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EX-31.1 - CEO CERTIFICATION - SIGMA ALDRICH CORPsial-20141231xexhibit311xc.htm
EX-21 - EXHIBIT 21 - SIGMA ALDRICH CORPsial-20141231xexhibit21xsu.htm
EX-23 - KPMG CONSENT - SIGMA ALDRICH CORPsial-20141231xexhibit23xkp.htm
EX-32.1 - CEO SARBOX CERTIFICATION - SIGMA ALDRICH CORPsial-20141231xexhibit321xc.htm
EX-32.2 - CFO SARBOX CERTIFICATION - SIGMA ALDRICH CORPsial-20141231xexhibit322xc.htm
EXCEL - IDEA: XBRL DOCUMENT - SIGMA ALDRICH CORPFinancial_Report.xls
EX-31.2 - CFO CERTIFICATION - SIGMA ALDRICH CORPsial-20141231xexhibit312xc.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10–K

(Mark one)
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014         
OR
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 
 
 
 
 
Commission file number: 0-8135
SIGMA-ALDRICH CORPORATION

(Exact name of registrant as specified in its charter)
Delaware
 
43-1050617
State or other jurisdiction of incorporation or organization
 
(I.R.S. Employer Identification No.)
 
 
3050 Spruce Street, St. Louis, Missouri
 
63103
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant's telephone number, including area code: 314-771-5765
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1.00 par value
 
NASDAQ
Title of each class
 
Name of exchange on which registered
 
 
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  ¨    No  ý
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý             Accelerated filer ¨
Non-accelerated filer ¨             Smaller reporting company ¨






Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ¨    No  ý
Aggregate market value of the voting stock held by non-affiliates of the registrant: 
$10,494,011,992
 
June 30, 2014
Value
 
Date of Valuation
 
 
 
Number of shares of the registrant's common stock, $1.00 par value, outstanding as of January 31, 2015 was 119,428,462. The following documents are incorporated by reference in the Parts of this Form 10-K indicated below:
 
 
 
Documents Incorporated by Reference
 
Parts of Form 10-K into which Incorporated
 
 
Portions of the Registrant's Definitive Proxy Statement on Schedule 14A for the 2015 Annual Meeting of Shareholders to be held on May 5, 2015
 
Part III



















































Table of Contents
 
 
 
 
 
Page
 
Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
Principal Accountant Fees and Services
 
 
 
 
 
 
 
 
 










Glossary
2003 LTIP
Sigma-Aldrich Corporation 2003 Long-Term Incentive Plan
2014 LTIP
Sigma-Aldrich Corporation 2014 Long-Term Incentive Plan
2015 Proxy Statement
Sigma-Aldrich Corporation Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders to be held on May 5, 2015
Aldrich
Aldrich Chemical Company, Inc.
AOCI
Accumulated Other Comprehensive Income
APAC
Asia Pacific Region
Applied
Applied Business Unit
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BioReliance
BioReliance Holdings, Inc.
Board
Sigma-Aldrich Corporation Board of Directors
CAA
Clean Air Act
CBP
U.S. Customs and Border Protection
Cell Marque
Cell Marque Corporation
CEO
Sigma-Aldrich Corporation Chief Executive Officer
CERCLA
Comprehensive Environmental Response, Compensation and Liability Act of 1980
CFO
Sigma-Aldrich Corporation Chief Financial Officer
Company, we, us or our
Sigma-Aldrich Corporation
CWA
Clean Water Act
DEA
U.S. Drug Enforcement Administration
DHS
U.S. Department of Homeland Security
DOC
U.S. Department of Commerce
DOT
U.S. Department of Transportation
EDI
Electronic Data Interchange
Effective tax rate
Income tax expense expressed as a percentage of income before income taxes
EMEA
Europe, Middle East and Africa Region
EPS
Earnings Per Share
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FDA
U.S. Food and Drug Administration
FX
Foreign Currency Exchange Rate
Gross profit margin
Gross profit as a percentage of sales
LED
Light-Emitting Diode
Merck KGaA
Merck KGaA, a German corporation with general partners
Merger Agreement
Agreement and Plan of Merger, dated as of September 22, 2014, by and among the Company, Merck KGaA and Merger Sub
Merger Sub
Mario II Finance Corp., a Delaware corporation and an indirect wholly owned subsidiary of Merck KGaA
NASDAQ
National Association of Securities Dealers Automated Quotation System
NRC
U.S. Nuclear Regulatory Commission
OCI
Other Comprehensive Income
Operating income margin
Operating income as a percentage of sales
Organic sales growth
Sales growth excluding impacts from changes in foreign currency exchange rates and acquisitions and divestitures
PPA
Pollution Prevention Act of 1990

- i -


R&D
Research and Development
RCRA
Resource Conservation and Recovery Act of 1976
Report
Sigma-Aldrich Corporation Annual Report on Form 10-K for the year ended December 31, 2014
Research
Research Business Unit
Research Organics
Research Organics, Inc.
RSU
Restricted Stock Unit
SAFC Commercial
SAFC Commercial Business Unit
Sangamo
Sangamo BioSciences, Inc.
SARA
Superfund Amendments and Reauthorization Act of 1986
SEC
U.S. Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
September 22, 2014 Form 8-K
Current Report on Form 8-K filed with the SEC on September 22, 2014
SG&A
Selling, General and Administrative Expense
Sigma Chemical
Sigma Chemical Company
Total Americas
Total Americas Region consisting of North and Latin America
UK
United Kingdom
USDA
U.S. Department of Agriculture
U.S. GAAP
U.S. Generally Accepted Accounting Principles
ZFP
Zinc Finger DNA Binding Protein



- ii -


Forward-Looking Statements

This Report may include or incorporate forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that involve risks and uncertainties, including financial, business environment and projections, as well as statements that are preceded by, followed by or that include the words "believes," "can," "expects," "plans," "anticipates," "should" or similar expressions, and other statements contained herein regarding matters that are not historical facts. Additionally, this Report contains forward-looking statements relating to future performance, goals, strategic actions and initiatives and similar intentions and beliefs, including, without limitation, statements with respect to the Company's expectations, goals, beliefs, intentions and the like regarding future sales, earnings, return on equity, cost savings, process improvements, free cash flow, share repurchases, capital expenditures, acquisitions and other matters. These statements are based on assumptions regarding Company operations, investments and acquisitions and conditions in the markets the Company serves. The Company believes these assumptions are reasonable and well founded.

The statements in this Report are subject to risks and uncertainties, including, among others, certain economic, political and technological factors. Actual results could differ materially from those stated or implied in this Report, due to, but not limited to, such factors as:

(1)
successfully completing our proposed merger with Merck KGaA, which is dependent upon and/or may be affected by a number of factors, including, without limitation, the timely receipt of the regulatory approvals required for the transaction;
(2)
potential disruption to our business occurring during the period between the announcement of the Merger Agreement and the closing of the transaction;
(3)
global economic conditions and other factors affecting the creditworthiness of our customers;
(4)
changes in pricing and the competitive environment and the global demand for the Company's products;
(5)
changes in foreign currency exchange rates;
(6)
changes in research funding, including changes in funding of various government agencies including but not limited to the National Institute of Health, and the success of R&D activities;
(7)
failure of planned sales initiatives in our Research, Applied and SAFC Commercial business units;
(8)
dependence on uninterrupted manufacturing operations and a global supply chain;
(9)
changes in the regulatory environment in which the Company operates;
(10)
changes in worldwide tax rates or tax benefits from domestic and international operations, including the matters described in Note 12 – Income Taxes to the Company's consolidated financial statements in Item 8 - Financial Statements and Supplementary Data of Part II of this Report;
(11)
exposure to litigation, including product liability claims;
(12)
the ability to maintain adequate quality standards;
(13)
reliance on third party package delivery services;
(14)
an unanticipated increase in interest rates;
(15)
other changes in the business environment in which the Company operates;
(16)
acquisitions or divestitures of businesses;
(17)
the amount of restructuring charges, if any;
(18)
disruption to our information technology systems, and
(19)
the outcome of the outstanding matters described in Note 13 – Contingent Liabilities and Commitments to the Company's consolidated financial statements in Item 8 - Financial Statements and Supplementary Data of Part II of this Report.
A further discussion of the Company's risk factors can be found in Part I, Item 1A of this Report. Any forward-looking statement made by us in this Report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
 






- iii -


PART I

Unless we have indicated otherwise, or the context otherwise requires, (i) references in this Report to "the Company," "we," "us" and "our" refer to Sigma-Aldrich Corporation and its subsidiaries, and (ii) all dollar amounts in this Report are in millions except for per share data.

Information in this Form 10-K is current as of February 12, 2015, unless otherwise specified.
Item 1.
Business.
(a)
General Development of Business
The Company was incorporated under the laws of the State of Delaware in May 1975. Effective July 31, 1975 (the "Reorganization"), the Company succeeded, as a reporting company, Sigma International, Ltd., the predecessor of Sigma Chemical, and Aldrich Chemical, both of which had operated continuously for more than 20 years prior to the Reorganization. The Company's principal executive offices are located at 3050 Spruce Street, St. Louis, Missouri, 63103.
On September 22, 2014, Sigma-Aldrich Corporation entered into the Merger Agreement with Merck KGaA. The Merger Agreement, among other things, provides for Merck KGaA to acquire the Company at a price of $140 per share in cash, without interest.  The acquisition will be accomplished through the merger of Merger Sub with and into the Company, with the Company continuing as the surviving corporation and an indirect wholly-owned subsidiary of Merck KGaA. The Merger Agreement and the consummation of the transactions contemplated thereby were unanimously approved by the Board. A special meeting of stockholders of the Company was held on December 5, 2014, whereby stockholders voted upon and approved a proposal to adopt the Merger Agreement. The Merger Agreement remains subject to the satisfaction or waiver of specified closing conditions, including the receipt of certain antitrust and governmental approvals and other customary closing conditions.
On October 31, 2014, the Company acquired Cell Marque Corporation, an industry-leading provider of in vitro diagnostic antibody reagents and kits.
 
(b)
Financial Information About Segments
The Company operates in one segment. Information concerning sales for the Company's business units is provided in Note 15 – Company Operations by Business Unit to the Company's consolidated financial statements in Item 8 - Financial Statements and Supplementary Data of Part II of this Report.
 
(c)
Narrative Description of Business

The Company, a leading life science and high technology company focused on enhancing human health and safety, manufactures and distributes 250,000 chemicals, biochemicals and other essential products and 46,000 equipment products to more than 1.4 million customers globally in research and applied labs as well as in industrial and commercial markets. With three distinct business units – Research, Applied and SAFC Commercial – the Company is committed to enabling science to improve the quality of life. The Company operates in 37 countries and sells into approximately 160 countries, serving roughly 100,000 accounts worldwide.  The Company manufactures approximately 84,000 of its products.
Products and Services
The Company's business unit structure is aligned into three market-focused business units that are defined by the customers and markets they serve: Research, Applied and SAFC Commercial.
Research - Our products and services, which include chemicals, reagents and kits, are enabling scientific research to discover and develop new drugs and materials;
Applied - Our products and services, which primarily include high quality components and kits, chemical reagents, critical raw materials and certified reference standards, provide customized solutions to and constitute critical components and materials for diagnostic companies, testing laboratories and industrial companies;
SAFC Commercial - Our product and service solutions are used by customers to develop and commercially manufacture biopharma, pharma and electronics products. Our comprehensive offerings include media and critical raw materials for industrial cell culture, contract manufacturing services, pharmaceutical safety testing services, and organometallic precursors for semiconductor manufacturing.

- 1 -


Sales and Distribution
During 2014, the Company sold products and services to approximately 100,000 accounts representing over 1.4 million individual customers, including pharmaceutical companies, universities, commercial laboratories, industrial companies, biotechnology companies, non-profit organizations, governmental institutions, diagnostic, chemical and electronics companies and hospitals. Our Research and Applied business units, with an average order size of approximately $500 dollars, accounted for 75 percent of the Company's net sales in 2014 and 2013 and 76 percent of the Company's net sales in 2012. Through its SAFC Commercial business unit, the Company also makes its chemical products available in larger-scale quantities for use in manufacturing. Sales of these products accounted for 25 percent of net sales in 2014 and 2013 and 24 percent of net sales in 2012.
Customers and potential customers, wherever located, are encouraged to contact the Company by telephone or via its website (www.sigma-aldrich.com) to place orders or obtain technical staff consultation. Information on the website does not constitute a part of this Report. Shipments are made every scheduled work day from all locations conducting distribution activities. The Company strives to ship its products to customers on or near the same day an order is received and carries inventory levels which it believes appropriate to maintain this practice.
Production and Purchasing
The Company has manufacturing and distribution facilities in Madison, Milwaukee and Sheboygan, Wisconsin; St. Louis, Missouri; Lenexa, Kansas; Houston and Round Rock, Texas; Bellefonte, Pennsylvania; Haverhill and Natick, Massachusetts; Urbana, Illinois; Miamisburg and Cleveland, Ohio; Carlsbad and Rocklin, California; Laramie, Wyoming; Australia; Brazil; Canada; Germany; India; Ireland; Israel; Japan; Singapore; Switzerland; Taiwan; and the United Kingdom. Biochemicals are primarily produced by extraction and purification from yeast, bacteria and other naturally occurring animal and plant sources. Organic and inorganic chemicals are primarily produced by synthesis. Chromatography media and columns are produced using proprietary chemical synthesis and proprietary preparation processes. Similar processes are used to produce filtration and sample collection products.
There are approximately 250,000 chemical and biochemical products and 46,000 equipment products listed on our web site and in the Sigma, Aldrich, Fluka and Supelco catalogs. The Company manufactures approximately 84,000 of the chemical and biochemical products it sells, which represented approximately 60 percent of sales in 2014. Products not manufactured by the Company are purchased from many sources either under contract or in the open market.
None of the Company's 10,000 suppliers accounted for more than 5 percent of the Company's chemical, biologic or equipment purchases in 2014. The Company has generally been able to obtain adequate supplies of products and materials to meet its needs. No assurance can be given that shortages will not occur in the future.

Whether a product is produced by the Company or purchased from suppliers it is subjected to the same quality control procedures. Quality control is performed by a staff of chemists, biologists and lab technicians in our network of labs around the world.
Patents, Trademarks and Licenses
The Company holds approximately 470 issued or pending patents, over 800 licenses and has over 950 registered trademarks and trademark applications worldwide. The Company's significant trademarks are the brand names: "Sigma-Aldrich," "Sigma," "Aldrich," "Fluka," "Riedel-de Haën," "Supelco," "SAFC," "SAFC Biosciences," "SAFC Hitech," "Genosys," "Proligo," "Pharmorphix," "Cerilliant," "Vetec," "BioReliance" and "Cell Marque." Their related registered logos and trademarks are expected to be maintained indefinitely. Approximately 75 percent of the Company's issued patent portfolio has a remaining life of at least five years.
The Company is aware of the desirability for patent and trademark protection for its products. The Company believes that other than its brand names, no single patent, license or trademark (or related group of patents, licenses or trademarks) is material in relation to its business as a whole.
In addition to patents, the Company relies on trade secrets and proprietary know-how in the conduct of its business. The Company seeks protection of these trade secrets and proprietary know-how, in part, through confidentiality and proprietary information agreements. The Company makes efforts to require its employees, directors, consultants and advisors, outside scientific collaborators and sponsored researchers, other advisors and other individuals and entities to execute confidentiality agreements upon the start of employment, consulting or other contractual relationships with the Company. These agreements provide that all confidential information developed or made known to the individual or entity during the course of the relationship is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees and some other parties, the agreements provide that all inventions conceived by the individual will be the Company's exclusive property. These agreements may not provide meaningful protection for or adequate remedies

- 2 -


to protect the Company's technology in the event of unauthorized use or disclosure of information. Furthermore, the Company's trade secrets may otherwise become known to, or be independently developed by, its competitors.
Dependence on a Single Customer or Product
During the year ended December 31, 2014, no single customer accounted for more than 2 percent, and no single product accounted for more than 1 percent, of the Company's net sales.
Backlog
The vast majority of customer orders are shipped from inventory on the day ordered, resulting in limited backlog. Individual items may occasionally be out-of-stock. These items are shipped as soon as they become available. Some orders for larger scale quantities specify a future delivery date, which we exclude from our backlog calculation. At December 31, 2014, the backlog of firm orders was not significant at approximately 4 percent of sales. The Company anticipates that substantially all of the backlog as of December 31, 2014 will be shipped during 2015.
Competition
The markets for the Company's products, services and technologies are both competitive and price sensitive. The Company believes it is a major supplier of biochemical and organic chemical products and kits used in scientific research and testing laboratories, including industrial applications, genomic and proteomic research, biotechnology, pharmaceutical development and as key components in pharmaceutical, diagnostic, environmental and other high technology manufacturing. The Company offers approximately 296,000 chemical, biologic and equipment items, some of which are unique with limited demand. There are many competitors that offer a narrower range of chemicals and many others offering a broader range of equipment products.
In all product areas, the Company competes primarily on the basis of customer service, product availability, quality and price. The Company's main marketing vehicles include its website, www.sigma-aldrich.com, as well as printed catalogs under the Sigma, Aldrich, Fluka and Supelco brands. These vehicles are supplemented with advertisements in life science, chemical and other scientific journals and trade publications, the distribution of special product brochures, the electronic distribution of various advertisements and product data, apps, social media, news releases related to new product offerings and through personal visits with customers from management, sales and technical representatives.

Compliance with Regulations
The Company is subject to extensive regulation by federal, state and local governments and similar international agencies relating to the manufacture, sale and distribution of its products. These regulations govern the Company’s manufacture, use, labeling, packaging, storage and distribution of chemicals and hazardous substances. The Company is also subject to import, export and customs regulations, similar international laws and regulations, and statutes and regulations relating to government contracting. The Company has automated systems, processes and procedures in place to support compliance with these regulations, which are enforced by governmental agencies such as the CBP, DEA, DHS, DOC, DOT, FDA, NRC and USDA and similar international agencies.
The Company believes that it is in compliance in all material respects with federal, state and local regulations relating to the manufacture, sale and distribution of its products. The Company also believes that due to its automated systems, processes and procedures in place it conducts its global business in compliance in all material respects with applicable statutes and regulations as promulgated in the more than 160 countries into which we sell our products. While we believe we are in compliance in all material respects with such laws and regulations, any noncompliance could result in substantial fines or otherwise restrict our ability to conduct our business.
The Company is also subject to federal, state, local and international laws and regulations regulating the emission or discharge of materials into the environment, or otherwise relating to the protection of the environment, in those jurisdictions where the Company operates or maintains facilities. Examples of these laws and regulations include, but are not limited to, the CAA, CWA, CERCLA, SARA, PPA and RCRA. The Company does not believe that any liability arising under, or compliance with, these laws and regulations will have a material effect on our business, and no material capital expenditures are currently expected for environmental control.
R&D
R&D expenses were 2.4 percent of sales in 2014 and 2013 and 2.6 percent of sales in 2012. The R&D expenses relate primarily to efforts to add new manufactured products and enhance manufacturing processes. Self-manufactured products accounted for approximately 60 percent of net sales in 2014.

- 3 -


Number of Persons Employed
The Company had approximately 9,300 employees as of December 31, 2014. The total number employed in the United States was approximately 4,700 with the remaining 4,600 employed by the Company's international subsidiaries. The Company employs approximately 3,300 people who have degrees in chemistry, biochemistry, engineering or other scientific disciplines, including approximately 430 with Ph.D. degrees.
Approximately 281 of the 4,600 persons employed by the Company's international subsidiaries were members of unions. None of the Company's employees in the United States were members of unions. The Company believes its labor relations are good.
 
(d)
Financial Information About Geographic Areas and Business Units
Information concerning sales by geographic area and business unit for the years ended December 31, 2014, 2013 and 2012, is located in Note 15 – Company Operations by Business Unit to the Company's consolidated financial statements in Item 8 - Financial Statements and Supplementary Data of Part II of this Report.
The Company's sales to customers located outside the United States were 64 percent in 2014 and 2013 and 65 percent in 2012. These sales were made directly by the Company, by its subsidiaries located in 37 other countries and by a global network of independent distributors.
 
(e)
Available Information
The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Definitive Proxy Statements on Schedule 14A and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are available on the Company's web site at www.sigma-aldrich.com as soon as reasonably practicable after being filed electronically with or furnished to the SEC. The information on the website does not constitute part of this Report.

(f)
Executive Officers of the Registrant
The executive officers of the Company are: 
Name of Executive Officer
 
Age
 
Positions and Offices Held
Jan A. Bertsch
 
58

 
Executive Vice President and Chief Financial Officer
Gilles A. Cottier
 
56

 
Executive Vice President and President, SAFC Commercial
Eric M. Green
 
45

 
Executive Vice President and President, Research
Michael F. Kanan
 
51

 
Vice President and Corporate Controller
George L. Miller
 
60

 
Senior Vice President, General Counsel & Secretary
Karen J. Miller
 
57

 
Senior Vice President, Corporate Development and Corporate Communications
Douglas W. Rau
 
58

 
Vice President, Human Resources
Rakesh Sachdev
 
58

 
President and Chief Executive Officer
Franklin D. Wicks
 
61

 
Executive Vice President and President, Applied
There is no family relationship between any of the officers or directors. These officers serve at the pleasure of the Board subject to the terms of any employment or similar agreements.
Ms. Bertsch has been Executive Vice President and Chief Financial Officer of the Company since March 2012. She also served as Treasurer from September 2012 until September 2013. She was previously Vice President, Controller and Principal Accounting Officer of Borg Warner Inc. from August 2011 to February 2012 and Vice President and Treasurer of Borg Warner Inc. from December 2009 to July 2011. From July 2008 to November 2009, Ms. Bertsch was Senior Vice President, Treasurer and Chief Information Officer for Chrysler Group, LLC and Chrysler LLC, and from May 2006 to June 2008, she was Chief Information Officer of Daimler Chrysler's Chrysler Group and Mercedes Benz NAFTA organizations and Chrysler LLC.
Mr. Cottier has been Executive Vice President and President, SAFC Commercial of the Company since January 2013. Prior to that, he was President of SAFC since January 2009 and was made an Executive Vice President of the Company in 2011. He served as President of the Research Essentials business unit of the Company from July 2005 until January 2009.

- 4 -


Mr. Green has been Executive Vice President and President, Research of the Company since January 2013. Prior to that, he was Vice President and Managing Director, International (or APAC) of the Company since October 2009. Previously, he served as Vice President, International Sales and Operations of the Company from August 2005 to September 2009.
Mr. Kanan has been Vice President and Corporate Controller of the Company since April 2009. Prior to that, he served as Vice President Finance-Light Vehicle Systems of ArvinMeritor from October 2006 to April 2009.
Mr. Miller has been Senior Vice President, General Counsel and Secretary of the Company since October 2009. Prior to that, he served as General Counsel of Novartis Services, Inc. from September 2008 to September 2009, and as General Counsel of Novartis Corporation from December 2005 to August 2008.
Ms. Miller has been Senior Vice President, Corporate Development and Corporate Communications of the Company since January 2013. Prior to that, she was Senior Vice President, Strategy & Corporate Development of the Company since May 2009 and was previously Vice President, Strategy & Corporate Development of the Company from January 2009 through May 2009. Prior to that, she served as Controller of the Company for more than five years.
Mr. Rau has been Vice President, Human Resources of the Company since October 2005.
Mr. Sachdev has been President and Chief Executive Officer of the Company since November 2010. He previously served as Senior Vice President, Chief Financial Officer and Chief Administrative Officer of the Company from May 2009 to November 2010. Previously, he served as Vice President and Chief Financial Officer of the Company from November 2008 to May 2009. Prior to that, he served as Senior Vice President and President, Asia Pacific of ArvinMeritor from March 2007 to July 2008.
Dr. Wicks has been Executive Vice President and President, Applied of the Company since January 2013. Prior to that, he was President of Research and has been an Executive Vice President of the Company since February 2011. He previously served as President of the Research Essentials and Specialties business units of the Company from January 2009 to February 2011 and Managing Director-U.S. & Canada from January 2010 to February 2011. Prior to that, he served as President of SAFC for more than five years.


- 5 -


Item  1A.
Risk Factors.

Our business is subject to certain risks and uncertainties, including, among others, certain economic, political and technological factors. You should carefully consider the risk factors below, together with other matters described in this Report or incorporated herein by reference, in evaluating our business and prospects. If any one or more of the following risks occurs, our business, results of operations, financial condition, cash flows and liquidity could be adversely impacted and the trading price of our common stock could decline. Additional risks not presently known to us or that we currently deem immaterial may also adversely impact our business, results of operations, financial condition, cash flows and liquidity.

The announcement and pendency of our proposed merger with Merck KGaA could adversely affect our business, financial results and operations.

The announcement and pendency of the proposed acquisition of our Company by Merck KGaA could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and operations, regardless of whether the proposed merger is completed. In particular, we could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the proposed acquisition. We could also potentially lose customers or suppliers, and new customer or supplier contracts could be delayed or decreased. In addition, we have diverted, and will continue to divert, significant management resources towards the completion of the transaction, which could adversely affect our business and results of operations.

We are also subject to restrictions on the conduct of our business prior to the consummation of the merger as provided in the Merger Agreement, including, among other things, certain restrictions on capital spending levels, our ability to repurchase shares, increase our dividend, acquire other businesses, sell, transfer or license our assets, amend our organizational documents and incur indebtedness. These restrictions could result in our inability to respond effectively to competitive pressures, industry developments and future opportunities and may otherwise harm our business, financial results and operations.

Failure to complete the proposed merger could adversely affect our business and the market price of our common stock.

There is no assurance that the closing of the merger will occur. Consummation of the merger is subject to satisfaction or waiver of specific closing conditions, including, among other things, the receipt of certain antitrust and governmental approvals and other customary closing conditions. We cannot predict with certainty whether and when any of the outstanding conditions will be satisfied. In addition, the Merger Agreement may be terminated under certain specified circumstances. If the Merger Agreement is terminated under specified circumstances, we are required to pay Merck KGaA a termination fee. If the merger is not consummated, our stock price will likely decline as our stock has recently traded at prices based on the proposed per share price for the merger. We will have incurred significant costs, including, among other things, the diversion of management resources, for which we may receive little or no benefit if the closing of the merger does not occur. A failed transaction may result in negative publicity and a negative impression of our Company in the investment community. The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and our stock price.

Our performance may be affected by the economic conditions in the United States and in other nations where we do business.
Declining economic conditions as a result of inflation, rising interest rates, limitations on access to and the functioning of capital markets, changes in spending patterns at pharmaceutical, biotechnology and diagnostic companies and the effects of governmental initiatives to manage economic conditions may have a negative impact on our consolidated results of operations, financial condition and cash flows. Overall demand for our products could be reduced as a result of a global economic recession, especially in such customer segments as the pharmaceutical, biotechnology, diagnostic, chemical, industrial and electronics industries and academia.
We face significant competition, including changes in pricing.
The markets for our products and services are both competitive and price sensitive. Many of our competitors have significant financial operations, sales and marketing resources and experience in research and development. Existing or new competitors could develop new technologies that compete with our products and services or even render our products obsolete. If a competitor develops superior technology or cost-effective alternatives to our products and services, our business could be harmed.

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The markets for some of our products are also subject to specific competitive risks because these markets are highly price competitive. Our competitors have competed in the past by lowering prices on certain products. If they do so again, we may be forced to respond by lowering our prices. This may reduce profits and possibly sales. Failure to anticipate and respond to price competition may also impact sales and profits.
New entrants or significant expansion of sales channel and logistics competitors may erode sales.

Our businesses are rapidly evolving and intensely competitive, and we have many competitors in e-commerce services, warehousing and logistics. Some of our current and potential competitors have greater resources, more customers, and/or greater brand recognition. They may secure better terms from vendors, adopt more aggressive pricing and devote more resources to technology, infrastructure, fulfillment and marketing. Competition may intensify as our competitors deploy or improve their technology and speed of delivery to customers or as established companies in other market segments expand to become competitive with our business. In addition, new and enhanced technologies, including search, web and infrastructure computing services, digital content and electronic devices, may increase our competition. The Internet facilitates competitive entry and comparison shopping, and increased competition may reduce our sales and profits.

Consolidation trends in both our industry and that of our customers have changed industry dynamics.

The industries in which we compete have been subject to increasing consolidation for the past several years. Consolidation in our industries could result in existing competitors increasing their market share through business combinations and result in stronger competitors, which could have a material adverse effect on our business, results of operations, financial condition and cash flows. We cannot predict with certainty how industry consolidation would affect our competitive position.
Additionally, there has been a trend toward consolidation among our customers, notably in the pharmaceutical industry. Consolidation in our customer markets results in increased competition for important market segments and fewer available accounts. Larger consolidated customers may be able to exert increased pricing pressure on industry participants.
We must continually offer new products and technologies.
Our success depends in large part on continuous and timely development and introduction of new products that address evolving customer needs and changes in the market. We believe customers in our markets display a significant amount of loyalty to their supplier of a particular product. We also believe that because of the initial time investment required by many of our customers to reach a purchasing decision for a new product, it may be difficult to regain that customer once the customer purchases a product from a competitor. To the extent we are not the first to develop, offer and/or supply new products, customers may buy from our competitors or make products themselves, causing our competitive position to suffer.
These facts have led us to focus significant efforts and resources on the development and identification of new technologies, products and services. As a result, we have a very broad product line and are continually seeking to develop, license or acquire new technologies, products and services to further broaden our offerings. If we fail in these efforts, our customers likely will purchase products from our competitors, significantly harming our business. Once we develop or obtain a technology, to the extent that we fail to timely introduce new and innovative products that are accepted by our markets, we could fail to obtain an adequate return on our R&D, licensing and acquisition investments and could lose market share to our competitors, which may be difficult or impossible to regain and could damage our business.
In addition, technology innovations, which our current and potential customers might have access to, could create alternatives to our products and reduce or eliminate the need for our products. Our failure to develop, introduce or enhance products able to compete with new technologies in a cost-effective and timely manner could have an adverse effect on our business, results of operations and financial condition.
Our sales and results of operations depend on our customers’ research and development efforts and their ability to obtain funding for these efforts.
Our customers include researchers at companies in the pharmaceutical, biotechnology, diagnostic, chemical, electronics and related industries, academic institutions, government laboratories and private foundations. Fluctuations in the R&D budgets of these researchers and their organizations could have a significant effect on the demand for our products. Our customers determine their R&D budgets based on several factors, including the need to develop new products, the availability of governmental and other funding, competition and the general availability of resources. As we continue to expand our international operations, we expect R&D spending levels in markets outside of the United States will become increasingly important to us.

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R&D budgets fluctuate due to changes in available resources, spending priorities, general economic conditions, institutional and governmental budgetary limitations and mergers of companies in the key industry sectors we serve. Our business could be seriously harmed by any significant decrease in life science and high technology R&D expenditures by our customers. In addition, credit availability may impact the ability of small, emerging pharmaceutical, biotechnology and diagnostic companies to access funding.
A portion of our sales have been to researchers whose funding is dependent on grants from government agencies across the globe. In the United States, these agencies include the U.S. National Institute of Health, the National Science Foundation, the National Cancer Institute and similar agencies or organizations. Government funding of research and development is subject to the political process and budget process, which are often unpredictable. Any shift away from funding of life science and high technology R&D, delays surrounding the approval of governmental budget proposals or further United States federal government shutdowns may cause our customers to delay or forgo purchases of our products and services, which could damage our business.
Some of our customers receive funds from approved grants at a particular time of year, many times set by government budget cycles. In the past, such grants have been frozen for extended periods or have otherwise become unavailable to various institutions without advance notice. The timing of the receipt of grant funds may affect the timing of purchase decisions by our customers and, as a result, cause fluctuations in our sales and operating results.
Likewise, public support of R&D in key markets in Europe and elsewhere has come under pressure, which may lead to decreased sales of our products in those jurisdictions.
The Company may not be able to realize the expected benefits of its investments in emerging markets.
The Company has been taking steps to increase its presence in emerging markets. However, there is no guarantee that the Company’s efforts to expand sales in emerging markets will succeed. Some countries within emerging markets may be especially vulnerable to periods of global financial instability or may have very limited resources to spend. In order for the Company to successfully implement its emerging markets strategy, it must attract and retain qualified personnel. The Company may also be required to increase its reliance on third-party agents within less developed markets. In addition, many of these countries have currencies that fluctuate substantially and if such currencies devalue and the Company cannot offset the devaluations, the Company’s financial performance within such countries could be adversely affected. For these reasons, sales within emerging markets carry significant risks. However, a failure to continue to expand the Company’s business in emerging markets could have a material adverse effect on the business, financial condition or results of the Company’s operations.
Due to heavy reliance on manufacturing and related operations to produce, package and distribute the products we sell, our business could be adversely affected by disruptions of these operations.
We rely upon our manufacturing operations to produce products accounting for approximately 60 percent of our sales and several products are produced solely at one facility. Our quality control, packaging and distribution operations support all of our sales. Any significant disruption of those operations for any reason, such as labor unrest, power interruptions, fire, natural disasters or other events beyond our control, could adversely affect our sales, product distribution and customer relationships and therefore adversely affect our business. While insurance coverage may reimburse us, in whole or in part, for profits lost from such disruptions, our ability to provide these products in the longer term may affect our sales growth expectations and results.
If we experience a significant disruption in our information technology systems or if we fail to implement new systems and software successfully, our business could be adversely affected.
We depend on information systems throughout the Company to control our manufacturing processes, process orders, manage inventory, process and bill shipments to and collect cash from our customers, respond to customer inquiries, contribute to our overall internal control processes, maintain records of our property, plant and equipment and record and pay amounts due vendors and other creditors. Additionally, in 2014, approximately 48 percent of the Company’s Research and Applied sales originated through e-commerce. As a part of our ongoing effort to upgrade our current information systems, we are implementing new enterprise resource planning software and other software applications to manage certain business operations. As we upgrade or change systems, we may suffer interruptions in service, loss of data or reduced functionality and other problems could arise that we have not foreseen. Such problems could adversely impact our ability to provide quotes, take customer orders and otherwise run our business in a timely manner. 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.

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Our information technology systems may be susceptible to damage, disruptions or shutdowns due to natural disasters, power outages, hardware failures, viruses, break-ins, sabotage, acts of terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. Although we strive to have appropriate security controls in place, prevention of security breaches cannot be assured, particularly as cyber threats continue to evolve. We may be required to expend additional resources to continue to enhance our security measures or to investigate and remediate any security vulnerabilities. If we were to experience a prolonged disruption in our information systems that involve interactions with customers and suppliers, it could result in the loss of sales and customers and/or increased costs, which could adversely affect our business.
We are subject to regulation by various federal, state, local and international agencies that require us to comply with a wide variety of regulations, including those regarding the manufacture and distribution of products and environmental matters.
Some of our operations are subject to regulation by various United States federal agencies and similar state and international agencies, including the CBP, DEA, DHS, DOC, DOT, FDA, NRC, USDA and other comparable United States, state, local and international governmental agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, handling, sales, distribution, importing and exporting of products. If we fail to comply with any or all of these regulations, we may be subject to fines or penalties, have to recall products and/or cease their manufacture and distribution, which would increase our costs and reduce our sales.
In addition to the foregoing, we have agreements in place for the sale of our products to government entities; consequently, we are subject to various statutes and regulations that apply to companies doing business with the government. A failure to comply with these statutes and regulations could result in suspension of these contracts, criminal, civil and administrative penalties or debarment.
We may be exposed to certain regulatory and financial risks related to climate change.
Our manufacturing processes for certain products involve the use of chemical and other substances that are regulated under various international, federal, state and local laws governing the environment. In the event that any future climate change legislation would require that stricter standards be imposed by domestic or international environmental regulatory authorities with respect to the use and/or levels of possible emissions from such chemicals and/or other substances, we may be required to make certain changes and adaptations to our manufacturing processes. There can be no assurance that any such changes would not have a material effect on our financial condition, results of operations and cash flows.
We are subject to regulations that govern the handling of hazardous substances.
We are subject to various international, federal, state and local laws and regulations that govern the handling, transportation, manufacture, use, storage, disposal and sale of substances that are or could be classified as toxic or hazardous substances. Some risk of environmental and property damage and environmental liabilities, including potential cleanup liability relating to currently or formerly owned or operated sites or third party disposal sites and liabilities relating to the exposure to hazardous substances, is inherent in our operations and the products we manufacture, sell or distribute. Any failure by us to comply with the applicable government regulations could also result in product recalls or impositions of significant fines and restrictions on our ability to carry on with or expand a portion or possibly all of our operations. If we fail to comply with any or all of these regulations, we may be subject to fines or penalties, have to recall products and/or cease their manufacture and distribution, which would increase our costs and reduce our sales.
Changes in worldwide tax rates or tax benefits will impact our tax expense and profits.
We are subject to a variety of taxes in numerous local, regional, national and international jurisdictions. The laws regulating the taxes to which we are subject may change. We have no control over these changes and their impact, if any, on our results. Additionally, results of tax audit activity may also impact our tax provision and our profits. We reflect changes in our actual or forecast income tax rates as relevant facts and circumstances are known to us.

Litigation may harm our business.
Substantial, complex or extended litigation could cause us to incur significant costs and distract our management. For example, lawsuits by governmental authorities, employees, shareholders, suppliers, collaborators, distributors, customers, competitors or others with protected intellectual property could be very costly and substantially disrupt our business. Disputes from time to time with such companies, organizations or individuals are not uncommon, and we cannot provide assurance that we will always be able to resolve such disputes or do so on terms favorable to us. Unexpected results could cause us to have financial exposure in these matters in excess of recorded reserves and insurance coverage, requiring us to provide additional reserves to address these liabilities, therefore impacting profits.

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Potential product liability claims could affect our earnings and financial condition and harm our reputation.
We face potential liability claims arising out of the use of or exposure to our products and/or services. We carry product liability insurance coverage, generally available in the market, but which is limited in scope and amount. While our products are generally used by trained scientists and operators, there is no assurance that they will be used in accordance with our terms and conditions of sale. As a result, we could be forced to defend ourselves in connection with the use of these products or services.
Although we seek to reduce our potential liability through measures such as contractual indemnification provisions with customers and/or suppliers, we cannot assure you that such measures will be enforced or effective. Our results of operations, financial position and cash flows could be materially and adversely affected if we were required to pay damages or incur defense costs in connection with a claim that is outside the scope of the indemnification agreements, if the indemnity, although applicable, is not executed in accordance with its terms or if our liability exceeds the amount of applicable insurance or indemnification. There can be no assurance that our insurance coverage will be adequate or that insurance coverage will continue to be available on terms acceptable to us. Unexpected results could cause us to have financial exposure in these matters in excess of recorded reserves and insurance coverage, requiring us to provide additional reserves to address these liabilities, therefore impacting profits.
If we fail to maintain adequate quality standards for our products and services, our business may be adversely affected and our reputation harmed.
Our life science and high technology customers are often subject to rigorous quality standards to obtain and maintain regulatory approval of their products and the manufacturing processes that generate them. A failure to maintain, or in some instances upgrade, our quality standards to meet our customers’ needs could result in a breach of our contractual obligations or the loss of a customer’s regulatory license, which may cause us to incur significant liabilities to such customers or result in substantial sales losses and reputational harm.
Demand for our products and services is subject to the commercial success of our customers’ products, which may vary for reasons outside our control.
Even if we are successful in securing utilization of our products in a customer’s manufacturing process, sales of many of our products and services remain dependent on the timing and volume of the customer’s production, over which we have no control. The demand for our products depends on regulatory approvals and frequently depends on the commercial success of the customer’s supported product. Regulatory processes are complex, lengthy and expensive and can often take years to complete. Commercial success of a customer’s product, which would drive demand in their production and commensurate demand for our products and services, is dependent on many factors, some of which can change rapidly, despite early positive indications.
We rely heavily on third party transportation providers and other package delivery services, and a significant disruption in these services or significant increases in prices may disrupt our ability to ship products or import materials, increase our costs, lower our profitability and harm our reputation.
We emphasize our prompt service and shipment of products as a key element of our sales and marketing strategy. We ship a significant number of products to our customers through independent package delivery companies. In addition, we transport materials between our worldwide facilities and import raw materials from worldwide sources. Consequently, we rely heavily on both sea and air cargo carriers and other third party package delivery providers. If any of our key third party providers were to experience a significant disruption in services such that any of our products, components or raw materials could not be delivered in a timely fashion, our costs may increase and our relationships with certain customers may be adversely affected. In addition, if these third party providers increase prices and we are not able to find comparable alternatives or make adjustments to our selling prices, our profitability could be adversely affected.
Fluctuations in the availability, quality and prices of raw materials could negatively impact our financial results.
Our operations depend upon our ability to obtain high quality raw materials at reasonable prices. Although most of our raw materials are available from a number of potential suppliers, the availability and costs of these raw materials may fluctuate significantly from time to time. 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.

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If we fail to attract and retain key personnel, our business could be adversely affected.
Most of our products and services are highly technical in nature. In general, only highly qualified and trained scientists have the necessary skills to develop, manufacture and market our products and provide our services. In addition, some of our manufacturing, quality control, safety and compliance, information technology, sales and e-commerce related positions require persons possessing highly technical skills. Our success depends in large part upon our ability to identify, hire, retain and motivate highly skilled professionals. We face intense competition for these professionals from our competitors, customers, marketing partners and other companies throughout the industries in which we compete. Any failure on our part to hire, train and retain a sufficient number of qualified professionals would seriously damage our business.
We depend heavily on the services of our senior management. We believe that our future success depends on the continued services of our management team. Our business may be harmed by the loss of a significant number of our senior management members in a short period of time.
Rapid changes in the healthcare industry could directly or indirectly adversely affect our business.
A significant portion of our sales is derived from companies in the healthcare industry. This industry has undergone significant changes in an effort to control costs. These changes include:
development of large and sophisticated group purchasing organizations;
healthcare reform legislation;
consolidation of pharmaceutical companies;
increased outsourcing of certain activities, including biotechnology and pharmaceutical, to low-cost offshore locations;
lower reimbursements for R&D; and
legislative limitations on healthcare research.

We expect the healthcare industry to continue to change 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 ability to perform healthcare related research and the delivery or pricing of healthcare services or mandated benefits, may cause healthcare industry customers 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 be unable to establish and maintain collaborative development and marketing relationships with business partners, which could result in a decline in sales or slower than anticipated growth rates.
As a part of our business strategy, we have formed, and intend to continue to form, strategic alliances and distribution arrangements with partners relating to the development and commercialization of certain of our existing and potential products to increase our sales and to leverage our product and service offerings. Our success will depend, in part, on our ability to maintain these relationships and to cultivate additional, acceptable strategic alliances with such companies.
In addition, we cannot ensure that parties with which we have established, or will establish, collaborative relationships will not, either directly or in collaboration with others, pursue alternative technologies or develop alternative products in addition to, or instead of, products offered as a result of these collaborations. Our business partners may also experience financial or other difficulties that lessen their value to us and to our customers. Our results of operations and opportunities for growth may be adversely affected by our failure to establish and maintain successful collaborative relationships.
Lack of early success with our pharmaceutical and biotechnology customers could exclude us from future business with those customers.
A number of the products we sell to pharmaceutical and biotechnology customers are incorporated into the customers’ drug manufacturing processes. In some cases, once a customer chooses a particular product for use in a drug manufacturing process, it is unlikely that the customer will later switch to a competing alternative. In many cases, the regulatory license for the product will specify the products qualified for use in the process. Obtaining the regulatory approvals needed for a change in the manufacturing process is time consuming, expensive and uncertain. Accordingly, if a pharmaceutical or biotechnology customer does not select our products early in its manufacturing design phase for any number of reasons, including, but not limited to, cost, ease of use, ability to supply large quantities or similar reasons, we may lose the opportunity to participate in the customer’s manufacturing of such product. Because we face competition in this market from other companies, we run the risk that our competitors could win significant early business with a customer making it difficult for us to recover the late stage commercialization opportunity.

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Our failure to protect our intellectual property may significantly harm our results of operations.
Our success and ability to compete is dependent in part on our ability to protect and maintain proprietary rights to our intellectual property, particularly trade secrets and proprietary know-how. We generally enter into confidentiality and proprietary information agreements with our employees, consultants and advisors. These agreements may not provide meaningful protection for or adequate remedies to protect the Company’s technology in the event of unauthorized use or disclosure of information. Efforts to address any infringement of our proprietary rights could result in diversion of management’s time and significant costs through litigation or otherwise. In addition, the laws of other countries may not protect our intellectual property rights to the same extent as the laws of the United States. Any failure to adequately protect our proprietary rights could result in our competitors offering similar services, potentially resulting in the loss of one or more competitive advantages and decreased sales.
Despite efforts to protect our proprietary rights, existing trade secret, copyright, patent and trademark laws afford us only limited protection. Others may attempt to copy or re-engineer aspects of our products or obtain and use information that we regard as proprietary. Accordingly, we may not be able to prevent misappropriation of our products or trade secrets, or deter others from developing similar products. Further, monitoring the unauthorized use of our products and other proprietary rights is difficult. Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of this type could result in substantial costs and diversion of resources and could significantly harm our results of operations and reputation.
We may become involved in disputes regarding our intellectual property rights, which could result in prohibition of the use of certain technology in current or planned products, exposure of the business to significant liability and diversion of management’s focus.
We and our major competitors spend substantial time and resources developing and patenting new and improved products and technologies. Many of our products are based on complex, rapidly developing technologies. Further, while we strive to respect others’ intellectual property, we may not have identified each and every instance where our products may infringe or utilize intellectual property rights held by others. Thus, we cannot provide assurance that others will not claim that we are infringing their intellectual property rights or that we do not in fact infringe those rights.
We have been and may in the future be sued by third parties alleging that we are infringing upon their intellectual property rights. Any claims, with or without merit, could:

be expensive;
take significant time and divert management’s focus from other business concerns;
if successful, require us to stop the infringing activity, redesign our product or process or license the intellectual property in question, thereby resulting in delays and loss or deferral of sales;
require us to pay substantial damage awards; and/or
require us to enter into royalty or licensing agreements which may not be available on acceptable terms, if at all.

If we are unable to obtain a royalty agreement or license on acceptable terms, or are unable to redesign our products or processes to avoid conflicts with any third party patent, we may be unable to offer some of our products, which could result in reduced sales.

Foreign currency exchange rate fluctuations may adversely affect our business.
Since we are a multinational corporation that sells and sources products in many different countries, changes in exchange rates have in the past, and could in the future, adversely affect our cash flows and results of operations. Reported sales and purchases made and expenses incurred 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. For example, the effect of translating foreign currency sales into U.S. Dollars decreased 2014 and 2013 sales by 1 percent and decreased 2012 sales by 3 percent. The effect of translating foreign earnings into U.S. Dollars decreased 2014, 2013 and 2012 EPS by $0.09, $0.05 and $0.22, respectively. Due to the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations on future sales and operating results.
We are subject to economic, political and other risks associated with our significant international business, which could adversely affect our financial results.
We operate internationally through wholly-owned subsidiaries located in North and South America, Europe, Asia, the Middle East, Australia and Africa. Sales outside the United States were in excess of 64 percent of total sales in 2014. We expect that

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sales from international operations will continue to represent a growing portion of our sales. During 2014, approximately 17 percent of the Company’s United States operations’ chemical and equipment purchases were from international suppliers. In addition, many of our manufacturing facilities, employees and suppliers of our international operations are located outside the United States. Our sales and earnings could be adversely affected by a variety of factors resulting from our international operations, including, without limitation:
future fluctuations in foreign currency exchange rates;
complex regulatory requirements and changes in those requirements;
trade protection measures, tariffs, royalties or taxes and import or export licensing requirements or restrictions;
multiple jurisdictions and differing tax laws, as well as changes in those laws;
restrictions on our ability to repatriate investments and earnings from international operations;
changes in the political or economic conditions in a country or region, particularly in developing or emerging markets;
difficulty in staffing and managing worldwide operations;
changes in shipping costs;
difficulties in collecting on accounts receivable; and
difficulties enforcing intellectual property rights.

If any of these risks materialize, we could face a loss of sales and/or substantial increases in costs, which could adversely affect our operating results.

Acquisitions are an important part of our growth strategy.
We have acquired or invested in several businesses and technologies and routinely review additional opportunities. Certain risks exist including, without limitation, the potential for:
increasing debt levels to fund sizable acquisitions;
the acquisition or investment failing to provide, or delays in realizing, the benefits originally anticipated by management;
difficulties in integrating the operations and systems of the acquired businesses and in realizing operating synergies;
difficulties in assimilating and retaining employees and customers of the acquired companies;
management’s attention being diverted to the integration of the acquired businesses or acceptance of the acquired technology;
rising interest rates on debt needed to provide cash to fund the purchase price of acquisitions; and
unanticipated contract or regulatory issues.

None of these difficulties have been historically significant, but if they were to be in the future, we may be unable to achieve expectations from our acquisition strategy. In addition, we compete with other companies for suitable acquisition targets and may not be able to acquire certain targets that we seek. Also, certain businesses we have acquired or invested in may not generate the cash flow and/or earnings or other benefits we anticipated at the time of their acquisition. If we are unable to successfully complete and integrate acquisitions in a timely manner, such acquisitions may adversely affect our profitability.

We expect to continue to implement various process improvement initiatives that may not achieve the desired results, thereby potentially reducing our profitability.

We have implemented a number of changes designed to improve operating efficiencies and reduce costs. We expect to continue to identify opportunities for operational efficiencies and cost reductions and implement changes to achieve these efficiencies, which could result in significant charges. Such actions may lead to, among other things, the consolidation and integration of products, brands, facilities, functions, systems and processes and/or a reduction of our talent pool and available resources, any or all of which might present significant management challenges. There can be no assurance that such actions will be accomplished as rapidly as anticipated or that the full extent of expected cost reductions will be achieved.
Our business may be adversely affected by a decrease in the availability of commercial paper or other forms of credit or an increase in our cost of capital.
We had $145 of commercial paper outstanding at December 31, 2014. If the market for commercial paper or other forms of credit becomes restricted or unavailable, or our cost of capital significantly increases due to a credit rating downgrade, an economic downturn or uncertainty or other factors, our business could be adversely affected, including our consolidated results of operations, financial condition and cash flows.

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Our sales and operating results may vary from the guidance we publish and from period to period.
Our sales and operating results may vary significantly from the guidance we publish, from quarter to quarter and from year to year, depending on a variety of factors including, without limitation, those previously identified within other risk factors and the following:
the timing of our cost of products and services sold, R&D, sales and marketing expenses and other charges;
the timing of significant custom sales orders, typically associated with our SAFC Commercial business;
the expected higher level of sales growth in our SAFC Commercial business creating downward pressure on overall gross profit margins;
an increase in the sale of commoditized Research products creating downward pressure on overall gross profit margins;
changes in GAAP; and
unanticipated loss of market value of the securities we hold.

Our expense levels are based in part on our future sales expectations. Consequently, sales or profits may vary significantly from quarter to quarter or from year to year, and sales and profits in any interim period may not be indicative of results in subsequent periods.

We have significant inventories on hand.
We maintain significant inventories and have an allowance for slow-moving and obsolete inventory. Any significant unanticipated changes in future product demand or market conditions, including the current uncertainty in the global market, could also have an impact on the value of inventory and adversely impact our results of operations. Additionally, if it would become necessary to rework product to make it saleable, this additional effort would impact our costs and operating results.
We may incur impairment charges on our goodwill and other intangible assets with indefinite lives that would reduce our earnings.
We are subject to ASC Topic 350 which requires that goodwill and other intangible assets that have an indefinite life be tested at least annually for impairment. Goodwill and other intangible assets with indefinite lives must also be tested for impairment between the annual tests if a triggering event occurs that would likely reduce the fair value of the asset below its carrying amount. As of December 31, 2014, goodwill and other intangible assets with indefinite lives represented approximately 18 percent of our total assets. If we determine that there has been an impairment, our financial results for the relevant period would be reduced by the amount of the impairment, net of tax effects, if any. There were no indicators of impairment as of December 31, 2014.
Our share price will fluctuate.
Both the market price and the daily trading volume of our common stock will continue to be subject to fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our common stock may be affected by:
operating results that vary from the expectations of securities analysts and investors;
the financial performance of the major end markets that we target;
the operating and securities price performance of companies that investors consider to be comparable to us;
announcements of strategic developments, acquisitions and other material events by us or our competitors;
changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, commodity and equity prices and the value of financial assets; and
failure to consummate the pending Merck KGaA transaction.

Dividends on our common stock and share repurchases could change in the future.

In 2014, we paid annual dividends of $0.92 per share and had repurchased a total of 102 million shares of common stock, and in 2013, we paid annual dividends of $0.86 per share and had repurchased a total of 101 million shares of common stock. The Company does not currently anticipate repurchasing any additional stock following expiration of our stock repurchase program authorization in November 2014 and due to the pending Merck KGaA transaction. Similarly, in our agreement with Merck KGaA, we agreed not to increase our dividend above current levels. The failure to maintain or pay dividends or repurchase shares may adversely affect the market price of our common stock.

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Item 1B.
Unresolved Staff Comments.
None.

Item 2.
Properties.
The following table shows the location, land area, building area and function of the properties the Company owned or leased at December 31, 2014. 
Country
 
Land Area
(Acres)
 
Building Area
(Sq. Ft)
(in thousands)
 
Function
United States
 
923


4,492

 
admin., production, warehousing, distrib.
Germany
 
47


676

 
admin., production, warehousing, distrib.
United Kingdom
 
98


513

 
admin., production, warehousing, distrib.
Switzerland
 
12


424

 
admin., production, warehousing, distrib.
South Korea
 


226

 
admin., warehousing, distrib.
India
 


183

 
admin., production, warehousing, distrib.
Brazil
 
10


151

 
admin., production, warehousing, distrib.
All Other
 
79


941

 
admin., production, warehousing, distrib.
Total
 
1,169


7,606

 
 
Percent Owned Property
 
82
%
 
 
Percent Leased Property
 
18
%
 
 
The Company considers the properties to be well maintained, in sound condition and repair and adequate for present needs. These properties generally have sufficient capacity for the Company's existing needs and near-term growth. The Company expects to continue to make capital investments in plants to support specific business opportunities.

Item 3.
Legal Proceedings.

See Note 13 – Contingent Liabilities and Commitments in Item 8 - Financial Statements and Supplementary Data of Part II of this Report, which is incorporated herein by reference.

Item 4.
Mine Safety Disclosures.
Not applicable.

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PART II

Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Common Stock Data (per share) (Unaudited):
 
 
2014 Price Range
 
2013 Price Range
 
Dividends
 
 
High
 
Low
 
High
 
Low
 
2014
 
2013
First Quarter
 
$
96.87

 
$
90.21

 
$
79.32

 
$
74.28

 
$
0.23

 
$
0.22

Second Quarter
 
101.91

 
91.61

 
85.91

 
73.24

 
0.23

 
0.21

Third Quarter
 
138.01

 
99.08

 
88.55

 
80.25

 
0.23

 
0.22

Fourth Quarter
 
137.64

 
132.45

 
94.78

 
82.90

 
0.23

 
0.21

The Company's common stock is traded on the NASDAQ Global Select Market. The trading symbol is SIAL. On January 31, 2015, there were 433 shareholders of record of the Company's common stock.
The Company expects to continue its policy of paying regular quarterly cash dividends. Future quarterly dividends are expected to remain at current levels given the restrictions as provided in the Merger Agreement.
See Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of Part III of this Report for information concerning securities authorized for issuance under the Company's equity compensation plans.
The following table presents share repurchases by the Company and any affiliated purchasers for the year ended December 31, 2014 (in millions except per share amounts):
Issuer Purchases of Equity Securities 
Period
 
Total Number
of Shares
Purchased
 
Average Price
Paid per
Share
 
Total Number of  Cumulative Shares
Purchased as Part of
Publicly Announced
Plans or Programs
 
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs
Total at Dec. 31, 2013
 
 
 
 
 
101.1

 
8.9

Jan. 1, 2014 – Jan. 31, 2014
 

 

 
101.1

 
8.9

Feb. 1, 2014 – Feb. 28, 2014
 
0.9

 
$
94.01

 
102.0

 
8.0

Mar. 1, 2014 – Mar. 31, 2014
 

 

 
102.0

 
8.0

Apr. 1, 2014 – Apr. 30, 2014
 

 

 
102.0

 
8.0

May 1, 2014 – May 31, 2014
 

 

 
102.0

 
8.0

Jun. 1, 2014 – Jun. 30, 2014
 

 

 
102.0

 
8.0

Jul. 1, 2014 – Jul. 31, 2014
 

 

 
102.0

 
8.0

Aug. 1, 2014 – Aug. 31, 2014
 

 

 
102.0

 
8.0

Sep. 1, 2014 – Sep. 30, 2014
 

 

 
102.0

 
8.0

Oct. 1, 2014 – Oct. 31, 2014
 

 

 
102.0

 
8.0

Nov. 1, 2014 – Nov. 30, 2014
 

 

 
102.0

 
8.0

Dec. 1, 2014 – Dec. 31, 2014
 

 

 
102.0

 

Total at Dec. 31, 2014
 
0.9

 
$
94.01

 
102.0

 

The Company is currently restricted from repurchasing any additional stock following expiration of our stock repurchase program authorization in November 2014. Such authorization was not extended due to the pending Merck KGaA transaction.
For additional information on the Company's prior share repurchase program, see Note 19 – Share Repurchases in Item 8 – Financial Statements and Supplementary Data of Part II of this Report.


- 16 -



Item 6.
Selected Financial Data.
Annual Financial Data:
The following selected financial data should be read in conjunction with our consolidated financial statements and related notes and Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of this Report.
 
 
 
2014
 
2013
 
2012
 
2011
 
2010
Net sales
 
$
2,785

 
$
2,704

 
$
2,623

 
$
2,505

 
$
2,271

Net income
 
500

 
491

 
460

 
457

 
384

Per share:
 

 

 

 

 

Net income — Basic
 
4.20

 
4.09

 
3.80

 
3.78

 
3.17

Net income — Diluted
 
4.17

 
4.06

 
3.77

 
3.72

 
3.12

Dividends
 
0.92

 
0.86

 
0.80

 
0.72

 
0.64

Cash balance
 
958

 
722

 
724

 
665

 
569

Cash dividends
 
109

 
103

 
97

 
86

 
78

Total assets
 
4,195

 
3,805

 
3,820

 
3,281

 
3,027

Short-term debt
 
145

 
65

 
383

 
221

 
239

Long-term debt
 
300

 
300

 
300

 
300

 
300

Pension obligations — Long term
 
82

 
36

 
91

 
93

 
64

Post-retirement medical benefit plans
 
21

 
37

 
44

 
50

 
46


- 17 -



Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion And Analysis
($ In Millions, Except Per Share Data)
The following should be read in conjunction with the consolidated financial statements and related notes.
Overview
Proposed Merger with Merck KGaA

On September 22, 2014, Sigma-Aldrich Corporation entered into the Merger Agreement with Merck KGaA. The Merger Agreement, among other things, provides for Merck KGaA to acquire the Company at a price of $140 per share in cash, without interest.  The acquisition will be accomplished through the merger of Merger Sub with and into the Company, with the Company continuing as the surviving corporation and an indirect wholly-owned subsidiary of Merck KGaA. The Merger Agreement and the consummation of the transactions contemplated thereby were unanimously approved by the Board. A special meeting of stockholders of the Company was held on December 5, 2014, whereby stockholders voted upon and approved a proposal to adopt the Merger Agreement. The Merger Agreement remains subject to the satisfaction or waiver of specified closing conditions, including the receipt of certain antitrust and governmental approvals and other customary closing conditions. Other than the costs associated with this Merger Agreement discussed in Note 11 - Other Charges to the Company's consolidated financial statements contained in Item 8 – Financial Statements and Supplementary Data of Part II of this Report, no other effects of the transaction have been recorded in the Company's consolidated financial statements. In certain circumstances, upon termination of the Merger Agreement termination fees would be payable.

We are also subject to restrictions on the conduct of our business prior to the consummation of the merger as provided in the Merger Agreement, including, among other things, certain restrictions on capital spending levels, our ability to repurchase shares, increase our dividend, acquire other businesses, sell, transfer or license our assets, amend our organizational documents and incur indebtedness.

For additional information related to the Merger Agreement, please refer to our September 22, 2014 Form 8-K. The foregoing description of the Merger Agreement is qualified in its entirety by reference to the full text of the Merger Agreement attached as Exhibit 2.1 to the September 22, 2014 Form 8-K.
Background
The Company is a leading life science and high technology company whose biochemical and organic chemical products, kits and services are used in scientific research, including genomic and proteomic research, biotechnology, pharmaceutical development, the diagnosis of disease and as key components in pharmaceutical, diagnostics and high technology manufacturing. Our customers include pharmaceutical and life science companies, university and government institutions, hospitals and a wide range of industrial companies. We believe over 1.4 million scientists and technologists use our products. We operate in 37 countries and have approximately 9,300 employees worldwide.
The Company is aligned into three market-focused business units that are defined by the customers and markets they serve: Research, Applied and SAFC Commercial. The units are closely interrelated in their activities and share services such as order entry, billing, technical support, e-commerce infrastructure, purchasing and inventory control. The business units also share production and distribution facilities. Additionally, these business units are supported by centralized functional areas such as finance, human resources, quality, safety, compliance and information technology. A summary of our business units is as follows:
Research - Our products and services, which include chemicals, reagents and kits, enable scientists to discover and develop new drugs and materials. This business unit generated 51 percent of sales in 2014.
Applied - Our products and services, which primarily include high quality components and kits, chemical reagents, critical raw materials and certified reference standards, provide customized solutions to and constitute critical components and materials for diagnostic companies, testing laboratories and industrial companies. This business unit generated 24 percent of sales in 2014.
SAFC Commercial - Our products and service solutions are used by customers to develop and commercially manufacture biopharma, pharma and electronics products. Our comprehensive offerings include media and critical raw materials for industrial cell culture, contract manufacturing services, pharmaceutical safety testing services, and organometallic precursors for semiconductor manufacturing. This business unit generated 25 percent of sales in 2014.

- 18 -


The Company has a broad customer base of commercial laboratories, pharmaceutical companies, industrial companies, universities, diagnostics companies, biotechnology companies, electronics companies, hospitals, governmental institutions and non-profit organizations located in the United States and internationally. The Company would not be significantly impacted by the loss of any one customer. However, global macro economic conditions and government research funding in the United States, the European Union, Asia Pacific and elsewhere do have some impact on demand for our products and services from certain customers.
Strategy

The Company's business strategy is designed to drive overall sales and earnings growth while maintaining a return on invested capital at an appropriate premium above the Company's cost of capital. Our key areas of focus address the most significant opportunities and challenges facing the Company, including:
Improving Customer Intimacy: To exceed our customers' expectations, we strive to offer the right selection of high quality products and services, to provide superior customer service and support and consistently deliver products that meet published or agreed specifications when and where our customers need them. The continued enhancement of a leading e-commerce platform is a significant part of this approach.
Expanding Products and Services: Increasing our geographic coverage, particularly in the APAC region, pursuing new and innovative technologies and expanding our product and service offerings organically and through strategic acquisitions should help us drive continued sales and earnings growth.
Accelerating Operational Excellence: Through the optimization of our worldwide footprint, strategic sourcing of our products and materials and driving efficiencies in our distribution networks and operating expenses, we strive to continually improve our productivity and more efficiently leverage our global manufacturing and distribution network.

Key Business Trends and Highlights

In operating our business and monitoring our performance, we consider a number of performance measures, as well as trends affecting our industry as a whole, which include the following:
Industry Consolidation: Competition in the markets we serve remains fragmented with few companies possessing a significant share in any particular market, which allows some participants to continue consolidating specialty, regional and niche players in the industry. The Company plans to continue to explore opportunities to enhance sales growth and increase its market presence through strategic acquisitions while still complying with the terms of the Merger Agreement.
Consolidation Among Large Pharmaceutical Companies: Our customers include large pharmaceutical companies, some of which have undertaken significant merger and acquisitions activity or may be considering such actions in the future. The capital spending and research and development funding levels of the merged companies can have a significant impact on the demand for our products.
Macroeconomic Concerns Impacting Funding: Uncertainties in the United States, Europe and Asia Pacific around the macroeconomic environment have impacted overall research funding.
Foreign Currency Exchange Rate Fluctuations: Since we are a multinational corporation that sells and sources products and services in many different countries, changes in exchange rates have in the past, and could in the future, adversely affect our cash flows and results of operations. Due to the number of currencies involved, the variability of currency exposures and the potential volatility of foreign currency exchange rates, we cannot predict the effect of exchange rate fluctuations on future sales and operating results.
Emerging Market Growth: We continue to focus our sales efforts on emerging markets given the faster growth rates in these areas.
Increasing E-Commerce Channel Adoption: The internet continues to change the markets we serve in terms of access and exposure to existing and potential customers. Ensuring a strong presence in this channel is critical to our long term success as it enables us to find innovative ways to meet our customers' information and product selection needs. Worldwide sales of Research and Applied products through the Company's e-commerce channels, including both web-based and EDI platforms, were 48 percent of the Company's total sales of Research and Applied products during both 2014 and 2013.
Pharmaceutical Partnerships and Outsourcing: We continue to take advantage of the expanded market opportunities brought about by several trends in the Pharmaceutical industry. These include the use of outsourcing partners, a shift towards biological drug development and an increase in industry-academia research partnerships.

- 19 -


Highlights of our consolidated results for the year ended December 31, 2014 are as follows:
Sales were $2,785, an increase of 3 percent compared to the same period last year. Excluding the changes in foreign currency exchange rates, which lowered sales by 1 percent, sales increased organically by 4 percent year over year.
Gross profit margin was 51.0 percent, an increase from 50.3 percent in 2013. Operating income margin was 24.5 percent, compared to 24.4 percent in 2013.
Net income was $500 compared to $491 in 2013. Changes in foreign currency exchange rates as compared to the prior year, reduced otherwise reportable net income by $11.
Diluted net income per share was $4.17, compared to $4.06 in 2013. Income taxes were 26.1 percent and 25.3 percent of pretax income for 2014 and 2013, respectively.
Net cash provided by operating activities for the year ended December 31, 2014 was $640, a decrease of $1 from last year.
Total debt was $445 at December 31, 2014, an increase of $80 since December 31, 2013. The increase in debt levels was driven by additional borrowings of commercial paper for the Cell Marque acquisition in October 2014.

Non-GAAP Financial Measures
The Company supplements its disclosures made in accordance with U.S. GAAP with certain non-GAAP financial measures. The Company does not, and does not suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, U.S. GAAP financial information. These non-GAAP measures may not be consistent with the presentation by other companies in the Company's industry. Whenever the Company uses such non-GAAP measures, it provides a reconciliation of such measures to the most closely applicable U.S. GAAP measure.
With approximately 60 percent of sales denominated in currencies other than the U.S. Dollar, management uses currency adjusted growth, and believes it is useful to investors, to judge the Company's local currency performance. Organic sales growth data presented herein excludes currency impacts, and where indicated, changes due to acquisitions and divestitures. The Company calculates the impact of changes in foreign currency exchange rates by multiplying current period activity in local currency by the difference between current period exchange rates and prior period exchange rates; the result is the defined impact of "changes in foreign currency exchange rates" or "changes in FX." While we are able to report currency impacts after the fact, we are unable to estimate changes that may occur to applicable exchange rates in 2015 or any future period. Any significant changes in currency exchange rates would likely have a significant impact on our reported growth rates due to the large volume of our sales denominated in foreign currencies.
Management also uses free cash flow, a non-GAAP measure, to judge its performance and ability to pursue opportunities that enhance shareholder value. Free cash flow is defined as net cash provided by operating activities less capital expenditures. Management believes this non-GAAP information is useful to investors as a supplemental measure of our ability to generate cash.
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the periods presented. Actual results could differ from those estimates under different assumptions or conditions.
The following accounting policies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Management's estimates are based on the relevant information available at the end of each period.
Inventories. Inventories are valued at the lower of cost or market. The Company regularly reviews inventories on hand and records a provision for slow-moving and obsolete inventory, inventory not meeting quality standards and inventory subject to expiration. The provision for slow-moving and obsolete inventory is based on current estimates of future product demand, market conditions and related management judgment. Any significant unanticipated changes in future product demand or market conditions that vary from current expectations could have an impact on the value of inventories.
Long-Lived Assets. Long-lived assets, including intangibles with definite lives, are amortized over their expected useful lives. Goodwill and other intangibles with indefinite lives are not amortized against earnings. Goodwill is assessed annually for impairment. All long-lived assets are assessed whenever events and changes in business conditions indicate that the carrying amount of an asset may not be fully recoverable. If impairment is indicated, the asset value is written down to its fair market value. Any significant unanticipated changes in business or market conditions that vary from current expectations could have an impact on the fair market value of these assets and a potential associated impairment. There were no indications of impairment as of December 31, 2014.

- 20 -


Pension and Other Post-Retirement Benefits. The determination of the obligation and expense for pension and other post-retirement benefits is dependent on the Company's selection of certain assumptions used by actuaries to calculate such amounts. Those assumptions are described in Note 16 – Pension and Post-retirement Benefit Plans to the Company's consolidated financial statements in Item 8 – Financial Statements and Supplementary Data of Part II in this Report and include, among others, the discount rate, expected return on plan assets and rates of increase in compensation and health care costs.
In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense in such future periods. While the Company believes that the assumptions are appropriate, significant differences in actual experience or significant changes in the assumptions may materially affect the Company's pension and other post-retirement benefit obligations and the Company's future expense. A one percent increase or decrease in the discount rate assumption or the expected return on plan assets would not have a material impact on the Company's consolidated financial statements.
Taxes. The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. The Company regularly reviews its potential tax liabilities for tax years subject to audit. In management's opinion, adequate provisions for income taxes have been made for all years presented.

The provision for income taxes is based on pretax income reported in the consolidated statements of earnings and currently enacted tax rates for each jurisdiction. No provision has been made for U.S. income taxes on the undistributed earnings of the Company's international subsidiaries where the earnings are considered permanently reinvested. Recognition of U.S. taxes on undistributed earnings of the international subsidiaries would be triggered by a management decision to repatriate those earnings, although there is no current intention to do so.

Deferred tax assets and liabilities are recognized for the future tax benefits or liabilities attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates would be recognized in income in the period that includes the enactment date. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance when it believes that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations and the expected timing of the reversals of existing temporary differences.
Results of Operations
The following is a summary of our financial results (in millions, except per share amounts):
 
 
 
2014
 
2013
 
2012
Sales
 
$
2,785

 
$
2,704

 
$
2,623

Cost of products and services sold
 
1,366

 
1,343

 
1,276

Gross profit
 
1,419

 
1,361

 
1,347

Selling, general and administrative expenses
 
639

 
612

 
605

Research and development expenses
 
65

 
66

 
69

Other charges
 
34

 
22

 
14

Operating income
 
681

 
661

 
659

Interest, net
 
4

 
4

 
4

Income before income taxes
 
677

 
657

 
655

Provision for income taxes
 
177

 
166

 
195

Net income
 
$
500

 
$
491

 
$
460

Net income per share - Diluted
 
$
4.17

 
$
4.06

 
$
3.77


Net Sales
Sales were $2,785 in the year ended December 31, 2014, up 3 percent from 2013. The effect of changes in foreign currency exchange rates decreased sales by $21 or 1 percent. Excluding the effects of changes in foreign currency exchange rates and changes due to acquisitions and divestitures, sales increased organically by $105 or 4 percent.

- 21 -


Sales were $2,704 in the year ended December 31, 2013, up 3 percent from 2012. The effect of changes in foreign currency exchange rates decreased sales by $22 or 1 percent. Excluding the effects of changes in foreign currency exchange rates and changes due to acquisitions and divestitures, sales increased organically by $92 or 4 percent.
The change in sales for each of the Company's business units is as follows:
 
 
Year Ended December 31,
 
 
2014
 
2013
 
Change
 
Impact of
Changes
in FX
 
Change
due to
Acquisitions &
Divestitures
 
Organic
Growth
 
Organic
Growth %
Research
 
$
1,404

 
$
1,402

 
$
2

 
$
(16
)
 
$
(1
)
 
$
19

 
1
%
Applied
 
680

 
629

 
51

 
(3
)
 
5

 
49

 
8
%
SAFC Commercial
 
701

 
673

 
28

 
(2
)
 
(7
)
 
37

 
6
%
Total
 
$
2,785

 
$
2,704

 
$
81

 
$
(21
)
 
$
(3
)
 
$
105

 
4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,
 
 
2013
 
2012
 
Change
 
Impact of
Changes
in FX
 
Change
due to
Acquisitions &
Divestitures
 
Organic
Growth
 
Organic
Growth %
Research
 
$
1,402

 
$
1,398

 
$
4

 
$
(19
)
 
$
(4
)
 
$
27

 
2
%
Applied
 
629

 
598

 
31

 

 
3

 
28

 
5
%
SAFC Commercial
 
673

 
627

 
46

 
(3
)
 
12

 
37

 
6
%
Total
 
$
2,704

 
$
2,623

 
$
81

 
$
(22
)
 
$
11

 
$
92

 
4
%
2014 Compared to 2013
Research total sales were $1,404 for the year ended December 31, 2014, compared to $1,402 for the prior year. Sales increased organically by $19 or 1 percent from the prior year. Sales through our dealer networks led the organic growth. Higher sales to our Academic, Government and Hospitals and Pharma customers also contributed to the organic growth. All geographic regions contributed to Research's overall growth in the period.
Applied total sales were $680 for the year ended December 31, 2014, compared to $629 for the prior year. Sales increased organically by $49 or 8 percent from the prior year. The primary driver of growth was higher sales to customers in the Diagnostic and Testing markets, where our products are used as critical components for diagnostic kits and sales of standards and certified reference materials to clinical testing laboratories. All geographic regions contributed to Applied's overall growth in the period.
SAFC Commercial total sales were $701 for the year ended December 31, 2014, compared to $673 for the prior year. Sales increased organically by $37 or 6 percent from the prior year. The organic growth was led by our Life Science Products and Life Science Services businesses. All geographic regions contributed to SAFC Commercial's overall growth in the period.
2013 Compared to 2012
Research total sales were $1,402 for the year ended December 31, 2013, compared to $1,398 for the prior year. Sales increased organically by $27 or 2 percent from the prior year. The increase in organic sales was primarily driven by growth in sales through our dealer networks from our "dealers as partners" programs and an increase in sales to our Pharmaceutical customers. The overall increase was partially offset by a decline in sales to the Academic, Government and Hospital markets due largely to lower government grants and other funding to academic institutions resulting primarily from sequestration in the United States. Geographically, the increase in Research's organic sales for the year ended December 31, 2013 compared to the prior year was largely led by the EMEA and APAC regions.
Applied total sales were $629 for the year ended December 31, 2013, compared to $598 for the prior year. Sales increased organically by $28 or 5 percent from the prior year. The increase in organic sales was primarily driven by growth in sales to customers in the Diagnostic and Testing markets, where our products are used as critical components for diagnostic kits and sales of standards and certified reference materials to clinical testing laboratories. All geographic regions contributed to Applied's overall growth in the period.
SAFC Commercial total sales were $673 for the year ended December 31, 2013, compared to $627 for the prior year. Sales increased organically by $37 or 6 percent from the prior year. The organic growth was led by our Life Science Products and Life Science Services businesses, most notably our custom pharmaceutical manufacturing and industrial cell culture media

- 22 -


products. This growth was partially offset by lower sales in our Hitech electronics business, primarily from year-over-year pricing declines for certain metal organic precursors used by the LED industry. Geographically, the increase in SAFC Commercial's organic sales for the year ended December 31, 2013 compared to the prior year was largely led by the Total Americas and EMEA regions.
Gross Profit and Expenses
Key items from the consolidated statements of income expressed as a percentage of sales and the effective tax rate for the three years ended December 31, 2014, 2013 and 2012 were as follows:
 
 
 
2014
 
2013
 
2012
Gross profit margin
 
51.0
%
 
50.3
%
 
51.4
%
Selling, general & administrative expenses
 
22.9
%
 
22.6
%
 
23.1
%
Research and development expenses
 
2.4
%
 
2.4
%
 
2.6
%
Other charges
 
1.2
%
 
0.9
%
 
0.6
%
Operating income
 
24.5
%
 
24.4
%
 
25.1
%
 
 
 
 
 
 
 
Effective tax rate
 
26.1
%
 
25.3
%
 
29.8
%
Cost of Products and Services Sold and Gross Profit Margin
Gross profit is calculated as sales less cost of products and services sold and gross profit margin is gross profit expressed as a percentage of sales. Cost of products and services sold includes direct materials, labor, distribution and overhead costs associated with the Company's products and services. The company's gross profit margin for the years ended December 31, 2014, 2013 and 2012 were 51.0%, 50.3% and 51.4%, respectively.
The following table reflects the significant contributing factors to the net change in gross profit margin for the years ended December 31, 2014 and 2013, respectively: 
Contributing Factors
 
2014
 
2013
Gross profit margin — previous year end
 
50.3
 %
 
51.4
 %
Increases / (decreases) to gross profit margin:
 
 
 
 
Changes in foreign currency exchange rates
 
(0.2
)%
 
 %
Sales volume/Product mix/Pricing/Other
 
0.6
 %
 
(1.0
)%
Acquisitions & Divestitures
 
0.3
 %
 
(0.1
)%
Gross profit margin — current year end
 
51.0
 %
 
50.3
 %

The increase in gross profit margin for 2014 as compared to 2013 was primarily the result of cost leverage obtained from higher sales levels and higher pricing and benefits associated with acquisitions and divestitures. The overall increase was partially offset by unfavorable impacts from changes in foreign currency exchange rates.

The largest contributor to the decline in gross margin in 2013 as compared to 2012 was a shift in product mix among our business units. Products in our SAFC Commercial business unit in general have lower margins than products in our Research and Applied business units. This is primarily due to SAFC Commercial products that require more intensive manufacturing and quality control processes, and are generally sold in bulk rather than in smaller quantities as in our Research and parts of our Applied business units, as well as other market dynamics. Because the SAFC Commercial business is the fastest growing unit of our total business, approximately 50 basis points of the total gross margin decline in 2013 was due to a greater share of SAFC Commercial sales in the total product mix.



- 23 -


SG&A

 
 
2014
 
2013
 
2012
SG&A
 
$
639

 
$
612

 
$
605

Percentage of Sales
 
22.9
%
 
22.6
%
 
23.1
%

SG&A increased $27 during the year ended December 31, 2014 as compared to the same period in 2013 primarily due to higher compensation costs and $10 of gains on asset sales, net of certain impairments, in 2013 that did not repeat in 2014.

SG&A increased $7 during the year ended December 31, 2013 as compared to the same period in 2012. Gains on asset sales, net of certain impairments, of $10 were offset by higher compensation and other costs. Excluding these asset gains, SG&A as a percentage of sales was about the same as 2012.

R&D Expenses

 
 
2014
 
2013
 
2012
R&D
 
$
65

 
$
66

 
$
69

Percentage of Sales
 
2.4
%
 
2.4
%
 
2.6
%
Annual R&D expenses were largely unchanged from 2012 to 2014. R&D expenses relate primarily to efforts to add new manufactured products, create and develop new technologies and enhance manufacturing processes. Self-manufactured products currently account for approximately 60 percent of total sales.
Other Charges

 
2014
 
2013
 
2012
Restructuring costs
$
17

 
$
10

 
$
9

Licensing dispute settlement

 
7

 

Costs related to mergers and acquisitions
17

 
5

 
5

Total restructuring and other charges
$
34

 
$
22

 
$
14

Percentage of sales
1.2
%
 
0.9
%
 
0.6
%
Restructuring Costs
Programs Implemented During 2014
In the third quarter of 2014, the Company committed to the closure of a facility in Europe. This closure is expected to impact approximately 80 employees and further reduce the Company's fixed cost structure. Total restructuring costs are expected to be $16, comprised of $12 to reduce the value of the assets associated with this facility and $4 of employee termination costs. During the year ended December 31, 2014, $15 of these restructuring costs were recognized.
Programs Implemented During 2013

In the third quarter of 2013, the Company committed to a restructuring plan to exit a manufacturing site in Europe. This exit activity impacted approximately 90 employees and was intended to further reduce the Company's fixed cost structure. Total restructuring costs associated with this plan were $12, comprised of $9 to reduce the value of the assets impacted by these restructuring activities and $3 of employee termination costs. During the year ended December 31, 2013, $10 of these restructuring costs were recognized. During the year ended December 31, 2014, the remaining $2 of these restructuring costs were recognized. As of December 31, 2014, all exit activities were complete.
Programs Implemented During 2012
In the second quarter of 2012, the Company committed to a restructuring plan to exit various sales office locations in Europe. These exit activities impacted approximately 30 employees and were intended to reduce the Company's fixed cost structure by streamlining the sales force in Europe. Total restructuring costs associated with this plan were $4 and were incurred during 2012. As of December 31, 2012, all exit activities were complete.

- 24 -


In the third quarter of 2012, the Company committed to a restructuring plan to reduce global headcount by approximately 130 employees to further reduce the Company's fixed cost structure. Total restructuring costs associated with this plan were $5 and were incurred during 2012. As of December 31, 2012, all exit activities were complete.
Licensing Dispute Settlement
Costs of $7 were incurred during the second quarter of 2013 for the settlement of a licensing dispute associated with certain products.
Costs Related to Mergers and Acquisitions
Costs of $16 associated with the pending Merck KGaA transaction and $1 associated with the October 2014 acquisition of Cell Marque were incurred during the year ended December 31, 2014. Costs of $5 associated with merger and acquisition activity were incurred during the second quarter of 2013. Costs of $5 were incurred during the first quarter of 2012 related to the January 2012 acquisition of BioReliance and the March 2012 acquisition of Research Organics.
Income Taxes

The Company's effective tax rate reflects the tax benefits of having significant operations outside the U.S. which are taxed at rates lower than the U.S. A reconciliation of the difference between income taxes computed at the U.S. federal statutory rate of 35% and the Company's effective tax rate for the years ended December 31 is as follows:
 
 
2014
 
2013
 
2012
Statutory tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
U.S. manufacturing deduction
 
(1.2
)
 
(1.1
)
 
(1.2
)
State and local income taxes, net of federal benefit
 
0.8

 
1.0

 
1.7

Research and development credits
 
(0.6
)
 
(0.6
)
 

International tax rates
 
(8.6
)
 
(6.8
)
 
(5.2
)
Tax audits and unrecognized tax positions
 
1.2

 
0.6

 
(0.2
)
Tax rate and law changes
 
(0.1
)
 
(1.4
)
 
(0.2
)
Other, net
 
(0.4
)
 
(1.4
)
 
(0.1
)
Total effective tax rate
 
26.1
 %
 
25.3
 %
 
29.8
 %

During 2014, the Company incurred an increase in costs for uncertain tax positions as a result of audit activity while 2012 resulted in a net benefit as a result of statute of limitation expirations. In 2013, the Company benefited from several tax rate and law changes, primarily the reduction in the UK statutory tax rate and the retroactive extension of the 2012 U.S. R&D tax credit in 2013.
Liquidity and Capital Resources
The Company's cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows, are summarized in the following table:
 
 
 
Year Ended December 31,
 
 
2014
 
2013
 
2012
Net cash provided by (used in):
 
 
 
 
 
 
Operating activities
 
$
640

 
$
641

 
$
567

Investing activities
 
(296
)
 
(108
)
 
(511
)
Financing activities
 
(71
)
 
(533
)
 
(6
)
Operating Activities
Net cash provided by operating activities of $640 for the year ended December 31, 2014 was largely unchanged from the same prior year period. Increased uses of cash for income tax payments were offset by improved performance in working capital, primarily inventory and accounts payable.
Net cash provided by operating activities of $641 increased $74 or 13 percent in 2013 compared to 2012. The increase was largely driven by lower uses of cash for working capital. Specifically, cash used for accounts receivable, inventory and accounts payable was $28 compared to $49 in 2012. In 2013, the reduction of inventory generated $12 in operating cash flow compared to a use of cash for inventory in 2012 of $44. Initiatives to lower inventory without sacrificing customer service

- 25 -


levels drove the reduction in inventory in 2013 as compared to 2012. Also contributing to the increase in operating cash flow was $33 of higher net income after adjusting for depreciation and amortization.
Investing Activities
Cash used in investing activities for the year ended December 31, 2014 increased $188 compared to the same prior year period. This increase was driven by the use of $170 for the acquisition of Cell Marque coupled with increased capital spending of $18 in 2014.
Cash used in investing activities for the year ended December 31, 2013 decreased $403 compared to 2012. This decrease was primarily due to cash used for acquisitions during 2012 of $391 that did not repeat in 2013. Capital spending was $100 in 2013 compared to $114 in 2012.
Financing Activities
Cash used in financing activities for the year ended December 31, 2014 decreased $462 compared to the same prior year period. This decrease is due to the net issuance of $81 of short-term debt during the year ended December 31, 2014, compared to a net repayment of short-term debt of $318 in the same prior year period. In 2014, share repurchases declined $61 compared to 2013 primarily as a result of the Company's suspension of its share repurchase program due to the pending Merck KGaA transaction. During the year ended December 31, 2013, strong free cash flow enabled the Company to repay a substantial amount of its debt.
Cash used in financing activities of $533 in 2013 increased $527 from 2012. This increase is due to the net repayment of $318 of short-term debt during 2013, as compared to a net issuance of short-term debt of $161 during 2012. During 2012, additional debt was issued to fund acquisition activity. Cash used for share repurchases increased to $146 in 2013, up from $124 in 2012.
The Company paid dividends of $109, $103 and $97 during the years ended December 31, 2014, 2013 and 2012, respectively.
Share Repurchases
At December 31, 2014 and 2013, the Company had repurchased a total of 102 million and 101 million shares, respectively, of an authorized repurchase of 110 million shares. This authorization expired in November 2014 and was not extended due to the pending Merck KGaA transaction. There were 119 million shares outstanding as of December 31, 2014. The Company is currently restricted from repurchasing any additional stock due to the pending Merck KGaA transaction.
Liquidity and Risk Management
Liquidity risk refers to the risk that the Company might be unable to meet its financial obligations in a timely manner or fund its business on an ongoing basis. Factors that could cause such risk to arise include a disruption to the securities markets, downgrades in the Company's credit rating or the unavailability of funds. In addition to the Company's cash flows from operations, the Company utilizes commercial paper, short-term multi-currency debt, cash on hand and long-term debt programs as funding sources. The Company also maintains committed bank lines of credit to support its commercial paper borrowings. Downgrades in the Company's credit rating or other limitations on the ability to access short-term financing, including the ability to refinance short-term debt as it becomes due, would increase interest costs and adversely affect profitability.
The Company has considered the potential impact of recent trends in the global economic environment on its liquidity and overall financial condition, particularly with respect to availability of and the Company's access to short-term credit, including the market for commercial paper. Supported by discussions held with the Company's lenders, management does not believe that a significant risk exists of commercial paper or other credit becoming unavailable within the next twelve months. Management believes that the Company's financial condition is such that internal and external resources are sufficient and available to satisfy the Company's requirements for debt service, capital expenditures, selective acquisitions, dividends, funding of pension and other post-retirement benefit plan obligations and working capital presently and for the next twelve months.
The Company has a $600 five-year revolving credit facility with a syndicate of banks in the United States that supports the Company's commercial paper program. The facility matures on May 10, 2018. At December 31, 2014 and December 31, 2013, the Company did not have any borrowings outstanding under this facility. The amount available under the facility is reduced by the amount of commercial paper outstanding. At December 31, 2014 and December 31, 2013, the Company had $145 and $65, respectively, outstanding under its commercial paper program.
Sigma-Aldrich Japan GK has two credit facilities with a total commitment of 2 billion Japanese Yen (approximately $17 U.S. Dollars), with one facility expiring April, 30, 2015 and the other representing a line of credit with no expiration. No borrowings were outstanding under these facilities at both December 31, 2014 and December 31, 2013.

- 26 -


In addition to those mentioned above, the Company has other short-term credit facilities denominated in foreign currencies having a total commitment of approximately $3. No borrowings were outstanding under these facilities at both December 31, 2014 and December 31, 2013.
The Company had a $200 multi-currency European revolving credit facility with a syndicate of banks which matured on March 13, 2014.
Long-term debt was $300 at both December 31, 2014 and 2013. This liability consists of 3.375% fixed rate Senior Notes due November 1, 2020.
Total debt at December 31, 2014 was $445 compared to $365 at December 31, 2013. Total debt as a percentage of total capitalization was 12.4 percent and 11.2 percent at December 31, 2014 and 2013, respectively.
As of December 31, 2014, the Company had sufficient net worth, as defined in the underlying credit agreement, to allow for borrowing the full capacity under the facility without any restriction related to compliance with the debt covenants. For a description of the Company's material financial debt covenants, see Note 7 – Notes Payable to the Company's consolidated financial statements in Item 8 – Financial Statements and Supplementary Data of Part II in this Report.
At December 31, 2014, substantially all of the Company's cash and cash equivalents were held by its subsidiaries outside of the U.S. The Company expects that existing U.S. liquidity or access to capital will be sufficient to fund its U.S. operating activities and cash commitments for investing and financing activities. In addition, the Company expects that existing international liquidity or access to capital will be sufficient to fund its international operating activities and cash commitments for investing and financing activities.

The Company earns income globally. The undistributed earnings of our international subsidiaries are considered to be permanently reinvested in international jurisdictions. The Company has no immediate need or intentions to distribute any of the funds held outside of the U.S. If the Company were to remit undistributed earnings in the form of dividends or otherwise, the Company may be subject to both U.S. income taxes (subject to an adjustment for international tax credits) and withholding taxes payable to various international jurisdictions.
On October 5, 2009, the Company announced a major expansion of its existing license agreement with Sangamo to include the exclusive rights to develop and distribute ZFP-modified cell lines for commercial production of protein pharmaceuticals and ZFP-engineered transgenic animals for livestock, companion animals and therapeutic protein production. Under this agreement, the Company made initial payments of $20 to Sangamo, consisting of an upfront license payment of $15 and $5 for the purchase of shares of Sangamo common stock. The Company has since sold all of its shares in Sangamo common stock. Sangamo is eligible to earn additional contingent commercial license fees of up to $5 based on certain conditions and additional contingent milestone payments of up to $25 based on cumulative sales. No material amounts were paid to Sangamo under this agreement in either 2014 or 2013.
Other Matters
The Company is involved in legal proceedings incidental to its business, as described below:
Insurance and Other Contingent Liabilities and Commitments
The Company is subject to potential liabilities arising out of present and future lawsuits and claims related to product liability, personal injury, contract, commercial, intellectual property, tax, environmental, employment, compliance and other matters that arise in the ordinary course of business, as well as putative state class action lawsuits arising out of the proposed merger transaction with Merck KGaA. The Company's operations and a number of its products are highly regulated by various governmental agencies around the world and the Company is periodically involved in reviews, investigations and proceedings by governmental agencies. Failure to meet the standards and licensing requirements of these agencies can lead to penalties which can include substantial fines and/or operating restrictions.

The Company accrues for potential liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. Although the Company believes the amounts reserved are probable and appropriate based on available information, the process of estimating losses involves a considerable degree of judgment by management and the ultimate amounts could vary materially. The Company has self-insured retention limits and has obtained insurance to provide coverage above the self-insured limits for claims made against it, subject to certain limitations and exclusions. At December 31, 2014, (i) reserves have been provided to cover expected payments for these self-insured amounts, (ii) there were no contingent liabilities that management believes are reasonably likely to have a material adverse effect on the Company's consolidated financial condition, results of operations, cash flows or liquidity and (iii) there were no material

- 27 -


commitments outside of the normal course of business. Material commitments in the normal course of business include notes payable, long-term debt, lease commitments and pension and other post-retirement benefit obligations which are disclosed in Note 7 – Notes Payable, Note 8 – Long-Term Debt, Note 10 – Lease Commitments and Note 16 – Pension and Post-retirement Benefit Plans.
Aggregate Contractual Obligations
The following table presents contractual obligations of the Company at December 31, 2014:
 
 
 
Payments due by period
Contractual Obligations
 
Total
 
Less than
1 year
 
1–3 years
 
3–5 years
 
More than
5 years
Long-term debt
 
$
300

 
$

 
$

 
$

 
$
300

Interest payments related to long-term debt
 
59

 
10

 
20

 
20

 
9

Operating lease obligations
 
131

 
29

 
46

 
32

 
24

Purchase obligations (1)
 
172

 
83

 
52

 
37

 

Total
 
$
662

 
$
122

 
$
118

 
$
89

 
$
333

(1)
Purchase obligations include open purchase orders, long-term service and supply agreements and other contractual obligations.
See Note 8 – Long-Term Debt and Note 10 – Lease Commitments to the Company's consolidated financial statements contained in Item 8 – Financial Statements and Supplementary Data of Part II of this Report for additional disclosures related to long-term debt and lease commitments, respectively.
See Note 16 – Pension and Post-retirement Benefit Plans to the Company's consolidated financial statements contained in Item 8 – Financial Statements and Supplementary Data of Part II of this Report for obligations with respect to the Company's pension and post-retirement medical benefit plans. Obligations related to the pension and post-retirement benefit plans are not included within the above table.
The above table excludes $54 of liabilities related to uncertain tax positions. See Note 12 – Income Taxes to the Company's consolidated financial statements contained in Item 8 – Financial Statements and Supplementary Data of Part II of this Report for detail on this obligation.

- 28 -


Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Inflation
Management recognizes that inflationary pressures may have an adverse effect on the Company through higher asset replacement costs and higher material and other operating costs. The Company tries to minimize these effects through focused cost reduction programs and productivity improvements as well as price increases to its customers. It is management's view that inflation, net of customer price increases, has not had a significant impact on the Company's consolidated financial statements during the three years ended December 31, 2014.
Market Risk Sensitive Instruments and Positions
The market risk inherent in the Company's financial instruments and positions represents the potential loss arising from adverse changes in interest rates and foreign currency exchange rates.
Interest Rates
At December 31, 2014, the Company's outstanding debt represented 12.4 percent of total book capitalization (total debt plus shareholders' equity). Approximately 67 percent of the Company's outstanding debt at December 31, 2014 is at a fixed rate. Cash flows from operations, cash on hand and available credit facilities are expected to be sufficient to meet the anticipated cash requirements of operating the business. It is management's view that market risk or variable interest rate risk will not significantly impact the Company's results of operations or financial condition, including liquidity. Interest rates are further described in Note 7 – Notes Payable and Note 8 – Long-Term Debt to the consolidated financial statements in Item 8 – Financial Statements and Supplementary Data of Part II of this Report.
Foreign Currency Exchange Rates
The functional currency of the Company's international subsidiaries is generally the currency in the respective country of residence of the subsidiary. The translation from the functional currencies to the U.S. Dollar for sales and expenses is based on the average exchange rate during the period, and for assets and liabilities, the exchange rate at the reporting date. Changes in foreign currency exchange rates have affected and may continue to affect the Company's sales, expenses, net income, assets, liabilities and cash flows. The impact of changes in foreign currency exchange rates decreased diluted EPS by $0.09, $0.05 and $0.22 for the years ended December 31, 2014, 2013 and 2012, respectively, when compared to their respective prior periods.
The Company transacts business in many parts of the world and is subject to risks associated with changing foreign currency exchange rates. Accordingly, the Company uses both derivative instruments designated as cash flow hedges as well as derivative instruments that are not designated as hedging instruments to mitigate this risk.

The market risk of these contracts represents the potential loss in fair value of net currency positions at period-end due to an adverse change in foreign currency exchange rates. The Company does not enter into foreign currency contracts for speculative trading purposes. The Company's policy is to manage a portion of foreign currency risks associated with forecasted intercompany inventory purchases and existing assets and liabilities through foreign currency forward exchange contracts.
Cash Flow Hedges
A significant portion of the Company's cost of products and services sold is denominated in the U.S. Dollar, while approximately 60 percent of the Company's net sales are denominated in other local currencies. Intercompany inventory purchases, which are sourced primarily from subsidiaries with U.S. Dollar functional currencies, are sold to customers by international subsidiaries in other currencies. The Company uses foreign currency forward exchange contracts to mitigate a portion of foreign currency risks associated with these forecasted intercompany inventory purchases. These derivatives have been designated as cash flow hedges for accounting purposes.
The market risk on these cash flow hedge contracts at December 31, 2014, assuming a hypothetical 10 percent change in foreign currency exchange rates, would be approximately $16 on income before income taxes. Such impact would be substantially offset by remeasurement of the exchange rate on hedged items.

- 29 -


Net Investment Hedges
The Company also holds investments in international subsidiaries that own net assets denominated in foreign currencies. The U.S. Dollar value of these foreign currency denominated net assets fluctuate as the exchange rate fluctuates. From time to time the Company will enter into net investment hedges to reduce the variability in the U.S. Dollar equivalent of net asset values due to changes in exchange rates. These derivatives have been designated as net investment hedges for accounting purposes. At December 31, 2014 and 2013, the Company did not have any outstanding foreign currency forward exchange contracts associated with net investment hedging transactions.
Derivatives Not Designated As Hedging Instruments

The Company also uses foreign currency forward exchange contracts, which are not designated as hedging instruments, primarily to hedge a portion of the value of certain intercompany receivables and payables denominated in foreign currencies. The Company's objective is to minimize the impact of foreign currency exchange rate changes during the period of time between the original transaction date and its cash settlement.

The market risk on these foreign currency forward exchange contracts at December 31, 2014, assuming a hypothetical 10 percent change in foreign currency exchange rates, would be approximately $4 on income before income taxes. Such impact would be substantially offset by remeasurement of the exchange rate on hedged items.

The Company continues to assess the potential impact of recent trends in the global economic environment on the availability of and its access to these contracts in the open market, as well as the ability of the counterparties to meet their obligations. While we continue to monitor the impacts of the uncertainties in the Eurozone, management does not believe that a significant risk exists of these contracts becoming unavailable in the global marketplace within the next twelve months.




- 30 -


Item 8.
Financial Statements and Supplementary Data.

Sigma-Aldrich Corporation
Consolidated Statements of Income
($ In Millions, Except Per Share Data)
 
 
Years ended December 31,
 
2014
 
2013
 
2012
Sales
$
2,785

 
$
2,704

 
$
2,623

Cost of products and services sold
1,366

 
1,343

 
1,276

Gross profit
1,419

 
1,361

 
1,347

Selling, general and administrative expenses
639

 
612

 
605

Research and development expenses
65

 
66

 
69

Other charges
34

 
22

 
14

Operating income
681

 
661

 
659

Interest, net
4

 
4

 
4

Income before income taxes
677

 
657

 
655

Provision for income taxes
177

 
166

 
195

Net income
$
500

 
$
491

 
$
460

 
 
 
 
 
 
Net income per share - Basic
$
4.20

 
$
4.09

 
$
3.80

Net income per share - Diluted
$
4.17

 
$
4.06

 
$
3.77

Weighted average number of shares outstanding - Basic
119

 
120

 
121

Weighted average number of shares outstanding - Diluted
120

 
121

 
122

Dividends per share
$
0.92

 
$
0.86

 
$
0.80

See accompanying notes to consolidated financial statements.

- 31 -



Sigma-Aldrich Corporation
Consolidated Statements of Comprehensive Income
($ In Millions)
 
 
Years ended December 31,
 
2014
 
2013
 
2012
Net income
$
500

 
$
491

 
$
460

Other comprehensive income/(loss), net of tax:
 
 
 
 
 
Foreign currency translation gain/(loss), net
(120
)
 

 
23

Pension and post retirement, net
(40
)
 
55

 
10

Unrealized gain/(loss) on securities, net

 
(3
)
 
3

Unrealized gain/(loss) on forward exchange contracts, net
22

 
(1
)
 
3

Total other comprehensive income/(loss)
(138
)
 
51

 
39

Comprehensive income
$
362

 
$
542

 
$
499

See accompanying notes to consolidated financial statements.

- 32 -



Sigma-Aldrich Corporation
Consolidated Balance Sheets
($ In Millions, Except Per Share Data)
 
December 31,
 
2014
 
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
958

 
$
722

Accounts receivable
397

 
382

Inventories
699

 
699

Deferred taxes
46

 
31

Other
147

 
87

Total current assets
2,247

 
1,921


 
 
 
Property, plant and equipment:
 
 
 
Property, plant and equipment
2,108

 
2,098

Less - accumulated depreciation
(1,322
)
 
(1,292
)
Property, plant and equipment, net
786

 
806

Goodwill
756

 
691

Intangibles, net
292

 
255

Other
114

 
132

Total assets
$
4,195

 
$
3,805

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable
$
145

 
$
65

Accounts payable
183

 
152

Payroll
81

 
64

Income taxes

 
25

Other
81

 
77

Total current liabilities
490

 
383

Long-term debt
300

 
300

Pension and post-retirement benefits
103

 
73

Deferred taxes
69

 
74

Other
103

 
80

Total liabilities
1,065

 
910

Stockholders' equity:
 
 
 
Preferred stock, $1.00 par value; 10 million shares authorized at December 31, 2014, none authorized at December 31, 2013; none issued or outstanding at December 31, 2014 and December 31, 2013

 

Common stock, $1.00 par value; 450 million shares authorized at December 31, 2014 and 300 million shares authorized at December 31, 2013; 202 million shares issued at December 31, 2014 and December 31, 2013; 119 million shares outstanding at December 31, 2014 and December 31, 2013
202

 
202

Capital in excess of par value
383

 
322

Common stock in treasury, at cost, 83 million shares at December 31, 2014 and 2013
(2,486
)
 
(2,407
)
Retained earnings
5,049

 
4,658

Accumulated other comprehensive income
(18
)
 
120

Total stockholders' equity
3,130

 
2,895

Total liabilities and stockholders' equity
$
4,195

 
$
3,805

See accompanying notes to consolidated financial statements.
 
 
 

- 33 -



Sigma-Aldrich Corporation
Consolidated Statements of Stockholders' Equity
($ In Millions)
 
 
 
Common
Stock
 
Capital in Excess of Par Value
 
Common
Stock in
Treasury
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Total
Stockholders'
Equity
Balance, December 31, 2011
$
202

 
$
225

 
$
(2,165
)
 
$
3,907

 
$
30

 
$
2,199

Net income
 

 

 

 
460

 

 
460

Other comprehensive income
 

 

 

 

 
39

 
39

Dividends
 

 

 

 
(97
)
 

 
(97
)
Exercise of stock options
 

 
36

 
18

 

 

 
54

Restricted stock unit grant
 

 
6

 

 

 

 
6

Stock-based compensation expense
 

 
9

 

 

 

 
9

Stock repurchases
 

 

 
(124
)
 

 

 
(124
)
Balance, December 31, 2012
$
202

 
$
276

 
$
(2,271
)
 
$
4,270

 
$
69

 
$
2,546

Net income
 

 

 

 
491

 

 
491

Other comprehensive income
 

 

 

 

 
51

 
51

Dividends
 

 

 

 
(103
)
 

 
(103
)
Exercise of stock options
 

 
24

 
11

 

 

 
35

Restricted stock unit grant
 

 
7

 
(1
)
 

 

 
6

Stock-based compensation expense
 

 
15

 

 

 

 
15

Stock repurchases
 

 

 
(146
)
 

 

 
(146
)
Balance, December 31, 2013
$
202

 
$
322

 
$
(2,407
)
 
$
4,658

 
$
120

 
$
2,895

Net income
 

 

 

 
500

 

 
500

Other comprehensive income
 

 

 

 

 
(138
)
 
(138
)
Dividends
 

 

 

 
(109
)
 

 
(109
)
Exercise of stock options
 

 
37

 
10

 

 

 
47

Restricted stock unit grant
 

 
9

 
(4
)
 

 

 
5

Stock-based compensation expense
 

 
15

 

 

 

 
15

Stock repurchases
 

 

 
(85
)
 

 

 
(85
)
Balance, December 31, 2014
$
202

 
$
383

 
$
(2,486
)
 
$
5,049

 
$
(18
)
 
$
3,130

Activity in common stock shares issued and common stock shares in treasury
is summarized below (in millions):
 
Common
Stock Issued
 
Common Stock
in Treasury
Balance, December 31, 2011
202

 
81

Exercise of stock options
 

 
(1
)
Stock repurchases
 

 
2

Balance, December 31, 2012
202

 
82

Exercise of stock options
 

 
(1
)
Stock repurchases
 

 
2

Balance, December 31, 2013
202

 
83

Exercise of stock options
 

 
(1
)
Stock repurchases
 

 
1

Balance, December 31, 2014
202

 
83


See accompanying notes to consolidated financial statements.


- 34 -



Sigma-Aldrich Corporation
Consolidated Statements of Cash Flows
($ in Millions)
 
Years ended December 31,
 
2014
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
 
Net income
$
500

 
$
491

 
$
460

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
132

 
138

 
136

Deferred income taxes
(10
)
 
(8
)
&#