Sigma Aldrich (SIAL) 10-Q 22 Apr 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	SIAL
Entity Registrant Name	SIGMA ALDRICH CORP
Entity Central Index Key	0000090185
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding	121,385,537

Consolidated Statements of Inco

Consolidated Statements of Income (Unaudited) (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net sales	$572	$519
Cost of products sold	269	251
Gross profit	303	268
Selling, general and administrative expenses	134	127
Research and development expenses	16	16
Restructuring costs	6	0
Operating income	147	125
Interest, net	2	3
Income before income taxes	145	122
Provision for income taxes	45	38
Net income	$100	$84
Net income per share - Basic	0.82	0.69
Net income per share - Diluted	0.81	0.68
Weighted average number of shares outstanding - Basic	122	122
Weighted average number of shares outstanding - Diluted	123	123
Dividends per share	0.16	0.145

Consolidated Balance Sheets

Consolidated Balance Sheets (USD $)
In Millions	Mar. 31, 2010	Dec. 31, 2009
Current assets:
Cash and cash equivalents	$421	$373
Accounts receivable, less allowance for doubtful accounts of $6 and $7, respectively	317	285
Inventories	585	609
Other current assets	131	117
Total current assets	1,454	1,384
Property, plant and equipment, net of accumulated depreciation of $946 and $943, respectively	699	709
Goodwill, net	394	401
Intangibles, net	129	129
Other assets	93	91
Total assets	2,769	2,714
Current liabilities:
Notes payable and current maturities of long-term debt	461	477
Accounts payable	120	112
Other	196	153
Total current liabilities	777	742
Long-term debt	100	100
Pension and post-retirement benefits	95	94
Deferred taxes	30	23
Other liabilities	67	69
Total liabilities	1,069	1,028
Stockholders' equity:
Common stock, $1.00 par value; 300 shares authorized; 202 shares issued; 121 and 122 shares outstanding at March 31, 2010 and December 31, 2009	202	202
Capital in excess of par value	161	153
Common stock in treasury, at cost, 80 shares at March 31, 2010 and December 31, 2009	(2,013)	(1,983)
Retained earnings	3,310	3,230
Accumulated other comprehensive income	40	84
Total stockholders' equity	1,700	1,686
Total liabilities and stockholders' equity	$2,769	$2,714

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data	Mar. 31, 2010	Dec. 31, 2009
Accounts receivable, allowance for doubtful accounts	$6	$7
Property, plant and equipment, accumulated depreciation	$946	$943
Common stock, par value	$1	$1
Common stock, shares authorized	300	300
Common stock, shares issued	202	202
Common stock, shares outstanding	121	122
Common stock in treasury, shares	80	80

Consolidated Statements of Cash

Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Cash flows from operating activities:
Net income	$100	$84
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23	23
Deferred income taxes	3	1
Stock-based compensation expense	4	3
Restructuring costs, net of payments	3	0
Other	0	(1)
Changes in operating assets and liabilities:
Accounts receivable	(39)	(40)
Inventories	11	(5)
Accounts payable	10	7
Income taxes	29	31
Other	7	11
Net cash provided by operating activities	151	114
Cash flows from investing activities:
Capital expenditures	(18)	(28)
Purchases of investments	(11)	(1)
Proceeds from sale of property, plant and equipment	0	2
Acquisitions of businesses, net of cash acquired	(5)	(2)
Other, net	(1)	0
Net cash used in investing activities	(35)	(29)
Cash flows from financing activities:
Net issuance/(repayment) of short-term debt	(16)	(74)
Repayment of long-term debt	0	(7)
Payment of dividends	(20)	(18)
Treasury stock purchases	(35)	(7)
Proceeds from exercises of stock options	9	2
Other, net	2	1
Net cash used in financing activities	(60)	(103)
Effect of exchange rate changes on cash	(8)	(7)
Net change in cash and cash equivalents	48	(25)
Cash and cash equivalents at January 1	373	252
Cash and cash equivalents at March 31	421	227
Supplemental disclosures of cash flow information:
Income taxes paid	11	6
Interest paid, net of capitalized interest	$3	$4

Basis of Presentation

Basis of Presentation
	3 Months Ended Mar. 31, 2010
Basis of Presentation	(1) Basis of Presentation Sigma-Aldrich Corporation (the Company), headquartered in St. Louis, Missouri, develops, manufacturers, purchases and distributes a broad range of high quality biochemicals and organic chemicals throughout the world. These chemical products and kits are used in scientific research, including genomic and proteomic research, biotechnology, pharmaceutical development and as key components in pharmaceutical, diagnostic and other high technology manufacturing. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, accordingly, do not include all information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the notes to consolidated financial statements included in the Annual Report of the Company on Form 10-K for the year ended December31, 2009. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included in these consolidated financial statements. Operating results for the three months ended March31, 2010 are not necessarily indicative of the results that may be expected for the year ending December31, 2010.

Reclassifications

Reclassifications
	3 Months Ended Mar. 31, 2010
Reclassifications	(2) Reclassifications Certain reclassifications of prior year amounts have been made to conform to the current year presentation.

New Accounting Pronouncements

New Accounting Pronouncements
	3 Months Ended Mar. 31, 2010
New Accounting Pronouncements	(3) New Accounting Pronouncements In March 2010, the Financial Accounting Standards Board Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No.08-9, Milestone Method of Revenue Recognition (EITF 08-9). EITF 08-9 provides guidance on applying the milestone method to milestone payments for achieving specified performance measures when those payments are related to uncertain future events. Under the Consensus, entities can make an accounting policy election to recognize arrangement consideration received for achieving specified performance measures during the period in which the milestones are achieved, provided certain criteria are met. The scope of this Issue is limited to transactions involving research or development. EITF 08-9 is effective for interim and annual periods beginning on or after June15, 2010 with early adoption permitted. The impact of this EITF is not expected to be material to the consolidated financial statements of the Company.

Income Taxes

Income Taxes
	3 Months Ended Mar. 31, 2010
Income Taxes	(4) Income Taxes On March23, 2010, the Patient Protection and Affordable Care Act (the PPACA) was signed into law, and, on March30, 2010, the Health Care and Education Reconciliation Act of 2010 (the HCERA and, together with PPACA, the Acts), which makes various amendments to certain aspects of the PPACA, was signed into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided under Medicare Part D. Under the Acts, an employers income tax deduction for the costs of providing Medicare Part D-equivalent prescription drug benefits to retirees will be reduced by the amount of the federal subsidy beginning in 2013. Under U.S. GAAP, any impact from a change in tax law must be recognized in earnings in the period enacted regardless of the effective date. The Acts did not have a significant impact on the consolidated financial statements of the Company. There were no material changes in the unrecognized tax benefits of the Company during the three months ended March31, 2010. The Company believes it is reasonably possible that the liability for unrecognized tax benefits at March31, 2010 may decrease by approximately $2 to $3 due to the completion of examinations and the expiration of statutes in several jurisdictions within twelve months of March31, 2010.

Inventories

Inventories
	3 Months Ended Mar. 31, 2010
Inventories	(5) Inventories The principal categories of inventories are: March31, 2010 December 31, 2009 Finished goods $ 491 $ 520 Work in process 27 26 Raw materials 67 63 Total $ 585 $ 609

Intangible Assets

Intangible Assets
	3 Months Ended Mar. 31, 2010
Intangible Assets	(6) Intangible Assets The Companys amortizable and unamortizable intangible assets at March31, 2010 and December31, 2009 are as follows: Cost AccumulatedAmortization March31, 2010 December31, 2009 March31, 2010 December 31, 2009 Amortizable intangible assets: Patents $ 14 $ 13 $ 7 $ 6 Licenses 38 38 7 6 Customer relationships 98 97 31 30 Technical knowledge 22 22 8 8 Other 14 13 12 12 Total amortizable intangible assets $ 186 $ 183 $ 65 $ 62 Unamortizable intangible assets: Goodwill $ 420 $ 427 $ 26 $ 26 Trademarks and trade names 16 16 8 8 Total unamortizable intangible assets $ 436 $ 443 $ 34 $ 34 For both the three months ended March31, 2010 and 2009, the Company recorded amortization expense of $3, related to amortizable intangible assets. The Company expects to record annual amortization expense for all existing intangible assets in a range from approximately $11 to $13 from 2010 through 2014. The change in the net goodwill for the three months ended March31, 2010 is as follows: Balance at December31, 2009 $ 401 Acquisitions 1 Impact of foreign currency exchange rates (8 ) Balance at March31, 2010 $ 394

Debt

Debt
	3 Months Ended Mar. 31, 2010
Debt	(7) Debt Notes payable and long-term debt consists of the following: March31, 2010 December31, 2009 Outstanding Weighted Average Rate Outstanding Weighted Average Rate Notes payable Commercial paper $ 361 0.2 % $ 377 0.2 % $200.0 European revolving credit facility, due March13, 2014(1) Sigma-Aldrich Korea limited credit facility, due June11, 2009(2) Sigma-Aldrich Japan credit facility, due April9, 2009 (2) Other short-term credit facilities Total notes payable 361 0.2 % 377 0.2 % Plus current maturities of long-term debt 100 7.7 % 100 7.7 % Total notes payable and current maturities of long-term debt $ 461 1.8 % $ 477 1.8 % Long-term debt Senior notes, due September12, 2010 (3) $ 100 7.7 % $ 100 7.7 % Senior notes, due December5, 2011 (4) 100 5.1 % 100 5.1 % Total 200 6.4 % 200 6.4 % Less current maturities (100 ) 7.7 % (100 ) 7.7 % Total long-term debt $ 100 5.1 % $ 100 5.1 % (1) Facility contains financial covenants that require the maintenance of consolidated net worth of at least $750 and a ratio of consolidated debt to total capitalization of no more than 55.0%. The Companys consolidated net worth and consolidated debt as a percentage of total capitalization were, as defined in the respective agreement, $1,598 and 26%, respectively, at March31, 2010. (2) The reported borrowings under these facilities were due and repaid on June11, 2009 and April9, 2009 respectively, the facilities are still available to the Company with total commitments of 20 billion Korean Won (converted into U.S. Dollars of $18) and 2 billion Japanese yen (converted into U.S. Dollars of $21) respectively at March31, 2010. There were no outstanding borrowings under either facility at March31, 2010. (3) Note agreement contains financial covenants that require the maintenance of consolidated net worth of at least $750, a ratio of consolidated debt to total capitalization of no more than 55.0% and an aggregate amount of all consolidated priority debt of no more than 30.0% of consolidated net worth. Consolidated priority debt includes all unsecured debt of any subsidiary in which the Company owns a majority of the voting shares. The Companys consolidated net worth, consolidated debt as a percentage of total capitalization and consolidated priority debt as a percentage of total consolidated net worth were, as defined in the respective agreement, $1,598, 26% and 0%, respectively, at March31, 2010. (4) Note agreement contains financial covenants that require a ratio of consolidated debt to total capitalization of no more than 60.0% and an aggregate amount of all consolidated priority debt of no more than 3

Restructuring

Restructuring
	3 Months Ended Mar. 31, 2010
Restructuring	(8) Restructuring In the fourth quarter of 2009 the Company committed to a restructuring plan that includes exit activities at five manufacturing sites in the U.S. and Europe. The Company expects to complete these activities over the next 9-15 months. These exit activities impact approximately 200 employees and are intended to reduce the Companys fixed cost structure and better align its global manufacturing and distribution footprint. Additionally, in 2009 the Company initiated a voluntary retirement program that was accepted by approximately 90 eligible U.S. employees as part of its cost reduction and long-term profit enhancement initiatives. The Company expects to further reduce its workforce by approximately 80 people, approximately half of which occurred during the first quarter of 2010. The remaining reductions will take place over the remainder of 2010. Once fully implemented, the Company expects annual savings associated with these activities in a range from $15 to $20. The Company will continue to pursue actions as needed to reduce its fixed cost structure. The Company expects that the execution of these activities will result in additional pre-tax restructuring costs of approximately $16 to be recorded in the next 9-15 months. The following provides a summary of restructuring costs by period indicated and total expected restructuring costs: Threemonths Ended March31,2010 Cumulative Restructuring Costsforthese programs Totalexpected Restructuring Costs Employee termination benefits $ 5 $ 10 $ 21 Other restructuring costs 1 5 10 Total restructuring costs $ 6 $ 15 $ 31 Employee termination benefits primarily include pension and post-retirement benefit plan charges related to the voluntary retirement program, as well as payments to employees impacted by facility exit and other cost reduction activities. Other restructuring costs relate mainly to changes in the expected useful life of the assets impacted by these restructuring activities. The following is a rollforward of the liabilities since December31, 2009. The liabilities are reported as a component of other current liabilities in the accompanying consolidated balance sheets. Employee Termination Benefits Other Restructuring Costs Total Balance as of December31, 2009 $ 2 $ 1 $ 3 Charges 5 1 6 Payments and other adjustments (3 ) (1 ) (4 ) Balance as of March 31, 2010 $ 4 $ 1 $ 5

Earnings per Share

Earnings per Share
	3 Months Ended Mar. 31, 2010
Earnings per Share	(9) Earnings per Share Basic earnings per share is calculated using the weighted average number of shares outstanding during each period. The diluted earnings per share calculation includes the impact of dilutive common stock options. Earnings per share have been calculated using the following share information: ThreeMonths Ended March31, 2010 2009 Weighted average shares Basic shares 122 122 Effect of dilutive securities 1 1 Diluted shares 123 123 Potential common shares totaling 1million and 2million were excluded from the calculation of weighted average shares for the three months ended March31, 2010 and 2009, respectively, because their effect was considered to be antidilutive.

Comprehensive Income

Comprehensive Income
	3 Months Ended Mar. 31, 2010
Comprehensive Income	(10) Comprehensive Income Comprehensive income refers to net income adjusted by gains and losses that in conformity with U.S. GAAP are excluded from net income. Other comprehensive items are amounts that are included in stockholders equity in the consolidated balance sheets, including cumulative translation adjustments, unrealized gains and losses, net of tax, on securities and pension and post-retirement benefit liability adjustments. For the Company, the difference between net income and comprehensive income is primarily cumulative translation adjustments arising from the translation of assets and liabilities for foreign operating units from their local currency to the reporting currency. For the three months ended March31, 2010 and 2009, comprehensive income was $56 and $32, respectively.

Company Operations by Business

Company Operations by Business Unit
	3 Months Ended Mar. 31, 2010
Company Operations by Business Unit	(11) Company Operations by Business Unit The Company is organized into four business units featuring the Research units of Essentials, Specialties and Biotech and the Fine Chemicals unit, SAFC, to align the Company with the customers it serves. The business unit structure is the Companys approach to serving customers and reporting sales rather than any internal division used to allocate resources. Net sales for the Companys business units are as follows: ThreeMonths Ended March31, 2010 2009 Research Essentials $ 112 $ 107 Research Specialties 217 197 Research Biotech 91 82 Research Chemicals 420 386 SAFC 152 133 Total $ 572 $ 519 The Companys Chief Operating Decision Maker and Board of Directors review profit and loss information on a consolidated basis to assess performance make overall operating decisions and make resource allocations. The Companys business units are closely interrelated in their activities and share services such as order entry, billing, technical services, Internet, purchasing and inventory control and share production and distribution facilities. Additionally, these units are supported by centralized functional areas such as finance, human resources, quality, safety and compliance and information technology. Further, the Companys Chief Operating Decision Maker, Chief Financial Officer and Business Unit Presidents participate in compensation programs which reward performance based upon consolidated Company results for sales growth, operating income growth, return on equity and return on assets. Certain Business Unit Presidents also have a component of their compensation program based on their respective business unit sales growth, in addition to consolidated sales growth. Based on these factors, the company concludes that it operates in one segment. Sales are attributed to countries based upon the location of product shipped. Geographic financial information is as follows: ThreeMonths Ended March31, 2010 2009 Net sales to unaffiliated customers: United States $ 202 $ 192 Germany 57 54 International 313 273 Total $ 572 $ 519 March31, 2010 December31, 2009 Long-lived assets: United States $ 473 $ 472 International 276 284 Total $ 749 $ 756

Share Repurchases

Share Repurchases
	3 Months Ended Mar. 31, 2010
Share Repurchases	(12) Share Repurchases At both March31, 2010 and December31, 2009, the Company had repurchased a total of 94million shares of an authorized repurchase of 100million shares. The Company has 6million remaining shares authorized for purchase; but, the timing and number of shares purchased, if any, depends upon market conditions and other factors. There were 121million shares outstanding as of March31, 2010.

Pension and post-retirement ben

Pension and post-retirement benefits
	3 Months Ended Mar. 31, 2010
Pension and post-retirement benefits	(13) Pension and post-retirement benefits The components of the net periodic benefit costs for the three months ended March31, 2010 and 2009 are as follows: Pension Plans Post- Retirement Medical Benefit Plans United States International 2010 2009 2010 2009 2010 2009 Service cost $ 2 $ 2 $ 2 $ 2 $ $ Interest cost 2 2 2 2 1 1 Expected return on plan assets (2 ) (2 ) (2 ) (2 ) Amortization 1 1 1 Net periodic benefit cost $ 3 $ 3 $ 2 $ 3 $ 1 $ 1 Pension and post-retirement benefitsconsisted of the following: March31, 2010 December31, 2009 Retiree medical liability $ 43 $ 43 Pension liability 55 54 Subtotal 98 97 Less: current portion (included in other current liabilities) (3 ) (3 ) Pension and post-retirement benefits $ 95 $ 94 The Company is not required to make a contribution to its U.S. pension plan in 2010. The Company contributed $1 to its international pension plans in the three months ended March31, 2010. In total, the Company expects to contribute approximately $5 to its defined benefit pension plans in 2010. The Companys 401(k) retirement savings plan provides retirement benefits to eligible U.S. employees in addition to those provided by the pension plan. The plan permits participants to voluntarily defer a portion of their compensation, subject to Internal Revenue Code limitations. The Company also contributes a fixed amount per year to the account of each eligible employee plus a percentage of the employees salary deferral. The cost for this plan was $3 and $2 for the three months ended March31, 2010 and 2009, respectively.

Other Assets and Liabilities

Other Assets and Liabilities
	3 Months Ended Mar. 31, 2010
Other Assets and Liabilities	(14) Other Assets and Liabilities Other current assets Other current assets are summarized as follows: March31, 2010 December31, 2009 Other receivables $ 12 $ 15 Prepaid expenses 29 32 Certificates of deposit 25 14 Deferred taxes 65 56 Total other current assets $ 131 $ 117 Other assets Other assets are summarized as follows: March31, 2010 December31, 2009 Other investments $ 13 $ 13 Life insurance policies 21 18 Deferred taxes 43 44 Other non-current assets 16 16 Total other assets $ 93 $ 91 Other current liabilities Other current liabilities are summarized as follows: March31, 2010 December31, 2009 Payroll $ 56 $ 51 Income taxes 70 42 Other accrued expenses 70 60 Total other current liabilities $ 196 $ 153 Other Liabilities Other liabilities are summarized as follows: March31, 2010 December31, 2009 Deferred compensation $ 31 $ 30 Deferred taxes 29 30 Other non-current liabilities 7 9 Total other non-current liabilities $ 67 $ 69

Contingent Liabilities and Comm

Contingent Liabilities and Commitments
	3 Months Ended Mar. 31, 2010
Contingent Liabilities and Commitments	(15) Contingent Liabilities and Commitments The Company is involved in legal proceedings generally incidental to its business, as described below: Insurance and Other Contingent Liabilities and Commitments The Company is a defendant in several lawsuits and claims related to the normal conduct of its business, including lawsuits and claims related to product liability and personal injury matters. The Company accrues for such liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. The Company has self-insured retention limits and has obtained insurance to provide coverage above the self-insured limits for product liability and personal injury claims, subject to certain limitations and exclusions. Reserves have been provided to cover expected payments for these self-insured amounts at March31, 2010. In one group of lawsuits and claims, the Company provided a product for use in research activities in developing various vaccines at pharmaceutical companies. The Company, together with other manufacturers and distributors offering the same product and several pharmaceutical companies, has been named as a defendant and served in 294 lawsuits, of which 128 lawsuits have been dismissed to date. Several of the outstanding suits have been stayed by various state and federal courts pending a decision on coverage available under a U.S. federal government relief program. No definite date has been set for this decision. In all cases, the Company believes its products in question were restricted to research use and that proper information for safe use of the products was provided to the customer. A class action complaint was filed against a subsidiary of the Company in the Montgomery County, Ohio Court of Common Pleas related to a 2003 explosion in a column at the Companys Isotec facility in Miamisburg, Ohio. The case was separated into the following four phases: phase one existence of liability, phase two quantification of any compensatory damages, phase three existence of any punitive damages and phase four quantification of any punitive damages. Class certification was granted to phases one, three and four, but denied to phase two. Compensatory damages for all plaintiffs must be established before the case can proceed to the punitive damages phases. The Company has accepted responsibility for phase one, existence of liability. The case is currently in the compensatory damages phase, where, because no class status exists, each plaintiff must individually establish actual damages. The initial phase two, compensatory damages trial, for 31 plaintiffs was completed on April27, 2007 with a jury verdict establishing actual damages of approximately two hundred dollars per plaintiff. The plaintiffs filed an appeal staying further action on the case until the appeal has been resolved. The Ohio Court of Appeals reversed the jurys verdict on compensatory damages. The Ohio Supreme Court has heard oral argument in December 2009, with a decision expected in 2010. The Company continues to believe it has substantial legal defenses to the allegations, which it will vi