賽默飛世爾科技 (TMO) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Thermo Fisher Scientific 2013 fourth-quarter and full-year earnings conference call.

(Operator Instructions)

As a reminder, today's call is being recorded.

I would like introduce our moderator for the call, Mr. Kenneth Apicerno, Vice President, Investor Relations.

Mr. Apicerno, you may begin the call.

Good morning, and thank you for joining us.

On the call with me today is Marc Casper, our President and Chief Executive Officer; and Pete Wilver, Senior Vice President and Chief Financial Officer.

Please note, this call is being webcast live and will be archived on the Investor section of our website, thermofisher.com, under the heading Webcasts and Presentations until February 28, 2014.

A copy of the press release of our 2013 fourth-quarter and full-year earnings and future expectations is available on our website under the heading Financial Results.

So before we begin, let me briefly cover our safe harbor statement.

Various remarks that we may make about the Company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company's quarterly report on form 10-Q for the quarter ended September 28, 2013 under the caption Risk Factors, which is on file with the Securities and Exchange Commission and also available in the Investor section of our website under the heading SEC Filings.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change; therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

Also during this call, we'll be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release of our fourth-quarter 2013 earnings and future expectations, and also in the Investor section of our website under the heading Financial Information.

So with that, I'll now turn the call over to Marc.

Thanks, Ken, and good morning, everyone.

Thank you for joining us today.

First, I'm pleased to report that we had an excellent fourth quarter.

Our Teams really executed well to deliver outstanding results across the board.

Our strong finish resulted in a very good year for Thermo Fisher and puts us in a great position going into 2014.

Now, I know that you're all waiting for news on our close of Life Technologies, so let me give you a very quick update.

We're working with the FTC to obtain the last regulatory clearance.

We believe we are close and expect to complete the transaction very shortly.

Given where we are in the process, we are including Life Technologies in our 2014 guidance, assuming an early February close day.

I'll talk more about Life Technologies a little later on.

But let me start by covering our financial performance in the fourth quarter.

I'll then cover some of the highlights of the past year, talk about Life, and wrap up with our guidance for 2014.

So starting with the quarter, I have to say our Teams did a fantastic job of delivering excellent results on both the top and bottom line.

Our revenue for the quarter was a record, growing 6% year over year.

Our adjusted operating income increased 9% for the quarter, and we expanded our adjusted operating margin by 40 basis points to 20%.

Our strong operating performance led to a record adjusted EPS of $1.43, for a 5% increase over Q4 of 2012.

Our Teams really intensified their focus on our customers, and took full advantage of some year-end growth opportunities that materialized with certain customers.

We also continued to drive productivity hard as we have all year long to deliver our strong bottom line.

Overall, it was an outstanding quarter by all measures.

Let me give you some color on our quarterly performance in each of our four end markets.

Our strong top-line growth at the end of the year was a combination of two things; pockets of improvement in some of our markets, and also, good execution that allowed us to benefit from them.

In two end markets, industrial and applied, and healthcare and diagnostics, we saw some improved market conditions in the quarter, and our businesses serving these customers grew in line with the Company average.

Let me cover each of them in a little more detail.

In industrial and applied, we saw an uptick here overall at the year end, due to the release of funding for some projects that had been delayed during the course of the year.

Applied markets continue to be relatively strong for us as they had been all year, led by demand for chromatography systems used in environmental and food safety applications.

In core industrial markets, we still haven't seen an inflection point in our orders yet, so these markets continue to be soft, as they had been for most of 2013.

Turning to healthcare and diagnostics, demand for our clinical diagnostics products remained strong, as it had all year, and our Team continues to grow our share position.

I'm also pleased to report that our transport diagnostics business continued to perform very well.

Looking at the healthcare and diagnostics market from a geographic perspective, we saw ongoing strength in Asia Pacific and improving conditions in Western Europe.

In the US, where conditions had been soft earlier in the year, we believe we benefited from a modest increase in healthcare utilization toward the end of the year.

Turning to pharma and biotech, we had an exceptional performance and grew by more than 10% in the quarter.

We had particularly strong results across our clinical trial logistics, bioprocess production, and laboratory products businesses.

This says that our pharma and biotech customers are continuing to recognize our unique value proposition, and as a result, we're gaining share of wallet with these accounts.

Finally, in academic and government end markets, our results were consistent with what we saw in the first nine months of the year, again declining of the low-single digits.

In summary, the improvements in industrial and applied, and healthcare and diagnostic end markets, an exceptional performance of our pharma, added up for a strong quarter of top-line growth.

Our Teams executed very well to capture the market opportunities and deliver a strong finish to the year.

That's a good segue to discuss our results for all of 2013.

First, this was another outstanding year of operational execution across the Company.

I'm incredibly proud of the way our Teams stepped up and powered through the challenging environment to achieve their goals on both the top and bottom line.

They did a great job of managing costs, while keeping their eye on the ball in terms of exceeding our top-line growth expectations.

We continue to execute our growth strategy and had numerous successes during the year, which I'll cover in a moment.

Looking at our financial performance for all of 2013, we continued our long track record of delivering strong adjusted EPS, achieving 10% growth over 2012.

We really set ourselves apart here in the industry last year.

We achieved strong adjusted EPS, even though we suspended our share buybacks in light of the pending acquisition of Life Technologies.

We also faced significant headwinds from FX, but were able to offset them through effective contingency planning by driving productivity through our PPI business system.

We expanded our adjusted operating margin for the full year by 50 basis points, and we did that while continuing to invest for growth.

As I said a few weeks ago at two investor conferences, when you look back at 2013, we were the exception in the life sciences space in terms of margin expansion, and we owe that performance to our outstanding execution by our Teams across the businesses.

Turning to the top line, our revenue for the full year grew by 5% to a record $13.09 billion.

Our strong revenue performance in the fourth quarter pushed us above the high end of our most recent annual guidance.

In a challenging environment, we solidly achieved our goals for the year for three main reasons.

First, we have the operational discipline that's ingrained in our PPI business system.

Second, we had well-thought-out contingency plans that were also very well executed, so we were able to respond quickly to changes in the economic environment, in particular, the significant impact of adverse foreign exchange last year.

And through it all, we remained focused on our customers and continued to make excellent progress on executing our growth strategy by developing innovative new products, expanding our presence in high-growth emerging markets, and strengthening our unique value proposition.

Let me now use our growth drivers to recap a few of the highlights for 2013.

First, let's talk about technology innovation.

We had a very strong year in developing high impact new products, and what really made it stand out was that we had successful product launches across our portfolio, including analytical instruments, bioproduction, and specialty diagnostics.

It was a long list of new products, but let me cover the highlights starting with analytical instruments.

We talked a lot about the Orbitrap Fusion Tribrid, so I won't get into the details again, but this is a revolutionary mass spec product and a game changer for our research customers.

Fusion got off to a great start after launch, and we're expecting it to become a $100 million product.

Our two new triple-quad systems have also been well received, so it was an outstanding year for strengthening our mass spectrometry leadership.

In chromatography, you'll recall that we had a significant upgrade of our gold-standard Chromeleon data system, and or HPLC business continues to perform very well.

We also introduced new generation in our industry-leading elemental analysis platform with the powerful iCAP 7000 system for environment markets.

Turning to bioproduction, we launched a new single-use bioreactor and our first bench-top process mass spec for biologics research.

And finally, in specialty diagnostics, we introduced a number of tests and assays.

We are clearly a Company that's committed to innovation and using advanced technologies to fulfill our mission, which is to enable our customers to make the world healthier, cleaner, and safer.

Turning to our second growth driver, Asia Pacific and emerging markets, we continue to make excellent progress here to build on our strength in these high-growth regions.

As you heard throughout 2013, China was a standout, with our Teams there delivering 20% growth for the year.

We've invested to strengthen our R&D, manufacturing, and commercial capabilities, including the expansion of our China innovation center last June, and we're clearly using our scale and depth of capabilities to differentiate Thermo Fisher in that region.

We see many opportunities as we broaden our scope in China to include the tier-II and tier-III cities, where there's growing demand for better healthcare, a cleaner environment, and safer food supplies.

We made great progress last year in other high-growth markets as well, such as Brazil and South Korea, and this will continue to be a key element of our growth strategy going forward.

The third element of our growth strategy is our unique customer value proposition.

This is all about fully leveraging our premier brands and the strength of our Company to drive innovation and productivity for our customers.

I mentioned this a bit earlier in the context of our pharma and biotech end market, but let me just add here that we've continued to gain share by working with these customers as a true partner.

They have really come to rely on our proven track record of delivering value for them.

I've met with the CEOs of many of our largest accounts already this year.

In today's environments, these customers recognize that we're uniquely positioned to help them be more competitive.

As a result, these accounts continue to grow above the Company average.

We continue to target new accounts, and we're excited about the additional growth opportunities we have here.

With the addition of Life Technologies, our customer value proposition will become even stronger.

Let me now spend a few minutes on the Life Technologies acquisition, which we expect to complete very shortly.

I think you know what Life Technologies will bring in the way of capabilities.

We talked about this a lot during the year, and many of you are already very familiar with the company.

It's highly respected as one of the world's leading life science research companies.

In terms of the financial contribution, Life Technologies will add nearly $4 billion of revenue to our business.

It will become our fourth operating segment, called Life Sciences Solutions, which will also include a number of Thermo Fisher's biosciences businesses.

As we said when we originally announced the transaction, we expect to generate $275 million of adjusted operating income synergies by year three, which we validated during our integration planning, so we'll get off to a great start here.

Looking at earnings accretion, we now expect to add between $1.25 and $1.30 of adjusted EPS in the first full year.

This is above the range of $0.90 to $1.00 that we initial estimated when we announced the deal last April.

Pete will walk you through the details, but at a high level, the increase is based on the completion of our financing, integration planning, and the impact of previously-announced divestitures.

So we're committed to delivering significant accretion of the first 12 months of ownership, a very good position to be in, and clearly creating shareholder value even the short term.

When I think about the value this combination will create for our customers, it will align perfectly with our growth strategy.

Technology innovation, it will add important capabilities in genomics and next-gen sequencing that we don't have today.

Let me also remind you that, combined, our R&D budget will be by far the largest in our industry at more than $700 million.

In emerging markets, Life Technologies will fortify our presence in our fastest-growing markets, such as China, South Korea, and Brazil.

In China alone, we will now have a business with more than $1 billion of revenues and an outstanding Team of 3,800 colleagues.

We will strengthen our customer value proposition by adding another premier life sciences brand.

The Life Technologies offering will give us a leadership position in bioscience reagents and equipment.

To summarize, our value proposition will include the leading positions in genomics, proteomics, and specialty diagnostics.

We'll be the only Company that has this powerful combination.

These are exciting times for Thermo Fisher.

We look forward to closing the transaction and executing a smooth and successful integration so we can quickly demonstrate the value it will create for our customers, our employees, and our shareholders.

I'll now spend a few minutes on our guidance for the year, as I mentioned, and this includes the results of Life Technologies assuming an early February close date.

Pete will review our guidance in more detail and outline all of the assumptions behind it, but at a high level, we're anticipating a modest improvement in some of our end markets in 2014.

So with that as backdrop, we're expecting to achieve adjusted EPS in the range of $6.70 to $6.90, which would result in 24% to 27% growth over our strong EPS performance in 2013.

In terms of the top line, we expect to achieve revenue in the range of $16.63 billion to $16.83 billion, for 27% to 29% revenue growth year over year.

Before I turn the call over to Pete, let me leave you with a couple takeaways.

First, our Teams worked with amazing intensity on all fronts throughout 2013, and their efforts resulted in a year that we're all very proud of.

Our success puts us in a strong position going into 2014.

Second, we're looking forward to closing the Life Technologies acquisition and excited about the many opportunities we will have to combine our strengths and create a Company that is truly unrivaled in our industry.

With that, I'll now have the call over to Pete Wilver, our CFO.

Thanks Marc.

Good morning, everyone.

(Conference Instructions)

Given that this is a year-end call and we expect to close the Life Technologies acquisition shortly, I have a number of topics to cover in my remarks this morning.

I'll start with an overview of our Q4 and full-year 2013 financial performance for the total Company and by segment, then provide you with a recap of the Life Technologies acquisition financing, briefly discuss our new segment reporting structure which went into effect as of January 1, and conclude with our 2014 guidance.

So starting with our financial performance, as you saw in our press release and heard from Marc, we delivered a strong quarter, resulting in a 5% increase in adjusted EPS to a record of $1.43.

For the full year, adjusted EPS was also a record at $5.42, up 10% from $4.94 last year.

GAAP EPS was $0.92 in Q4 and $3.48 for the full year, compared to $1.04 and $3.21 in Q4 and full-year 2012, respectively.

Looking at the top line, Q4 total revenue and organic revenue both increased 6% year over year in the quarter.

The effect of both acquisitions and foreign exchange on Q4 reported revenue was immaterial.

For the full year, total revenue increased 5% year over year, and organic revenue was up 3%, exceeding the high end of our most recent guidance as a result strong results in Q4.

Full-year reported revenue includes 2% growth from acquisitions and a nominal negative impact from FX.

Although the net revenue impact from FX for the year was minimal, the mix of currencies, specifically the weakening of the Japanese yen, negatively impacted earnings in both the quarter and the year.

For the quarter, FX resulted in 10 basis points of adjusted operating margin dilution and $0.01, or 1%, of adjusted EPS dilution compared to 2012.

And for the full year, the FX impact was 25 basis points of adjusted operating margin dilution and $0.09, or 2%, of adjusted EPS dilution.

In terms of backlog, booking slightly exceeded revenue in the quarter.

By geography, for the quarter, North America revenue grew in the low-single digits, Europe grew just above the Company average, and Asia Pacific grew in the low teens, with China growing in the mid teens.

Rest of world grew in the mid teens, primarily driven by Latin America.

And for the full year, both North America and Europe grew in the low-single digits, Asia Pacific grew in the high-single digits, and rest of world grew in the low teens.

Looking at our operational performance, Q4 adjusted operating income increased 9%, and we delivered very strong adjusted operating margin of 20%, up 40 basis points from Q4 last year.

For the full year, adjusted operating income increased 7%, and adjusted operating margin was 19.5%, up 50 basis points from 2012 and at the high end of our previous guidance.

Our adjusted operating margin expansion for the quarter and full year were driven by a very strong contribution from our primary productivity levers; global sourcing, site consolidations, and our PPI business system.

In line with our previous communications, we realized benefits from our restructuring actions of $19 million in Q4 and $85 million for the full year.

In terms of supporting our growth initiatives, we continue to make strategic investments, primarily to strengthen our presence in emerging markets and continue our growth momentum in those regions.

Moving on to the details of the P&L, total Company adjusted gross margin came in at 44.3% in Q4, down 40 basis points from the prior year.

This was primarily due to unfavorable mix from higher growth in our Laboratory Products and Services segment, as well as investments in our emerging markets service infrastructure.

For the full year, adjusted gross margin was 44.2% down 30 basis points from 2012, similarly driven by unfavorable mix and service investments, as well as unfavorable foreign exchange.

Adjusted SG&A in Q4 was 21.3% of revenue, 80 basis points favorable to the 2012 quarter, as a result of volume leverage and our productivity actions.

We made great progress for the year with adjusted SG&A at 21.6% of revenue, 90 basis points below 2012.

Finally, R&D expense came in at 3% of revenue both for the quarter and the full year, essentially in line with 2012.

R&D as a percent of our manufacturing revenue in 2013 was 5.3%, similar to 2012.

Looking at our results below the line, net interest expense in Q4 was $62 million, up $2 million last year.

We incurred $5 million of interest expense in the quarter, or $0.01 of adjusted EPS dilution, which was not included in our previous guidance, as a result of the bonds we issued in December to fund the Life Technologies acquisition.

For the full year, net interest expense was $234 million, which was $18 million above 2012, due to the full-year impact of the debt we issued in Q3 2012 to fund the One Lambda acquisition, as well as the impact of the Life Technologies bond financing.

Adjusted other income in Q4 was a loss of $1 million, down $4 million from Q4 2012.

And for the full year, it was $4 million, down $5 million from the prior year, both primarily as a result of higher non-operating currency transaction losses.

Our adjusted tax rate in the quarter was 15.9%, which was 70 basis points higher than last year, and about 100 basis points higher than our previous guidance, primarily as a result of the Q4 statutory tax law change in a foreign jurisdiction.

For the full year, our adjusted tax rate was 14.7%, 200 basis points lower than last year, as a result of tax synergies from our 2012 acquisitions, as well as our ongoing tax planning efforts.

In terms of returning capital, we paid out $54 million in dividends to our shareholders in the quarter and $216 million for the full year.

There were no share buybacks in the quarter, but for the full year, we repurchased $90 million of shares prior to suspending our buyback program in connection with the Life Technologies acquisition.

Average diluted shares were 370.9 million in Q4, up 9.2 million, up 3% from last year, primarily as a result of option dilution and the accounting impact of the equity forward contract we entered into in Q2.

For the full year, average diluted shares were 365.8 million, down 0.8 million from 2012.

Turning to cash flow and the balance sheet, full-year cash flow from continuing operations was $2.02 billion, and free cash flow was $1.75 billion after deducting net capital expenditures of $262 million.

Full-year free cash flow was essentially flat with the prior year, as higher cash net income was offset by increased working capital investment, as well as financing fees and transaction costs for the Life Technologies acquisition.

We ended the quarter with $5.83 billion in cash and investments, up $3.98 billion sequentially from Q3, driven by the proceeds from the December bond issuance that I mentioned previously, but also as a result of our free cash flow.

Our total debt at the end of Q4 was $10.5 billion, up $3.4 billion from Q3 as a result of the bond issuance.

Let me wrap up my comments on the total Company with a quick update on our performance in terms of return on invested capital.

Our trailing 12 months adjusted ROIC for 2013 was 10.1%, up 30 basis points from Q3, and up 80 basis points from 9.3% a year ago, so we continue to make good progress on this important metric.

So with that, now I will walk you through the performance of our three business segments.

Starting with Analytical Technologies, in Q4, total revenue grew 6%, and organic revenue also grew 6%.

In the quarter, we had very strong growth in our life sciences mass spec, bioprocess production, and chromatography businesses, which benefited from exceptional performance in Asia Pacific.

This segment also benefited from the release of funds by select customers in a broad range of end markets for projects that had been delayed, as Marc mentioned in his comments.

For the full year, both reported and organic revenue grew 3%.

Adjusted operating income in Q4 for Analytical Technologies increased 8%, and adjusted operating margin was 20.4%, up 50 basis points.

The margin expansion was driven by strong pull through on our top-line growth and continued productivity actions, which were partially offset by negative foreign exchange and strategic investments.

For all of 2013, adjusted operating income increased 2%, and adjusted operating margin was 18.6%, flat with 2012.

Turning to the Specialty Diagnostics segment, in Q4, total revenue grew 5%, and organic growth came in at 5%, as well.

In the quarter, we continued to deliver good growth in our clinical diagnostics business, and our immunodiagnostics allergy business grew above the segment average.

Our transplant diagnostics business also continued to do well, and Q4 was the first full quarter that it was included in our organic growth.

As Marc said, we believe that we saw some favorable year-end healthcare utilization trends that benefited the segment as a whole.

For the full year, total revenue grew 8%, and organic revenue grew 3%.

Adjusted operating income in the segment increased 9% in Q4, with adjusted operating margin at 26.9%.

This was up 100 basis points from the prior year, primarily as a result of productivity savings and strong volume pull-through, which was partially offset by investments and foreign exchange.

For the full year, adjusted operating income increased 14%, and adjusted operating margin was 27.2%, up 150 basis points from 2012, primarily as a result of the One Lambda acquisition.

In the Laboratory Products and Services segment, in Q4, both reported revenue and organic revenue grew 8%.

Our clinical trials logistics business continued to deliver very strong growth, and our laboratory products business had robust growth, as well.

Softness in the US academic and government end market continue to be a headwind in this segment.

However, similar to Analytical Technologies, this segment benefited from the release of funding for some projects that had been previously delayed.

For the full year, reported revenue grew 5%, and organic revenue grew 4%.

Adjusted operating income and Laboratory Products and Services grew 9% for the quarter, and adjusted operating margin was 14.4%, up 10 basis points, driven by strong productivity.

For the full year 2013, adjusted operating income increased 6%, and adjusted operating margin was 14.5%, up 10 basis points from the prior year.

So before I move on to our 2014 guidance, I'd like to provide you with a brief update on the Life Technologies financing details, now that we expect to close the transaction shortly.

I'll also cover the changes to are reporting segments that went into effect on January 1.

So in terms of the acquisition financing, it will be a total of $11.1 billion as follows.

In Q4, we issued $3.2 billion in bonds with maturity dates of 3 to 30 years at a current average rate of 3%.

$5 billion will come from our term loan facility, which is a variable rate of LIBOR plus 150 basis points, but is currently averaging 1.75%.

And we'll issue a total of $2.9 billion of common equity, representing 34.9 million shares.

The remainder of the purchase price will be funded with available cash and commercial paper of approximately $2.5 billion.

With that, let me briefly update you on some changes we're making to are reporting segments.

Effective January 1 of this year, the Company's financial performance will be reported in four segments.

The details are included in our financial reconciliation package and the Investors section of our website, but the major changes are as follows.

First, we've added a new segment called Life Sciences Solutions, which consists of the majority of the former Life Technologies and Thermo Fisher biosciences businesses.

Our global chemicals business, which sells a high percentage of its revenue through the Fisher Scientific channel, is being transferred from biosciences to the Laboratory Products and Services segment.

As a result, our annualized sales eliminations will decrease, but this will be partially offset by increased eliminations for products currently sold by Life Technologies through the Fisher Scientific channel.

Next, our Analytical Technologies segment is being renamed Analytical Instruments to reflect the transfer of biosciences to other segments.

Two small specialty diagnostics businesses within Life Technologies are becoming part of the Specialty Diagnostics segment.

And finally, as previously announced, we have agreed to sell our serum media, gene modulation, and magnetic beads businesses to GE Healthcare.

So there are a number of changes, not the least of which is the addition of Life Technologies to our results.

At the total Company level, going forward, we'll be reporting organic revenue growth using our standard methodology of excluding the results of Life Technologies until we reach the anniversary date of the acquisition.

When we report our actual results beginning in Q1, we do intend to provide organic revenue growth on a pro forma basis for the Life Sciences Solutions segment, as if we had owned Life Technologies for all of 2013 and 2014, to give you insight into the growth performance of that segment.

So with that, I'd like to review the details of our 2014 guidance.

In terms of acquisition and divestiture assumptions, our guidance includes Life Technologies assuming an early February close date.

And for the previously-announced divestitures, we've assumed a mid-Q1 sale date.

Our guidance does not include any other future acquisitions or divestitures.

As you saw in our press release, we're initiating a 2014 adjusted EPS guidance range of $6.70 to $6.90, which represents growth of 24% to 27% over our 2013 adjusted EPS of $5.42.

In terms of revenue, our guidance range is $16.63 billion to $16.83 billion, which is 27% to 29% above our reported revenue of $3.09 billion in 2013.

On an organic basis, this represents year-over-year growth of about 3% to 4%, with the midpoint similar to our actual results in 2013.

Again, this measure of organic growth does not include the results of Life Technologies.

To bridge our organic growth between the two years, we expect to pick up about 50 basis points each in academic and government and industrial applied, as a result of modestly stronger end markets.

We expect this to be offset by roughly 100 basis points of lower contribution from pharma and biotech, following our strong high single-digit growth in this end market for the last two years.

We still expect good growth in the mid-single digits in this end market given the strength of our value proposition, but we expect the comparison will be challenging.

We also expect to see a small amount of dilution from the acquisition-related divestitures, if they were growing faster than the Company average.

In terms of FX, assuming recent rates, the year-over-year foreign-currency impact on our revenue will be minimal.

However, similar to 2013, we're expecting an unfavorable margin impact resulting from the mix of currencies, specifically the continued weakening of the Japanese yen.

The Life Technologies acquisition, net of our divestitures, is expected to contribute about 24 to 25 points of our total revenue growth in 2014.

To frame the organic revenue growth performance we've assumed in our guidance for the legacy Life Technologies businesses, we're expecting them to grow organically by 2% to 3% in 2014 on a pro forma basis, following 2% organic growth in 2013.

Turning to adjusted operating margin, we're expecting adjusted operating margin expansion of 220 to 250 basis points, primarily as a result of the addition of Life's financial results, as well as acquisition synergies.

We're expecting margin expansion for Thermo Fisher standalone to be about 60 basis points, excluding headwinds of 30 basis points from the divestitures, as well as 30 basis points from FX.

The drivers of the standalone margin expansion are similar to prior years, price and volume leverage, our PPI business system, global sourcing, and restructuring.

We're assuming about $85 million of synergy benefit in the balance of 2014.

This translates to $100 million for the first full year, which is slightly higher than our original guidance of $85 million, as we now expect to be able to accelerate some of the synergy benefits after completing the detailed integration planning.

In terms of our expectations for synergies in the third full year after close, our integration planning work has validated our original guidance of $275 million in cost and revenue synergy benefit.

Moving below the line, we're expecting net interest expense to be in the range of $420 million to $430 million, up almost $200 million, as a result of the debt we issued to fund the Life Technologies acquisition.

It's important to note that Life's existing bonds, totaling $2.05 billion, will be recorded on our balance sheet at fair value, resulting in about $50 million of lower P&L interest compared to what Life Technologies expensed in 2013, although cash interest payments remain unchanged.

We're forecasting our adjusted income tax rate to be in the range of 14.5% to 15.5%, consistent with our previous guidance of about 15% for the combined Company.

We've not included the R&D tax credit in our tax rate estimate, which is about a $20-million benefit to the combined Company, as it is not yet been approved for 2014.

We're assuming that we will return approximately $240 million of capital to shareholders, all in the form of dividends, and that will use the bulk of our free cash flow and the proceeds from the divestitures to pay down short-term debt.

Full-year average diluted shares are estimated to be in the range of 402 million to 406 million, up 10% to 11% from 2013, reflecting the shares we issued to fund the Life Technologies acquisition.

And we're expecting capital expenditures to be in the range of $470 million to $490 million on a full-year basis, and free cash flow to be in the range of $2.55 billion to $2.65 billion.

In terms of accretion from the Life Technologies transaction, as Marc said, we're now expecting the acquisition to add $1.25 to $1.30 of adjusted EPS in the first full year, compared to our original guidance of $0.90 to $1.00, and we're expecting about $1.10 to $1.15 of accretion to our FY14 earnings.

To bridge from the high end of our original first-year accretion guidance of $1 to our current guidance of high end of $1.30, we picked up about $0.38 from a lower share count as a result of issuing 1.1 billion less equity at a higher average price.

We also picked up about $0.20 from lower interest expense, as a result of lower rates and the fair value adjustment of Life's debt.

And this was partially offset by about $0.16 due to the divestitures, and about $0.12 net lower contribution from Life's operations, including synergies, all as a result of more unfavorable FX rates versus our acquisition model assumptions.

One final note on guidance, we don't normally provide detail other than annual guidance, but given all the moving parts related to acquisitions and divestitures, I thought it would be helpful to give you some insight into what we're expecting for Q1.

With over $375 million of Life's 2014 revenue occurring pre-close, and the divestitures assumed to occur mid quarter, we're expecting Q1 to represent only about 22% of our full-year revenue guidance.

In terms of adjusted EPS, we're expecting Q1 as a percent of our full-year guidance to represent a couple points less than the comparable revenue percentage, as a result of the synergies building throughout the year and a large piece of the acquisition-related interest expense and share count increase being incurred for the full quarter, without a full quarter of Life's operating earnings to offset them.

As always, in interpreting our full-year revenue and adjusted EPS guidance ranges, you should focus on the midpoint as our most likely view of how we see the year playing out.

Results above or below the midpoint will depend on the relative strength of our markets during the year.

So in summary, this past year, we've manage our cost base effectively while continuing to invest for a bright future.

We accomplished this by leveraging our PPI business system and through strong execution by our Teams around the globe.

As a result, I believe we're well positioned to achieve our growth goals for 2014 and beyond.

And our prospects only get brighter with the new capabilities that Life Technologies will bring.

With that, I'll turn the call back over to Ken.

Thanks, Pete.

Shannon, we're ready to open it up for questions.

(Operator Instructions)

Our first question is from Jon Groberg of Macquarie.

Good morning, and thanks a million for the question.

Congratulations on a very outstanding year in 2013.

First, just maybe briefly, Marc, any sense as to why the delay with the US FTC, and it doesn't sound like from yours or Pete's comments that they're requiring any additional divestitures that what you already talked about.

Is that correct?

So good morning, Jon.

Yes, in terms of US FTC, as we said back in April, we expected the transaction to close early in the year, and we're still right on track with that.

So we're just finalizing the documentation process, and we're not expecting any additional divestitures or anything of that sort.

Okay great.

And then there's a quick follow-up.

As you think about the Life deal closing -- and appreciate all the tremendous amount of detail that you went through in this call to help us understand all the moving pieces.

Marc, as you think about the deal, though, and you think about bringing them on board and moving your businesses into theirs, a lot of us are out there in this space, in that more molecular biology genomics space, hear about people transitioning out, hear about new products that are being introduced from competitors.

I'm just curious, as you evaluate that business, evaluate the competitive position, evaluate the R&D spend that's necessary and some of your own markets as well, that you have both opportunities and risk.

Just maybe how you're thinking about that, not just this year in 2014, but maybe over the next couple of years.

Thanks.

Thanks, Jon.

We've had the benefit of a nine-month integration planning process where the two Teams have worked incredibly collaboratively to set out a great integration plan, as well as getting even more familiar with the business.

Obviously, we know it quite well.

And we're very excited about the prospects.

And as I said on a couple of the recent investment bank conferences, basically, Life Technologies hasn't been doing Investor Relations strategy for the year.

They've been intensely focused on their customers.

So you haven't seen a lot of communications, but you have seen a lot of great progress in their base operating business in terms of the things they're doing.

So we're really excited about the prospects of the business, and we're looking forward to closing and welcoming our 10,000 new colleagues to Thermo Fisher Scientific.

Okay.

Thanks a million.

Look forward to the year.

The next question is from Ross Muken of ISI Group.

First off, congrats, guys.

Thank you, Ross.

Marc, obviously a spectacular organic growth rate in the quarter.

This is one probably one of your best quarter results and quite a long time.

I know you touched on some of the upside surprises, but maybe just in terms of where you were most surprised relative to the outperformance.

And maybe give us a little bit of cadence of how it proceeded throughout the quarter because it seems like from some of the other peers as well that there was a bit of a extra-normal budget flush this year that maybe had not happened in some time.

So any kind of color you can provide around that would also be helpful.

Sure.

So in terms of just budget release and those types of things, the last couple years, it's always a question we get asked in the fourth quarter, which is do you see a budget flush, and in those previous two years, we didn't see any.

Clearly, this year, we saw a release of some funds on projects that had really been delayed, some of which were even considered in 2012.

And that cut across a number of customer sets.

We saw it in Europe.

We saw it in [day] pharma, and we saw it in some of our industrial customers.

So it clearly was year-end money.

I'm really proud of how nimble the Team was, though, in going and capturing it.

That's -- it's one thing to have funding; another thing is actually convert it into great organic growth, and I think the Team did a really strong job in that.

In terms of the end markets or the positive surprises, I don't think we were surprises as much.

It was nice to see the funds released.

I'm very pleased with how we performed in the pharma biotech market.

Our team delivered in excess of 10% organic growth in the quarter, and that's just great execution.

So it's not a surprise, but it's nice to see it in the bank.

And relative to the academic channel, how relieved are you to have that higher degree of budget certainty versus where we are, where we were last year.

And in your conversations with folks throughout that channel, do you feel like we're going to get a bit of a step up in some portions of the market?

And how do you feel like Life's business is positioned for that relative to their outsized exposure, but on at least the NIH campus.

So obviously, our academic and government customers over the last few years have faced both weak budgets and uncertainty.

And I think the budget process that's going on now with some two-year visibility and some modest increases in NIH is clearly an improved environment.

So as we look at that and the lag between the budget and when funds release, we should see an improvement in the second half of this year in terms of our academic and government growth.

And from a Life Technologies perspective, obviously, they have a little bit more exposure to academic and government, so that's good news.

It should be a good opportunity for them.

And as you look at the performance, as Pete said, they delivered 2% organic growth in 2013, and we're expecting 2% to 3% organic growth -- or we're assuming 2% to 3% organic growth for 2014.

So I think the funding environment should help us on both fronts.

Great.

And congrats again.

Thank you, Ross.

Our next question is from Derik De Briun of Bank of America Merrill Lynch.

Hello.

Good morning.

Can you just give us a little bit of color in terms of how instruments versus consumables did in 2013, and presume how do you see that morphing in 2014.

It's more about trying to figure out how to see the mix of the Company shifting as to what's implied in the numbers.

Sure.

Hello, Derek.

It's Pete.

In terms of the equipment consumable services split, both equipment and consumables grew low single digits in 2013, and services grew high single digits.

Consumables was a little bit stronger than equipment, and really, that flipped significantly in Q4.

We had really good performance in equipment in Q4, as Marc said, as a release of the budget funds.

Going forward, the performance we're expecting is almost exactly the same as in 2013.

Now that's, again, on a Thermo Fisher organic basis, so it's not including Life's results, which certainly, we'll be more heavily weighted in consumables when that happens.

So that release of funds in Q4, so was that -- is that the standard budget flush, or is there something more that was going on?

It's hard to tell because it was so widespread, but my take is that was more confident and economic stability.

And I think you've heard me say this in the past, which is in Europe in particular, every month that something that doesn't happen in the economy gives more confidence and more ability for spending to happening, and clearly, we saw the government release some money as well as some of or larger industrial and pharma customers in Europe release the money as well.

Great.

I'll get back in the queue and let somebody else ask the Ion Torrent question.

Our next question is from Tycho Peterson of JPMorgan.

Hello, thanks.

I'm not and ask Ion Torrent question.

I actually want to get into some of the gives and takes in the quarter.

You said it's some project delays that came through, I think, in chromatography.

I'm wondering if you could touch on that.

You called out HLA strength, so I'm just wondering if there's some underlying dynamics there.

And obviously, we hear more from some sequencing companies about sequencing moving into that market, so wondering if you can you touch on that.

And then pharma, were there some big, chunky contracts that you got in the past year?

Obviously, you're guiding for mid-single-digit growth for pharma, so I'm wondering if you can flush out your thoughts on the pharma business as well?

Sure.

So, Tycho, I think all of them, but if I miss something, just ask it after I go through my answer.

So on HLA, we had strong organic growth performance all year.

The Team executed well.

One Lambda acquisition has been fabulous.

The Team has done a great job.

We feel good about it, and obviously, we have sequencing technologies for HLA with Life Technologies, so we obviously play in that market segment as well.

In terms of pharma, no, we didn't have any big contract wins.

This is all about share-of-wallet execution and leveraging our value proposition.

Effectively, every big pharma is a customer, and what we do is drive incremental value for those customers across by using our portfolio, so we're driving their productivity, improving their innovation, and that's allowed us to grow at great rates.

In terms of chrome, chrome is less of a budget flush thing than -- we've had very good momentum in HPLC throughout the year, and we finished off very strong.

We -- in HPLC, and we saw some nice momentum in the fourth quarter in ion chromatography with our performance in Europe and in China particular.

In terms of have year ended up, you highlighted that you pulled it to $100 million in cost above what you'd originally guided to.

Can you maybe talk to whether there were projects that were pulled forward and light of the pending integration, or was this just executing above plan across the board?

In terms of cost reduction, as we say each year, we always have a set of contingencies.

And as we saw the FX environment be extremely negative from an earnings perspective, our Teams did a really good job of reducing costs, doing additional restructuring, using our PPI business system very aggressively to deliver very strong productivity.

And that allowed us really to deliver very strong margin expansion and earnings growth during the course of the year.

Okay, and the last one.

Did the assumptions on organic growth for Life come down a little bit?

I think you had talked about 3% organic growth at the analyst day.

You're now talking 2% to 3%.

Is that just the divestitures, or is there anything else in there to think about?

No, I actually think on that, we've always said that the long-term growth we've assumed in the model is 3%, and then what we've said is that shorter term, as the end markets have been weaker, we hadn't actually articulated a specific number, so, for the year-one view.

So the 2% to 3% is actually a little better than where the business has been performing, and we would expect in the midterm that 3% is a good assumption for that business.

Thank you very much.

Our next question is from Doug Schenkel of Cowen.

Good morning, and thanks for taking the questions.

So once again, I'll say what a lot of others have said.

Clearly, this is a really great quarter, and when you look at LPS, the growth there was as robust as I think you generated for several years, if ever.

One thing that you've done a great job of over the years, and this has come up a couple of times already today, is using your product breadth to gain share of wallet, especially in biopharma.

What I'm wondering is, is the Q4 strength at all demonstrative of Thermo having increased success of essentially doing that same thing in other end markets, and really, what I'm thinking about specifically is in healthcare hospitals?

So Doug, obviously, we're always looking for ways to drive value for our customers, and we have done a very strong job in the biopharmaceutical customer set, and you saw that in Q4.

When I think about the healthcare and diagnostics arena, where that's most relevant is particularly in China where we have a customer base that is expanding the network of hospitals and clinics aggressively.

And they're looking for a very simple way of getting the healthcare system expanded, and our offering is quite compelling.

So those customers clearly are leveraging it, and we see that a bit in the US as well.

Our channel helps us drive an attractive mix of products there.

So yes, we do it in healthcare diagnostics, but probably a little bit lesser extent than we do in biotech and pharma.

What I was trying to get at is -- and we do our checks with hospital administrators, hospital CFOs, especially in the US.

Clearly, as we all know, there's a lot of pressures in that end market, and they're looking for ways to save money.

So I just didn't know how material an opportunity there was for you to go in there as a broad supplier to potentially create a win-win where you're gaining share and at the same time cutting costs the them in some areas.

Clearly, we have a very good position, especially diagnostics, and I think we're well positioned to navigate the landscape that the Affordable Care Act creates.

So I think over time, that is an opportunity, and we always are looking to drive value for our customers.

Okay.

And one more.

China clearly that's been a nice source of growth for you, as you just mentioned, not just in hospital healthcare but and other end markets with 20% or more year-over-year growth for I think at least the past 10 quarters, really up until this quarter.

You still had some nice growth, but maybe not as strong as we've seen recently, and there's been some concern over a China slowdown, something that clearly hasn't materialized in a big way for you guys.

Understanding that Thermo targets some pretty broad end markets, it's not a cyclical as maybe for some other companies.

What are your assumptions for growth in China in 2014, and any concerns that things are slowing down there?

We're assuming mid teens growth in 2014 for China.

So we've enjoyed 20% for a while, and we think that mid teens is a reasonable starting point for the assumption.

Demand continues to be strong.

Our position continues to get strong.

But we think that's a prudent way to start the year from an outlook perspective.

And then, obviously, we've seen a little bit of improvement in the US and Europe, which is the positive that keeps us with a good revenue growth outlook for the year.

Great.

Thank you.

Thanks, Doug.

Our next question is from Amit Bhalla of Citi.

Thanks, good morning.

Marc, I wanted to just hone in on the comment you made on healthcare utilization ticking up towards the end of the quarter in the US.

Obviously, it's not the budget flush you're talking about there, so what are the actual signals that you saw that was indicating that comment?

So it's a combination that in the US, we saw a fairly widespread improvement across our various businesses.

The second thing is, we called a number of our larger customers and just asked them what were they seeing from a dynamic perspective, and that seemed to be the feedback we were getting.

So it was broad-based improvement in the second half of the quarter as well as customers validating they saw a little bit of utilization uptick.

That's our best take on what happened.

Got it.

And secondly, in the past, you have pointed to some of the bigger box companies, such as GE, Siemens, and Philips, as indicators, and you guys have more of a six-month lag versus what those guys put up.

I'm wondering if you can comment on their performance thus far and impact that you may see in the emerging markets going forward.

So in terms of the outlook and the data that we look at, there seems to be at least some improvements in the metrics in terms of what's going on, holding aside some of the currency issues of the last couple weeks.

So there seems to be a positive outlook, but we do lag it, so it's a little bit early to call.

Okay, great.

Thanks.

Our next question is from Daniel Brennan of Morgan Stanley.

Thanks for taking the question, and congrats on the quarter.

Marc, as you meet with investors and customers, I'm just interested in your opinion or your take on what you think is not understood or what's most not understood in terms of what you think the Life deal is going to bring Thermo.

So we've had, obviously, the opportunity to have a fair amount of interaction with our investors and our customers.

Let me start out with the customers.

Very enthusiastic about the combination and looking forward to closing so that we can bring together the unique value proposition that we have and is now expanded.

It gives us a broader set of genomics capabilities; it gives us a leadership position in bioscience reagents, and our customers are looking forward to the combination.

So there's a lot of enthusiasm out there.

From the investor perspective, I think that the strategy is understood, and I think that folks are just really waiting for the transaction to get closed out, and really, probably more than anything was to get a sense of what was our view on the guidance in terms of accretion.

And I think that coming out with $1.25 to $1.30 our first full year contribution shows that the actions that we took in terms of how we financed the transaction, the integration planning, really has put us in a good position to deliver a strong year.

So I think things are very exciting times at the Company right now.

Actually, I've never been more enthusiastic in terms of what our prospects and outlook is like.

And I think the Team here has done a great job of navigating not the easiest of economies and putting the Company in incredibly bright, incredibly strong position going forward.

Great.

Thank you.

And Marc, should we expect in terms of maybe an updated view once you do close the deal in terms of the vision and the strategies?

Is that something we should expect more so at the investor day, or could something come prior to that post closing.

I think the investor day would be the right timeframe for the bigger picture items around the business.

Okay.

And then maybe just circling back to one question that came up earlier, just to understand the 2014 guidance in terms of the deceleration in pharma biotech that you're assuming, which looks like it's offsetting the recovery in academic and in industrial and applied.

Is there something going from double digits down to mid-single digits in the year, is that something -- I know someone asked the question before about some big contracts.

Maybe can you just expand upon what you're seeing in pharma biotech, and is there a level of conservatism in mid-single-digit growth?

Our take on that one, it's not about the big contracts.

It's just simply that market -- end market has probably been growing 2 points, roughly, over the last few years, somewhere in that range 2 to 3. And we've been growing much faster, and when we look at the comparison, we think the starting point of mid-single-digit growth, which would represent continued share gain, is the right place to start.

And our Teams will focus on driving the best possible performance, and as the year unfolds, we'll continue to calibrate on what the outlook is.

Okay, great.

Thank you.

Thanks, Dan.

Our next question is from Peter Lawson of Mizuho Securities.

I'm going to ask a question around the Ion Torrent business, so please be prepared.

Anything as to how that business is going to be run?

It's a hardy R&D-rich business.

Any changes in the thoughts around that?

And then just the strategy in that business and the focus over the next couple of years.

Yes, so Ion Torrent and the genomics and capabilities that Life Technologies brings to the Company is very exciting.

And as we think about our focus, our focus is really on having very excited, enthusiastic customers, and there's been a huge amount of work that the Life Technologies Team has done during the course of 2013 and very ambitious plans in 2014 to position for great success with our customers.

I think that what we've talked a little bit about over the last six months or so with the investor community is this is a small proportion of our total revenue, a couple percent of the total Company's revenue.

So it doesn't get that same heightened focus with the investor community that maybe some other companies might have that are much smaller, but it does get a very heightened focused in terms of our customer community, and we're very focused there.

So we're excited about Ion Torrent.

The business invests very substantially in R&D, and the business has what we think will be a very bright future.

Thanks, Peter.

Our next question is from Isaac Ro of Goldman Sachs.

Good morning, guys.

Thanks for taking the question.

Marc, I just want to dig a little bit deeper on that utilization question earlier regarding the overall healthcare volume environment, and the reason I ask is it does look like some of the managed care companies you talked about, a little bit of a pull-forward effect in the fourth quarter ahead of the ACA implementation.

And if that's the case, it would imply you might see a suddenly bigger seasonal dip in the first quarter than you have in the past.

Just trying to figure out what you think is baked into assumptions for your guidance this year and how you're seeing that part of the dynamic.

For the full year, we're expecting conditions to be pretty much the same for our healthcare and diagnostics business.

So we didn't spend a huge amount of time looking through the seasonality effects of a strong Q4.

And does that mean that there will a little less activity in Q1?

I guess it's possible, Isaac, but shouldn't be hugely material one way or the other.

Got it.

And then a similar question for your biopharma end market.

I think a similar question was asked, but just maybe a little more specifically, we've seen a lot of noise regarding budget visibility, M&A activity in areas of spec pharma, so I do think there has been a little bit of volatility, and I'm assuming a lot of volatility in your biopharma R&D customers.

That being said, you think there is some element of that that is now perhaps little more secular rather than situational?

And curious how much back-end seasonality you might expect this year in those end markets.

That's a good question.

In terms of the seasonality, generally, the customers plan fairly constantly across the year in terms of their activity because it's mostly driven by people, and keeping those folks active, engaged, and developing products.

So I wouldn't expect a big change in seasonality during the course of the year.

I do think the Teams just execute incredible well at Thermo Fisher to grow our share position in the fourth quarter.

And I also think there were just a few meaningful projects that customers felt enough confidence in their pipelines to release the funds, which clearly was a nice thing to happen as well.

Got it.

Thanks a bunch.

Thanks, Isaac.

Our next question is from Steve Willoughby of Cleveland Research.

Hi, guys.

Thanks for taking my question.

Just wondering, I know you said 3% to 4% organic growth for the existing Thermo business in 2014.

I was wondering you could provide a little bit more color as it relates to the different reporting segments and what your thoughts are in 2014 versus what you did in 2013.

So actually, all three legacy segments are within 20, 30 basis points of the average for the total Company.

So they're all very close.

And then in terms of the year-over-year, it's probably a little stronger in Analytical Technologies and a little weaker and Laboratory Products and Services.

Okay.

Especially diagnostics, about the same.

Thank you.

And then just curious on one of the comments you made regarding the end markets and expecting a little bit better industrial growth in 2014.

Obviously, we saw much better growth here in the fourth quarter.

What gives you the outlook or the confidence that industrial gets will the better in 2014.

Our expectation is that we'll see some stabilization in the core industrial, and that's what's driving applied.

It's been pretty constant, and the fact that some funds were released late in the quarter should at least, from a comparison standpoint, things to stabilize as the year unfolds.

Thanks very much.

Thanks, Steve.

Our next question is from Dan Leonard of Leerink.

You talked a bit about taking full of advantage of the year-end growth opportunity.

Was there any opportunity for you to maybe push some of those opportunities into Q1 and thus offer yourself some cushion in a quarter with a lot of moving pieces?

Our take, as you said, just like we don't pull things forward in to one year.

We don't push things out.

We actually just close business when customers want to spend money, so we didn't sit there and say let's stop working, holiday time.

In fact, I spoke to a few of our colleagues, I think it was on the 31, they weren't probably enjoying it as much, but we work right til the end of the year, and we didn't push anything out into the first quarter.

Our next question is from Jeff Elliott, Robert W. Baird.

Good morning.

I appreciate the updated thoughts on the cost synergies, but I'm wondering, now that you've had additional time to evaluate the business, can you talk about your updated thoughts on the revenue synergies because when I look at those, that actually looks like an area of conservatism relative to your historical performance on transactions.

Great question.

When we look at the synergies, $275 million of the year-three synergies, $25 million of earnings from revenue, which is $75 million in revenue.

Our assumption is they start in the second year, so there's nothing about first $100 million that Pete talked about, and they start to ramp up at the beginning of the second year of ownership.

We are very focused on maximizing those synergies, but it's obviously a little bit early.

It's one of those things where if you look at acquisitions that we've done previously, we've probably driven higher on a percentage basis in terms of revenue synergies.

We certainly draw a lot more on the combination of Thermo and Fisher.

But it's a little bit early to call it out one way or another.

So we'll focus on, obviously, maximizing our organic growth long term and capturing as much synergy as possible, and as it gets a little bit deeper into the integration and we've owned the business for a while, then clearly, we'll talk more about it.

Great.

Thank you.

Our next question is from Paul Knight of Janney Capital Markets.

Hello, Marc.

When you were talking about mass spec and gaining leadership there, people thought you were probably a little crazy or something.

But when you look at the business today, are there a couple, three things that stand out to you just like that where you're like going this is a no-brainer where I'll be market leader?

If I first look back at the lessons learned, the first thing we did was ramp up our customer communication focus and actually ramp down our investor relations focus on mass spec.

If you think about, actually, Paul, you've been doing this long enough with us, if you go back a decade ago, we used to talk a huge about mass spec in every single product in every single quarter, and we said you know what, that creates an undue pressure internally as opposed to just have them focus on getting customers to win.

The silence allowed us to actually grow our share position with providing less information to our competitors quarterly in and quarter in an quarter out.

I enjoyed the days when people used to say, wow, how could this hundred million dollar mass spec business ever have aspirations back in 2001.

And today, we're a clear industry leader, and customers literally can't wait for the annual scientific conference to see what new breakthrough innovation that we bring out.

So that methodology is a methodology we use for all of our high-tech businesses.

We do it in our handhelds.

And I think you can see us, we're going to do that in some other parts of the portfolio as well.

It's all about having the best scientists and creating an environment for them to be able to develop break-through products and help our customers win.

And that's what is so called our innovation success at Thermo Fisher.

Great.

We'll look forward to that.

Lastly, China, everybody wants to worry about that region every other month.

What do you think gives you so much visibility?

Is it the makeup; it is a lot of academic our healthcare customers?

Is it you're building plant out there?

What gives you such confidence?

First of all, as the five-year plan is very aligned with what we do.

In the five-year plan around environmental protection, food safety, and healthcare expansion, we're right in the midst of it.

When I was meeting with government officials late October, early November, we were discussing economic outlook.

Very clear that the discussion amongst the government officials in China was there's going to be could growth, but it's going to be slower than historical growth.

But the focus on environment, food safety, and healthcare, incredibly important, especially in the environment.

It's a huge issue about sustainable economic growth, and that positions us incredibly well.

Five years ago or so when we moved our environmental business' headquarters to China, it might have seemed like a bold move.

But it's obviously paid off in spades in a huge way because we're really considered a domestic provider of those products, and we manufacture products locally for the market, and we have a great competitive position.

So we feel like we have good growth prospects in China going forward.

Thanks, Marc.

I next question is from Brandon Couillard of Jefferies.

Thanks, good morning.

Pete, could you elaborate on the core Thermo margin expectations for the year, specifically between gross margin and operating expense growth?

To me honest, it gets a little muddy when you start talking about the details of the P&L because Life Technologies is coming in partial year.

As I said, just for standalone Thermo Fisher, we're expecting about 60 basis points of margin expansion in the year if you add back the loss benefit of the divestitures, which is about 30 basis points, and the FX incremental headwind that we're going to experience, which is about 30 basis points.

Certainly, when we report our results in Q1 including Life Technologies, our gross margin is going to be up from where it has traditionally been, probably something in the 500-basis-points range.

Our SG&A will also be up, and R&D will be up.

And as I said, we're expecting around 230 to 250 basis points of margin expansion for the year.

Could you speak to your net pricing expectations for the year and how that compares versus 2013?

We're actually expecting a little bit of an uptick in pricing in 2014.

Pricing was pretty muted all year in 2013, very little positive benefit overall net, and we're probably expecting around 50 basis points positive net in 2014.

Great.

Thank you.

Shannon, we're going to take one more.

Our last question is from Dan Arias of UBS.

Thank you, good morning.

Maybe just one on chromatography.

How at this point, Marc, are you feeling about Dionex UHPLC?

Obviously, a tough set of competitors there, but do you feel like you can or you are taking a bit of business from the two strongholds there, especially given the momentum in mass spec?

Dan, when we look at the HPLC and the you UHPLC business that we have, obviously, we are in a number-three position in terms of our market share, but at least, as I look at the reported results of the other two, it appears that we're growing consistently faster than them, so that's a good position to be in.

But they're good companies a tough competitors, so we're just focused on helping our customers be successful and working to use all of our competitive strengths to gain share in that portion of the business.

We feel good about our outlook there.

Okay.

Actually, maybe let me sneak one more in, and apologies if you mentioned this, but now that you have assumed command of the numbers for Life, should we look for them to report the quarter, or are you just going to wait out the close there?

So in terms the process, there will be an 8-K at some point a little bit later in the quarter that actually will report out their final results.

So that happens through the SEC process a little bit later in the quarter.

Okay thanks a lot.

Okay, so let me wrap it up with a couple last comments.

First, we're very pleased to deliver a strong finish to the year and to be in such a great position going into 2014.

Our customers are really seeing the value that we've created our technology innovation, our value proposition, and our growing presence in emerging markets.

And we're really excited about the new opportunities that we'll have once we complete the acquisition of Life Technologies and welcoming our new colleagues to the Company.

So thanks for your support of Thermo Fisher.

We look forward to updating you during the course of the year.

Thanks everyone.

Ladies and Gentlemen, this concludes today's conference.

Thank you for your participation, and have a wonderful day.