and ~~currency translation, revenues increased $87.6~~operating income margin were $435 million ~~(7%~~and 9.2%, or 8% on a “same store” basis excluding acquired businesses in both periods until they have a full quarter of results in a prior comparative quarter). The increase was primarily due to a broad-based increase in demand driven by new productsrespectively, compared with $140 million and ~~to a lesser extent, increased prices.~~

~~Operating Income Margin~~

Six Months Ended

July 1,
2006

July 2,
2005

Consolidated 10.0% 9.3%

~~Operating income was $140.0 million~~10.0%, respectively, in the first six months of ~~2006, compared~~2006. The increase in operating income was due to inclusion of the Fisher businesses and, to a lesser extent, higher profitability at existing businesses resulting from incremental revenues, price increases and productivity improvements. These increases were offset in part by $230 million of higher amortization expense as a result of acquisition-related intangible assets from the Fisher merger and $48 million of charges for the sale of inventories revalued at the date of the merger. The decrease in operating income margin was primarily due to the $48 million of charges to cost of revenues associated with ~~$112.9 million in~~inventories revalued at the date of merger.

Restructuring and other costs were recorded during the first six months of ~~2005. Operating income margin increased to 10.0%~~2007 and 2006. Restructuring costs in ~~2006 from 9.3% in 2005, primarily due to~~ the ~~profit on incremental revenues from higher demand and, to a lesser extent, price increases and $3.8 million~~2007 period include merger-related exit costs at existing businesses. In the first six months of ~~lower~~2007, the company recorded restructuring and other costs, ~~as discussed below. These increases in operating income were offset in part by $24.7~~net, of $63 million, including $48 million of ~~higher amortization expense for acquisition-related intangible assets and $11.8~~charges to cost of revenues, substantially all related to the sale of inventories revalued at the date of acquisition (principally Fisher). The company incurred $15 million of ~~stock option expense.~~

cash costs, primarily for severance, abandoned facilities and relocation expenses at businesses that have been consolidated as well as merger-related costs, recorded as incurred (Note 11). In the first six months of 2006, the company recorded restructuring and other costs, net, of $9.6 million, including $1.3 million of charges to cost of revenues for accelerated depreciation on fixed assets ~~being~~ abandoned due to facility consolidations and $9.0 million of cash costs, primarily for severance, abandoned facilities and relocation expenses at businesses that have been consolidated. In addition, the company recorded a net gain of $0.7 million ~~on the~~from disposal of product lines and the sale of abandoned assets (Note 11). In the first six months of 2005, the company recorded restructuring and other income, net, of $13.4 million, including $11.5 million of charges to cost of revenues for the sale of inventories revalued at the date of acquisition and $5.9 million of cash costs, primarily for severance, abandoned facilities and relocation expenses at businesses that have been consolidated. In addition, the company recorded a gain of $4.0 million primarily from the sale of three abandoned buildings.

~~As a result of the adoption of SFAS No. 123R, the company recorded $11.8 million of pre-tax expense in the first six months of 2006 for stock options.~~assets.

Segment Results

~~Life and Laboratory Sciences~~

Six Months Ended
(Dollars in thousands)
July 1,
2006

July 2,
2005
Change

Revenues
$
1,051,641

$
880,767
19.4%

Operating Income Margin 11.3% 11.5% (0.2)
Cost of revenues charges
0.1% 1.3 % (1.2)
Restructuring and other costs (income), net
0.6% (0.2)% 0.8
Stock option compensation expense
0.5% 0.0 % 0.5
Amortization of acquisition-related intangible assets

4.6%
2.7 % 1.9

Adjusted Operating Income Margin
17.1%

15.3 %
1.8

	Six Months Ended
	June 30,			July 1,
(In millions)	2007			2006

Revenues:
Analytical Technologies	$	2,044.7		$	1,036.1
Laboratory Products and Services		2,850.2			361.7
Eliminations		(170.8	)		—

Consolidated Revenues	$	4,724.1		$	1,397.8

Operating Income:
Analytical Technologies	$	395.5		$	149.0
Laboratory Products and Services		384.6			51.9

Subtotal Reportable Segments		780.1			200.9

Cost of Revenues Charges		(47.6	)		(1.3	)
Restructuring and Other Costs, Net		(15.7	)		(8.4	)
Amortization of Acquisition-related Intangible Assets		(281.4	)		(51.2	)

Consolidated Operating Income	$	435.4		$	140.0

3330

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

First ~~Six Months~~ ~~2006~~Six Months 2007 Compared With First Six Months ~~2005~~2006 (continued)

Analytical Technologies

	Six Months Ended
	June 30,		July 1,
(Dollars in millions)	2007		2006		Change

Revenues	$	2,044.7	$	1,036.1		97%

Operating Income Margin		19.3%		14.4%		4.9 pts.

Sales in the ~~Life and Laboratory Sciences~~Analytical Technologies segment increased ~~$170.9 million (19%)~~$1.01 billion to ~~$1,051.6 million~~$2.04 billion in the first six months of ~~2006. Sales~~2007 primarily due to the merger with Fisher and other acquisitions and, to a lesser extent, increased ~~$117.6~~revenues at existing businesses and favorable currency translation. Had the Fisher merger occurred on January 1, 2006, revenues would have increased $257 million ~~(13%~~over pro forma 2006 revenues, including increases of a) $64 million due to acquisitions made by the combined companies, net of divestitures, b) $57 million due to the favorable effect of currency translation and c) $136 million (8%) due to ~~the acquisitions~~increased revenue at existing businesses as a result of ~~Kendro in May 2005~~increased demand and, ~~Niton in March 2005, net of~~to a product line divestiture. The unfavorable effects of currency translation resulted in a decrease in revenues of $16.8 million (2%) in 2006. Excluding the changes in revenues resulting from acquisitions, net of a divestiture, and currency translation, revenues increased $70.1 million (8%, or 9% on a “same store” basis excluding acquired businesses in both periods until they have a full quarter of results in a prior comparative quarter).lesser extent, higher prices. The increase ~~was due to a broad-based increase~~ in demand was from life science and industrial customers ~~combined with~~in part due to strong market response to new ~~products and, to a lesser extent, price increases.~~products. Growth was particularly strong in sales of mass spectrometry and spectroscopy instruments as well as environmental monitoring instruments and, to a lesser extent, ~~anatomical pathology products.~~bioscience reagents and diagnostic tools.

~~Adjusted~~Operating income margin was 19.3% in the first six months of 2007 and 14.4% in the first six months of 2006. The increase resulted from profit on incremental revenues and, to a lesser extent, price increases and productivity improvements, including cost-reduction measures following restructuring actions. Had the merger with Fisher occurred on January 1, 2006, operating income margin ~~was 17.1%~~would have been 16.8% in the first six months of 2006.

Laboratory Products and Services

	Six Months Ended
	June 30,		July 1,
(Dollars in millions)	2007		2006		Change

Revenues	$	2,850.2	$	361.7		688%

Operating Income Margin		13.5%		14.3%		(0.8) pts.

Sales in the Laboratory Products and Services segment increased $2.49 billion to $2.85 billion in the first six months of 2007 primarily due to the merger with Fisher and other acquisitions and, to a lesser extent, increased revenues at existing businesses and favorable currency translation. Had the Fisher merger occurred on January 1, 2006, revenues would have increased $200 million over pro forma 2006 revenues, including increases of a) $22 million due to acquisitions made by the combined companies, net of divestitures, b) $41 million due to the favorable effect of currency translation and c) $137 million (5%) due to increased revenue at existing businesses as a result of increased demand and, to a lesser extent, higher prices. Sales made through the segment’s research market channel and revenues from the company’s biopharma outsourcing offerings were particularly strong.

Operating income margin decreased to 13.5% in the first six months of 2007 from 14.3% in the first six months of 2006, primarily due to the inclusion of Fisher revenues, which have a slightly lower operating margin than the company’s legacy laboratory equipment business, offset in part by price increases and ~~15.3%~~productivity improvements, including restructuring actions. Had the merger with Fisher occurred on January 1, 2006, operating income margin would have been 11.5% in the first six months of ~~2005. The increase resulted from higher revenues including the effect of acquisitions and, to a lesser extent, price increases.~~2006.

The reduction in charges to cost of revenues resulted from the inclusion in 2005 of an $11.5 million charge for the sale of inventories revalued at the date of the Kendro acquisition. The change in restructuring and other costs, net, was due to inclusion of gains on the sale of buildings in the 2005 quarter. The increase in amortization of acquisition-related intangible assets was primarily due to the acquisition of Kendro and, to a lesser extent, other businesses.

~~Measurement and Control~~

		~~Six Months Ended~~
~~(Dollars in thousands)~~			~~July 1,~~ ~~2006~~			~~July 2,~~ ~~2005~~			~~Change~~

Revenues
$
346,114

$
332,062
4.2%

Operating Income Margin
12.2%

9.2%
3.0
Cost of revenues charges

0.0%

0.1%
(0.1)
Restructuring and other costs, net

0.8%

0.9%
(0.1)
Stock option compensation expense

0.4%

0.0%
0.4
Amortization of acquisition-related intangible assets

0.8%

0.6%
0.2

Adjusted Operating Income Margin
14.2%

10.8%
3.4

Sales in the Measurement and Control segment increased $14.1 million (4%) to $346.1 million in the first six months of 2006. Sales increased $1.1 million due to an acquisition, net of divestitures. The unfavorable effects of currency translation resulted in a decrease in revenues of $4.5 million (1%) in 2006. Excluding the changes in revenues resulting from acquisitions, net of divestitures, and currency translation, revenues increased $17.5 million (5%). The increase was primarily the result of higher demand from industrial customers, particularly from commodity markets including steel, petroleum and minerals, and customers purchasing instruments for use in environmental and security applications.

Adjusted operating income margin increased to 14.2% in the first six months of 2006 from 10.8% in the second quarter of 2005, primarily due to higher sales volumes and, to a lesser extent, price increases.

~~The increase in amortization of acquisition-related intangible assets was due primarily to the acquisition of R&P.~~

3431

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

First ~~Six Months~~ ~~2006~~Six Months 2007 Compared With First Six Months ~~2005~~2006 (continued)

Other ~~Income (Expense),~~Expense, Net

The company reported other expense, net, of ~~$7.2~~$47 million and $7 million in the first six months of 2007 and 2006, respectively (Note 4). Other expense, net, includes interest income, interest expense, equity in earnings of unconsolidated subsidiaries and other items, net. Interest income increased to $19 million in the first six months of 2007 from $7 million in the same period of 2006, primarily due to higher invested cash balances from operating cash flow and, to a lesser extent, increased market interest rates. Interest expense increased to $70 million in the first six months of 2007 from $16 million in the first six months of 2006, and other income, net, of $28.8 million in the first six months of 2005 (Note 4). Interest income was $6.9 million in 2006 and $5.9 million in 2005 and increased due to higher prevailing interest rates. Interest expense increased to $15.7 million in 2006 from $10.4 million in 2005,primarily as a result of debt ~~used to partially fund~~assumed in the ~~acquisition of Kendro and, to a lesser extent, higher rates associated~~merger with the company’s variable rate debt. During the first six months of 2005, the company had net gains on investments of $32.1 million. The gains included $28.9 million from the sale of shares of Thoratec and a loss of $1.3 million from the sale of shares of Newport in addition to other gains from the company’s investment portfolio activity.Fisher.

Provision for Income Taxes

The company’s effective tax rate was ~~30.3%~~15.8% and ~~27.8%~~30.3% in the first six months of 2007 and 2006, ~~and 2005,~~ respectively. ~~As a result of the sale of a product line~~The decrease in the ~~first quarter~~effective tax rate in 2007 compared with 2006 was primarily due to geographic changes in profits, in particular lower income in the United States due to charges and amortization associated with the Fisher merger, together with the impact of ~~2006, the company realized~~an enhanced tax credit for qualifying U.S. research costs, growth in lower tax regions such as Asia and, to a lesser extent, a tax gain in excess of the related book ~~gain. This transaction caused an increase~~gain on the sale of a product line in ~~the company’s effective rate in the first six months of 2006 of 1.5 percentage points. The tax rate also increased due to stock option expense that is not tax-deductible in certain jurisdictions.~~2006.

Discontinued Operations

As a result of the requirement to divest of GVI, the company has recorded a non-cash after-tax charge of $27 million as a loss on disposal of discontinued operations. The loss primarily represents the carrying value of the business in excess of estimated disposal value. During the second quarter of 2007, the company received additional proceeds relating to the sale of a business divested in 2000 and recorded an after tax gain of $3 million.

The company ~~recorded~~had after-tax gains of $2 million in 2006 from the disposal of discontinued ~~operations of $2.2 million in the first six months of 2006.~~operations. The gains represent additional proceeds from the sale of several businesses ~~divested~~ prior to 2004, net of a charge for the settlement of an indemnification claim that arose from a divested business.

In the first six months of 2005, the company recorded after-tax gains of $6.7 million from the disposal of discontinued operations. The gains arose from the settlement of litigation, an increase in the net realizable value of an abandoned facility for which a sale agreement was reached and additional proceeds from the sale of businesses divested prior to 2004, including the sale of abandoned real estate and post-closing adjustments.

Liquidity and Capital Resources

~~First Six Months 2006~~

Consolidated working capital was ~~$496.3 million~~$2.40 billion at ~~July 1, 2006,~~June 30, 2007, compared with ~~$562.2 million~~$1.51 billion at December 31, ~~2005.~~2006. The increase was primarily due to a reduction in short-term borrowings and, to a lesser extent, an increase in cash. Included in working capital were cash, cash equivalents and short-term available-for-sale investments of ~~$198.0~~$974 million at ~~July 1, 2006, compared with $295.0~~June 30, 2007 and $691 million at December 31, ~~2005.~~2006.

First Six Months 2007

Cash provided by operating activities was ~~$98.2~~$554 million during the first six months of ~~2006, including $99.7 million provided by continuing operations and $1.5 million used by discontinued operations. The company~~2007. A reduction in other current liabilities used cash of ~~$28.4~~$83 million, primarily as a result of payment of annual incentive compensation as well as $51 million of merger-related payments. Cash payments for income taxes, net of refunds, totaled $59 million in the first six months of 2007. The company does not expect to make significant U.S. estimated tax payments in 2007, primarily due to tax deductions for merger-related equity-based compensation and net operating loss carryforwards. Cash of $58 million was used to replenish inventory levels following strong fourth quarter shipments. Cash of $36.6 million was provided by collections on accounts receivable. A reduction in other current liabilities used $64.5 million of cash in the first six months of 2006, primarily for income tax payments and payment of annual incentive compensation. Payments for restructuring actions of the company’s continuing operations, principally severance, lease costs and other expenses of real estate consolidation, used cash of ~~$13.7~~$23 million induring the first six months of ~~2006.~~

~~THERMO ELECTRON CORPORATION~~

~~First Six Months 2006~~ ~~(continued)~~2007.

In connection with restructuring actions undertaken by continuing operations, the company had accrued $~~14.0~~$12 million for restructuring costs at ~~July 1, 2006.~~June 30, 2007. The company expects to pay approximately ~~$6.1~~$7 million of this amount for severance, retention and other costs, primarily through ~~2006.~~2007. The balance of ~~$7.9~~$5 million will be paid for lease obligations over the remaining terms of the leases, with approximately ~~55%~~23% to be paid through ~~2006~~2007 and the remainder through ~~2012.~~2011. In addition, at ~~July 1, 2006,~~June 30, 2007, the company had accrued ~~$7.1~~$23 million for acquisition expenses. Accrued acquisition expenses included ~~$4.3~~$15 million of severance and relocation obligations, which the company expects to pay primarily ~~through 2006.~~during 2007. The remaining balance primarily represents abandoned-facility payments that will be paid over the remaining terms of the leases through ~~2014.~~2011.

THERMO FISHER SCIENTIFIC INC.

First Six Months 2007 (continued)

During the first six months of 2007, the primary investing activities of the company’s continuing operations, excluding available-for-sale investment activities, included acquisitions and the purchase of property, plant and equipment. The company expended $39 million on acquisitions and $72 million for purchases of property, plant and equipment. The company collected a note receivable from Newport Corporation totaling $48 million and had proceeds from the sale of property, plant and equipment of $14 million, principally real estate. The company’s discontinued operations had cash flows of $29 million from investing activities, principally the sale of Genevac, Ltd.

The company’s financing activities used $221 million of cash during the first six months of 2007, principally for the repayment of $453 million of short-term debt, offset in part by proceeds of stock option exercises. The company had proceeds of $224 million from the exercise of employee stock options and $17 million of tax benefits from the exercise of stock options. In February 2007, the Board of Directors authorized the repurchase of up to $300 million of the company’s common stock through February 28, 2008, none of which had been used as of August 9, 2007. On August 9, 2007, the Board of Directors authorized the repurchase of an additional $700 million of the company’s common stock through August 8, 2008.

On July 26, 2007, the company entered into an agreement to acquire Qualigens Fine Chemicals, a division of GlaxoSmithKline Pharmaceuticals Ltd. (GSK India) based in Mumbai for 2.4 billion Indian Rupees (approximately $60 million). Qualigens is India’s largest laboratory chemical manufacturer and supplier, serving customers in a variety of industries, including pharmaceutical, petrochemical, and food and beverage. The acquisition is expected to close early in the fourth quarter of 2007, subject to GSK India shareholder approval and other customary closing conditions.

The company has no material commitments for purchases of property, plant and equipment and expects that for all of 2007, such expenditures will approximate $200 - $250 million. The company’s contractual obligations and other commercial commitments did not change materially between December 31, 2006 and June 30, 2007.

The company believes that its existing resources, including cash and investments, future cash flow from operations and available borrowings under its existing revolving credit facilities, are sufficient to meet the working capital requirements of its existing businesses for the foreseeable future, including at least the next 24 months.

First Six Months 2006

Cash provided by operating activities was $98 million during the first six months of 2006, including $100 million provided by continuing operations and $2 million used by discontinued operations. The company used cash of $28 million to increase inventory levels. Cash of $37 million was provided by collections on accounts receivable. A reduction in other current liabilities used $65 million of cash in the first six months of 2006, primarily for payment of annual incentive compensation and income tax payments. Payments for restructuring actions of the company’s continuing operations, principally severance, lease costs and other expenses of real estate consolidation, used cash of $14 million in the first six months of 2006.

During the first six months of 2006, the primary investing activities of the company’s continuing operations, excluding available-for-sale investment activities, included acquisitions, the purchase and sale of property, plant and equipment and ~~the~~ sale of a product ~~lines.~~line. The company expended ~~$26.6~~$27 million on acquisitions and ~~$21.8~~$22 million for purchases of property, plant and equipment. The company had proceeds from the sale of a product ~~lines~~line of ~~$8.9~~$9 million. Investing activities of the company’s discontinued operations provided ~~$5.3~~$5 million of cash in the first six months of 2006, primarily additional proceeds from a business divested prior to 2004.

The company’s financing activities used ~~$163.7~~$164 million of cash during the first six months of 2006, principally for the repurchase of ~~$228.0~~$228 million of the company’s common ~~stock. The company had~~stock, offset in part by proceeds of ~~$22.1~~$22 million from the exercise of employee stock options and ~~$5.6~~$6 million of tax benefits from the exercise of stock options. On May 7, 2006, the company’s Board of Directors authorized the repurchase of $200 million of the company’s common stock through February 28, 2007. At July 1, 2006, $72 million is available for future repurchases of the company’s common stock under this authorization.

The company has no material commitments for purchases of property, plant and equipment and expects that for all of 2006, such expenditures will approximate $46 - $51 million. The company’s contractual obligations and other commercial commitments did not change materially between December 31, 2005 and July 1, 2006, except for the agreement to merge with Fisher (Note 2).

The company believes that its existing resources, including cash and investments, future cash flow from operations, and available borrowings under its existing 5-year revolving credit facilities, are sufficient to meet the working capital requirements of its existing businesses for the foreseeable future, including at least the next 24 months. The company expects to negotiate a new revolving credit agreement that would become effective at the time of the merger with Fisher. The company expects to use the proceeds of the new credit facility to refinance existing debt of both companies, for working capital and for general corporate purposes.

~~First Six Months 2005~~

Cash provided by operating activities was $89.0 million during the first six months of 2005, including $90.6 million provided by continuing operations and $1.6 million used by discontinued operations. The company used cash of $15.2 million to increase inventories, particularly mass spectrometry and spectroscopy instruments, for new product introductions and expansion of operations in China. A reduction in other current liabilities used $22.2 million of cash in the first six months of 2005, including approximately half for annual incentive compensation that was paid in the first quarter. The company contributed $10.9 million of funding to a U.K. pension plan in June 2005. Payments for restructuring actions of the company’s continuing operations, principally severance, lease costs and other expenses of real estate consolidation, used cash of $9.3 million in the first six months of 2005.

During the first six months of 2005, the primary investing activities of the company’s continuing operations, excluding available-for-sale investment activities, included acquisitions and the purchase and sale of property, plant and equipment. The company expended $914.9 million, net of cash acquired, for the acquisitions of Niton, R&P and Kendro. The company expended $16.4 million for purchases of property, plant and equipment and had proceeds from the sale of property, principally abandoned real estate, of $9.5 million.

The company’s financing activities provided $473.2 million of cash during the first six months of 2005, principally issuance of $250 million senior notes due in 2015 and a net increase in short-term borrowing of $219.2 million.

3633

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

Item 3—3 — Quantitative and Qualitative Disclosures About Market Risk

The company’s exposure to market risk from changes in interest rates, currency exchange rates and equity prices has not changed materially from its exposure at year-end ~~2005.~~2006.

Item 4—4 — Controls and Procedures

The company’s management, with the participation of the company’s chief executive officer and chief financial officer, evaluated the effectiveness of the company’s disclosure controls and procedures as of ~~July 1, 2006.~~June 30, 2007. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the company’s disclosure controls and procedures as of ~~July 1, 2006,~~June 30, 2007, the company’s chief executive officer and chief financial officer concluded that, as of such date, the company’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in the company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter ended ~~July 1, 2006,~~June 30, 2007, that have materially affected or are reasonably likely to materially affect the company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1A — Risk Factors

Set forth below are the risks that we believe are material to our investors. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements beginning on page ~~18.~~22.

We must develop new products, adapt to rapid and significant technological change and respond to introductions of new products in order to remain competitive. Our growth strategy includes significant investment in and expenditures for product development. We sell our products in several industries that are characterized by rapid and significant technological changes, frequent new product and service introductions and enhancements and evolving industry standards. Without the timely introduction of new products, services and enhancements, our products and services will likely become technologically obsolete over time, in which case our revenue and operating results would suffer.

Development of our products requires significant investment; our products and technologies could become uncompetitive or obsolete. Our customers use many of our products to develop, test and manufacture their own products. As a result, we must anticipate industry trends and develop products in advance of the commercialization of our customers’ products. If we fail to adequately predict our customers’ needs and future activities, we may invest heavily in research and development of products and services that do not lead to significant revenue.

Many of our existing products and those under development are technologically innovative and require significant planning, design, development and testing at the technological, product and manufacturing-process levels. These activities require us to make significant investments.

3734

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

~~Item 1A —~~ Risk Factors (continued)

Products in our markets undergo rapid and significant technological change because of quickly changing industry standards and the introduction of new products and technologies that make existing products and technologies uncompetitive or obsolete. Our competitors may adapt more quickly to new technologies and changes in customers’ requirements than we can. The products that we are currently developing, or those we will develop in the future, may not be technologically feasible or accepted by the marketplace, and our products or technologies could become uncompetitive or obsolete.

It may be difficult for us to implement our strategies for improving internal growth. Some of the markets in which we compete have been flat or declining over the past several years. To address this issue, we are pursuing a number of strategies to improve our internal growth, including:

·	~~finding new markets for our products;~~

finding new markets for our products;

·	~~developing new applications for our technologies;~~

developing new applications for our technologies;

·	~~combining sales and marketing operations in appropriate markets to compete more effectively;~~

combining sales and marketing operations in appropriate markets to compete more effectively;

·	~~allocating research and development funding to products with higher growth prospects;~~

allocating research and development funding to products with higher growth prospects;

·	~~continuing key customer initiatives;~~

complexities associated with managing the combined businesses;

·	~~expanding our service offerings;~~

continuing key customer initiatives;

·	~~strengthening our presence in selected geographic markets; and~~

expanding our service offerings;

·	~~continuing the development of commercial tools and infrastructure to increase and support cross-selling opportunities of products and services to take advantage of our breadth in product offerings.~~

strengthening our presence in selected geographic markets; and

continuing the development of commercial tools and infrastructure to increase and support cross-selling opportunities of products and services to take advantage of our breadth in product offerings.

We may not be able to successfully implement these strategies, and these strategies may not result in the growth of our business.

The company may be unable to integrate successfully the legacy businesses of Thermo Electron Corporation and Fisher ~~after the closing of the merger~~Scientific International Inc. and may be unable to realize the anticipated benefits of the merger.

The merger ~~involves~~involved the combination of two companies which ~~currently operate~~previously operated as independent public companies. The ~~combined~~ company ~~will be~~is required to devote significant management attention and resources to integrating its business practices and operations. Potential difficulties the ~~combined~~ company may encounter in the integration process include the following:

if we are unable to successfully combine the businesses of Thermo and Fisher in a manner that permits the combined company to achieve the cost savings and operating synergies anticipated to result from the merger, such anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected;

if we are unable to successfully combine the businesses of Thermo and Fisher in a manner that permits the company to achieve the cost savings and operating synergies anticipated to result from the merger, such anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected;

·	~~lost sales and customers as a result of certain customers of either of the two companies deciding not to do business with the combined company;~~

lost sales and customers as a result of certain customers of either of the two former companies deciding not to do business with the company;

·	~~complexities associated with managing the combined businesses;~~

3835

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

~~Item 1A —~~ Risk Factors (continued)

·	~~integrating personnel from diverse corporate cultures while maintaining focus on providing consistent, high quality products and customer service;~~

complexities associated with managing the combined businesses;

·	~~potential unknown liabilities and unforeseen increased expenses or delays associated with the merger; and~~

integrating personnel from diverse corporate cultures while maintaining focus on providing consistent, high quality products and customer service;

·	~~performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention to the merger~~

potential unknown liabilities and unforeseen increased expenses or delays associated with the merger; and

inability to successfully execute a branding campaign for the combined company.

In addition, ~~Thermo and Fisher have operated and, until the completion of the merger, will continue to operate, independently. It~~it is possible that the integration process could result in the loss of key employees, ~~diversion of each company’s management’s attention,~~ the disruption or interruption of, or the loss of momentum in, ~~each~~the company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers and employees or our ability to achieve the anticipated benefits of the merger, or could reduce our earnings or otherwise adversely affect the business and financial results of the ~~combined~~ company.

~~Failure to complete the merger could negatively impact the stock price and the future business and financial results of Thermo.~~

~~If the merger is not completed, the ongoing business of Thermo may be adversely affected and Thermo will be subject to several risks, including the following:~~

·	~~being required, under certain circumstances under the merger agreement, to pay a termination fee of $200 million to Fisher;~~

·	~~having to pay certain costs relating to the merger, such as legal, accounting, financial advisor and printing fees (approximately $7.3 million of which were capitalized at July 1, 2006); and~~

·	~~the focus of management on the merger instead of on pursuing other opportunities that could have been beneficial to Thermo,~~

in each case, without realizing any of the benefits of having the merger completed. If the merger is not completed, Thermo cannot ensure that these risks will not materialize and will not materially affect the business, financial results and stock price of Thermo.

Our inability to protect our intellectual property could have a material adverse effect on our business. In addition, third parties may claim that we infringe their intellectual property, and we could suffer significant litigation or licensing expense as a result. We place considerable emphasis on obtaining patent and trade secret protection for significant new technologies, products and processes because of the length of time and expense associated with bringing new products through the development process and into the marketplace. Our success depends in part on our ability to develop patentable products and obtain and enforce patent protection for our products both in the United States and in other countries. We own numerous U.S. and foreign patents, and we intend to file additional applications, as appropriate, for patents covering our products. Patents may not be issued for any pending or future patent applications owned by or licensed to us, and the claims allowed under any issued patents may not be sufficiently broad to protect our technology. Any issued patents owned by or licensed to us may be challenged, invalidated or circumvented, and the rights under these patents may not provide us with competitive advantages. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture increased market position. We could incur substantial costs to defend ourselves in suits brought against us or in suits in which we may assert our patent rights against others. An unfavorable outcome of any such litigation could materially adversely affect our business and results of operations.

~~THERMO ELECTRON CORPORATION~~

~~Item 1A — Risk Factors~~ ~~(continued)~~

We also rely on trade secrets and proprietary know-how with which we seek to protect our products, in part, by confidentiality agreements with our collaborators, employees and consultants. These agreements may be breached and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently developed by our competitors.

Third parties may assert claims against us to the effect that we are infringing on their intellectual property rights. For example, in September 2004 Applied Biosystems/MDS Scientific Instruments and related parties brought a lawsuit against us alleging our mass spectrometer systems infringe a patent held by the plaintiffs. We could incur substantial costs and diversion of management resources in defending these claims, which could have a material adverse effect on our business, financial condition and results of operations. In addition, parties making these claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block our ability to make, use, sell, distribute, or market our products and services in the United States or abroad. In the event that a claim relating to intellectual property is asserted against us, or third parties not affiliated with us hold pending or issued patents that relate to our products or technology, we may seek licenses to such intellectual property or challenge those patents. However, we may be unable to obtain these licenses on commercially reasonable terms, if at all, and our challenge of the patents may be unsuccessful. Our failure to obtain the necessary licenses or other rights could prevent the sale, manufacture, or distribution of our products and, therefore, could have a material adverse effect on our business, financial condition and results of operations.

THERMO FISHER SCIENTIFIC INC.

Risk Factors (continued)

Demand for most of our products depends on capital spending policies of our customers and on government funding policies. Our customers include pharmaceutical and chemical companies, laboratories, universities, healthcare providers, government agencies and public and private research institutions. Many factors, including public policy spending priorities, available resources and product and economic cycles, have a significant effect on the capital spending policies of these entities. These policies in turn can have a significant effect on the demand for our products.

Our results could be impacted if we are unable to realize potential future benefits from new productivity initiatives. We continue to pursue practical process improvement (PPI) programs and other cost saving initiatives at our locations which are designed to further enhance our productivity, efficiency and customer satisfaction. While we anticipate continued benefits from these initiatives, future benefits are expected to be fewer and smaller in size and may be more difficult to achieve.

Our Measurement and Control segment sells products and services to a number of companies that operate in cyclical industries; downturns in those industries would adversely affect our results of operations. The growth and profitability of some of our businesses in the Measurement and Control segment depend in part on sales to industries that are subject to cyclical downturns. For example, certain businesses in this segment depend in part on sales to the steel, cement and semiconductor industries. Slowdowns in these industries would adversely affect sales by these businesses, which in turn would adversely affect our revenues and results of operations.

~~Our~~ business is impacted by general economic conditions and related uncertainties affecting markets in which we operate. Adverse economic conditions could adversely impact our business ~~in 2006~~during 2007 and beyond, resulting in:

reduced demand for some of our products;

increased rate of order cancellations or delays;

·increased risk of excess and obsolete inventories;

increased pressure on the prices for our products and services; and

greater difficulty in collecting accounts receivable.

~~THERMO ELECTRON CORPORATION~~

~~Item 1A — Risk Factors~~ ~~(continued)~~

Changes in governmental regulations may reduce demand for our products or increase our expenses. We compete in many markets in which we and our customers must comply with federal, state, local and international regulations, such as environmental, health and safety, and food and drug regulations. We develop, configure and market our products to meet customer needs created by those regulations. Any significant change in regulations could reduce demand for our products or increase our expenses. For example, many of our instruments are marketed to the pharmaceutical industry for use in discovering and developing drugs. Changes in the U.S. Food and Drug Administration’s regulation of the drug discovery and development process could have an adverse effect on the demand for these products.

If any of our security products fail to detect explosives or radiation, we could be exposed to product liability and related claims for which we may not have adequate insurance coverage. The products sold by our environmental instruments ~~division~~business include a comprehensive range of fixed and portable instruments used for chemical, radiation and trace explosives detection. These products are used in airports, embassies, cargo facilities, border crossings and other high-threat facilities for the detection and prevention of terrorist acts. If any of these products were to malfunction, it is possible that explosive or radioactive material could pass through the product undetected, which could lead to product liability claims. There are also many other factors beyond our control that could lead to liability claims, such as the reliability and competence of the customers’ operators and the training of such operators. Any such product liability claims brought against us could be significant and any adverse determination may result in liabilities in excess of our insurance coverage. Although we carry product liability insurance, we cannot be certain that our current insurance will be sufficient to cover these claims or that it can be maintained on acceptable terms, if at all.

~~Our branding strategy could be unsuccessful.~~ THERMO We historically operated our business largely as autonomous, unaffiliated companies, and as a result, each of our businesses independently created and developed its own brand names. Our marketing and branding strategy transitions multiple, unrelated brands to one brand, Thermo Electron. Several of our former brands such as Finnigan and Nicolet commanded strong market recognition and customer loyalty. We believe the transition to the one brand enhances and strengthens our collective brand image and brand awareness across the entire company. Our success in promoting our brand depends on many factors, including effective communication of the transition to our customers, acceptance and recognition by customers of this brand and successful execution of the branding campaign by our marketing and sales teams. If we are not successful with this strategy, we may experience erosion in our product recognition, brand image and customer loyalty, and a decrease in demand for our products.FISHER SCIENTIFIC INC.

Risk Factors (continued)

Our inability to successfully identify and complete acquisitions or successfully integrate any new or previous acquisitions could have a material adverse effect on our business. Our business strategy includes the acquisition of technologies and businesses that complement or augment our existing products and services. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and the need for regulatory, including antitrust, approvals. We may not be able to identify and successfully complete transactions. Any acquisition we may complete may be made at a substantial premium over the fair value of the net assets of the acquired company. Further, we may not be able to integrate any acquired businesses successfully into our existing businesses, make such businesses profitable, or realize anticipated cost savings or synergies, if any, from these acquisitions, which could adversely affect our business.

~~THERMO ELECTRON CORPORATION~~

~~Item 1A — Risk Factors~~ ~~(continued)~~

Moreover, we have acquired many companies and businesses. As a result of these acquisitions, we recorded significant goodwill on our balance sheet, which amounts to approximately ~~$1.99~~$8.55 billion as of ~~July 1, 2006.~~June 30, 2007. We assess the realizability of the goodwill we have on our books annually as well as whenever events or changes in circumstances indicate that the goodwill may be impaired. These events or circumstances generally include operating losses or a significant decline in earnings associated with the acquired business or asset. Our ability to realize the value of the goodwill will depend on the future cash flows of these businesses. These cash flows in turn depend in part on how well we have integrated these businesses. If we are not able to realize the value of the goodwill, we may be required to incur material charges relating to the impairment of those assets.

Our growth strategy to acquire new businesses may not be successful and the integration of future acquisitions may be difficult and disruptive to our ongoing operations.

We have retained contingent liabilities from businesses that we have sold. From 1997 through 2004, we divested over 60 businesses with aggregate annual revenues in excess of $2 billion. As part of these transactions, we retained responsibility for some of the contingent liabilities related to these businesses, such as lawsuits, product liability and environmental claims and potential claims by buyers that representations and warranties we made about the businesses were inaccurate. The resolution of these contingencies has not had a material adverse effect on our results of operations or financial condition; however, we can not be certain that this favorable pattern will continue.

As a multinational corporation, we are exposed to fluctuations in currency exchange rates, which could adversely affect our cash flows and results of operations. International revenues account for a substantial portion of our revenues, and we intend to continue expanding our presence in international markets. In ~~2005,~~2006, our international revenues from continuing operations, including export revenues from the United States, accounted for approximately ~~58%~~46% of our total revenues. The exposure to fluctuations in currency exchange rates takes on different forms. International revenues are subject to the risk that fluctuations in exchange rates could adversely affect product demand and the profitability in U.S. dollars of products and services provided by us in international markets, where payment for our products and services is made in the local currency. As a multinational corporation, our businesses occasionally invoice third-party customers in currencies other than the one in which they primarily do business (the “functional currency”). Movements in the invoiced currency relative to the functional currency could adversely impact our cash flows and our results of operations. In addition, reported sales made in non-U.S. currencies by our international businesses, when translated into U.S. dollars for financial reporting purposes, fluctuate due to exchange rate movement. Should our international sales grow, exposure to fluctuations in currency exchange rates could have a larger effect on our financial results. In ~~2005,~~2006, currency translation had ~~an unfavorable~~a favorable effect on revenues of our continuing operations of ~~$4.5~~$18 million due to a ~~strengthening~~weakening of the U.S. dollar relative to other currencies in which the company sells products and services. ~~In 2004, currency translation had a favorable effect on revenues of our continuing operations of $92.1 million due to weakening of the U.S. dollar.~~

We are subject to laws and regulations governing government contracts, and failure to address these laws and regulations or comply with government contracts could harm our business by leading to a reduction in revenue associated with these customers. We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. The laws governing government contracts differ from the laws governing private contracts and government contracts may contain pricing terms and conditions that are not applicable to private contracts. We are also subject to investigation for compliance with the regulations governing government contracts. A failure to comply with these regulations could result in suspension of these contracts, criminal, civil and administrative penalties or debarment.

THERMO FISHER SCIENTIFIC INC.

Risk Factors (continued)

Because we compete directly with certain of our largest customers and product suppliers, our results of operations could be adversely affected in the short term if these customers or suppliers abruptly discontinue or significantly modify their relationship with us.

Our largest customerin the laboratory consumables business and our largest customer in the diagnostics business are also significant competitors. Our business may be harmed in the short term if our competitive relationship in the marketplace with these customers results in a discontinuation of their purchases from us. In addition, we manufacture products that compete directly with products that we source from third-party suppliers. We also source competitive products from multiple suppliers. Our business could be adversely affected in the short term if any of our large third-party suppliers abruptly discontinues selling products to us.

Because we rely heavily on third-party package-delivery services, a significant disruption in these services or significant increases in prices may disrupt our ability to ship products, increase our costs and lower our profitability.

We ship a significant portion of our products to our customers through independent package delivery companies, such as UPS and Federal Express in the U.S. and DHL in Europe. We also maintain a small fleet of vehicles dedicated to the delivery of our products and ship our products through other carriers, including national and regional trucking firms, overnight carrier services and the U.S. Postal Service. If UPS or another third-party package-delivery provider experiences a major work stoppage, preventing our products from being delivered in a timely fashion or causing us to incur additional shipping costs we could not pass on to our customers, our costs could increase and our relationships with certain of our customers could be adversely affected. In addition, if UPS or our other third-party package-delivery providers increase prices, and we are not able to find comparable alternatives or make adjustments in our delivery network, our profitability could be adversely affected.

We are subject to regulation by various federal, state and foreign agencies that require us to comply with a wide variety of regulations, including those regarding the manufacture of products, the shipping of our products and environmental matters.

Some of our operations are subject to regulation by the U.S. Food and Drug Administration and similar international agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with the U.S. Food and Drug Administration’s regulations or those of similar international agencies, we may have to recall products and cease their manufacture and distribution, which would increase our costs and reduce our revenues.

We are subject to federal, state, local and international laws and regulations that govern the handling, transportation, manufacture, use or sale of substances that are or could be classified as toxic or hazardous substances. Some risk of environmental damage is inherent in our operations and the products we manufacture, sell or distribute. This requires us to devote significant resources to maintain compliance with applicable environmental laws and regulations, including the establishment of reserves to address potential environmental costs, and manage environmental risks.

THERMO FISHER SCIENTIFIC INC.

Risk Factors (continued)

We rely heavily on manufacturing operations to produce the products we sell, and our business could be adversely affected by disruptions of our manufacturing operations.

We rely upon our manufacturing operations to produce many of the products we sell. Any significant disruption of those operations for any reason, such as strikes or other labor unrest, power interruptions, fire, earthquakes, or other events beyond our control could adversely affect our sales and customer relationships and therefore adversely affect our business. Although most of our raw materials are available from a number of potential suppliers, our operations also depend upon our ability to obtain raw materials at reasonable prices. If we are unable to obtain the materials we need at a reasonable price, we may not be able to produce certain of our products or we may not be able to produce certain of these products at a marketable price, which could have an adverse effect on our results of operations.

We may be unable to adjust to rapid changes in the healthcare industry, some of which could adversely affect our business.

The healthcare industry has undergone significant changes in an effort to reduce costs. These changes include:

development of large and sophisticated groups purchasing medical and surgical supplies;

wider implementation of managed care;

legislative healthcare reform;

consolidation of pharmaceutical companies;

increased outsourcing of certain activities, including to low-cost offshore locations; and

consolidation of distributors of pharmaceutical, medical and surgical supplies.

We expect the healthcare industry to continue to change significantly in the future. Some of these potential changes, such as a reduction in governmental support of healthcare services or adverse changes in legislation or regulations governing the delivery or pricing of healthcare services or mandated benefits, may cause healthcare-industry participants to purchase fewer of our products and services or to reduce the prices they are willing to pay for our products or services.

We may incur unexpected costs from increases in fuel and raw material prices, which could reduce our earnings and cash flow.

Our primary commodity exposures are for fuel, petroleum-based resins, steel and serum. While we may seek to minimize the impact of price increases through higher prices to customers and various cost-saving measures, our earnings and cash flows could be adversely affected in the event these measures are insufficient to cover our costs.

Unforeseen problems with the implementation and maintenance of our information systems could interfere with our operations. As a part of the effort to upgrade our current information systems, we are implementing new enterprise resource planning software and other software applications to manage certain of our business operations. As we implement and add functionality, problems could arise that we have not foreseen. Such problems could adversely impact our ability to do

~~THERMO ELECTRON CORPORATION~~

~~Item 1A — Risk Factors~~ ~~(continued)~~

the following in a timely manner: provide quotes, take customer orders, ship products, provide services and support to our customers, bill and track our customers, fulfill contractual obligations and otherwise run our business. In addition, if our new systems fail to provide accurate and increased visibility into pricing and cost structures, it may be difficult to improve or maximize our profit margins. As a result, our results of operations and cash flows could be adversely affected.

THERMO FISHER SCIENTIFIC INC.

Risk Factors (continued)

Our debt may adversely affect our cash flow and may restrict our investment opportunities or limit our activities.

As of ~~July 1, 2006,~~June 30, 2007, we had approximately ~~$639.0 million~~$2.20 billion in outstanding indebtedness.

~~We have $250~~ In addition, we had the ability to incur an additional $953 million ~~in additional borrowing capacity available to us~~of indebtedness under our revolving credit ~~facility and $138 million available under our euro~~ facility. We may also obtain additional long-term debt and lines of credit to meet future financing needs, which would have the effect of increasing our total leverage.

Our leverage could have negative consequences, including increasing our vulnerability to adverse economic and industry conditions, limiting our ability to obtain additional financing and limiting our ability to acquire new products and technologies through strategic acquisitions.

Our ability to satisfy our obligations depends on our future operating performance and on economic, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow to meet these obligations. If we are unable to service our debt or obtain additional financing, we may be forced to delay strategic acquisitions, capital expenditures or research and development expenditures. We may not be able to obtain additional financing on terms acceptable to us or at all.

Additionally, the agreements governing our debt require that we maintain certain financial ratios, and contain affirmative and negative covenants that restrict our activities by, among other limitations, limiting our ability to incur additional indebtedness, make investments, create liens, sell assets and enter into transactions with affiliates. The ~~financial~~ covenants in our ~~U.S. dollar~~ revolving credit facility ~~and euro facility~~ include ~~interest coverage and debt-to-capital ratios.~~a debt-to-EBITDA ratio. Specifically, the company ~~agrees~~has agreed that, so long as any lender has any commitment under the ~~commitments remain in effect~~facility, or any loan or other ~~amount~~obligation is outstanding under the ~~loan agreements,~~facility, or any letter of credit is outstanding under the new facility, it will not permit (as the following terms are defined in the ~~loan agreements):~~new facility) the Consolidated Leverage Ratio (the ratio of consolidated indebtedness to consolidated EBITDA) as at the last day of any fiscal quarter to be greater than 3.0 to 1.0.

·	~~the Consolidated Interest Coverage Ratio (the ratio of Consolidated EBITDA to Consolidated Interest Expense) for any period of four consecutive fiscal quarters to be less than 3.25:1.00; or~~

·	~~the Consolidated Total Debt to Consolidated Total Capitalization ratio at the end of any fiscal quarter to be greater than 0.50:1.00.~~

Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as foreign exchange rates and interest rates.

Our failure to comply with any of these restrictions or covenants may result in an event of default under the applicable debt instrument, which could permit acceleration of the debt under that instrument and require us to prepay that debt before its scheduled due date. Also, an acceleration of the debt under one of our debt instruments would trigger an event of default under other of our debt instruments.

4341

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

~~Item 1A — Risk Factors~~ ~~(continued)~~

~~Earthquakes could disrupt our operations in California.~~ One of the company’s principal operations, which manufactures analytical instruments, is located in San Jose, a region near major California earthquake faults. Our operating results could be materially affected in the event of a major earthquake.

~~Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds~~

~~A summary of the share repurchase activity for the company’s second quarter of 2006 follows:~~

Period
Total
Number
of Shares
Purchased

Average Price
Paid per Share

Total Number
of Shares
Purchased
as Part of
Publicity
Announced
Plans or
Programs (1)

Maximum
Dollar Amount
of Shares That May Yet be Purchased
Under the
Plans or
Programs (1)

April 2 - April 29
—

$
—

—

$
100,000,000

April 30 - May 27
2,750,747

36.78

2,750,747

198,824,000

May 28 - July 1
3,500,000

36.24

3,500,000

72,000,000

Total Second Quarter

6,250,747

$
36.48

6,250,747

$
72,000,000

~~(1)~~

On February 28, 2006, the company announced a repurchase program authorizing the purchase of up to $100 million of the company’s common stock in the open market or in negotiated transactions. On May 7, 2006, the company increased the existing authorization for the purchase of up to an additional $200 million of the company’s common stock in the open market or in negotiated transactions, which expires February 28, 2007. All of the shares of common stock repurchased by the company during the second quarter of 2006 were purchased under this program.

Item 4 — Submission of Matters to a Vote of Security Holders

At the ~~company's~~company’s Annual Meeting of Stockholders held on May ~~24, 2006,~~15, 2007, the stockholders elected a class of ~~three~~one incumbent ~~directors, Peter J. Manning, Jim P. Manzi and Elaine S. Ullian,~~director, Marijn E. Dekkers, to a three-year term expiring at the ~~2009~~2010 Annual Meeting of Stockholders. In addition, the stockholders approved the adoption of the Thermo Fisher Scientific Inc. 2007 Employees’ Stock Purchase Plan and ratified the selection by the Audit Committee of the ~~company's~~company’s Board of Directors of PricewaterhouseCoopers LLP as the ~~company's~~company’s independent auditors for the fiscal year ~~ending~~ended December 31, 2006. A stockholder proposal regarding the vote standard for director elections, as described in the company's definitive proxy statement for the company's 2006 Annual Meeting of Stockholders, was not approved by the stockholders.2007. The results of the votes for each of these proposals were as follows:

Proposal 1— Election of ~~three directors,~~one director, constituting the class of directors to be elected for a three-year term expiring in ~~2009:~~2010:

Nominee
For

Withheld

Peter J. Manning 86,889,526 60,964,275
Jim P. Manzi 86,895,675 60,958,126
Elaine S. Ullian 86,935,859 60,917,942
Nominee: Marijn E. Dekkers

~~No abstentions or~~

For	Against	Abstained

375,380,510	2,166,652	2,496,159

1,266,767 broker non-votes were recorded on the proposal.

~~THERMO ELECTRON CORPORATION~~

~~Item 4 — Submission of Matters to a Vote of Security Holders~~ ~~(continued)~~

Proposal 2— ~~Ratification of selection by the Audit Committee~~Approval and adoption of the ~~company's Board of Directors of PricewaterhouseCoopers LLP as the company's independent auditors for the fiscal year ending December 31, 2006:~~Thermo Fisher Scientific Inc. 2007 Employees’ Stock Purchase Plan:

For
Against

Abstained

146,605,807 398,598 849,395

For	Against	Abstained

341,318,277	11,449,103	2,465,254

No25,977,454 broker non-votes were recorded on the proposal.

Proposal 3— ~~Stockholder proposal regarding~~Ratification of selection by the ~~vote standard~~Audit Committee of the company’s Board of Directors of PricewaterhouseCoopers LLP as the company’s independent auditors for ~~director elections:~~the fiscal year ending December 31, 2007:

For
Against

Abstained

57,586,004 75,553,735 1,988,717

For	Against	Abstained

377,033,039	720,462	2,289,825

~~12,725,345~~1,266,762 broker non-votes were recorded on the proposal.

Item 6 — Exhibits

See Exhibit Index on page ~~47.~~44.

4542

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of the ~~4th~~9th day of August ~~2006.~~2007.

	THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.



	/s/ Peter M. Wilver
	Peter M. Wilver
	Senior Vice President and Chief Financial Officer



	/s/ Peter E. Hornstra
	Peter E. Hornstra
	~~Corporate Controller~~Vice President and Chief Accounting Officer

4643

THERMO ~~ELECTRON CORPORATION~~FISHER SCIENTIFIC INC.

EXHIBIT INDEX

Exhibit

Number

Description of Exhibit

~~2.1~~3.1		~~Agreement~~Amended and ~~Plan~~Restated Bylaws of ~~Merger by and among Thermo Electron Corporation, Trumpet Merger Corporation and Fisher Scientific International Inc., dated~~the company, effective as of ~~May 7, 2006 (filed as Exhibit 2.1 to the company’s Current Report on Form 8-K dated May 7, 2006 [File No. 1-8002] and incorporated in this document by reference).~~July 12, 2007.

~~10.1~~		Marijn E. Dekkers Waiver Letter, dated as of May 7, 2006 (filed as Exhibit 10.1 to the company’s Current Report on Form 8-K dated May 7, 2006 [File No. 1-8002] and incorporated in this document by reference).

~~10.2~~		Thermo Electron Corporation Directors Stock Option Plan, as amended and restated as of May 18, 2006 (filed as Exhibit 10.1 to the company’s Current Report on Form 8-K dated May 18, 2006 [File No. 1-8002] and incorporated in this document by reference).

31.1		Certification of Chief Executive Officer required by Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer required by Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer required by Exchange Act Rules 13a-14(b) and 15d-14(b), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer required by Exchange Act Rules 13a-14(b) and 15d-14(b), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

~~____________________________~~_________________

Certification is not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such certification is not deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

4744


Financing Activities:
Purchases of company common stock	$	(228,001	)	$	—
Net proceeds from issuance of long-term debt		—			247,450
Increase in short-term notes payable		36,664			219,150
Net proceeds from issuance of company common stock		22,072			8,721
Borrowings under short-term bridge financing agreement		—			570,000
Repayment of bridge financing agreement		—			(570,000	)
Tax benefits from exercised stock options (Note 7)		5,589			—
Other		(38	)		(2,161	)

Net cash provided by (used in) financing activities		(163,714	)		473,160

Exchange Rate Effect on Cash of Continuing Operations		5,225			(18,533	)

Decrease in Cash and Cash Equivalents		(24,610	)		(167,142	)
Cash and Cash Equivalents at Beginning of Period		214,326			326,886

Cash and Cash Equivalents at End of Period	$	189,716		$	159,744

Noncash Investing Activities:
Fair value of assets of acquired businesses	$	37,527		$	1,076,315
Cash paid for acquired businesses		(28,005	)		(920,135	)

Liabilities of acquired businesses	$	9,522		$	156,180

	Life and Laboratory Sciences		Measurement and Control		Eliminations and Other			Corporate			Total
	(In thousands)

Three Months Ended July 1, 2006
Revenues	$	539,286	$	174,182	$	—		$	—		$	713,468

Adjusted operating income (a)	$	93,398	$	24,736	$	(3,512	)	$	(10,748	)	$	103,874		(b)
Cost of revenues charges		1,266		—		—			—			1,266
Restructuring and other items		2,571		2,094		7			108			4,780
Stock option compensation expense		2,808		704		(3,512	)		—			—
Amortization		24,197		1,456		—			2			25,655

Operating income		62,556		20,482		(7	)		(10,858	)		72,173		(b)
Other expense, net												(3,383	)

Income from continuing operations before provision for income taxes											$	68,790

Depreciation	$	9,656	$	2,222	$	—		$	1,584		$	13,462

	Life and Laboratory Sciences			Measurement and Control		Eliminations and Other			Corporate			Total
	(In thousands)

Six Months Ended July 2, 2005
Revenues	$	880,767		$	332,062	$	—		$	—		$	1,212,829

Adjusted operating income (a)	$	134,630		$	36,022	$	—		$	(17,829	)	$	152,823	(c)
Cost of revenues charges		11,232			233		—			—			11,465
Restructuring and other items		(1,894	)		3,202		(573	)		1,210			1,945
Amortization		24,387			2,134		—			2			26,523

Operating income		100,905			30,453		573			(19,041	)		112,890	(c)
Other income, net													28,808

Income from continuing operations before provision for income taxes												$	141,698

Depreciation	$	14,543		$	4,461	$	—		$	1,908		$	20,912

	Shares (In thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value (In thousands)

Outstanding at December 31, 2005		12,084		$	22.65
Granted		2,985			34.97
Exercised		(1,181	)		18.68
Canceled		(131	)		29.22
Expired		(29	)		63.45

Outstanding at July 1, 2006		13,728			25.58		4.7	$	158,026

Vested and Exercisable at July 1, 2006		6,723			21.85		3.2	$	102,452

Nonvested Restricted Share Awards	Shares			Weighted Average Grant-Date Fair Value

Nonvested at December 31, 2005		199,334		$	27.03
Granted		27,500			34.31
Vested		(43,333	)		26.00

Nonvested at July 1, 2006		183,501			28.37

	Three Months Ended						Six Months Ended
(Dollars in thousands)	July 1, 2006			July 2, 2005			July 1, 2006			July 2., 2005

Life and Laboratory Sciences	$	539,286	75.6%	$	487,462	74.6%	$	1,051,641	75.2%	$	880,767	72.6%
Measurement and Control		174,182	24.4%		166,159	25.4%		346,114	24.8%		332,062	27.4%

	$	713,468	100%	$	653,621	100%	$	1,397,755	100%	$	1,212,829	100%

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicity Announced Plans or Programs (1)		Maximum Dollar Amount of Shares That May Yet be Purchased Under the Plans or Programs (1)

April 2 - April 29		—	$	—		—	$	100,000,000
April 30 - May 27		2,750,747		36.78		2,750,747		198,824,000
May 28 - July 1		3,500,000		36.24		3,500,000		72,000,000

Total Second Quarter		6,250,747	$	36.48		6,250,747	$	72,000,000

Nominee	For		Withheld

Peter J. Manning		86,889,526		60,964,275
Jim P. Manzi		86,895,675		60,958,126
Elaine S. Ullian		86,935,859		60,917,942