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3050 Spruce Street, St. Louis, Missouri 63103 sigma-aldrich.com
2009 Annual R epor t
Enabling Science to Improve Quality of Life
Service
Innovation
Trust
The CompanyEnabling Science to Improve Quality of Life: Sigma-Aldrich has the unrivalled scientific knowledge, backed by unsurpassed service and market-leading innovation, to be the trusted global partner of choice for our customers.
About Sigma-Aldrich Sigma-Aldrich is a leading Life Science and High Technology Materials company. Its biochemical and organic chemical products and kits are used in scientific research, including genomic and proteomic research, biotechnology, pharmaceutical development and as key components in pharmaceutical, diagnostic and other high technology manufacturing. The Company has customers in life science companies, university and government institutions, hospitals and in industry. Over one million scientists and technologists use its products. Sigma-Aldrich operates in 38 countries and has 7,700 employees providing excellent service worldwide. Sigma-Aldrich is committed to Accelerating Customer Success through Innovation and Leadership in Life Science, High Technology Materials and Service.
• Pharmaceutical, Diagnostics, Biotechnology Companies• Chemical and Allied Industrial Companies• Universities, Government Institutions, Not-for-Pro�t Organizations• Hospitals and Commercial Laboratories
CustomersApproximately one million individual customers worldwide in over 92,000 accounts.(% of 2009 total sales)
35%27%
31%
7%
• Chemicals (48,000 manufactured)• Laboratory equipment Items
ProductsLeading the way in the life science and high technology materials markets. (# of products)
130,000
40,000
• Research Essentials• Research Specialties• Research Biotech• SAFC
PortfolioFour customer-centric business units delivering quality products and service. (% of 2009 total sales)
37%
19%28%
16%
• United States• CAPLA (Canada, Asia Paci�c and Latin America)• Europe
Geographies Enhancing our global reach through service excellence. (% of 2009 total sales)36%
43%
21%
1,66
7
05
Sales$ Millions
06 07 08 09
1,79
8 2,03
92,
201
2,14
8
258
05
Net Income$ Millions
06 07 08 09
277 31
1 342
347
1.88
05
Net Income Per Share – Diluted$
06 07 08 09
2.05 2.
34 2.65 2.
80
21.1
05
Return on Equity%
06 07 08 09
20.9
20.6 22
.822
.8
3428
05
Stock Price Range$
06 07 08 09
4031
5638
6335
5631
188
05
Free Cash Flow*$ Millions
*Net cash provided by operations less capital expenditures
06 07 08 09
256
339
314
396
• Pharmaceutical, Diagnostics, Biotechnology Companies• Chemical and Allied Industrial Companies• Universities, Government Institutions, Not-for-Pro�t Organizations• Hospitals and Commercial Laboratories
CustomersApproximately one million individual customers worldwide in over 92,000 accounts.(% of 2009 total sales)
35%27%
31%
7%
• Chemicals (48,000 manufactured)• Laboratory equipment Items
ProductsLeading the way in the life science and high technology materials markets. (# of products)
130,000
40,000
• Research Essentials• Research Specialties• Research Biotech• SAFC
PortfolioFour customer-centric business units delivering quality products and service. (% of 2009 total sales)
37%
19%28%
16%
• United States• CAPLA (Canada, Asia Paci�c and Latin America)• Europe
Geographies Enhancing our global reach through service excellence. (% of 2009 total sales)36%
43%
21%
1,66
7
05
Sales$ Millions
06 07 08 09
1,79
8 2,03
92,
201
2,14
8
258
05
Net Income$ Millions
06 07 08 09
277 31
1 342
347
1.88
05
Net Income Per Share – Diluted$
06 07 08 09
2.05 2.
34 2.65 2.
80
21.1
05
Return on Equity%
06 07 08 09
20.9
20.6 22
.822
.8
3428
05
Stock Price Range$
06 07 08 09
4031
5638
6335
5631
188
05
Free Cash Flow*$ Millions
*Net cash provided by operations less capital expenditures
06 07 08 09
256
339
314
396
• Pharmaceutical, Diagnostics, Biotechnology Companies• Chemical and Allied Industrial Companies• Universities, Government Institutions, Not-for-Pro�t Organizations• Hospitals and Commercial Laboratories
CustomersApproximately one million individual customers worldwide in over 92,000 accounts.(% of 2009 total sales)
35%27%
31%
7%
• Chemicals (48,000 manufactured)• Laboratory equipment Items
ProductsLeading the way in the life science and high technology materials markets. (# of products)
130,000
40,000
• Research Essentials• Research Specialties• Research Biotech• SAFC
PortfolioFour customer-centric business units delivering quality products and service. (% of 2009 total sales)
37%
19%28%
16%
• United States• CAPLA (Canada, Asia Paci�c and Latin America)• Europe
Geographies Enhancing our global reach through service excellence. (% of 2009 total sales)36%
43%
21%
1,66
7
05
Sales$ Millions
06 07 08 09
1,79
8 2,03
92,
201
2,14
8
258
05
Net Income$ Millions
06 07 08 09
277 31
1 342
347
1.88
05
Net Income Per Share – Diluted$
06 07 08 09
2.05 2.
34 2.65 2.
80
21.1
05
Return on Equity%
06 07 08 09
20.9
20.6 22
.822
.8
3428
05
Stock Price Range$
06 07 08 09
4031
5638
6335
5631
188
05
Free Cash Flow*$ Millions
*Net cash provided by operations less capital expenditures
06 07 08 09
256
339
314
396
Research Biotech2009 Sales: $332 million
Key Competitors: Thermo-Fisher, Life Technologies, Millipore, Qiagen, Techne
Research Essentials2009 Sales: $418 million
Key Competitors: EMerck, Life Technologies, Thermo-Fisher, VWR, Wako
Research Specialties2009 Sales: $793 million
Key Competitors: EMerck, GE Healthcare, Roche Biomolecular, Thermo-Fisher, Wako
SAFC2009 Sales: $605 million
Key Competitors: BASF, Covidien, DSM, Evonik Degussa, Lonza
The CompanyEnabling Science to Improve Quality of Life
Gilles A. CottierPresident, SAFC
Eric M. GreenVice President & Managing Director, International
Michael C.J. Harris Managing Director, Europe, Middle East, Africa
David W. JulienPresident, Global Supply Chain
Michael F. KananVice President & Corporate Controller
George L. MillerSr. Vice President, General Counsel & Secretary
Karen J. MillerSr. Vice President, Corporate Strategy & Development
Jai P. Nagarkatti Chairman, President & Chief Executive Officer
Douglas W. Rau Vice President, Human Resources
Kirk A. Richter Vice President & Treasurer
Rakesh Sachdev Sr. Vice President, Chief Financial Officer & Chief Administrative Officer
David A. Smoller President, Research Biotech
Gerrit J.C. van den DoolVice President, Sales
Steven G. WaltonVice President, Environmental, Health & Safety
Franklin D. Wicks President, Research Specialties and Research Essentials & Managing Director, North America
Rebecca M. Bergman Vice President, New Therapies and Diagnostics, Cardiac Rhythm Management, Medtronic Inc.
George M. Church Professor of Genetics, Harvard Medical School
David R. Harvey Former Chairman of the Board
W. Lee McCollum Former Executive Vice President and Chief Financial Officer, S.C. Johnson and Son, Inc.
Jai P. Nagarkatti Chairman, President & Chief Executive Officer
Avi M. Nash Managing Director, Avi Nash LLC; Former Partner, Goldman Sachs
Steven M. Paul, M.D. Former Executive Vice President for Science and Technology and Former President of the Lilly Research Laboratories of Eli Lilly and Company
J. Pedro Reinhard President, Reinhard & Associates; Former Chief Financial Officer, Dow Chemical Company
Timothy R.G. Sear Former Chairman & Chief Executive Officer, Alcon, Inc.
D. Dean Spatz Chief Executive Officer, Watasso Ventures; Former Chairman & Chief Executive Officer, Osmonics, Inc.
Barrett A. Toan Former Chairman & Chief Executive Officer, Express Scripts, Inc.
Annual Meeting Date: May 4, 2010 Time: 11:00 a.m. CDT Place: Sigma-Aldrich Life Science and High Technology Center, 2909 Laclede Ave., St. Louis, MO 63103
General Information Shares traded on NASDAQ Global Select Market, Trading symbol: SIAL
Transfer Agent American Stock Transfer and Trust Company, New York, NY 800-937-5449
10-K A copy of the Company’s Form 10-K annual report, as filed with the Securities and Exchange Commission, may be obtained without charge by writing to the Secretary, Sigma-Aldrich Corporation, P.O. Box 14508, St. Louis, Missouri 63178.
Corporate Offices Sigma-Aldrich Corporation 3050 Spruce Street St. Louis, Missouri 63103 800-521-8956 Fax: 314-286-7874 Email: [email protected] Website: sigma-aldrich.com
Office of the Chief Executive Board of Directors
Corporate Information
For the most up-to-date information about our Company visit our Investor Relations website at sigma-aldrich.com
Sigma-Aldrich®, Sigma®, SAGE™, CompoZr™, Ascentis®, Fluka®, Supelco®, Hydranal®, MISSION®, Prestige Antibodies®, ChemNavigator®, Material Matters™ and Aldrich® are trademarks of Sigma-Aldrich Biotechnology LP and Sigma-Aldrich Co. Sartorius Stedim Biotech® is a trademark of Sartorius Stedim Biotech GmbH. Ingenuity® is a registered trademark of Ingenuity Systems, Inc. The Scientist® is a trademark of Scientist, Inc. Facebook® is a registered trademark of Facebook Inc. Habitat for Humanity® is a registered trademark of Habitat for Humanity International.
This annual report is printed on FSC-certified paper. The pages are printed on 10% recycled stock.
Table of ConTenTs
2 To Our Shareholders 6 Build Upon Our Strengths10 Continue Our Improvement Initiatives and
Refine Our Go-to-Market Accelerators 14 Achieve Leadership in Our Markets:
Sigma-Aldrich Enterprise Strategy 18 Financials
Sigma-Aldrich products can be found on the shelves of
almost every scientific laboratory in the world. Our products
are used in scientific research and as key components in
pharmaceutical, diagnostic and other high technology
manufacturing, all of which help improve quality of life
for millions of people around the world.
Generations of scientists have come to know and
trust our quality products, unsurpassed service, innovation
and commitment to sustainability. This trust has been a key
foundation for the growth of our Company and leveraging that
trust has always been a key part of our long-term strategy.
Our Mission: Enabling science to improve quality of life.Our Vision: Be the trusted global partner of choice for our customers by building on our proven foundation of trust, service and innovation to accelerate customers’ success and deliver shareholder value.
6 10 14
Enabling Science to Improve Quality of Life
2 SIGMA-ALDRICH 2009AnnuALRepoRt
Scientists founded Sigma-Aldrich with a passion for enabling new discoveries in life science and high technology materials. The core values that drive us are based on our understanding of how scientists work and their expectations. Our continued commitment to enable customers’ success has earned us the trust of researchers and production managers around the world. Sigma-Aldrich has a singular mission – Enabling Science to Improve Quality of Life, which we strive to achieve by being a supplier of innovative products used in research and manufacturing applications.
financial ResultsOur strong performance continued in 2009 with reported sales of $2.1 billion and record net income of $347 million. Each of our four customer-centric business units contributed
Sigma-Aldrich delivered another strong performance in 2009 even as we faced the most challenging economic climate in recent history. Organic sales growth and cost management more than offset a strong currency headwind and enabled us to extend our growth record in earnings per share to 35 consecutive years. We also achieved a record level of free cash flow and maintained our strong financial position. These achievements were the result of an outstanding level of commitment by our employees worldwide who made necessary adjustments to deliver short-term results while still investing to position our Company for sustainable long-term growth. We are an innovative company, strategically positioned to support evolving global research and manufacturing requirements, with strong financial resources to make the investments needed to drive future growth.
Jai nagaRkaTTiChairman, President and Chief Executive Officer
To Our Shareholders
Enabling Science to Improve Quality of Life
SIGMA-ALDRICH 2009AnnuALRepoRt 3
investing for long-Term growth While many businesses reduced investments, we continued to invest for our future growth. We invested $120 million in capital expenditures and an additional $25 million to expand our tech-nology portfolio while maintaining our normal spending levels on research and development. Some of our investments in 2009 included:• A fermentation plant in Israel to make bio-
logical products conforming with regulatory requirements,
• A new state-of-the-art plant in Wisconsin to make high-potency active pharmaceutical ingredients,
• An expansion of capacity to produce compo-nents for viral vaccines in California, and
• A new distribution and warehousing center in Shanghai to support our growing business in China.
We introduced more than 40,000 new products in 2009, including over 15,000 new antibodies that are used to study and understand diseases. To build a strong position in our gene editing and manipulation products, we expanded our licens-ing agreement for the award-winning CompoZr™ Zinc Finger Nuclease (ZFN) technology to include broad commercial rights. Applying this ZFN technology in collaboration with researchers at the University of Wisconsin, we created the first targeted transgenic (genetically modified) rat model. This breakthrough in transgenic animal production has enabled us to develop and offer new human disease models for research. Under a research grant from The Michael J. Fox Founda-tion, our scientists are using this novel technology in an effort to create research models critically needed for the development of transformative treatments for Parkinson’s disease.
to our organic sales growth. In a year where the broader markets did not grow, our three research business units delivered organic sales growth of 2%. Despite facing challenging market conditions early in the year, our specialty Fine Chemical business (SAFC) finished strong with fourth-quarter organic sales growth in double digits to deliver a modest full-year growth of about 1%. Our SAFC unit benefited from our ability to rapidly manufacture and supply crucial ingredients used to produce the H1N1 flu vaccine and other biopharmaceuticals. Geographically, our sales in international markets (Canada, Asia Pacific and Latin America) continued to grow at an accelerated pace. In our focus markets of China, India and Brazil, we grew at an impressive rate of 18% on an ex-currency basis.
We were successful in expanding operating profit margins to 23.3% of sales, up from 22.9% in 2008 despite an adverse currency impact. The global supply chain initiatives, which we launched in 2007, achieved $22 million in savings and were an important contributor to margin expansion. We achieved a new high of $2.80 in diluted earnings per share, a growth rate of 21% excluding the impact of currency changes. Our return on equity of 23% exceeded our long-term goal of 20% for the seventh consecutive year and free cash flow of $396 million set a new record. The Company’s financial position has never been stronger, and gives us the flexibility to make sig-nificant investments to fund future growth.
As a result of strong earnings, we once again increased our dividend for the 35th consecutive year as we returned $71 million to shareholders. We also spent $67 million to repurchase our shares. Every year, we strive to continue earning your confidence and trust through our performance.
Enabling Science to Improve Quality of Life
4 SIGMA-ALDRICH 2009AnnuALRepoRt
January
Launch of Your Favorite Gene powered by Ingenuity provides scientists access to dynamic library of life science research; Company honored with CIO 100 award.
March
New web portal provides the stem cell biology community with easy access to stem cell product portfolio.
Expanded presence in the Republic of Chile provides local service to research and manufacturing customers.
april
Sigma-Aldrich and Roche NimbleGen combine technol-ogy platforms to advance the development of drugs for epigenetic research.
2009 year in review
segments of environmental, food safety and bioanalytical testing;
• Targeting high-growth Biology segments with new products and technology where we have proven capabilities or a unique technology platform. We recently unveiled our new Sigma® Life Science brand and website, designed to elevate the current focus on biology and provide a single destination where researchers can access deep biological knowledge and market-leading products and technologies. Our biology product offering is broad and includes the world’s largest custom oligonucleotide service, a growing portfolio of more than 26,000 monoclonal and polyclonal antibodies, the largest number of bioactive small molecules in the market, peptides and proteins for cell biology and neuroscience research, cutting-edge gene silencing prod-ucts and novel rodent models of human disease developed using the CompoZr™ ZFN technology; and,
• Accelerating our focus and growth in the Mate-rials Science segment of the chemistry market with new applications for alternative energy, organic and micro-electronics, specialized polymers, high purity metals, nanomaterials and biocompatible products.
We continued to invest in e-commerce capabilities to maintain our superiority by increasing the func-tionality, speed and content of our website. Global research sales through e-commerce channels rose to 45% of total research sales, up from 42% one year ago. With the mid-year acquisition of ChemNavigator®, a leading provider of discovery research informatics software tools, we now have a comprehensive suite of virtual screening and selection tools and an industry-leading searchable database of over 60 million compounds.
strategy for growthOur strategies for continued top- and bottom- line growth are built on leveraging our core competencies of unrivalled scientific knowledge, broad product offering in life science and high technology materials, unique manufacturing capabilities, global sourcing, packaging and distri-bution capabilities and our process improvement culture. Having conducted an exhaustive externally- focused review of our markets and customer buying preferences, we plan to add new product-focused initiatives to leverage our core strengths in Analytical Chemistry, Biology and Chemistry-Materials Science. Elements of this strategy include: • Expanding our presence and building a
leadership position in Analytical Chemistry markets by focusing on faster-growing
Enabling Science to Improve Quality of Life
SIGMA-ALDRICH 2009AnnuALRepoRt 5
July
CompoZr Zinc Finger Nucle-ase Technology used to create first targeted knockout rats.
SAFC® and Sartorius Stedim Biotech partner to provide world-class fluid management and liquid/powder systems for biopharmaceutical manufacturing.
august
New Sigma Advanced Genetic Engineer-ing (SAGE™) Labs opens to offer unique rodent models to researchers.
ChemNavigator, Inc. acquired to provide researchers industry-leading chemical compound selection and procurement services.
october
Michael J. Fox Foundation awards Sigma-Aldrich a grant to develop Parkinson’s Disease research models.
December
Targeted knockout rat ranks among The Scientist magazine’s top five innovations of 2009.
JAI NAGARkATTI
Chairman, President and Chief Executive Officer
during 2009. I welcome two senior managers who joined the team this past year. George Miller joined us as Senior Vice President, Secretary and General Counsel and Mike kanan was appointed Vice President and Controller. I also thank Tim Sear who will be retiring after the annual meeting this year for his valuable contribution as a direc-tor of our Company. We welcome Dr. George Church, Professor of Genetics at Harvard Medical School, as a new member of our board.
In closing, I thank each of our shareholders for their continued support during 2009 and look forward to a successful 2010. We have a strong company with dedicated employees who are poised to execute our strategy to propel our growth in 2010 and beyond. We can look to the future with confidence.
our futureAs we continue to expand and grow, we intend to maintain our culture of operating at the high-est level of safety and compliance. We are proud of the safety record we again achieved in 2009, with the fewest number of injuries in our history and reaching a world-class safety record in our industry. As a company, we also remain committed to advance global sustainability through the introduction of new, greener chemistry products and packaging initiatives. We have initiated Global Citizenship Awards to recognize employees who are working to reduce the environmental impact of our business opera-tions. Our employees around the world continue to be engaged in their respective communities, supporting many worthy causes. Through our Company and the Sigma-Aldrich Foundation, we contributed more than one million dollars in cash and products to support several community and educational projects, even in a challenging economic climate.
Employees have always been an integral part of our success. We strive to create an environment that offers our team the opportunity to grow and advance their careers with our Company. Nearly 400 of our employees took on additional respon-sibilities with promotions in our organization
Enabling Science to Improve Quality of Life
6 SIGMA-ALDRICH 2009AnnuALRepoRt
BuilduponourStrengthsBy offering a wide range of quality products and backing that with unsurpassed service,
we have earned the trust of over a million customers around the world.
Managementteam (Top) Standing left to right: Rakesh Sachdev, Steven G. Walton, George L. Miller, Michael F. kanan, Douglas W. Rau and kirk A. Richter Seated left to right: karen J. Miller and Jai P. Nagarkatti
(Left) Standing left to right: Michael C.J. Harris, David A. Smoller, Gerrit J.C. van den Dool, Franklin D. Wicks and David W. Julien Seated left to right: Eric M. Green and Gilles A. Cottier
Enabling Science to Improve Quality of Life
SIGMA-ALDRICH 2009AnnuALRepoRt 7
sources, developing alternate supply chains to ensure a seamless supply for customers.
Customer & sales support and Technical serviceOur Customer & Sales Support teams are focused on enabling research and manufacturing one customer interaction at a time. These highly trained teams play a critical role in our success by effectively and consis-tently meeting the needs of more than one million customers worldwide. Our aim is to be the most competent, proactive and collaborative Customer & Sales Support team in the scientific industry. This customer-centric strategy creates positive customer experiences that build buyer loyalty and result in a competitive advantage.
Our Technical Service teams responded to more than a half-million telephone calls, e-mails and website live chat interactions in 2009, serving as the voice of the Company and providing unrivalled scientific support that sets us apart in the industry. Customers rely on our support – scientists helping scientists – to combine expert knowledge of biology and chemistry with a passion to build personal relationships and share knowledge.
The Sigma-Aldrich Service teams respond to customers in ways that do not fall within the clas-sic definitions of service roles, including responses to natural disasters. In 2009, our SAFC Hitech team members in Taiwan worked around the clock to ensure order fulfillment despite a major typhoon there, and in Italy our office staff delivered service
Trust The most visible sign of our contribution to science is the trust placed in us by our one million custom-ers. We have gained this trust by delivering on our promise of unrivalled scientific knowledge and unsurpassed service. Sigma-Aldrich is a name that our customers, employees and the communities where we operate have come to know and trust not through our words, but through our deeds. We have a loyal customer base of researchers who value qual-ity and service and our ability to manufacture, source and distribute a broad portfolio of high quality, innovative products in a fast, efficient, compliant and sustainable manner. This trust is the foundation of our value creation model.
servicePurchasing, Production and DistributionProduct availability is one of the most important factors in our commitment to provide unsurpassed service. Our customers work diligently to make prog-ress in their critical research projects and they need our products delivered quickly no matter where they are located. As a result, we strive to maintain an inven-tory of over 170,000 products for same day shipment around the globe. We have distribution centers in 17 countries and offices in 38 countries worldwide servicing customers in more than 160 countries. The 48,000 products we manufacture provide approxi-mately 65% of our sales, with the remainder sourced through our network of over 10,000 suppliers. Each of our high-quality products, whether manufactured or procured, is analyzed and quality tested to rigid specifications before being packaged in one of our 31 plants located in 11 countries.
Our global reach is a competitive advantage in sourcing and distribution. With world-class logistics capabilities, we support customers quickly and efficiently, supplying materials they need for their research and manufacturing. As an example, in 2009, the key material Acetonitrile used in pharmaceuti-cal research, processing and quality control testing was in short global supply threatening our custom-ers’ projects. We anticipated this global shortage and took the initiative to find new non-traditional
BuilduponourStrengths
Enabling Science to Improve Quality of Life
8 SIGMA-ALDRICH 2009AnnuALRepoRt
that went beyond expectations to customers after an earthquake.
On the technical side, one of our scientists co-authored an article entitled “Guidelines for qPCR Consistency,” which established an industry standard to improve the reliability of this essential research procedure. Sigma-Aldrich R&D scientists authored a technical bulletin that has become a widely accepted and trusted resource for safely han-dling air-sensitive reagents. Customers around the world depend on Sigma-Aldrich service for their critical research programs designed to improve quality of life. Our focus is to satisfy their needs.
innovation Sigma-Aldrich has a long history of successfully serv-ing the research and development community, life science and high technology manufacturers with market-leading and innovative products, service and technical support. In 2009, we added over 40,000 new products. Over 60 years ago, the Company was one of the first suppliers of adenosine triphosphate (ATP), a critical component in research at that time. Today, we are a premier supplier of cutting-edge targeted genome editing technology that holds incredible promise to help fight disease. Our unrivalled scientific knowledge enables us to be a true partner with our customers to help solve their research and manufac-turing needs. Sigma-Aldrich has unique capabilities that differentiate it in its markets and, ultimately, enable scientists to improve quality of life.
Custom ManufacturingThrough SAFC, our fine chemicals business serving manufacturing customers, we continued to expand our innovative offerings. In 2009, we expanded facili-ties in Carlsbad, California; Madison, Wisconsin; and Jerusalem, Israel to enhance commercial-scale capa-bilities. We intend to continue this trend and achieve strong growth in key niche technologies, including high potency active pharmaceutical ingredients, conjugation and components for manufacturing vac-cines. Additionally, we combined technology and our manufacturing capability in a comprehensive package for the vaccine industry, resulting in the Company
being a key supplier of raw materials for the manufac-ture of the H1N1 vaccine.
SAFC also has broad capabilities to facilitate innova-tion for its customers. From the development and production of chemically-defined hydrolysates (enabling more stable processes for biopharmaceuti-cal production) to the utilization of unique chemistry capabilities used for light-emitting diode (LED) tech-nology, the Company continues to lead innovation in the industries we serve.
Quality and consistency are critical for our commercial customers, and we continue to work closely with them to devise new ways to minimize risk to supply, ensure supply chain transparency, and reduce complexity through vendor audit services, raw material character-ization and offering our Enhanced Quality Profile program designed to elevate and standardize the quality assurance aspects for our products, ensuring consistent product performance from batch to batch.
life scienceIn 2009, we expanded our innovative portfolio of life science tools and technologies. We launched Sigma® Advanced Genetic Engineering (SAGE™) Labs to define, develop and offer a new generation of genetically-engineered rodent research models to study disease states in humans and play a key role in the drug discovery process, leveraging our CompoZr™ Zinc Finger Nuclease gene editing technology. In addition, we launched Your Favorite Gene powered by Ingenuity, to serve as an information hub for researchers and students exploring diseases,
BuilduponourStrengths
Enabling Science to Improve Quality of Life
SIGMA-ALDRICH 2009AnnuALRepoRt 9
a five-year sustainable development roadmap that creates specific targets for our global citizenship ini-tiatives. We plan to increase efficiencies in water use, waste creation and disposal and energy use with the use of worldwide tracking systems and by continuing to implement improvement strategies while simulta-neously reducing our green house gas emissions. In addition, we intend to increase efforts to deliver better environmental testing, “greener” chemistry and alter-native energy products to our customers.
We believe we are well positioned to meet our global customers’ science needs. But we will not rest on our laurels. We recognize that we must continue to enhance our unrivalled scientific knowledge and unsurpassed service with continued innovation to meet our long-term growth objectives.
Commitment to good Corporate CitizenshipAt the heart of Sigma-Aldrich’s core values is a com-mitment to our communities. Our dedication to a better quality of life can be found in the substantial contributions that the Company and its Sigma-Aldrich Foundation provide to support the advancement of science, education, innovation, thought leadership and environmental sustainability.
In 2009, Sigma-Aldrich and its employees continued to give generously to our communities. Through our Team Sigma-Aldrich program, approxi-mately 1,300 employees participated in 23 events, donating both time and money to worthwhile causes. Team Sigma-Aldrich celebrated its fifth anniversary in 2009 and introduced two new sites to the program, Castle Hill, Australia, and Oakville, Canada. The Team Sigma-Aldrich concept has proven successful because it pairs the motivations of our employees with the principles of the Sigma-Aldrich Foundation. With worthwhile causes such as Habitat for Humanity® in Lenexa, kansas and Arklow, Ireland’s commu-nity outreach program, Sigma-Aldrich employees gave back over 4,200 hours of service and support through the Team Sigma-Aldrich program in 2009. In addition, the Company and the Sigma-Aldrich Foun-dation donated approximately $1 million in products and cash in 2009.
functions and gene pathways, and to match our com-prehensive collection of products, kits and reagents to relevant biological information. As part of our strat-egy to become a leader in the antibodies market, we added over 15,000 antibodies, including 2,300 new, highly validated Prestige Antibodies®, bringing our total portfolio to more than 26,000 antibodies.
RecognitionsWe have diverse capabilities and broad scientific knowledge spanning the research workflow as well as the commercial development pipeline. Our inno-vations were recognized in 2009 by several leading scientific publications and organizations:
• Targeted knockout Rat ranked among The Scientist magazine’s top 5 innovations of 2009
• 2009 North America Healthcare Innovation Award in Drug Discovery Technologies for Emerging Markets
• Aldrichimica Acta, our premier international publication for chemical research, ranked first in Organic Chemistry by Impact Factor
• 2009 Sailing to New Heights with Logility Award for supply chain excellence
• Amgen Risk Mitigation Award
• Abbott Supplier Excellence Award
• Most useful and easiest to use online catalog – BioInformatics, LLC
Contributions to scienceSigma-Aldrich enables customers to meet their research and manufacturing needs. For more than 30 years, the Company has also recognized outstand-ing scientific contributions by making annual awards to acknowledge outstanding contributions to the fields of chromatography, original research in fats, oils, lipid chemistry, or biochemistry, creative work in syn-thetic organic chemistry, fundamental research in the field of inorganic chemistry and many others.
sustainable businessWe continued to strengthen our commitment to the communities where we live and work. We have
BuilduponourStrengths
Enabling Science to Improve Quality of Life
10 SIGMA-ALDRICH 2009AnnuALRepoRt
ContinueourImprovementInitiativesandRefineourGo-to-MarketAccelerators
Market trends are shifting and we are continually changing to strengthen our market leadership. In 2009, we added new product-based initiatives that will serve as our strategic roadmap to direct our path to profitable growth and shareholder value creation. These initiatives, which renew and refine our focus on innovation, are
intended to build upon the trust we have developed with our customers and our reputation for unsurpassed service.
Enabling Science to Improve Quality of Life
SIGMA-ALDRICH 2009AnnuALRepoRt 11
fast growing Markets In 2009, our sales in markets outside the U.S. and Europe continued to expand at a rapid pace. Our strong foundation in emerging markets like India, Brazil and China rewarded us with market-leading positions in each of those countries, and a collective 18% currency adjusted sales growth over the prior year.
Our Bangalore, India research campus continues to be a testament to the success of our approach to serving global customers using a localized approach – providing the research community with the products needed, no matter where they are located in the world. In 2009, we continued expan-sion in the People’s Republic of China, adding a new distribution center to our Shanghai, Pudong location to better serve that market. In the Republic of Chile, our acquisition of a local dealer is allowing us to directly serve our research and manufacturing customers in that region.
Process improvementWe believe that process improvement helps Sigma-Aldrich accelerate our customers’ success as we reinvest our savings in new growth initiatives. We have improvement projects at all levels and in all functions of our business. As a result, 2009 marked the eighth consecutive year our efforts yielded an-nual savings exceeding $15 million in pre-tax ben-efits. In addition, we expanded our grass roots, floor level, continuous improvement program from seven to 13 sites in 2009. We will continue to build addi-tional process improvement capabilities, especially through our flagship Advanced Improver Program which trains new employees every year on the improvement culture of our Company.
global supply Chain The Global Supply Chain initiative, launched in 2007, is our single largest Company-wide process improve-ment program. Focusing on the entire supply chain, our mission is to ensure that customers have a fast and seamless supply of quality products delivered globally in the most efficient way. This initiative helps Sigma-Aldrich to not only maintain its market-leading global service levels and provide rapid introduction of innovative products, but also to grow operating profits faster than sales.
In 2009, we increased service levels to an all-time high. We added $70 million to our free cash flow by reducing inventory, resulting in a new record for free cash flow. We also generated $22 million in pre-tax savings, exceeding our targets for the second consecutive year. These efforts were accomplished through enhanced global systems, complexity reduction and implementation of leading-edge supply chain practices.
Moving forward, we plan to continue to invest in our Global Supply Chain initiative, with a focus on rapid global service, especially in emerging mar-kets, new product introduction, risk mitigation, eBusiness, and effective integration of mergers and acquisitions. Our aim is to continue to ensure that our high quality innovative products are delivered rapidly and reliably anywhere in the world.
ContinueourImprovementInitiativesandRefineourGo-to-MarketAccelerators
Enabling Science to Improve Quality of Life
12 SIGMA-ALDRICH 2009AnnuALRepoRt
ebusiness The use of the Internet and other digital technologies for commerce, communication and collaboration in scientific research has been the single most dynamic industry trend in the last decade. With our world-class website, Sigma-Aldrich offers outstanding scientific content, attracting over three million visi-tors each month. Sales transacted through electronic channels achieved a new high in 2009, with 45% of global research sales coming through the website and other electronic channels.
We continued to enhance the functionality of our website to better serve our customers. As an example, we added Japanese translated pages and search capabilities, developing a personalized, user-friendly experience for our customers in Japan. In addition, we introduced new web 2.0 features such as product rating and review postings for selected products to provide more information and to continue to foster trust with the scientific community. We also launched a unique life science-focused application for the social media site, Facebook. The “What’s Your Favorite Gene?” application provides a platform that can enable scientists and researchers to network with each other and facilitate discussion based on their favorite genes, identifiable via gene functionality
With facilities in 38 countries, our global footprint continues to expand, enabling science in almost every region of the world and aligning Sigma-Aldrich and its customers in the markets we serve.
In 2010 and beyond, we plan to continue to build and implement additional localized strategies, including increased sales force specialization for specific areas, and special focus on the life sciences, analytical and manufacturing markets. We plan to deploy local sourcing, analytical and packaging capabilities as we concentrate on supporting specific needs in emerging markets and build on our solid global foundation to exploit opportunities in these fast growing areas.
sales forceThe markets we serve are constantly changing. As the research and manufacturing practices of our customers evolve, we are adapting our products and the ways we reach out to these customers to meet new requirements and expectations. Our sales organization focuses on communicating to customers the new, cutting-edge technologies we offer and supplying essential basics to meet their evolving needs.
In 2010, our plan is to expand our sales coverage, concentrating on the faster-growing analytical and biology customer segments. Our sales team is con-tinually familiarizing customers with the technologies, tools and support that Sigma-Aldrich offers to help them answer their research questions. To be success-ful in the changing and diverse markets we serve, we believe that understanding evolving customer needs enables Sigma-Aldrich to deliver greater value and sales for the Company. Our goal is to provide cus-tomer-focused product and service assistance in the field for growing areas of our business and to not only maintain, but to build customer trust. Our expanded sales force seeks to provide scientists and procurement organizations access and support in the implementa-tion of their research tools and technologies.
ContinueourImprovementInitiativesandRefineourGo-to-MarketAccelerators
Enabling Science to Improve Quality of Life
SIGMA-ALDRICH 2009AnnuALRepoRt 13
We introduced services to assist our SAFC custom-ers in risk mitigation, ensuring supply chain integrity during 2009. We now offer vendor audit services that leverage Sigma-Aldrich’s global access to vendors and provide third-party quality audits on behalf of pharmaceutical clients. We also introduced a new initiative in 2009 to offer our expertise in chemical hazards handling and environmental health and safety via a consulting program that companies can access for employee training purposes.
For the convenience of all of our customers, we added a consolidated portal to our website to provide greater visibility of the types of comple-mentary services available, including basic research, product and process development and facilities operations.
and biological pathways. As we continually strive to improve our website and focus our online marketing efforts, we see an ever growing number of users visit-ing our website with greater frequency, staying longer and purchasing more frequently.
Looking forward, Sigma-Aldrich recognizes the need for continual investment in our web platform and is focused on better serving our customers by advanc-ing web performance, functionality and design. A newly formed Customer Insight practice serves as the foundation as we deploy a more customized and personalized experience for our research and manu-facturing customers, deliver new search and sales capabilities and create new tools to facilitate scientific research and enhance management of manufacturing projects. In addition, a new website optimized for mobile devices launched in 2010 is focused on facili-tating scientific collaboration, information sharing and networking within the scientific community.
Value-added services Our value proposition extends beyond the quality products we offer. We aim to provide our customers with complementary services that leverage our unri-valled scientific knowledge and technical expertise. We believe these value-added services help to drive the Company’s vision to be the trusted global part-ner of choice in the markets we serve.
During 2009, we added several new services to our robust portfolio. For our research customers, cell-engineering services were added to leverage Sigma-Aldrich’s proprietary gene editing tools and provide customized cell lines. A new Services Network was put into place to provide convenient access to a wide variety of laboratory-based services from certified partners. Finally, we significantly expanded the number of technology workshops available to our customers on some of the more novel technologies utilized in biotechnol-ogy research today.
ContinueourImprovementInitiativesandRefineourGo-to-MarketAccelerators
Enabling Science to Improve Quality of Life
14 SIGMA-ALDRICH 2009AnnuALRepoRt
AchieveLeadershipinourMarkets:Sigma-AldrichenterpriseStrategy
Sigma-Aldrich has a long history of successfully serving the scientific community with market-leading products, services and technical support. As the needs of the research and development
community evolve, we plan to change the way we satisfy customers’ needs and our product offering in an effort to remain competitive and enhance our leadership position.
Enabling Science to Improve Quality of Life
SIGMA-ALDRICH 2009AnnuALRepoRt 15
tools that can support our customers’ drive to suc-ceed. To accomplish this, our Company has new strategic initiatives that are expected to help us drive innovation and expand into new markets by leveraging our core scientific strengths: Analytical Chemistry, Biology, and Chemistry-Materials Science (ABCM). Our ABCM initiatives will help us expand our product offering, open new markets and enhance our position in the areas we know best.
innovation in analytical ChemistryAnalytical chemistry has always been a core com-petency and continues to gain importance in the market as the call for environmental and food safety testing continues to rise.
Well-poised to take advantage of this expanding demand, we provide a wide breadth of innovative, high-quality analytical reagents and standards and separation consumables. Our Fluka and Supelco brands provide the highest product quality and per-formance available and come with certifications on which customers can depend.
Used in a large variety of applications, this product portfolio helps chemists determine things such as ingredients, composition, fat content, labeling requirements, purity and nutritional data in foods, beverages and other applications, including water testing, where our HYDRANAL® product is consid-ered the “gold” standard; in herbicide and pesticide
our futureThroughout the last 35 years, customers have trusted Sigma-Aldrich to provide a broad array of high-quality products, innovation and exceptional service. Our improvement culture helps us meet customer expec-tations and drives us to continually refine global operations, enhance alignment across our orga-nization and implement common systems. These well-recognized strengths run throughout our organi-zation and are an integral part of our Company’s core foundation – the solid base on which we plan to build future strategies to ensure continued success.
As our customers move research and manufactur-ing eastward, we plan to continue to expand our presence in emerging markets. To respond to the increases in pharmaceutical outsourcing, we feel we are well positioned to capture opportunities that require our unique services and technologies. Our global sales force is adjusting to ensure close align-ment with customers and to exploit and capture recent increases in government research funding. The world’s growing focus on eBusiness and the Internet is in parallel with our continual upgrades to our website that enhance the customer experience, making purchasing our products easier and provid-ing content that includes critical information the research community needs.
We see many opportunities that closely align with our Company’s core strengths. With the increased focus on energy, the environment and food safety, our high-quality Fluka® and Supelco® analytical lines and Aldrich® brand chemistry and materials science products hold great promise for growth. As research shifts its focus toward biology, Sigma Life Science offers the scientific community a leading portfolio of innovative, biological products and technologies to enable their studies of cells and cell functions, built upon the industry’s largest selection of high-quality biochemical and bioessential products and reagents – all just hours away from delivery to any lab any-where around the globe.
Our future success requires more innovative prod-ucts, faster technologies and more sophisticated
AchieveLeadershipinourMarkets:Sigma-AldrichenterpriseStrategy
MichaelWrightApplication SpecialistBiochemistry Departmentkings College HospitalLondon, Uk
Sigma-Aldrich’s chromatography support team has been a great asset over the years. Of particular note was
their help with Ascentis® Express fused core technology which revolutionized chromatography in our laboratory. Using standard pressure HPLC systems we are now processing patient samples for various biogenic amines in less than a quarter of the time. This enables same-day lab test results to check for potential tumors, therefore less stress during an already difficult time.
Enabling Science to Improve Quality of Life
16 SIGMA-ALDRICH 2009AnnuALRepoRt
• Lead the market with over 26,000 antibodies, inclu-ding the industry’s most highly-characterized, validated Prestige Antibodies®, powered by Atlas Antibodies;
• Offer the largest number of biomolecules for cell signaling research, and extensive resources in neuroscience research products; and
• Lead the market in comprehensive and innova-tive reagent sets for regenerative medicine and stem cell research.
In Functional Genomics we lead the industry with cutting-edge gene silencing products like: • MISSION® siRNAs and the largest set of validated
lentivirus based shRNA clones;
• CompoZr™ ZFN, rated number five of the top 10 scientific innovations of 2009 in The Scientist magazine, and the first technology to allow researchers to edit a targeted region of the genome of a living cell or organism; and
• Development of the first knockout rat at our SAGE™ Labs, which opened in 2009 to develop novel rodent animal models of human disease.
We continue to build our biology platform with planned, future investments to provide cutting edge products and technologies that support fast-growing research areas.
testing; in testing for dioxins and PCB’s; in monitoring air quality; and in a wide variety of other testing areas.
A close link to the pharmaceutical industry gives us advantages in providing products designed for use throughout the drug discovery and development process. Ascentis® Express, our fused-core silica chro-matography column, has proven itself far superior to a number of other separation tools in this area, and was recently recognized with an Inventors Award by CASSS Scientific Achievement.
In the future, we plan to continue to offer new and exciting analytical products and partnerships that can increase our customers’ quality or productivity without sacrificing results.
innovation in biologyLife science research continues to move toward the understanding of complex biological pathways and entire biological systems. We believe that Sigma Life Science is well positioned to provide high-growth biology segments with new products and technology platforms in this area. Our vision is to be the leading destination for life science researchers to access deep biological information and obtain market-leading products to help address their biological questions. With the launch of our new Sigma Life Science brand, we are becoming the number one place where research-ers can find help in unravelling the complex intra- and intercellular interactions within a tissue, an organ or an organism. We are appropriately positioned as the destination “where biology begins” to help life scien-tists understand life.
Our web information platform supports this proposition with robust biological information and technologies like “Your Favorite Gene” powered by Ingenuity – a dynamic, web-based biological search tool that delivers comprehensive gene-based content to model and evaluate experiments. We are a leading biomolecules provider and:• The world’s largest partner for oligonucleotide
custom services – providing high quality DNA and RNA;
AchieveLeadershipinourMarkets:Sigma-AldrichenterpriseStrategy
VeraKlenerovaFirst Faculty of Medicine, Charles University in Prague,Prague, Czech Republic
We’ve worked with Sigma-Aldrich for more than 35 years. During that time we were interested in the basic research of various signaling
pathways, and mainly cyclic AMP, adenylyl cyclase, phosphodi-esterase and binding studies of adrenergic receptors. At present we are involved in the research of stress and drugs of abuse on behavioral as well as molecular and cellular level. Sigma chemicals have always been perfect, and we rely on them and trust them for their quality.
Enabling Science to Improve Quality of Life
SIGMA-ALDRICH 2009AnnuALRepoRt 17
“Chemistry Partner” at universities, industrial com-panies and government laboratories, helping to explore technology applications in plastics, semicon-ductors, biomaterials, nanoscience, displays, solar cells and portable communication devices.
Our future plans include expanded investments in R&D and building new centers of excellence to continue on the path of innovation.
The Path aheadSigma-Aldrich has built a successful company with a long track record of value creation. The Company has a strong brand reputation and a loyal customer base. Our unrivalled scientific knowledge, ability to manufacture, source and distribute a broad portfolio of high quality products in a fast, efficient and compliant manner is the foundation of our value creation model.
Our mission is to enable science to improve quality of life. Our vision is to be the trusted global partner of choice for customers in the markets we serve. With a clearly defined strategic roadmap, we believe we can build upon our foundation of trust, innova-tion and service to accelerate customer success and continue to deliver shareholder value.
innovation in Chemistry-Materials scienceMany years ago we established our posture as a leading chemistry products supplier, a role we solidly hold today by reaching out to support the require-ments of chemists in both traditional and new scientific disciplines.
The plan for our Aldrich chemistry brand is to ag-gressively leverage and expand market leadership in boron chemistry, catalysts and organometallics and to offer a growing and increasingly important portfolio of chemistry services like sourcing, custom packaging, housing chemical libraries and chemin-formatics, which is supported by our recent purchase of ChemNavigator®, a searchable database of com-pounds used for efficient compound selection.
There is tremendous interest in advanced materials that can be used to solve the problems faced by soci-ety, such as finding environmentally benign sources of alternative energy or identifying biocompatible implants to support an aging population. We can supply many of these materials, for example, lanthanide halides used in radiation and security detection devices.
Our chemistry initiative embraces these Materials Science applications and the promises they hold for enabling discoveries. We see the opportunity to offer deep chemistry knowledge by being a
AchieveLeadershipinourMarkets:Sigma-AldrichenterpriseStrategy
LesleyMillarDirector, Office of Technology ManagementUniversity of Illinois at Urbana-Champaign
Sigma-Aldrich reached out to the University of Illinois at Urbana-Champaign after the first publication
on the highly enabling MIDA boronate platform for small mol-ecule synthesis. Based on the Company’s outstanding track record of commercializing new reagents for chemical synthesis, we had great confidence that Sigma-Aldrich possessed the expertise and infrastructure required to make these exceptional chemical build-ing blocks readily accessible to scientists throughout the world.
professorZhenanBaoDepartment of Chemical EngineeringStanford University, Palo Alto, CA
My group has been working in organic electronics for the past fourteen years, and we can just flip through the Aldrich® Materials Sci-
ence catalog and Material Matters™ publication to get the latest materials reported in recent publications. For example, the triple sublimed pentacene allowed my group to make high performance organic transistors as potential lower cost replacements for the electronics found in e-readers and displays. The speed in bringing new products from scientific publications to market and the wide selection of new materials from Aldrich Materials Science has undoubtedly helped the field of organic electronics to progress rapidly and in ways that would be difficult without the company.
18 SIGMA-ALDRICH 2009 ANNUAL REPORT
The following performance graph compares the Company’s cumulative shareholder
return (stock price appreciation plus reinvestment of dividends) for a five year period
ended December 31, 2009, with that of the Standard & Poor’s 500 Composite Stock
Price Index and an index of the companies included in the Wall Street Journal
Specialty Chemicals Industry Group assuming that $100 was invested in each
on December 31, 2004, and that all dividends were reinvested. These indices are
only included for comparative purposes as required by Securities and Exchange
Commission rules and do not necessarily reflect management’s opinion that such
indices are an appropriate measure of the relative performance of the Company’s
common stock, and are not intended to forecast or be indicative of possible future
performance of the common stock.
The Company used as a performance graph comparison index those companies
comprising the Wall Street Journal (WSJ) Specialty Chemicals Industry Group (the
“2009 Group”). The 2009 Group includes the following companies: Avery Dennison
Corp., Cabot Corp., Cambrex Corp., Cytec Industries Inc., Ecolab Inc., Ferro Corp.,
FMC Corp., HB Fuller Co., International Flavors & Fragrances Inc., Lubrizol Corp.,
Monsanto Co., OM Group Inc., PPG Industries Inc., RPM International Inc.,
Sigma-Aldrich Corp., Solutia Inc., Tredegar Corp. and Valspar Corp.
Compared to 2008, the 2009 Group deleted Rohm & Haas Co. With this exception,
which resulted solely from the independent action of WSJ, the 2009 and 2008
Groups are identical.
2004 2005 2006 2007 2008 2009
Sigma-Aldrich Corporation $ 100.00 $ 105.96 $ 131.68 $ 186.91 $ 146.02 $ 176.98
Standard & Poors 500 100.00 103.00 117.03 121.16 74.53 92.01
Specialty Chemicals Index (WSJ) 100.00 104.91 135.98 191.97 123.97 158.99
Performance Graph(Unaudited)
$100.00
$131.68
$146.02
$186.91
$105.96
$176.98
$117.03$121.16
$74.53
$103.00 $92.01
$191.97
$104.91
$158.99
$135.98
$123.97
$0.00
$100.00
$200.00
2004 2005 2006 2007 2008 2009
Sigma-Aldrich Corporation
Standard & Poors 500
WSJ Specialty Chemicals
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2009 ANNUAL REPORT SIGMA-ALDRICH 19
The Company’s common stock is traded in the National Association of Securities
Dealers Automated Quotation System (“NASDAQ”) Global Select Market. The trading
symbol is SIAL.
On January 31, 2010, there were 721 shareholders of record of the Company’s
common stock.
Common Stock Data (per share):
2009 Price Range 2008 Price Range Dividends
High Low High Low 2009 2008
First Quarter $ 43.45 $ 31.45 $ 60.04 $ 47.13 $ 0.145 $ 0.13
Second Quarter 51.41 36.91 63.04 53.75 0.145 0.13
Third Quarter 55.65 45.80 62.74 50.02 0.145 0.13
Fourth Quarter 56.29 50.31 54.13 34.33 0.145 0.13
Selected Financial Data(Unaudited)
Annual Financial Data ($ In Millions, except per share data):
2009 2008 2007 2006 2005
Net sales $2,147.6 $2,200.7 $2,038.7 $1,797.5 $1,666.5
Net income 346.7 341.5 311.1 276.8 258.3
Per share:
Net income — Basic 2.84 2.70 2.38 2.08 1.90
Net income — Diluted 2.80 2.65 2.34 2.05 1.88
Dividends 0.58 0.52 0.46 0.42 0.38
Cash dividends 70.7 65.4 60.0 55.7 51.3
Total assets 2,713.8 2,556.5 2,629.1 2,334.3 2,131.3
Long-term debt 100.0 200.1 207.0 337.9 283.2
Pension obligations — Long term 50.8 53.1 20.0 29.4 7.7
Post-retirement medical benefit plans 43.0 39.5 36.9 38.5 54.3
Quarterly Financial Data ($ In Millions, except per share data):
2009 Quarter Ended
March 31 June 30 Sept. 30 Dec. 31
Net sales $ 519.3 $522.0 $ 533.8 $ 572.5
Gross profit 268.6 269.3 265.2 286.8
Net income 84.4 83.6 86.1 92.6
Net income per share — Basic 0.69 0.69 0.71 0.76
Net income per share — Diluted 0.68 0.68 0.70 0.75
2008 Quarter Ended
March 31 June 30 Sept. 30 Dec. 31
Net sales $ 569.6 $ 580.7 $ 540.6 $ 509.8
Gross profit 292.2 294.9 277.9 264.9
Net income 84.5 90.8 81.9 84.3
Net income per share — Basic 0.65 0.71 0.65 0.68
Net income per share — Diluted 0.64 0.70 0.64 0.68
All per share and common stock information presented above prior to 2007 has been retroactively adjusted to reflect the December 2006 common stock split.
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20 SIGMA-ALDRICH 2009 ANNUAL REPORT
Sigma-Aldrich
2009 Financial Report
Table of Contents
Management’s Discussion And Analysis 21
Consolidated Statements of Income 28
Consolidated Balance Sheets 29
Consolidated Statements of Stockholders’ Equity 30
Consolidated Statements of Cash Flows 31
Notes To Consolidated Financial Statements 32
Management’s Report On Internal Control Over Financial Reporting 46
Report Of Independent Registered Public Accounting Firm 46
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2009 ANNUAL REPORT SIGMA-ALDRICH 21
OVERVIEW Sigma-Aldrich Corporation (“the Company”) is a leading Life Science and High
Technology company. The Company develops, manufactures, purchases and
distributes the broadest range of high quality chemicals, biochemicals and
equipment available throughout the world. These chemical products and kits
are used in scientific research, including genomic and proteomic research,
biotechnology, pharmaceutical development and as key components in
pharmaceutical, diagnostic and other high technology manufacturing. The
Company operates in 38 countries, manufacturing 48,000 of the 130,000 chemical
products it offers. The Company also offers 40,000 equipment products. The
Company sells into over 160 countries, servicing over 92,000 accounts representing
over one million individual customers.
The Company has four business units featuring the Research units of Essentials,
Specialties and Biotech and the Fine Chemicals unit, SAFC. The units are closely
interrelated in their activities and share services such as order entry, billing,
technical services, Internet, purchasing and inventory control and share production
and distribution facilities. Additionally, these units are supported by centralized
functional areas such as finance, human resources, quality, safety and compliance
and information technology.
Research Essentials, representing 19% of sales, provides customized, innovative
solutions for our economic buyers. Research Specialties, representing 37% of sales,
facilitates accelerated research by lab scientists through information and innovation
in services and new products. Research Biotech, representing 16% of sales, provides
innovative first-to-market products and technologies for the Life Science researcher.
SAFC, representing 28% of sales, supports the manufacturing needs of commercial
project managers’ through rapid delivery of custom projects.
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, and would not be significantly impacted by the loss of any one
customer. However, economic conditions and government research funding in the
United States and internationally do impact demand from our customers.
Highlights of our consolidated results for the year ended ended December 31, 2009,
are as follows:
Sales were $2,147.6, a decrease of 2.4% compared to the same period last year. •
Excluding the impact of foreign currency exchange rates, which decreased sales by
4.1%, sales increased by 1.7% year over year.
Gross margin was 50.7%, a decrease of 60 basis points when compared to 2008. •
Pretax income margin was 22.8%, up from 22.2% in 2008.
Diluted income per share was $2.80, compared to $2.65, a 5.7% increase when •
compared to last year.
Net cash provided by operating activities for the year ended December 31, 2009 was •
$515.7, an increase of $111.7 from last year.
Net debt, which includes total debt less cash, declined $273.1 since •
December 31, 2008.
Management’s Discussion And Analysis($ In Millions, Except Per Share Data)
The following should be read in conjunction with the consolidated financial statements and related notes.
COMPANY OUTLOOK The current uncertainty in the global markets reduces future visibility. Demand from
several of the Company’s key markets is expected to increase in 2010 from 2009
levels. New program launches, global sales initiatives and market share gains should
enable the Company to achieve mid single-digit organic sales growth in 2010.
Significant factors that could affect our results and cash flows in fiscal year
2010 include:
Our performance may be affected by the economic conditions in the U.S. and in •
other nations where we do business;
We face significant competition, including changes in pricing;•
Our sales and results of operations are dependent on the research and development •
spending patterns at pharmaceutical, biotechnology and diagnostic companies,
and universities;
Foreign currency exchange rate fluctuations may adversely affect our business;•
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;
Changes in worldwide tax rates or tax benefits may impact our tax expense •
and our profits;
Our failure to protect our intellectual property may significantly harm our results •
of operations;
Our failure to achieve planned cost reductions in global supply chain initiatives; and•
The impact of any restructuring.•
NON-GAAP FINANCIAL MEASURES The Company supplements its disclosures made in accordance with accounting
principles generally accepted in the United States (“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, GAAP financial information. These non-GAAP measures may not be
consistent with the presentation by similar 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 GAAP measure.
With over 60% 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, and where indicated, acquisition impacts. While
we are able to report currency impacts after the fact, we are unable to estimate
changes that may occur in 2010 to applicable exchange rates. Any significant
changes in currency exchange rates would likely have a significant impact on our
reported growth rates due to the 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.
Management believes this non-GAAP information is useful to investors as well.
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22 SIGMA-ALDRICH 2009 ANNUAL REPORT
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 revenues and expenses during the years 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
value of these assets and any potential associated impairment.
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 14 to the consolidated
financial statements and include, among others, the discount rates, 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
1% increase in the discount rate assumption would have reduced the net periodic
benefit cost by $1.1 for the U.S. plans and $4.4 for the International plans. A 1%
reduction in the discount rate assumption would have increased the net periodic
benefit cost by $0.8 for the U.S. plans and $5.0 for the International plans. A 1%
increase in the expected return on plan assets would have reduced the pension
expense by $0.9 for the U.S. plan and $1.4 for the International plans. A 1% reduction
in the expected return on plan assets would have increased the pension expense by
$0.9 for the U.S. plan and $1.4 for the International plans.
Taxes The Company operates within multiple taxing jurisdictions and is subject
to audit in these jurisdictions. These audits can involve complex issues, which may
require an extended period of time to resolve. The Company regularly reviews its
potential tax liabilities for tax years subject to audit. Changes in the Company’s tax
provision and liability occured in 2009, 2008 and 2007 and may occur in the future
as its assessments change based on the progress of tax examinations in various
jurisdictions and/or changes in worldwide tax regulations. In management’s opinion,
adequate provisions for income taxes have been made for all years presented.
Deferred tax assets and liabilities are recognized for the future tax benefits or
liabilities attributable to differences between the consolidated financial statement
carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates would be recognized in income in the period that includes
the enactment date. The Company regularly reviews its deferred tax assets for
recoverability and establishes a valuation allowance when it believes that such
assets may not be recovered, taking into consideration historical operating results,
expectations of future earnings, changes in its operations and the expected timing
of the reversals of existing temporary differences.
Management’s Discussion And Analysis (continued)
($ In Millions, Except Per Share Data)
The following should be read in conjunction with the consolidated financial statements and related notes.
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2009 ANNUAL REPORT SIGMA-ALDRICH 23
OPERATING RESULTSSales Sales decreased by 2.4% in 2009 and increased by 7.9%
and 13.4% in 2008 and 2007, respectively. The decline in 2009
was primarily driven by changes in foreign currency exchange
rates, which lowered sales by 4.1%, and lower unit volumes
driven primarily from the worldwide recession. These declines
were partially offset by price increases which increased sales
by 4.0%.
The sales growth in 2008 was attributable to unit volume
growth, currency benefits and price increases. The currency benefit in 2008
increased sales by 2.7%. The 2008 price increase by the Company improved sales
by 2.0%.
Reported sales growth (declines), currency impacts, sales increases from
acquisitions and the organic sales changes are as follows:
Year Ended December 31, 2009
Reported
Currency
Impact Acquisition Organic
Research Essentials (0.8)% (4.7)% —% 3.9%
Research Specialties (3.7) (4.3) — 0.6
Research Biotech — (3.6) — 3.6
Research Chemicals (2.2) (4.3) — 2.1
SAFC (3.1) (3.7) — 0.6
Total (2.4)% (4.1)% —% 1.7%
Year Ended December 31, 2008
Reported
Currency
Benefit Acquisition Organic
Research Essentials 7.7% 2.8% —% 4.9%
Research Specialties 9.4 3.0 — 6.4
Research Biotech 10.0 3.0 — 7.0
Research Chemicals 9.1 2.9 — 6.2
SAFC 5.2 2.0 0.7 2.5
Total 7.9% 2.7% 0.2% 5.0%
Year Ended December 31, 2007
Reported
Currency
Benefit Acquisition Organic
Research Essentials 10.0% 5.0% —% 5.0%
Research Specialties 12.5 5.0 — 7.5
Research Biotech 9.1 4.5 — 4.6
Research Chemicals 11.1 4.9 — 6.2
SAFC 19.5 4.4 7.6 7.5
Total 13.4% 4.8% 2.1% 6.5%
2009 Organic sales growth in Research Essentials, Research Specialties, Research
Biotech and SAFC for 2009 was 3.9%, 0.6%, 3.6% and 0.6%, respectively.
Research Essentials sales growth was due to increased demand in all world areas
with the strongest growth in CAPLA (Canada, Asia Pacific and Latin America).
Customer segments primarily driving the unit’s growth were pharmaceutical and
academic accounts. A significant contributing factor to the organic growth in this
business unit was due to a worldwide shortage of a certain solvent which drove
higher prices and volumes during the first half of the year.
Modest growth compared to 2008 in Research Specialties sales was due
to decreased demand from the chemistry, commercial labs and diagnostic
customer groups, specifically in the U.S. Product groups showing decreased
demand compared to 2008 were Chemistry and Lab Equipment. Analytical
products growth over the prior year was in the mid single digits.
Research Biotech had sales growth in the mid single digits in Europe and CAPLA,
with lower growth rates reflected in the U.S. Product groups contributing the
most to this growth were cell signaling and protein assays.
SAFC growth in 2009 was focused in Europe due primarily to increased demand
for H1N1 vaccine adjuvants. The U.S. reflected a weakness in the chemical
industry segment. Product groups with the best growth compared to 2008
were bioscience and pharmaceutical products, with hitech reflecting the most
pressure on demand.
Our initiative to increase e-commerce sales continued to show progress. Web-
based sales increased to 45% of total Research sales in 2009 from 42% in 2008.
2008 Organic sales growth in Research Essentials, Research Specialties, Research
Biotech and SAFC for 2008 was 4.9%, 6.4%, 7.0% and 2.5%, respectively.
Research Essentials sales growth was due to increased demand in all world areas
with the strongest growth in CAPLA. Customer segments primarily driving the
unit’s growth were commercial labs and industrial companies.
Research Specialties sales growth was due to gains in biotechnology, hospital
and academic accounts. Product initiatives driving this growth were Analytical
and Lab equipment. Europe was the strongest driver of growth from a
geography perspective.
Research Biotech had its strongest growth in CAPLA followed by the U.S.
customer segments. Contributing to this growth were commercial, industrial and
diagnostics companies. Molecular biology was the initiative with the best growth
over the prior year.
SAFC growth in 2008 was driven by strong demand in biotechnology,
diagnostics, commercial labs and academic customer segments. Demand for
SAFC products in CAPLA showed the strongest growth over the prior year
compared to Europe and the U.S. Hitech was the initiative with the highest
growth during 2008.
Our goal to accelerate growth in our non-European International markets was
achieved, increasing sales in these markets to approximately 21% of total sales
for 2009, an increase of 1% from 2008. In the Company’s focus markets of China,
India and Brazil, sales collectively grew organically by 18% for the fourth quarter
and full year of 2009 over the prior year levels.
2010 Outlook Modest improvement in market conditions, the ongoing
implementation of programs already in place and the addition of new initiatives
to enhance our growth over underlying market rates are expected to provide
organic sales growth in the mid single-digit range for 2010, excluding any
benefit from acquisitions. Sales initiatives include new opportunities in analytical
and biology products and exploiting the Company’s broad knowledge of
chemistry with more offerings to the high tech market place. Investments
are also planned to strengthen the e-commerce channel, expand presence
in emerging markets and for selective technology partnerships. This outlook
does not include a significant amount of sales from stimulus and other funding
by the U.S. and other world governments as the timing and level of funding
remains unclear.
2,038.7
2,200.7
2,147.6
Sales(millions of dollars)
‘09 ‘08 ‘07
Management’s Discussion And Analysis (continued)
($ In Millions, Except Per Share Data)
The following should be read in conjunction with the consolidated financial statements and related notes.
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24 SIGMA-ALDRICH 2009 ANNUAL REPORT
Management’s Discussion And Analysis (continued)
($ In Millions, Except Per Share Data)
The following should be read in conjunction with the consolidated financial statements and related notes.
OPERATING RESULTS (continued)
Gross Profit Margin Gross profit margin was 50.7%, 51.3%,
and 50.8% of sales in 2009, 2008 and 2007, respectively.
The following table reflects the significant contributing
factors to the net change in gross profit margin for the years
ended December 31, 2009, 2008 and 2007, respectively, as
a percentage of sales compared to the same period in the
prior year:
Year Ended December 31,
Contributing Factors 2009 2008 2007
Favorable pricing 2.2% 0.9% 0.6%
Lower/(higher) manufacturing and
distribution costs 1.2 (0.9) (1.8)
Unfavorable product mix and other (1.8) (1.7) (0.9)
(Lower)/higher unit sales volume (0.3) 0.4 0.6
Favorable/(unfavorable) currency impact (1.9) 1.8 1.1
Ne t (decline)/improvement in gross profit margin
as a percentage of sales (0.6)% 0.5% (0.4)%
The decrease in gross profit margin as a percentage of sales of 0.6% in 2009 was
primarily due to the impact of changes in foreign currency rates, unfavorable
product mix and lower unit volumes. These were partially offset by favorable pricing
and lower manufacturing and distribution costs.
The increase in gross profit margin as a percentage of sales of 0.5% in 2008 was
primarily due to the impact of changes in foreign currency rates, favorable pricing
and higher unit volumes. These were offset by unfavorable product mix and higher
manufacturing and distribution costs.
We have various cost containment initiatives underway, including a supply chain
initiative, which we expect to continue to provide benefits in 2010. The Company’s
supply chain project is a five-year project, which commenced in 2007, expected to
improve service and expand margins by up to 150 basis points when complete in
2012. The project is focused on improving how the Company procures goods and
services, manages inventory and optimizes its various other supply chain activities.
We also expect currency to add a small benefit to the gross profit margin in 2010.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
24.1%, 25.5%, and 25.4% of sales in 2009, 2008 and 2007,
respectively. Changes in foreign currency exchange rates
increased selling, general and administrative expenses by
30 basis points in 2009 compared to 2008. Decreases in
selling, general and administrative expenses in 2009 were
driven largely by the Company’s effort to carefully control
discretionary spending, including travel and entertainment,
catalog and advertising expenses which contributed 0.7% to the overall decrease.
The remaining improvement over 2008 levels relates mainly to non-recurring
2008 investment losses and legal settlement costs.
In 2008, investment losses and a legal settlement were the primary drivers of
the increase in selling general and administrative expenses representing a 0.5%
increase as a percentage of sales from 2007 levels. These amounts were primarily
offset by decreases in salaries and wages and legal and professional consulting
expenses, aggregating 0.4% of sales.
Restructuring Costs During the year ended December 31, 2009, the Company
committed to a plan that includes exit activities at five manufacturing sites in
the U.S. and Europe, which are anticipated to occur over the next 12–18 months.
These exit activities impact approximately 200 employees and are intended
to reduce the Company’s fixed cost structure and better align its global
manufacturing and distribution footprint. Additionally, in 2009 the Company
initiated a voluntary retirement program that was accepted by approximately
90 eligible U.S. employees as part of its cost reduction and long-term profit
enhancement initiatives. In 2009, restructuring costs were $9.2. The Company
expects to further reduce its workforce by approximately 100 people, some of which
have already occurred in 2010. The remaining reductions will take place over the
next twelve months.
The Company expects that the execution of these activities will result in
additional pre-tax restructuring costs of approximately $21.8 in the next
12–18 months. Once fully implemented, the Company expects annual savings
associated with these activities in a range from $15.0 to $20.0. The Company will
continue to pursue actions as needed to reduce its fixed cost structure.
Research and Development Expenses Research and development expenses
were 2.9% of sales in 2009, 2008 and 2007. Research and development expenses
relate primarily to efforts to add new manufactured products and enhance
manufacturing processes. All manufactured products currently account for
approximately 65% of total sales.
Interest Expense, Net Net interest expense was $10.0, $14.3, and $22.0 in 2009,
2008 and 2007, respectively. Lower interest rates and debt levels in 2009 reduced
net interest expense compared to 2008. Lower interest rates in 2008 reduced net
interest expense compared to 2007, partially offset by higher debt levels in 2008.
Income Taxes Income taxes, which include federal, state and international taxes
were 29.2%, 30.2%, and 28.9% of pretax income in 2009, 2008 and 2007, respectively.
The lower effective tax rate for the full year of 2009 compared to the same period
in 2008 is primarily due to the reduction of certain tax contingencies resulting from
statute of limitation expirations and audit activity in 2009. The higher effective tax
rate for the full year of 2008 compared to the same period in 2007 is primarily due to
a decrease in the U.S. manufacturing deduction in 2008.
Our effective tax rate for 2010 is expected to be in the range of 30–31%.
Accounting Changes The Financial Accounting Standards Board (“FASB”) issued
Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles, a replacement of FASB Statement
No. 162 (the “ASC”), in June 2009. Effective for interim and annual periods ended
after September 15, 2009, the ASC became the source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. This statement is not intended to change existing GAAP and as such
did not have an impact on the consolidated financial statements of the Company.
The Company has updated its references to reflect the ASC.
Selling, General andAdministrative Expenses(percent of sales)
25.425.5
24.1
‘09 ‘08 ‘07
Gross Profit Margin(percent of sales)
50.751.3
50.8
‘09 ‘08 ‘07
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2009 ANNUAL REPORT SIGMA-ALDRICH 25
Management’s Discussion And Analysis (continued)
($ In Millions, Except Per Share Data)
The following should be read in conjunction with the consolidated financial statements and related notes.
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:
Years Ended December 31,
2009 2008 2007
Net cash provided by (used in):
Operating activities $ 515.7 $ 404.0 $ 417.0
Investing activities (159.5) (86.7) (149.0)
Financing activities (250.3) (273.9) (212.0)
Operating Activities Net cash provided by operating activities increased $111.7
or 27.6% in 2009 compared to 2008. This increase relates primarily to reductions in
inventory of $108.7 resulting from enhanced inventory management programs that
adjusted lead times and safety stock to reduce inventory levels without impacting
service.
Net cash provided by operating activities decreased $13.0 or 3.1% in 2008 compared
to 2007. This decrease results primarily from higher pension plan contributions and
investments in working capital to support current year growth which were partially
offset by increased net income and lower tax payments.
Investing Activities Cash used in investing activities increased $72.8 in 2009
from 2008 primarily due to increased investment and technology purchases
of $41.9 and increased capital expenditures of $30.0 The primary driver of the
technology investment was an increased interest in Sangamo BioSciences,
Inc. (See Liquidity and Risk Management Section.). Capital expenditures
increased due to the Company’s expansion of its biotech fermentation facility
in Israel and its additional manufacturing capacity for viral products and active
pharmaceutical ingredients in the U.S.
Cash used in investing activities decreased $62.3 in 2008 as compared to 2007
primarily due to lower levels of acquisition activity. Capital expenditures increased
$12.3 from 2007 to $89.9 in 2008 to expand our business information systems and
website capabilities, as well as increasing production and warehousing capacity at
certain locations. At December 31, 2009, the Company had $107.9 of construction in
progress within its consolidated balance sheets, of which the Company expects over
80% to be placed into service during 2010.
For 2010, capital spending is expected to be approximately $130.0.
Financing Activities Cash used in financing activities decreased by $23.6 in
2009 compared to 2008. This decrease was driven by a $354.0 decline in treasury
stock purchases. This decrease was partially offset by the increase of $405.2 in net
repayments of short-term debt.
In 2008, cash used in financing activities increased $61.9 from 2007. This increase
is due primarily to payments for treasury stock purchases of $421.2 compared to
$184.3 in 2007, as well as repayment of $90.0 in long-term debt. These cash outflows
were partially offset by an increase in short-term debt of $270.5 in 2008 compared
to $61.8 in 2007.
Share Repurchases On October 20, 2008, the Board of Directors authorized the
repurchase of up to an additional 10.0 million shares under the existing repurchase
program, to be available for purchase within three years, bringing the total
authorization to 100.0 million shares. At December 31, 2009 and December 31, 2008,
the Company had repurchased a total of 93.7 million shares and 92.3 million shares,
respectively. There were 121.7 million shares outstanding as of December 31, 2009.
The Company expects to continue to offset the dilutive impact of issuing incentive
compensation by future repurchases. Further, the Company may repurchase
additional shares, but the timing and amount will depend on market conditions and
other factors.
Liquidity and Risk Management Liquidity risk refers to the risk that the Company
might be unable to meet potential cash outflows promptly and cost effectively.
Factors that could cause such risk to arise might be disruption to the securities and
credit 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, its credit facilities and long-term debt as funding sources.
The Company maintains committed bank lines of credit to support its commercial
paper borrowings, term loans and local bank lines of credit to support international
operations. 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 continues to assess the potential impact of recent trends in the
global economic environment on its liquidity and overall financial condition,
particularly with respect to the Company’s availability of and access to short-term
credit, including the market for commercial paper.
Management does not believe that a significant risk exists of commercial paper
or other credit becoming unavailable within the next 12 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, acquisitions, dividends, share repurchases, funding of
pension and other post-retirement benefit plan obligations, and working capital
presently and for the next 12 months.
The Company has a $450.0 five-year revolving credit facility with a syndicate of
banks in the U.S. that supports the Company’s commercial paper program. In
October 2009, the Company received a one-year extension for a $30.0 portion of
the facility, which extends the maturity of the entire $450.0 to December 11, 2012.
At December 31, 2009 and December 31, 2008, the Company did not have any
borrowings outstanding under this facility.
In March 2007, the Company entered into a $200.0 seven-year multi-currency
European revolving credit facility with a syndicate of banks having a maturity date of
March 13, 2014. There were no borrowings outstanding at December 31, 2009 and
$135.9 was outstanding at December 31, 2008.
Sigma-Aldrich Korea Limited has a short-term credit facility denominated in Korean
Won. Although the reported borrowings of the facility were due and repaid on
June 11, 2009, the facility is still available to the Company with a total commitment
of 20 billion Korean Won ($17.2) at December 31, 2009. There were no outstanding
borrowings under this facility at December 31, 2009.
The Company has other short-term credit facilities denominated in foreign
currencies, excluding those mentioned above. Although there were no borrowings
under the facilities supporting this debt at December 31, 2009, the facilities are
available to the Company with total commitments converted into U.S. Dollars of
$25.1 at December 31, 2009.
Long-term debt at December 31, 2009 was $100.0 compared to $200.1 in 2008. This
decline was a result of the Company reclassifying $100.0 to short-term debt as it
comes due on September 12, 2010. Total debt as a percentage of total capitalization
was 25.5% and 34.6% at December 31, 2009 and 2008, respectively. The primary
reason for the reduction in the debt to capitalization ratio is due to a $152.4
reduction in total debt during 2009. Total debt at December 31, 2009 was $576.5
compared to $728.9 at December 31, 2008.
For a description of the Company’s material debt covenants, see Notes 5 and 6 to
the consolidated financial statements.
On October 5, 2009, the Company announced a major expansion of its existing
license agreement with Sangamo BioSciences, Inc. (“Sangamo”) to include
the exclusive rights to develop and distribute zinc finger DNA binding protein
(“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 $20.0 to Sangamo, consisting of an upfront license payment of $15.0
and $5.0 for the purchase of shares of Sangamo common stock. Sangamo is eligible
to earn additional contingent commercial license fees of up to $5.0 based on certain
conditions and additional contingent milestone payments of up to $25.0 based on
cumulative sales.
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26 SIGMA-ALDRICH 2009 ANNUAL REPORT
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 cost
reductions and productivity improvements as well as price increases to maintain
reasonable profit margins. It is management’s view, however, that inflation has not
had a significant impact on operations in the three years ended December 31, 2009.
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, 2009, the Company’s outstanding debt represents
25.5% of total capitalization. Approximately 35% of the Company’s outstanding debt
at December 31, 2009 is at a fixed rate. Cash flows from operations and available
credit facilities are sufficient to meet the working capital requirements of the
Company. It is management's view that market risk or variable interest rate risk will
not significantly impact the Company's results of operations.
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 revenues and expenses is based on the average exchange rate
during the period. Changes in foreign currency exchange rates have affected
and may continue to affect the Company’s revenues, expenses, net income and
stockholders’ equity.
The Company transacts business in many parts of the world and is subject to risks
associated with changing foreign currency exchange rates. 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.
Accordingly, the Company uses forward exchange contracts to hedge the value
of certain receivables and payables denominated in foreign currencies. Gains and
losses on these contracts, based on the difference in the contract rate and the spot
rate at the end of each month for all contracts still in force, are typically offset either
partially or completely by transaction gains and losses, with any net gains and losses
Management’s Discussion And Analysis (continued)
($ In Millions, Except Per Share Data)
The following should be read in conjunction with the consolidated financial statements and related notes.
OTHER MATTERSThe Company is involved in legal proceedings generally incidental to its business, as
described below:
Insurance and Other Contingent Liabilities and Commitments The Company
is a defendant in several lawsuits and claims related to the normal conduct of its
business, including lawsuits and claims related to product liability and personal
injury matters. The Company accrues for such liabilities when it is probable that
future costs (including legal fees and expenses) will be incurred and such costs can
be reasonably estimated. The Company has self-insured retention limits and has
obtained insurance to provide coverage above the self-insured limits for product
liability and personal injury claims, subject to certain limitations and exclusions.
Reserves have been provided to cover expected payments for these self-insured
amounts at December 31, 2009.
In one group of lawsuits and claims, the Company, as well as others engaged
in manufacturing and distributing similar products, was a defendant in multiple
claims alleging injuries from exposure to various chemicals by a limited number of
employees of one electronics manufacturer. These claims were filed in three states.
A global settlement has been reached for all cases, which has been approved
by the court. The settlement is not significant to the Company’s consolidated
financial statements.
In another group of lawsuits and claims, the Company provided a product for use
in research activities in developing various vaccines at pharmaceutical companies.
The Company, together with other manufacturers and distributors offering the same
product and several pharmaceutical companies, has been named as a defendant
and served in 294 lawsuits, of which 126 lawsuits have been dismissed to date.
Several of the outstanding suits have been stayed by various state and federal courts
pending a decision on coverage available under a U.S. federal government relief
program. No definite date has been set for this decision. In all cases, the Company
believes its products in question were restricted to research use and that proper
information for safe use of the products was provided to the customer.
In another group of lawsuits and claims, the Company, as well as others engaged in
manufacturing and distributing flavoring products, is a defendant in multiple claims
alleging personal injuries from exposure to the products. The Company has been
named as a defendant and served in 19 lawsuits, 15 of which have been dismissed
or settled. These claims have been filed in six states. The Company is vigorously
defending its rights to the claims. The Company believes it is covered by insurance
for the above matters, subject to its self-insurance retention limits.
A class action complaint was filed against a subsidiary of the Company in the
Montgomery County, Ohio Court of Common Pleas related to a 2003 explosion
in a column at the Company’s Isotec facility in Miamisburg, Ohio. The case was
separated into the following four phases: phase one — existence of liability, phase
two — quantification of any compensatory damages, phase three – existence of any
punitive damages and phase four — quantification of any punitive damages. Class
certification was granted to phases one, three and four, but denied to phase two.
Compensatory damages for all plaintiffs must be established before the case can
proceed to the punitive damages phases. The Company has accepted responsibility
for phase one, existence of liability. The case is currently in the compensatory
damages phase, where, because no class status exists, each plaintiff must
individually establish actual damages. The initial phase two, compensatory damages
trial for 31 plaintiffs was completed on April 27, 2007 with a jury verdict establishing
actual damages of approximately two hundred dollars per plaintiff. The plaintiffs filed
an appeal staying further action on the case until the appeal has been resolved. The
Ohio Court of Appeals reversed the jury’s verdict on compensatory damages. The
Ohio Supreme Court has heard oral argument in December 2009, with a decision
expected in early 2010. The Company continues to believe it has substantial legal
defenses to the allegations, which it will vigorously assert.
The Company believes its reserves and insurance for these and other matters
are sufficient to provide for claims outstanding at December 31, 2009. While the
outcome of the current claims cannot be predicted with certainty, the possible
outcome of the claims is reviewed at least quarterly and reserves adjusted as
deemed appropriate based on these reviews. Based on current information
available, the Company believes that the ultimate resolution of these matters will
not have a material adverse effect on its consolidated financial condition, results
of operations or liquidity. Future claims related to the use of these categories of
products may not be covered in full by the Company’s insurance program.
At December 31, 2009, there were no other known contingent liabilities that
management believes could have a material adverse effect on the Company’s
consolidated financial condition, results of operations or liquidity and there were
no material 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 5, Note 6, Note 8 and Note 14, respectively,
to the consolidated financial statements contained in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.
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2009 ANNUAL REPORT SIGMA-ALDRICH 27
FORWARD-LOOKING STATEMENTSManagement’s Discussion and Analysis and other sections of this Annual Report
to shareholders should be read in conjunction with the consolidated financial
statements and notes thereto.
Except for historical information, the statements in this discussion may be deemed
to include or incorporate forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 that involve risk and uncertainty, including financial, business environment
and projections. These include “outlook” as well as statements that are preceded
by, followed by, or that include the words “believes,” “expects,” “plans,” “anticipates,”
“should” or similar expressions, and other statements contained herein regarding
matters that are not historical facts. Additionally, this Annual Report to shareholders
contains forward-looking statements relating to future performance, goals, strategic
actions and initiatives and similar intentions and beliefs, including, without limitation,
statements regarding 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 the
Company operations, investments, acquisitions and conditions in the markets the
Company serves.
The Company believes these assumptions are reasonable and well founded.
The statements in this Annual Report to shareholders 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
Annual Report to shareholders, due to, but not limited to, such factors as:
global economic conditions, (1)
changes in pricing and the competitive environment and the global demand (2)
for its products,
fluctuations in foreign currency exchange rates, (3)
changes in research funding and the success of research and development (4)
activities,
dependence on uninterrupted manufacturing operations, (5)
changes in the regulatory environment in which the Company operates,(6)
changes in worldwide tax rates or tax benefits from domestic and international (7)
operations, including the matters described in Note 10 – Income Taxes – to the
consolidated financial statements ,
exposure to litigation including product liability claims, (8)
the ability to maintain adequate quality standards, (9)
reliance on third-party package delivery services, (10)
failure to achieve planned cost reductions in global supply chain initiatives and (11)
restructuring actions,
an unanticipated increase in interest rates,(12)
failure of planned sales initiatives in our Research and SAFC businesses, (13)
other changes in the business environment in which the Company operates, and (14)
the outcome of the outstanding matters described in Note 11 – Contingent (15)
Liabilities and Commitments – to the consolidated financial statements.
A further discussion of the Company’s risk factors can be found in Item 1A of Part I
of the Company’s December 31, 2009 Form 10-K. The Company does not undertake
any obligation to update these forward-looking statements.
AGGREGATE CONTRACTUAL OBLIGATIONS The following table presents contractual obligations of the Company at December 31, 2009:
Payments due by period
Contractual Obligations Total
Less than
1 year 1–3 years 3–5 years
More than
5 years
Long-term debt $ 200.0 $ 100.0 $ 100.0 $ — $ —
Interest payments related to long-term debt 12.8 9.0 3.8 — —
Operating lease obligations 127.8 37.0 50.8 24.0 16.0
Purchase obligations(1) 125.0 59.7 42.7 22.3 0.3
Total $ 465.6 $ 205.7 $ 197.3 $ 46.3 $ 16.3
Purchase obligations include open purchase orders, long-term service and supply agreements and other contractual obligations.(1)
See Notes 6 and 8 to the consolidated financial statements for additional disclosures related to long-term debt and lease commitments, respectively.
See Note 14 to the consolidated financial statements for the Company’s obligations with respect to its pension and post-retirement medical benefit plans.
The above table excludes $24.7 of liabilities related to uncertainty in income taxes. See Note 10 to the consolidated financial statments for detail on this obligation.
Management’s Discussion And Analysis (continued)
($ In Millions, Except Per Share Data)
The following should be read in conjunction with the consolidated financial statements and related notes.
included in selling, general and administrative expenses. The market risk of these
forward exchange contracts represents the potential loss in fair value of net currency
positions at year-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 the risks associated with existing
receivables, payables and commitments.
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
forward currency exchange contracts in the open market, as well as the ability
of the counterparties to meet their obligations. Given that a majority of the
forward exchange contracts are in currencies such as the U.S. dollar, Euro and
British pound, management does not believe that a significant risk exists of these
forward contracts becoming unavailable in the global marketplace within the next
12 months.
The market risk of the Company’s forward exchange contracts at December 31,
2009, assuming a hypothetical 10% change in foreign currency exchange rates,
would be less than $1.1 on income before income taxes.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS (continued)
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28 SIGMA-ALDRICH 2009 ANNUAL REPORT
Years ended December 31,
2009 2008 2007
Net sales $2,147.6 $2,200.7 $2,038.7
Cost of products sold 1,057.7 1,070.8 1,002.7
Gross profit 1,089.9 1,129.9 1,036.0
Selling, general and administrative expenses 518.1 561.6 517.1
Research and development expenses 63.0 64.5 59.3
Restructuring costs 9.2 — —
Operating income 499.6 503.8 459.6
Interest, net 10.0 14.3 22.0
Income before income taxes 489.6 489.5 437.6
Provision for income taxes 142.9 148.0 126.5
Net income $ 346.7 $ 341.5 $ 311.1
Weighted average number of shares outstanding — Basic (in millions) 121.9 126.3 130.6
Weighted average number of shares outstanding — Diluted (in millions) 123.7 128.8 133.1
Net income per share — Basic $ 2.84 $ 2.70 $ 2.38
Net income per share — Diluted $ 2.80 $ 2.65 $ 2.34
The accompanying notes are an integral part of these statements.
Consolidated Statements of Income($ In Millions, Except Per Share Data)
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2009 ANNUAL REPORT SIGMA-ALDRICH 29
December 31,
2009 2008
ASSETS
Current assets:
Cash and cash equivalents $ 372.5 $ 251.8
Accounts receivable 285.2 269.8
Inventories 609.0 661.8
Deferred taxes 53.3 45.9
Other current assets 63.5 79.9
Total current assets 1,383.5 1,309.2
Property, plant and equipment:
Land 49.0 49.0
Buildings and improvements 694.7 674.6
Machinery and equipment 800.2 757.5
Construction in progress 107.9 41.4
Less — accumulated depreciation (942.9) (862.1)
Property, plant and equipment, net 708.9 660.4
Goodwill, net 400.7 388.3
Intangibles, net 129.3 120.6
Other assets 91.4 78.0
Total assets $2,713.8 $2,556.5
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 476.5 $ 528.8
Accounts payable 112.4 114.6
Payroll 51.0 58.6
Income taxes 42.2 41.1
Other 59.8 50.8
Total current liabilities 741.9 793.9
Long-term debt 100.0 200.1
Pension and post-retirement benefits 93.9 92.6
Deferred taxes 22.5 18.6
Other liabilities 69.5 72.1
Total liabilities 1,027.8 1,177.3
Stockholders' equity:
Common stock, $1.00 par value; 300.0 million shares authorized; 201.8 million shares issued at
December 31, 2009 and 2008; 121.7 million and 122.1 million shares outstanding at
December 31, 2009 and 2008, respectively 201.8 201.8
Capital in excess of par value 152.8 133.0
Common stock in treasury, at cost, 80.0 million and 79.7 million shares at December 31, 2009
and 2008, respectively (1,983.0) (1,935.3)
Retained earnings 3,230.4 2,954.4
Accumulated other comprehensive income 84.0 25.3
Total stockholders' equity 1,686.0 1,379.2
Total liabilities and stockholders' equity $2,713.8 $2,556.5
The accompanying notes are an integral part of these statements.
Consolidated Balance Sheets($ In Millions, Except Per Share Data)
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30 SIGMA-ALDRICH 2009 ANNUAL REPORT
Common
Stock
Capital in
Excess of
Par Value
Common
Stock in
Treasury
Retained
Earnings
Accumulated Other
Comprehensive
Income/(Loss)
Total
Stockholders'
Equity
Comprehensive
Income
Balance, December 31, 2006 $ 201.8 $ 79.1 $(1,375.4) $2,424.7 $ 80.7 $1,410.9
Net income — — — 311.1 — 311.1 $311.1
Ot her comprehensive income —
Foreign currency translation — — — — 71.5 71.5 71.5
Pension and Post Retirement — — — — 8.4 8.4 8.4
Unrealized gain (loss) on securities, net — — — — (0.7) (0.7) (0.7)
Comprehensive income — — — — — — $390.3
Dividends ($.46 per share) — — — (60.0) — (60.0)
Shares exchanged for stock options — (0.9) — — — (0.9)
Exercise of stock options — 17.3 24.0 — — 41.3
Restricted stock grant — 0.7 1.6 — — 2.3
Stock-based compensation expense — 13.5 — — — 13.5
Stock repurchases — — (184.3) — — (184.3)
Adj ustment to initially apply FIN 48 — — — 3.5 — 3.5
Balance, December 31, 2007 201.8 109.7 (1,534.1) 2,679.3 159.9 1,616.6
Net income — — — 341.5 — 341.5 $ 341.5
Ot her comprehensive income —
Foreign currency translation — — — — (86.4) (86.4) (86.4)
Pension and Post Retirement — — — — (42.2) (42.2) (42.2)
Unrealized gain (loss) on securities, net — — — — (6.0) (6.0) (6.0)
Comprehensive income — — — — — — $ 206.9
Adj ustment to initially apply the measurement date fea-
tures of Statement of Financial Accounting Standards
No. 158, net of tax — — — (1.0) — (1.0)
Dividends ($.52 per share) — — — (65.4) — (65.4)
Shares exchanged for stock options — (0.6) — — — (0.6)
Exercise of stock options — 15.0 18.1 — — 33.1
Restricted stock grant — 1.6 1.9 — — 3.5
Stock-based compensation expense — 7.3 — — — 7.3
Stock repurchases — — (421.2) — — (421.2)
Balance, December 31, 2008 201.8 133.0 (1,935.3) 2,954.4 25.3 1,379.2
Net income — — — 346.7 — 346.7 $ 346.7
Ot her comprehensive income —
Foreign currency translation — — — — 55.4 55.4 55.4
Pension and Post Retirement — — — — 2.8 2.8 2.8
Unrealized gain (loss) on securities, net — — — — 0.5 0.5 0.5
Comprehensive income — — — — — — $ 405.4
Dividends ($.58 per share) — — — (70.7) — (70.7)
Shares exchanged for stock options — (0.9) — — — (0.9)
Exercise of stock options — 14.5 16.5 — — 31.0
Restricted stock grant — 2.1 3.0 — — 5.1
Stock-based compensation expense — 6.4 — — — 6.4
Stock repurchases — — (67.2) — — (67.2)
Minority interest purchase — (2.3) — — — (2.3)
Balance, December 31, 2009 $ 201.8 $ 152.8 $(1,983.0) $3,230.4 $ 84.0 $1,686.0
Common stock shares issued and common stock shares in treasury are summarized below (in millions):Common Stock
Issued
Common Stock
in Treasury
Balance, December 31, 2006 201.8 69.8
Exercise of stock options — (1.4)
Stock repurchases — 4.0
Balance, December 31, 2007 201.8 72.4
Exercise of stock options — (1.0)
Stock repurchases — 8.3
Balance, December 31, 2008 201.8 79.7
Exercise of stock options — (1.1)
Stock repurchases — 1.4
Balance, December 31, 2009 201.8 80.0
The accompanying notes are an integral part of these statements.
Consolidated Statements of Stockholders’ Equity($ In Millions, Except Per Share Data)
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2009 ANNUAL REPORT SIGMA-ALDRICH 31
Years Ended December 31,
2009 2008 2007
Cash flows from operating activities:
Net income $ 346.7 $ 341.5 $ 311.1
Ad justments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 92.4 98.6 97.8
Deferred taxes (6.8) 18.1 (21.7)
Stock-based compensation expense 17.0 12.2 19.0
Restructuring costs 9.1 — —
Loss on investments, net — 5.3 0.2
Other 3.1 1.7 (2.6)
Changes in operating assets and liabilities:
Accounts receivable (8.7) (4.0) (7.3)
Inventories 71.2 (37.5) (25.2)
Accounts payable (5.2) (12.2) 26.8
Income taxes (5.3) (0.1) 25.0
Pension obligation (0.3) (20.6) 2.6
Other 2.5 1.0 (8.7)
Net cash provided by operating activities 515.7 404.0 417.0
Cash flows from investing activities:
Property, plant and equipment additions (119.9) (89.9) (77.6)
Purchases of investments (25.1) (1.1) (8.6)
Proceeds from sale of investments 8.1 11.6 8.8
Acquisitions of businesses, net of cash acquired (6.0) (6.1) (67.6)
Purchases of technology (19.2) (1.3) (5.4)
Other, net 2.6 0.1 1.4
Net cash used in investing activities (159.5) (86.7) (149.0)
Cash flows from financing activities:
Net issuance/(repayment) of short-term debt (134.7) 270.5 61.8
Repayment of long-term debt (6.9) (90.0) (69.7)
Payment of dividends (70.7) (65.4) (60.0)
Treasury stock purchases (67.2) (421.2) (184.3)
Exercise of stock options 23.3 23.8 32.4
Excess tax benefits from stock-based compensation 5.9 8.4 7.8
Net cash used in financing activities (250.3) (273.9) (212.0)
Effect of exchange rate changes on cash 14.8 (29.2) 7.8
Net change in cash and cash equivalents 120.7 14.2 63.8
Cash and cash equivalents at beginning of year 251.8 237.6 173.8
Cash and cash equivalents at end of year $ 372.5 $ 251.8 $ 237.6
Supplemental disclosures of cash flow information:
Income taxes paid $ 145.4 $ 120.2 $ 113.9
Interest paid, net of capitalized interest 13.3 23.1 29.6
The accompanying notes are an integral part of these statements.
Consolidated Statements of Cash Flows($ In Millions)
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32 SIGMA-ALDRICH 2009 ANNUAL REPORT
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Sigma-Aldrich Corporation (“the Company”) develops,
manufactures, purchases and distributes a broad range of high quality biochemicals
and organic chemicals throughout the world. These chemical products and
kits are used in scientific research, including genomic and proteomic research,
biotechnology, pharmaceutical development and as key components in
pharmaceutical, diagnostic and other high technology manufacturing.
Principles of Consolidation The consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Financial Instruments The Company has no financial instruments that have a
materially different fair value than the respective instrument’s carrying value, except
as described in Note 6.
Revenue Revenue, which includes shipping and handling fees billed to customers,
is recognized upon transfer of title of the product to the customer, which generally
occurs upon shipment to the customer, and is not dependent upon any post-
shipment obligations.
Research and Development Expenditures relating to the development of new
products and processes, including significant improvements to existing products or
processes, are expensed as incurred as research and development.
Cash and Cash Equivalents Cash and cash equivalents include cash on hand and
investments with original maturities of less than three months.
Property, Plant and Equipment The cost of property, plant and equipment is
depreciated over the estimated useful lives of the assets using the straight-line
method with lives ranging from three to twelve years for machinery and equipment
and fifteen to forty years for buildings and improvements. Depreciation expense
was $81.1, $87.1, and $86.1 for the years ended December 31, 2009, 2008 and 2007,
respectively. The Company capitalizes interest as part of the cost of constructing
major facilities and equipment.
Goodwill Accounting Standards Codification (ASC) Subtopic 350-20 Goodwill
requires the Company to assess goodwill for impairment rather than to
systematically amortize goodwill against earnings. The goodwill impairment
test compares the fair value of a reporting unit to its carrying amount, including
goodwill. The Company operates as one reporting unit and its fair value exceeds its
carrying value, including goodwill. Therefore, the Company has determined that no
impairment of goodwill existed at December 31, 2009 or 2008.
Long-Lived Assets Long-lived assets are reviewed for impairment whenever
conditions indicate that the carrying value of assets may not be fully recoverable.
Such impairment tests are based on a comparison of the undiscounted cash flows
prior to income taxes to the recorded value of the asset. If impairment is indicated,
the asset value is written down to its fair market value if readily determinable or its
estimated fair value based on discounted cash flows. Any significant unanticipated
changes in business or market conditions that vary from current expectations
could have an impact on the fair value of these assets and any potential
associated impairment.
Foreign Currency Translation Assets and liabilities denominated in foreign
currencies are translated at current exchange rates and profit and loss accounts
are translated at weighted average exchange rates. Resulting translation gains and
losses are included as a separate component of stockholders’ equity in accumulated
other comprehensive income or loss.
Use of Estimates The preparation of consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the years presented. Actual results could differ from those estimates under different
assumptions or conditions.
Reclassifications The accompanying consolidated financial statements for prior
years contain certain reclassifications to conform with the presentation used in 2009.
Effect of New Accounting Standards The Financial Accounting Standards Board
(FASB) issued Statement No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162, in June 2009. Effective for interim and annual periods ended
after September 15, 2009, the ASC became the source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. This statement is not intended to change existing GAAP and as such did
not have an impact on the consolidated financial statements of the Company. The
Company has updated its references to reflect the ASC.
Notes To Consolidated Financial Statements($ In Millions, Except Per Share Data)
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2009 ANNUAL REPORT SIGMA-ALDRICH 33
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
NOTE 2: ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the allowance for doubtful accounts for the years ended
December 31, 2009 and 2008 are as follows:
2009 2008
Balance, beginning of year $ 4.1 $ 4.4
Additions to reserves 3.4 1.4
Deductions from reserves 1.0 1.7
Balance, end of year $ 6.5 $ 4.1
NOTE 3: INVENTORIESThe principal categories of inventories at December 31, 2009 and 2008 are
as follows:
2009 2008
Finished goods $ 519.6 $ 566.9
Work in process 25.8 27.2
Raw materials 63.6 67.7
Total $ 609.0 $ 661.8
Inventories are valued at the lower of cost or market. Costs for 74% of inventories
are determined using a weighted average actual cost method. Costs for 26% of
inventories are determined using the last-in, first-out method. If the value of all
last-in, first-out inventories had been determined using the weighted average actual
cost method, inventories would have been $2.1, $1.3, and $0.7 higher than reported
at December 31, 2009, 2008 and 2007, respectively.
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.
NOTE 4: INTANGIBLE ASSETS
The Company’s amortizable and unamortizable intangible assets at December 31, 2009 and 2008 are as follows:
Cost
Accumulated
Amortization
2009 2008 2009 2008
Amortizable intangible assets:
Patents $ 13.1 $ 16.7 $ 6.3 $ 6.6
Licenses 38.1 20.1 6.4 5.8
Customer relationships 97.3 95.1 29.9 23.1
Technical knowledge 22.0 21.1 7.5 5.6
Other 12.9 12.5 11.8 11.4
Total amortizable intangible assets $ 183.4 $165.5 $ 61.9 $52.5
Unamortizable intangible assets:
Goodwill $ 427.0 $414.2 $ 26.3 $25.9
Trademarks and trade names 15.6 15.4 7.8 7.8
Total unamortizable intangible assets $ 442.6 $429.6 $ 34.1 $33.7
The Company added $20.5 of acquired amortizable intangible assets during 2009,
including adjustments for the finalization of the purchase accounting allocation of
various insignificant acquisitions.
The Company recorded amortization expense of $11.4, $11.5, and $11.7, for the
years ended December 31, 2009, 2008 and 2007, respectively, related to amortizable
intangible assets with estimated useful lives ranging from one to twenty years
using a straight-line method. The Company expects to record annual amortization
expense for all existing intangible assets in a range from approximately $10.0 to
$12.5 from 2010 through 2014.
Changes in net goodwill for the years ended December 31, 2009 and 2008 are
as follows:
2009 2008
Balance, beginning of year $ 388.3 $ 420.3
Adjustments associated with acquisitions (0.3) (0.7)
Impact of foreign exchange rates 12.7 (31.3)
Balance, end of year $ 400.7 $ 388.3
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34 SIGMA-ALDRICH 2009 ANNUAL REPORT
NOTE 5: NOTES PAYABLE Notes payable consists of the following at December 31, 2009 and 2008:
December 31, 2009 December 31, 2008
Out-
standing
Weighted
Average
Rate
Out-
standing
Weighted
Average
Rate
Commercial paper(1) $ 376.5 0.2% $ 378.7 0.5%
$200.0 European revolving credit
facility, due March 13, 2014(2) — — 135.9 0.6%
Sigma-Aldrich Korea limited credit
facility, due June 11, 2009(3) — — 5.1 6.2%
Other short-term credit facilities(4) — — 2.2 1.5%
Total notes payable 376.5 0.2% 521.9 0.6%
Plus – current maturities of
long-term debt 100.0 7.7% 6.9 5.3%
Total notes payable and current
maturities of long-term debt $ 476.5 1.8% $ 528.8 0.6%
The Company has a $450.0 five-year revolving credit facility with a syndicate of (1)
banks in the U.S. that supports the Company’s commercial paper program. In
October 2009, the Company received a one-year extension for a $30.0 portion
of the facility, which extends the maturity of the entire $450.0 to December 11,
2012. At December 31, 2009 and December 31, 2008, the Company did not have
any borrowings outstanding under this facility. The syndicated facility contains
financial covenants that require the maintenance of consolidated net worth of
at least $750.0 and a ratio of consolidated debt to total capitalization of no more
than 55%. The Company’s consolidated net worth and total consolidated debt as
a percentage of total capitalization, as defined in the credit facility, were $1,538.2
and 27.3%, respectively, at December 31, 2009.
Facility contains financial covenants that require the maintenance of consolidated (2)
net worth of at least $750.0 and a ratio of consolidated debt to total capitalization
of no more than 55.0%. The Company’s consolidated net worth and consolidated
debt as a percentage of total capitalization, as defined in the respective
agreement, were $1,538.2 and 27.3%, respectively, at December 31, 2009.
Although the reported borrowings of the facility were due and repaid on (3)
June 11, 2009, a total commitment of 20 billion Korean Won ($17.2) remains at
December 31, 2009. There were no outstanding borrowings under this facility
at December 31, 2009.
Although there were no borrowings under the facilities supporting this debt (4)
at December 31, 2009, the facilities are available to the Company with total
commitments converted into U.S. Dollars of $25.1 at December 31, 2009.
The Company has provided guarantees to financial institutions that are lending to
certain subsidiaries for any outstanding borrowings from the European revolving
credit facility and the short-term credit facility of the wholly-owned Korean
subsidiary. There are no existing events of default that would require the Company
to honor these guarantees.
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
NOTE 6: LONG-TERM DEBTLong-term debt consists of the following at December 31, 2009 and 2008:
December 31, 2009 December 31, 2008
Out-
standing
Weighted
Average
Rate
Out-
standing
Weighted
Average
Rate
Senior notes,
due September 12, 2010 (1) $ 100.0 7.7% $ 100.0 7.7%
Senior notes,
due December 5, 2011(2) 100.0 5.1% 100.0 5.1%
Other — — 7.0 5.3%
Total 200.0 6.4% 207.0 6.4%
Less – current maturities (100.0) 7.7% (6.9) 5.3%
Total long-term debt $ 100.0 5.1% $ 200.1 6.4%
The Company, at its option, may redeem all or any portion of the $100.0 of (1)
7.687% Senior Notes by notice to the holder and by paying a make whole
amount to the holder as compensation for loss of future interest income. The
note agreement contains financial covenants that require the maintenance
of consolidated net worth of at least $750.0, a ratio of consolidated debt to
total capitalization of no more than 55.0% and an aggregate amount of all
consolidated priority debt of no more than 30.0% of consolidated net worth.
Consolidated priority debt includes all unsecured debt of any subsidiary in which
the Company owns a majority of the voting shares. The Company’s consolidated
net worth, consolidated debt as a percentage of total capitalization and
consolidated priority debt as a percentage of total consolidated net worth, as
defined in the respective agreement, were $1,538.2, 27.3% and 0.0%, respectively,
at December 31, 2009.
The Company, at its option, may redeem all or any portion of the $100.0 of 5.11% (2)
Senior Notes by notice to the holder and by paying a make whole amount
to the holder as compensation for loss of future interest income. The note
agreement contains financial covenants that require a ratio of consolidated debt
to total capitalization of no more than 60.0% and an aggregate amount of all
consolidated priority debt of no more than 30.0% of consolidated net worth.
The Company’s consolidated debt as a percentage of total capitalization and
consolidated priority debt as a percentage of total consolidated net worth,
as defined in the respective agreement, were 25.5% and 0.0%, respectively, at
December 31, 2009.
Total interest expense incurred on short-term and long-term debt, net of amounts
capitalized, was $12.3, $21.0, and $28.9 in 2009, 2008, and 2007, respectively.
The fair value of long-term debt, as calculated using the aggregate cash flows from
principal and interest payments over the life of the debt, was approximately $205.8
and $221.4 at December 31, 2009 and 2008, respectively, based upon a discounted
cash flow analysis using current market interest rates.
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2009 ANNUAL REPORT SIGMA-ALDRICH 35
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
NOTE 7: FINANCIAL DERIVATIVES AND RISK MANAGEMENTThe Company transacts business in many parts of the world and is subject to risks
associated with changing foreign currency exchange rates. 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.
Accordingly, the Company enters into forward currency exchange contracts in order
to stabilize the value of certain receivables and payables denominated in foreign
currencies. None of the contracts have been designated as hedges for accounting
purposes. The Company does not enter into foreign currency transactions for
speculative trading purposes.
The principal forward currency exchange contracts are for the Euro, Swiss franc,
Israeli shekel, British pound, and Chinese yuan. These contracts are recorded at fair
value and are included in other current assets and liabilities. Resulting gains and
losses are recorded in selling, general and administrative expenses and are partially
or completely offset by changes in the value of related exposures. The duration of
the contracts typically does not exceed six months.
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
forward currency exchange contracts in the open market, as well as the ability
of the counterparties to meet their obligations. Given that a majority of the
forward exchange contracts are in currencies such as the U.S. dollar, Euro and
British pound, management does not believe that a significant risk exists of these
forward contracts becoming unavailable in the global marketplace within the next
12 months.
The notional amount of open forward exchange contracts at December 31, 2009
and 2008 was $128.1 and $210.1, respectively. The fair value of these contracts was
immaterial at December 31, 2009 and 2008.
NOTE 8: LEASE COMMITMENTSThe Company and its subsidiaries lease manufacturing, office and warehouse
facilities and computer equipment under non-cancelable operating leases expiring
at various dates. Rent expense was $39.3, $41.4, and $36.6 in 2009, 2008 and 2007,
respectively. Minimum rental commitments for non-cancelable leases in effect at
December 31, 2009, are as follows:
2010 $ 37.0
2011 29.0
2012 21.8
2013 13.6
2014 10.4
2015 and thereafter 16.0
NOTE 9: RESTRUCTURING ACTIVITIESIn 2009 the Company committed to a restructuring plan that includes exit activities
at five manufacturing sites in the U.S. and Europe. The Company expects to
complete these activities over the next 12–18 months. These exit activities impact
approximately 200 employees and are intended to reduce the Company’s fixed
cost structure and better align its global manufacturing and distribution footprint.
Additionally, in 2009 the Company initiated a voluntary retirement program that was
accepted by approximately 90 eligible U.S. employees as part of its cost reduction
and long-term profit enhancement initiatives. The Company expects to further
reduce its workforce by approximately 100 people, some of these actions have
already occurred in 2010. The remaining reductions will take place over the next
twelve months. Once fully implemented, the Company expects annual savings
associated with these activities in a range from $15.0 to $20.0. The Company will
continue to pursue actions as needed to reduce its fixed cost structure.
The Company expects that the execution of these activities will result in additional
pre-tax restructuring costs of approximately $21.8 to be recorded in the next 12–18
months. The following provides a summary of total costs incurred during 2009 and
total expected costs associated with these activities by major type of cost:
Incurred during
the year ended
December 31, 2009
Total estimated
amount expected
to be incurred
Employee termination benefits $ 5.5 $ 21.0
Other restructuring costs 3.7 10.0
Total restructuring costs $ 9.2 $ 31.0
Employee termination benefits primarily include pension and post-retirement
benefit plan charges related to the voluntary retirement program, as well as
payments to employees impacted by facility exit and other cost reduction activities.
Other restructuring costs relate mainly to changes in the expected useful life of the
assets impacted by these restructuring activities.
The following is a rollforward of the liabilities associated with the restructuring
activities, since the inception of the plan. The liabilities are reported as a component
of either other accrued payroll and payroll taxes or other liabilities in the
accompanying consolidated balance sheets.
Employee
Termination
Benefits
Other
Restructuring
Costs Total
Charges $ 5.5 $ 3.7 $ 9.2
Transferred to pension and other
post-retirement benefit plans
(3.7) — (3.7)
Payments and other adjustments (0.1) (2.9) (3.0)
Balance as of December 31, 2009 $ 1.7 $ 0.8 $ 2.5
For a further description of the impacts to the pension and other post-retirement
benefit plans, see Note 14 – Pension and Other Post-Retirement Benefit Plans - to
the consolidated financial statements
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36 SIGMA-ALDRICH 2009 ANNUAL REPORT
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
NOTE 10: INCOME TAXESThe components of income before income taxes consisted of the following for the
years ended December 31:
2009 2008 2007
United States operations $ 319.8 $ 321.4 $ 286.6
International operations 169.8 168.1 151.0
Total income before taxes $ 489.6 $ 489.5 $ 437.6
The provision for income taxes consists of the following for years ended
December 31:
2009 2008 2007
Current:
Federal $ 95.5 $ 91.6 $ 86.4
State and local 7.9 7.2 7.4
International 41.5 28.4 65.0
Total current 144.9 127.2 158.8
Deferred:
Federal (6.1) 9.4 (18.1)
State and local (0.6) 0.7 (0.5)
International 4.7 10.7 (13.7)
Total deferred (2.0) 20.8 (32.3)
Provision for income taxes $ 142.9 $148.0 $126.5
The items accounting for the difference between income taxes computed at the
U.S. federal statutory rate and the Company’s effective tax rate are as follows for
years ended December 31:
2009 2008 2007
Statutory tax rate 35.0% 35.0% 35.0%
U.S. manufacturing deduction (1.5) (1.3) (2.1)
Sta te and local income taxes,
net of federal benefit 1.0 1.0 1.0
Res earch and development credits (0.7) (0.7) (0.8)
International taxes (4.3) (4.8) (4.9)
Tax audits and unrecognized tax positions (0.7) 0.2 —
Other, net 0.4 0.8 0.7
Tot al effective tax rate 29.2% 30.2% 28.9%
The international taxes benefit is primarily the result of lower statutory tax rates
for our international operations and international restructurings. The tax audits
and unrecognized tax positions provided a net benefit from statute of limitation
expirations and audit activity in 2009.
Undistributed earnings of the Company’s international subsidiaries amounted to
approximately $552.0 at December 31, 2009. Upon distribution of those earnings
in the form of dividends or otherwise, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable to various foreign countries. The Company may periodically make
distributions from its international subsidiaries to its U.S. parent. These distributions
will only be made at such time that they are deemed to be tax efficient. As such,
the Company does not anticipate that distribution will result in any significant
increase to its U.S. tax liability above that which has been previously recorded.
Deferred income tax provisions reflect the effect of temporary differences between
consolidated financial statement and tax reporting of income and expense items.
The net deferred tax assets/liabilities at December 31, 2009 and 2008, respectively,
result from the following temporary differences:
2009 2008
Deferred tax assets:
Inventories $ 41.2 $ 32.8
Net operating loss carryforwards 23.3 27.7
Pos t-retirement benefits
and other employee benefits 44.3 39.3
Amortization 22.7 27.8
Pension benefits 15.1 11.4
Other 8.2 5.2
Total deferred tax assets 154.8 144.2
Deferred tax liabilities:
Property, plant and equipment (80.0) (74.8)
Total deferred tax liabilities (80.0) (74.8)
Net deferred tax assets (liabilities) $ 74.8 $ 69.4
The net operating loss carryforwards relate to international operations. At
December 31, 2009, $15.6 of these deferred tax assets expire between 2011
and 2015 and the remainder of these assets have no expiration. The Company
believes it will have sufficient taxable income to fully utilize the carryforwards prior
to expiration.
Deferred tax assets and liabilities in the preceding table, netted by taxing jurisdiction,
are included in the following captions in the Consolidated Balance Sheets at
December 31:
2009 2008
Deferred tax assets $ 53.3 $ 45.9
Other assets 44.0 43.6
Other accrued expenses — (1.5)
Deferred tax liabilities (22.5) (18.6)
Net deferred tax assets (liabilities) $ 74.8 $ 69.4
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2009 ANNUAL REPORT SIGMA-ALDRICH 37
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
NOTE 10: INCOME TAXES (continued)
Uncertainty in Income Taxes The Company and its subsidiaries file income
tax returns for U.S. federal, and for various state, local and international taxes, as
applicable. The Company is no longer subject to, with limited exceptions, U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities for
years prior to 2005.
The following table sets forth changes in our total gross unrecognized tax
benefits, excluding interest and penalties, for the years ended December 31:
2009 2008 2007
Balance, beginning of year $ 32.2 $ 32.1 $ 33.5
Tax positions related to current year:
Additions
Reductions
3.8
—
4.1
(0.2)
4.4
—
Tax positions related to prior year:
Additions
Reductions
0.6
(3.6)
4.2
(6.2)
0.6
(4.4)
Settlements (2.2) (1.8) —
Statutes of limitation expirations (6.1) — (2.0)
Balance, end of year $ 24.7 $ 32.2 $ 32.1
At December 31, 2009, 2008, and 2007, respectively, there are $16.3, $19.5 and $20.5
of net unrecognized tax benefits that if recognized would affect the annual effective
tax rate.
The Company believes it is reasonably possible that the unrecognized tax benefits
at December 31, 2009 may decrease by approximately $4.0 to $5.0 due to audit
activity and statute of limitation expirations in several jurisdictions within 12 months
of December 31, 2009.
The Company accrues interest related to unrecognized tax benefits, net of tax, and
penalties as components of its income tax provision. The Company recognized
approximately $0.9 of benefit in 2009, and $0.8 and $0.7 of expense in 2008 and
2007, respectively, related to interest and penalties. The Company had accrued
approximately $5.0 and $6.3 for payment of interest, net of tax, and penalties as of
December 31, 2009 and 2008, respectively.
NOTE 11: CONTINGENT LIABILITIES AND COMMITMENTSThe Company is involved in legal proceedings generally incidental to its business, as
described below:
Insurance and Other Contingent Liabilities and Commitments The Company
is a defendant in several lawsuits and claims related to the normal conduct of its
business, including lawsuits and claims related to product liability and personal
injury matters. The Company accrues for such liabilities when it is probable that
future costs (including legal fees and expenses) will be incurred and such costs can
be reasonably estimated. The Company has self-insured retention limits and has
obtained insurance to provide coverage above the self-insured limits for product
liability and personal injury claims, subject to certain limitations and exclusions.
Reserves have been provided to cover expected payments for these self-insured
amounts at December 31, 2009.
In one group of lawsuits and claims, the Company, as well as others engaged
in manufacturing and distributing similar products, was a defendant in multiple
claims alleging injuries from exposure to various chemicals by a limited number of
employees of one electronics manufacturer. These claims were filed in three states.
A global settlement has been reached for all cases, which has been approved
by the court. The settlement is not significant to the Company’s consolidated
financial statements.
In another group of lawsuits and claims, the Company provided a product for use
in research activities in developing various vaccines at pharmaceutical companies.
The Company, together with other manufacturers and distributors offering the same
product and several pharmaceutical companies, has been named as a defendant
and served in 294 lawsuits, of which 126 lawsuits have been dismissed to date.
Several of the outstanding suits have been stayed by various state and federal courts
pending a decision on coverage available under a U.S. federal government relief
program. No definite date has been set for this decision. In all cases, the Company
believes its products in question were restricted to research use and that proper
information for safe use of the products was provided to the customer.
In another group of lawsuits and claims, the Company, as well as others engaged in
manufacturing and distributing flavoring products, is a defendant in multiple claims
alleging personal injuries from exposure to the products. The Company has been
named as a defendant and served in 19 lawsuits, 15 of which have been dismissed
or settled. These claims have been filed in six states. The Company is vigorously
defending its rights to the claims. The Company believes it is covered by insurance
for the above matters, subject to its self-insurance retention limits.
A class action complaint was filed against a subsidiary of the Company in the
Montgomery County, Ohio Court of Common Pleas related to a 2003 explosion
in a column at the Company’s Isotec facility in Miamisburg, Ohio. The case was
separated into the following four phases: phase one — existence of liability, phase
two — quantification of any compensatory damages, phase three – existence of any
punitive damages and phase four — quantification of any punitive damages. Class
certification was granted to phases one, three and four, but denied to phase two.
Compensatory damages for all plaintiffs must be established before the case can
proceed to the punitive damages phases. The Company has accepted responsibility
for phase one, existence of liability. The case is currently in the compensatory
damages phase, where, because no class status exists, each plaintiff must
individually establish actual damages. The initial phase two, compensatory damages
trial for 31 plaintiffs was completed on April 27, 2007 with a jury verdict establishing
actual damages of approximately two hundred dollars per plaintiff. The plaintiffs filed
an appeal staying further action on the case until the appeal has been resolved. The
Ohio Court of Appeals reversed the jury’s verdict on compensatory damages. The
Ohio Supreme Court has heard oral argument in December 2009, with a decision
expected in early 2010. The Company continues to believe it has substantial legal
defenses to the allegations, which it will vigorously assert.
The Company believes its reserves and insurance for these and other matters
are sufficient to provide for claims outstanding at December 31, 2009. While the
outcome of the current claims cannot be predicted with certainty, the possible
outcome of the claims is reviewed at least quarterly and reserves adjusted as
deemed appropriate based on these reviews. Based on current information
available, the Company believes that the ultimate resolution of these matters will
not have a material adverse effect on its consolidated financial condition, results
of operations or liquidity. Future claims related to the use of these categories of
products may not be covered in full by the Company’s insurance program.
At December 31, 2009, there were no other known contingent liabilities that
management believes could have a material adverse effect on the Company’s
consolidated financial condition, results of operations or liquidity and there were
no material 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 5, Note 6, Note 8 and Note 14, respectively,
to the consolidated financial statements contained in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.
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38 SIGMA-ALDRICH 2009 ANNUAL REPORT
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
The weighted-average assumptions under the Black-Scholes option-pricing model for stock option grants are as follows:
2009 2008 2007
Expected term (years) 4.6 4.7 5.9
Expected volatility 28.89% 19.19% 25.12%
Risk-free interest rate 1.82% 2.72% 4.68%
Dividend yield 1.04% 1.03% 1.18%
Expected term — The expected term of the options represents the period of time
between the grant date of the options and the time the options are either exercised
or forfeited, including an estimate of future forfeitures for outstanding options. In
accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 107, the Company has used the “simplified” method for “plain vanilla” options to
estimate the expected term of options granted prior to 2008.
Expected volatility — The expected volatility is calculated based on an average of
the historical volatility of the Company’s stock price for a period approximating the
expected term.
Risk-free interest rate — The risk-free interest rates are based on the U.S. Treasury
yield curve in effect at the time of grant and a maturity that approximates the
expected term.
Dividend yield — The dividend yield is based on the Company’s authorized quarterly
dividend, approved by the Board of Directors during the respective periods noted
above, and the Company’s expectation for dividend yields over the expected term.
NOTE 12: COMMON STOCKThe Company’s 2003 Long-Term Incentive Plan (2003 LTIP), permits the granting
of incentive or nonqualified stock options as well as stock appreciation rights,
performance shares, restricted stock and other stock-based awards. The 2003 LTIP
permits the distribution of up to 11,000,000 shares of the Company’s common stock,
subject to increase for any shares forfeited under the other plans after the effective
date of the 2003 LTIP. Shares issued under the 2003 LTIP may be authorized and
unissued shares or treasury shares. This plan permits the award of non-qualified
stock options to those members of the Board of Directors who are not employees of
the Company. Under this plan, a non-employee Director will receive an initial option
to purchase 20,000 shares of common stock on the date of his or her initial election
as a Director. Additional awards of options to purchase 10,000 shares are made to
each eligible Director on the day after each annual shareholders’ meeting if the
non-employee Director has served on the Board of Directors for at least six months.
Under this plan, incentive stock options may only be granted to employees of the
Company or its subsidiaries, and a participant may not hold incentive stock options
with a fair market value, determined as of the grant date, in excess of $0.1 in the year
in which they are first exercisable if this limitation is necessary to qualify the option
as an incentive stock option. Incentive and nonqualified stock options may not
have an option price of less than the fair market value of the shares at the date of
the grant. Options generally become exercisable from three months to three years
following the grant date and expire ten years after the grant date. Including shares
forfeited or swapped, 3,552,945 shares of the Company’s common stock remain to
be awarded at December 31, 2009 under this plan.
As of December 31, 2009, the Company expects $19.9 of unrecognized expense
related to nonvested stock-based compensation arrangements granted to be
incurred in future periods. This expense is expected to be recognized over a
weighted average period of 1.4 years.
Stock-based compensation expense charged against income is included in selling,
general and administrative expenses. The stock-based compensation expense for
the years ended December 31, 2009, 2008 and 2007 was $17.0, $12.2 and $19.0,
respectively. The tax benefit related to this expense was $5.2, $3.1 and $4.1 for the
years ended December 31, 2009, 2008 and 2007, respectively.
Stock Options The Company measures the total fair value of options on the grant
date using the Black-Scholes option-pricing model. The Company then recognizes
each grant’s total cost over the period that the options vest based on its calculated
fair value. During the year ended December 31, 2009, the Company granted a total
of 457,470 stock options under the 2003 LTIP.
The following table presents activity for the Company’s stock option plans, including the 2003 LTIP, the Stock Option Plan of 2000, the 1998 Directors’ Non-Qualified Share
Option Plan and the Share Option Plan of 1995. A summary of the combined stock option activity and other data for the Company’s stock option plans for the year ended
December 31, 2009 is as follows:
Number of Stock
Options
Wtd. Avg.
Exercise Price
Per Share
Wtd. Avg. Remaining
Contractual Life
Aggregate Intrinsic
Value
Stock Options outstanding, January 1, 2009 6,576,781 $ 31.38
Granted 457,470 40.02
Exercised (967,756) 25.28
Forfeited (55,959) 40.53
Stock Options outstanding, December 31, 2009 6,010,536 32.93 64.08 months $ 107.5
Stock Options exercisable at December 31, 2009 5,136,751 31.15 58.11 months $ 100.7
The aggregate intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 was $24.5, $35.6, and $31.9, respectively.
The weighted average grant date fair value of options granted during the years ended December 31, 2009, 2008 and 2007 was $9.78, $9.96, and $12.58 per share, respectively.
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2009 ANNUAL REPORT SIGMA-ALDRICH 39
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
NOTE 12: COMMON STOCK (continued)
Performance Units Performance Unit awards in 2009, 2008 and 2007 were
396,214; 319,845 and 193,580 units, respectively. The Performance Units awarded
in 2009, 2008, and 2007 contain a three-year service period and vest beginning on
the grant date and ending on December 31, 2011, 2010 and 2009, respectively. The
actual Performance Units awarded are determined at the end of the performance
period with possible payouts ranging from 0% to 150% of the target amount based
upon the achievement of specified performance criteria. One-half of the awards
issued are based upon the Company’s three-year average return on equity ratio
calculation and one-half of the awards are based upon the Company’s three-year
average sales growth (adjusted for currency, but including acquisitions). Each
Performance Unit paid will include one-half share of the Company’s common stock
and the cash equivalent of one-half share of the Company’s common stock, except
that the Company will direct that any fractional shares of stock be paid in cash.
The value of the equity portion of a Performance Unit is equivalent to the closing
market price of the Company’s stock on the grant date. The Company expenses
the expected cost of the equity portion over the vesting period beginning on the
grant date and ending on December 31 of the third subsequent fiscal year. The
value of the Performance Unit to be paid in cash is determined based on the closing
market price of the Company’s stock at each quarter-end and ratably expensed
during the remaining performance period. Therefore, the related stock-based
compensation expense will fluctuate with the value of the Company’s stock. The
expense for the entire number of Performance Units awarded is dependant upon
the probability of achieving the specific financial targets and is recorded ratably over
the vesting period.
A summary of the Company’s nonvested Performance Units as of December 31,
2009, and changes during the year then ended, is reflected in the table below. The
Weighted Average Grant Date Fair Value includes both the fair value at grant date for
the equity portion of the Performance Unit and the fair value of the cash portion of
the Performance Unit.
Number of
Performance Units
Wtd. Avg. Grant
Date Fair Value
Nonvested Performance Units outstanding, January 1, 2009 434,027 $ 47.43
Granted 396,214 38.68
Vested (1) (122,553) 45.50
Forfeited (2) (95,252) 52.70
Nonvested Performance Units outstanding, December 31, 2009 612,436 47.94
Represents the entire amount of performance units which vested during the year ended December 31, 2009, all of which were outstanding as of December 31, 2009.(1)
Includes the reduction to the number of units for the expected payout based on the specified performance criteria at the end of the performance period, December 31, 2009, (2)
for the 2007 and 2008 awards at less than 100%.
The weighted average grant date fair value of performance units granted during the year ended December 31, 2009, 2008, and 2007 was $39.00, $57.24 and $40.45,
respectively.
Stock Awards On January 7, 2010 and January 2, 2009 and 2008, each non-
employee Director received an additional 1,200 shares of Company stock. The 2010
stock award will be expensed in the first quarter of 2010 based on the fair market
value of the Company’s common stock at December 31, 2009. The 2009 stock
award was expensed in the first quarter of 2009 based on the fair market value
of the Company’s common stock at December 31, 2008. The 2008 stock award
was expensed in the first quarter of 2008 based on the fair market value of the
Company’s common stock at December 31, 2007.
Restricted Stock Awards On November 17, 2008, the Company issued to certain
executives 18,632 shares of restricted stock with a weighted average grant date fair
value of $39.58, based on the fair market value of the Company’s common stock at
November 17, 2008. These shares will be expensed over a three-year vesting period
beginning on the date of grant.
Common Stock Purchase Rights The Company has outstanding one common
share purchase right (a “Right”) for each outstanding share of common stock of the
Company. Generally, if any person or group acquires 15% or more of the Company’s
outstanding voting stock without prior written consent of the Company’s Board
of Directors, these Rights become exercisable (except for rights held by the
acquiring person). The Rights are currently scheduled to expire in August 2010.
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40 SIGMA-ALDRICH 2009 ANNUAL REPORT
NOTE 13: COMPANY OPERATIONS BY BUSINESS UNIT The Company is organized into four business units featuring the Research units of
Essentials, Specialties and Biotech and the Fine Chemicals unit, SAFC, to align the
Company with the customers it serves. The business unit structure is the Company's
approach to serving customers and reporting sales rather than any internal division
used to allocate resources. Net sales for the Company's business units are as follows:
2009 2008 2007
Research Essentials $ 417.5 $ 420.9 $ 390.7
Research Specialties 793.4 824.1 753.5
Research Biotech 332.3 332.2 302.0
Research Chemicals 1,543.2 1,577.2 1,446.2
SAFC 604.4 623.5 592.5
Total $2,147.6 $2,200.7 $2,038.7
The Company's Chief Operating Decision Maker and Board of Directors review profit
and loss information on a consolidated basis to assess performance, make overall
operating decisions and make resource allocations. The Company's business units
are closely interrelated in their activities and share services such as order entry,
billing, technical services, Internet, purchasing and inventory control and share
production and distribution facilities. Additionally, these units are supported by
centralized functional areas such as finance, human resources, quality, safety and
compliance and information technology. Further, the Company’s Chief Operating
Decision Maker, Chief Financial Officer and Business Unit Presidents participate in
compensation programs which reward performance based upon consolidated
Company results for sales growth, operating income growth, return on equity and
return on assets. Certain Business Unit Presidents also have a modest component of
their compensation program based on their respective business unit sales growth
in addition to consolidated sales growth. Based on these factors, the Company
concludes that it operates in one segment.
Sales are attributed to countries based upon the location of product shipped. The United States sales to unaffiliated customers presented in the summary below include sales
to international markets as follows:
Year Amount Year Amount Year Amount
2009 $ 34.8 2008 $ 31.5 2007 $ 30.5
Geographic financial information is as follows:
2009 2008 2007
Net sales to unaffiliated customers:
United States $ 784.8 $ 794.6 $ 756.3
United Kingdom 148.2 176.6 212.7
Germany 236.3 232.9 195.5
Other International 978.3 996.6 874.2
Total $2,147.6 $2,200.7 $2,038.7
Long-lived assets at December 31:
United States $ 472.0 $ 440.2 $ 466.3
International 284.2 254.6 268.7
Total $ 756.2 $ 694.8 $ 735.0
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
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2009 ANNUAL REPORT SIGMA-ALDRICH 41
NOTE 14: PENSION AND OTHER POST-RETIREMENT BENEFIT PLANSThe Company maintains several retirement plans covering substantially all U.S. employees and employees of certain international subsidiaries. Pension benefits are generally
based on years of service and compensation. The Company also maintains post-retirement medical benefit plans covering some of its U.S. employees. Benefits are subject to
deductibles, co-payment provisions and coordination with benefits available under Medicare. The Company has made a determination regarding the effects of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act) that the prescription drug benefits it provides are actuarially equivalent to the benefits provided
under the Act.
The following chart summarizes the Consolidated Balance Sheet impact, as well as the benefit obligations, assets and funded status of the pension and post-retirement
medical benefit plans:
Pension PlansPost-Retirement
Medical Benefit PlansUnited States International
2009 2008 2009 2008 2009 2008
Rec onciliation of funded status of the plans and
the amounts included in the Company's
Consolidated Balance Sheets at December 31:
Change in benefit obligations
Beginning obligations $ 108.6 $ 99.2 $ 180.8 $ 186.7 $ 41.8 $ 38.9
Adjustments due to adoption of FAS 158 — 0.3 — 1.2 — 0.2
Service cost 6.2 5.8 6.6 8.0 1.0 1.0
Interest cost 6.5 6.0 7.6 7.9 2.6 2.4
Plan participant contributions — — 2.4 2.6 0.9 0.7
Special termination benefits 3.0 — — — 0.7 —
Benefits and expenses paid (5.8) (4.6) (5.9) (3.1) (2.5) (2.7)
Actuarial loss (gain) 30.0(1) 1.9 4.3 (11.5) 1.5 1.3
Exchange rate changes — — 9.5 (11.0) — —
Ending obligations $ 148.5 $ 108.6 $ 205.3 $ 180.8 $ 46.0 $ 41.8
Changes in plans assets
Beginning fair value $ 92.3 $ 98.9 $ 143.6 $ 168.3 $ — $ —
Adjustments due to adoption of FAS 158 — (0.7) — 0.1 — (0.1)
Actual return on plan assets 23.0 (31.0) 19.5 (22.2) — —
Employer contributions 15.8 29.7 9.1 9.2 1.6 2.1
Plan participant contributions — — 2.4 2.6 0.9 0.7
Benefits and expenses paid (5.8) (4.6) (5.9) (3.1) (2.5) (2.7)
Exchange rate changes — — 9.0 (11.3) — —
Ending fair value $ 125.3 $ 92.3 $ 177.7 $ 143.6 $ — $ —
Reconciliation of funded status
Funded status $ (23.2) $ (16.3) $ (27.6) $ (37.2) $ (46.0) $ (41.8)
Net Consolidated Balance Sheet asset/(liability) $ (23.2) $ (16.3) $ (27.6) $ (37.2) $ (46.0) $ (41.8)
Amounts recognized in the Consolidated Balance Sheets:
For years after adoption of the funded status provisions of SFAS 158
Noncurrent assets $ — $ — $ 0.5 $ — $ — $ —
Current liabilities — — (0.4) (0.4) (3.0) (2.3)
Pension and post-retirement benefits (23.2) (16.3) (27.7) (36.8) (43.0) (39.5)
Net amount recognized $ (23.2) $ (16.3) $ (27.6) $ (37.2) $ (46.0) $ (41.8)
Re conciliation of amounts recognized in the Consolidated
Balance Sheets
Initial net (obligation) $ — $ — $ (0.2) $ (0.3) $ — $ —
Prior service (cost) credit (1.1) (1.4) (0.9) (1.1) 7.4 8.5
Net (loss) gain (72.3) (62.7) (28.9) (38.4) 2.5 4.0
Accumulated other comprehensive (loss) income $ (73.4) $ (64.1) $ (30.0) $ (39.8) $ 9.9 $ 12.5
Accumulated contributions in excess (less than) of net periodic benefit cost 50.2 47.8 2.4 2.6 (55.9) (54.3)
Net amount liability recognized in statement of financial position $ (23.2) $ (16.3) $ (27.6) $ (37.2) $ (46.0) $ (41.8)
Approximately $21.0 of the 2009 actuarial loss relates to increases in the present value, due to a reduction in interest rates, of ceratin pension benefits provided to a specific (1)
group of participants.
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
09_Annual_Report_v33_FINAL.indd 4109_Annual_Report_v33_FINAL.indd 41 2/18/2010 9:53:28 AM2/18/2010 9:53:28 AM
42 SIGMA-ALDRICH 2009 ANNUAL REPORT
Pension PlansPost-Retirement
Medical Benefit PlansUnited States International
2009 2008 2007 2009 2008 2007 2009 2008 2007
Cha nges in plan assets and benefit
obligations recognized in other
comprehensive income
Net loss (gain) arising during the year $ 14.1 $ 41.5 $ (1.4) $ (8.4) $ 21.1 $ (7.8) $ 1.5 $ 1.3 $ (2.3)
Eff ect of exchange rates on amounts included
in AOCI — — — 1.8 (4.1) 1.2 — — —
Am ounts recognized as a component of net
periodic benefit cost
Am ortization or curtailment recognition of prior
service credit (cost) (0.4) (0.5) (0.4) (0.3) (0.3) (0.2) 1.0 1.1 1.0
Am ortization or settlement recognition of net
gain (loss) (4.5) (1.1) (1.0) (2.8) (0.3) (1.3) — 0.1 —
Tot al recognized in other comprehensive loss
(income) $ 9.2 $ 39.9 $ (2.8) $ (9.7) $ 16.4 $ (8.1) $ 2.5 $ 2.5 $ (1.3)
Tot al recognized in net periodic benefit cost
and other comprehensive
loss (income) $ 22.7 $ 45.2 $ 1.7 $ 0.9 $ 23.4 $ 0.9 $ 5.8 $ 4.8 $ 1.0
Est imated amounts that will be amortized
from accumulated other comprehensive
income over the next fiscal year
Initial net (obligation) $ — $ — $ — $ (0.1) $ — $ — $ — $ — $ —
Prior service (cost) credit (0.4) (0.4) (0.4) (0.2) (0.2) (0.3) 1.0 1.0 1.0
Net (loss) gain (5.0) (4.5) (1.1) (0.8) (2.4) (0.3) — — 0.1
Total estimated amortization $ (5.4) $ (4.9) $ (1.5) $ (1.1) $ (2.6) $ (0.6) $ 1.0 $ 1.0 $ 1.1
The components of the net periodic benefit costs are as follows:
Pension PlansPost-Retirement
Medical Benefit PlansUnited States International
2009 2008 2007 2009 2008 2007 2009 2008 2007
Service cost $ 6.2 $ 5.8 $ 5.4 $ 6.6 $ 8.0 $ 8.8 $ 1.0 $ 1.0 $ 1.1
Interest cost 6.5 6.0 5.1 7.6 7.9 6.3 2.6 2.4 2.2
Expected return on plan assets (7.1) (7.9) (7.4) (6.7) (9.5) (7.6) — — —
Amortization 4.9 1.4 1.4 3.2 0.6 1.5 (1.1) (1.1) (1.0)
Special termination benefit recognized 3.0 — — — — — 0.7 — —
Settlement (gain)/loss — — — (0.2) — — — — —
Net periodic benefit cost $ 13.5 $ 5.3 $ 4.5 $ 10.5 $ 7.0 $ 9.0 $ 3.2 $ 2.3 $ 2.3
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
NOTE 14: PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS (continued)
09_Annual_Report_v33_FINAL.indd 4209_Annual_Report_v33_FINAL.indd 42 2/18/2010 9:53:28 AM2/18/2010 9:53:28 AM
2009 ANNUAL REPORT SIGMA-ALDRICH 43
NOTE 14: PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS (continued)
The rate assumptions associated with the pension and post-retirement medical benefit plans to determine benefit obligations and additional year-end information are
as follows:
Pension Plans Post-Retirement
Medical Benefit PlansUnited States International
2009 2008 2009 2008 2009 2008
Assumptions to determine benefit obligations
Discount rate 5.65% 6.35% 4.40% 4.16% 5.85% 6.25%
Compensation rate increase 3.60% 3.60% 3.13% 2.98% n/a n/a
Measurement date Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31
Additional year-end information
Accumulated benefit obligation $ 139.3 $ 96.8 $ 186.6 $163.1 n/a n/a
Pla ns with accumulated benefit obligations
in excess of plan assets:
Projected benefit obligation $ 148.5 $108.6 $ 15.3 $131.9 n/a n/a
Accumulated benefit obligation 139.3 96.8 12.5 118.1 n/a n/a
Fair value of plan assets 125.3 92.3 — 96.8 n/a n/a
Pla ns with projected benefit obligations
in excess of plan assets:
Projected benefit obligation $ 148.5 $108.6 $ 202.9 $180.8 $ 46.0 $ 41.8
Fair value of plan assets 125.3 92.3 174.7 143.6 — —
The rate assumptions associated with the pension and post-retirement medical benefit plans to determine periodic pension costs are as follows:
Pension Plans Post-Retirement
Medical Benefit PlansUnited States International
2009 2008 2007 2009 2008 2007 2009 2008 2007
Discount rate 6.35% 6.30% 5.55% 4.16% 4.35% 3.60% 6.25% 6.45% 5.55%
Expected rate of return on plan assets 8.25% 8.25% 8.25% 4.84% 5.66% 5.08% n/a n/a n/a
Compensation rate increase 3.60% 3.60% 3.25% 2.98% 3.50% 3.31% n/a n/a n/a
The expected employer contributions and benefit payments are shown in the following table for the pension and post-retirement medical benefit plans:
Pension Plans Post-Retirement
Medical
Benefit Plans(1)
Expected
Medicare
Subsidy ReceiptsCash Flows
Year
Ending United States International
Ex pected employer contributions 2010 $ — $ 5.2 $ 2.9 n/a
Ex pected benefit payments for fiscal year ending 2010 22.7 3.8 2.9 0.2
2011 8.3 4.0 3.0 0.3
2012 9.4 4.1 3.1 0.3
2013 10.2 4.4 3.2 0.4
2014 10.6 4.7 3.3 0.4
Next 5 years 68.2 28.1 18.2 3.0
Expected payments for Post-Retirement Medical Benefit Plans are shown net of the expected Medicare subsidy receipts.(1)
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
09_Annual_Report_v33_FINAL.indd 4309_Annual_Report_v33_FINAL.indd 43 2/18/2010 9:53:28 AM2/18/2010 9:53:28 AM
44 SIGMA-ALDRICH 2009 ANNUAL REPORT
NOTE 14: PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS (continued)
Pension Plans For purposes of selecting a discount rate, the present value of the
cash flows as of the measurement date is determined using the spot rates from the
Mercer Yield Curve, and based on the present values, a single equivalent discount
rate is developed. This rate is the single uniform discount rate that, when applied
to the same cash flows, results in the same present value of the cash flows as of
the measurement date. The plans are assumed to continue in force for as long as
the assets are expected to be invested. In estimating the expected long-term rate
of return on assets, appropriate consideration is given to historical performance for
the major asset classes held or anticipated to be held by the Plan and to current
forecasts of future rates of return for those asset classes. Cash flow and expenses are
taken into consideration to the extent that the expected return would be affected
by them. Because assets are held in qualified trusts, expected returns are not
reduced for taxes.
The assets of the pension plans are invested in institutionally acceptable
investments to produce a diversified portfolio. The Company believes the
investments are sufficiently diversified to maintain a reasonable level of risk without
unduly sacrificing return. Target asset allocations and weighted average asset
allocations at December 31, 2009 are as follows:
Target Allocations
Weighted Average
Asset Allocations
U.S.
Plans
International
Plans
U.S.
Plans
International
Plans
Equity Securities 75–85% 38–50% 69% 45%
Real Estate — 6–12% — 9%
Debt Securities 15–30% 36–57% 17% 39%
Other 0–10% 0–10% 14% 7%
Fair Value Measurements at December 31, 2009
Assets
Quoted Prices in
Active Markets for
Identical Assets
(Level 1(1))
Significant Other
Observable Inputs
(Level 2(2)) Total
Mutual funds $ — $ — $ —
Corporate stocks – common 35.9 — 35.9
Government debt 52.5 — 52.5
Corporate and
non-government debt — — —
Real estate 7.4 8.4 15.9
Common/collective trust
funds – equity — 130.8 130.8
Common/collective trust
funds – Government debt — 10.6 10.6
Common/collective trust
funds – Corporate and other
non-government debt — 28.1 28.1
Insurance group annuity
contracts — — —
Common/collective trust
funds – real estate — 0.4 0.4
Derivatives — — —
Cash and cash equivalents 2.4 23.0 25.4
Other 0.4 3.0 3.4
Total $ 98.7 $ 204.3 $ 303.0
Level 1 instruments use observable market prices for the identical item in active (1)
markets and have the most reliable valuations.
Level 2 instruments are valued through broker/dealer quotation or through (2)
market-observable inputs for similar items in active markets.
Investment Strategy The U.S. Plan’s overall investment strategy is to hold a mix
of appoximately 80% of investments in U.S. and International equities and 20% in
bonds. Equities are managed in passive and managed funds across various asset
classes. Bond funds contain government and investment-grade bonds.
The trustee has engaged an investment manager for the U.S. Plan that has the
responsibility of selecting investment fund managers with demonstrated experience
and expertise and funds with demonstrated historical performance meeting the
Plan’s investment guidelines.
The UK Plan’s overall investment strategy is to hold a mix of approximately 70%
of investments in equities, 42% UK and 28% non-UK equities, and 30% in bonds.
Equities are managed in passive and managed funds. Bond funds contain
government and investment grade bonds. A small portion of investments are held
in insured annuities.
The Swiss fund’s overall target investment strategy is to achieve a mix of 27.5%
equities, 54.5% bonds, 15% real estate and 3% other. Equities are invested in large
Swiss companies and institutional funds. Bond funds contain government and
investment-grade bonds. Real estate holdings are in an institutional real estate fund.
The Ireland Plan invests with insurance companies. The investments are in insured
arrangements in which a portion have guaranteed annuity rates.
The trustees of the International Plans have engaged institutions that are believed
to be reputable to invest the Plans’ assets in funds with demonstrated historical
performance and manage the Plans’ assets in accordance with investment
guidelines developed by the trustees.
Post-Retirement Medical Benefit Plans For purposes of selecting a discount rate,
the present value of the cash flows as of the measurement date is determined using
the spot rates from the Mercer Yield Curve, and based on the present values, a single
equivalent discount rate is developed. This rate is the single uniform discount rate
that, when applied to the same cash flows, results in the same present value of the
cash flows as of the measurement date. Assumed health care cost trend rates have
a significant effect on the amounts reported for the post-retirement medical benefit
plans. Medical costs were assumed to increase at an annual rate of 9% in 2009,
decreasing ratably to a growth rate of 4.5% in 2030 and remaining at 4.5% per year
thereafter. The effects of a one-percentage point decrease in the assumed health
care cost trend rates on the aggregate service and interest cost components and on
the post-retirement benefit obligations are decreases of $0.1 and $1.0, respectively.
The effects of a one-percentage point increase on the aggregate service and interest
cost components and on the post-retirement benefit obligations are increases of
$0.1 and $1.3, respectively. Benefits are funded as claims are paid.
401(k) Retirement Savings Plan The Company’s 401(k) retirement savings plan
provides retirement benefits to eligible U.S. employees in addition to those provided
by the pension plan. The plan permits participants to voluntarily defer a portion of
their compensation, subject to Internal Revenue Code limitations. The Company
also contributes a fixed amount per year to the account of each eligible employee
plus a percentage of the employee’s salary deferral. The Company’s policy is to fully
fund this plan. The cost for this plan was $9.4, $9.2, and $8.3 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
09_Annual_Report_v33_FINAL.indd 4409_Annual_Report_v33_FINAL.indd 44 2/18/2010 9:53:29 AM2/18/2010 9:53:29 AM
2009 ANNUAL REPORT SIGMA-ALDRICH 45
NOTE 17: ACCUMULATED OTHER COMPREHENSIVE INCOME Components of accumulated other comprehensive income, net of tax are as follows:
Foreign Currency
Translation Adjustment
Unrealized Gain (Loss)
on Securities
Pension and
Post-Retirement
Benefit Plans
Accumulated Other
Comprehensive Income
Balance, December 31, 2006 $ 107.3 $ 4.1 $ (30.7) $ 80.7
Current period change 71.5 (0.7) 8.4 79.2
Balance, December 31, 2007 178.8 3.4 (22.3) 159.9
Current period change (86.4) (6.0) (42.2) (134.6)
Balance, December 31, 2008 92.4 (2.6) (64.5) 25.3
Current period change 55.4 0.5 2.8 58.7
Balance, December 31, 2009 $ 147.8 $ (2.1) $ (61.7) $ 84.0
The 2009 activity for unrealized loss on securities is net of tax of $0.3. The 2009 pension and post-retirement benefit plans activity is net of tax of $3.1. Deferred taxes are not
provided on foreign currency translation adjustment.
Notes To Consolidated Financial Statements (continued)
($ In Millions, Except Per Share Data)
NOTE 16: SHARE REPURCHASESAt December 31, 2009 and December 31, 2008, the Company had repurchased a total of 93.7 million shares and 92.3 million shares, respectively. On October 20, 2008, the
Board of Directors authorized the repurchase of up to an additional 10.0 million shares under the existing repurchase program, to be available for purchase within three years,
bringing the total authorization to 100.0 million shares. There were 121.7 million shares outstanding as of December 31, 2009. The Company expects to continue to offset the
dilutive impact of issuing incentive compensation by future repurchases. Further, the Company may repurchase additional shares, but the timing and amount will depend on
market conditions and other factors.
NOTE 15: EARNINGS PER SHAREA reconciliation of basic and diluted earnings per share, together with the related shares outstanding for the years ended December 31 are as follows:
2009 2008 2007
Net income available to common shareholders $ 346.7 $ 341.5 $ 311.1
Weighted average shares ($ In Millions)
Basic shares 121.9 126.3 130.6
Effect of dilutive securities — options outstanding 1.8 2.5 2.5
Diluted shares 123.7 128.8 133.1
Net income per share — Basic $ 2.84 $ 2.70 $ 2.38
Net income per share — Diluted $ 2.80 $ 2.65 $ 2.34
Potential common shares of 0.6 and 0.3 million stock options were excluded from the calculation of weighted average shares for the year ended December 31, 2009 and
December 31, 2008, respectively, because their effect was considered to be antidilutive.
NOTE 18: SUBSEQUENT EVENTSThe Company has evaluated events and transactions subsequent to December 31, 2009 through February 10, 2010, the date the financial statements were filed with the SEC
as part of this Form 10-K. No events required recognition in the consolidated financial statements or disclosures by the Company.
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46 SIGMA-ALDRICH 2009 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To The Board of Directors and Stockholders
Sigma-Aldrich Corporation:
We have audited the accompanying consolidated balance sheets of Sigma-Aldrich
Corporation and subsidiaries (the Company) as of December 31, 2009 and 2008,
and the related consolidated statements of income, stockholders’ equity and cash
flows for each of the years in the three-year period ended December 31, 2009.
We also have audited the Company’s internal control over financial reporting as
of December 31, 2009, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for these
consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on the Company’s internal control
over financial reporting based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
as established by the Auditing Standards Board (United States) and in accordance
with the auditing standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the consolidated financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our audit of internal control over financial
reporting included assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also include performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that the transactions are recorded as necessary to permit preparation
of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sigma-Aldrich Corporation
and subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009, based
on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
As discussed in note 10 to the consolidated financial statements, effective January 1,
2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an interpretation of Statement of Financial Accounting Standard
No. 109 (ASC 740).
/s/ KPMG LLP
St. Louis, Missouri
February 9, 2010
MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in the Securities Exchange
Act Rule 13a–15 (f )). Under the supervision and with the participation of our
management, including our principal executive officer and our principal financial
officer, we assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in the Internal Control-Integrated Framework. Our
management has concluded that, as of December 31, 2009, our internal control
over financial reporting is effective based on these criteria.
09_Annual_Report_v33_FINAL.indd 4609_Annual_Report_v33_FINAL.indd 46 2/18/2010 9:53:29 AM2/18/2010 9:53:29 AM
The CompanyEnabling Science to Improve Quality of Life: Sigma-Aldrich has the unrivalled scientific knowledge, backed by unsurpassed service and market-leading innovation, to be the trusted global partner of choice for our customers.
About Sigma-Aldrich Sigma-Aldrich is a leading Life Science and High Technology Materials company. Its biochemical and organic chemical products and kits are used in scientific research, including genomic and proteomic research, biotechnology, pharmaceutical development and as key components in pharmaceutical, diagnostic and other high technology manufacturing. The Company has customers in life science companies, university and government institutions, hospitals and in industry. Over one million scientists and technologists use its products. Sigma-Aldrich operates in 38 countries and has 7,700 employees providing excellent service worldwide. Sigma-Aldrich is committed to Accelerating Customer Success through Innovation and Leadership in Life Science, High Technology Materials and Service.
• Pharmaceutical, Diagnostics, Biotechnology Companies• Chemical and Allied Industrial Companies• Universities, Government Institutions, Not-for-Pro�t Organizations• Hospitals and Commercial Laboratories
CustomersApproximately one million individual customers worldwide in over 92,000 accounts.(% of 2009 total sales)
35%27%
31%
7%
• Chemicals (48,000 manufactured)• Laboratory equipment Items
ProductsLeading the way in the life science and high technology materials markets. (# of products)
130,000
40,000
• Research Essentials• Research Specialties• Research Biotech• SAFC
PortfolioFour customer-centric business units delivering quality products and service. (% of 2009 total sales)
37%
19%28%
16%
• United States• CAPLA (Canada, Asia Paci�c and Latin America)• Europe
Geographies Enhancing our global reach through service excellence. (% of 2009 total sales)36%
43%
21%
1,66
7
05
Sales$ Millions
06 07 08 09
1,79
8 2,03
92,
201
2,14
8
258
05
Net Income$ Millions
06 07 08 09
277 31
1 342
347
1.88
05
Net Income Per Share – Diluted$
06 07 08 09
2.05 2.
34 2.65 2.
80
21.1
05
Return on Equity%
06 07 08 09
20.9
20.6 22
.822
.8
3428
05
Stock Price Range$
06 07 08 09
4031
5638
6335
5631
188
05
Free Cash Flow*$ Millions
*Net cash provided by operations less capital expenditures
06 07 08 09
256
339
314
396
• Pharmaceutical, Diagnostics, Biotechnology Companies• Chemical and Allied Industrial Companies• Universities, Government Institutions, Not-for-Pro�t Organizations• Hospitals and Commercial Laboratories
CustomersApproximately one million individual customers worldwide in over 92,000 accounts.(% of 2009 total sales)
35%27%
31%
7%
• Chemicals (48,000 manufactured)• Laboratory equipment Items
ProductsLeading the way in the life science and high technology materials markets. (# of products)
130,000
40,000
• Research Essentials• Research Specialties• Research Biotech• SAFC
PortfolioFour customer-centric business units delivering quality products and service. (% of 2009 total sales)
37%
19%28%
16%
• United States• CAPLA (Canada, Asia Paci�c and Latin America)• Europe
Geographies Enhancing our global reach through service excellence. (% of 2009 total sales)36%
43%
21%
1,66
7
05
Sales$ Millions
06 07 08 09
1,79
8 2,03
92,
201
2,14
8
258
05
Net Income$ Millions
06 07 08 09
277 31
1 342
347
1.88
05
Net Income Per Share – Diluted$
06 07 08 09
2.05 2.
34 2.65 2.
80
21.1
05
Return on Equity%
06 07 08 09
20.9
20.6 22
.822
.8
3428
05
Stock Price Range$
06 07 08 09
4031
5638
6335
5631
188
05
Free Cash Flow*$ Millions
*Net cash provided by operations less capital expenditures
06 07 08 09
256
339
314
396
• Pharmaceutical, Diagnostics, Biotechnology Companies• Chemical and Allied Industrial Companies• Universities, Government Institutions, Not-for-Pro�t Organizations• Hospitals and Commercial Laboratories
CustomersApproximately one million individual customers worldwide in over 92,000 accounts.(% of 2009 total sales)
35%27%
31%
7%
• Chemicals (48,000 manufactured)• Laboratory equipment Items
ProductsLeading the way in the life science and high technology materials markets. (# of products)
130,000
40,000
• Research Essentials• Research Specialties• Research Biotech• SAFC
PortfolioFour customer-centric business units delivering quality products and service. (% of 2009 total sales)
37%
19%28%
16%
• United States• CAPLA (Canada, Asia Paci�c and Latin America)• Europe
Geographies Enhancing our global reach through service excellence. (% of 2009 total sales)36%
43%
21%
1,66
7
05
Sales$ Millions
06 07 08 09
1,79
8 2,03
92,
201
2,14
8
258
05
Net Income$ Millions
06 07 08 09
277 31
1 342
347
1.88
05
Net Income Per Share – Diluted$
06 07 08 09
2.05 2.
34 2.65 2.
80
21.1
05
Return on Equity%
06 07 08 09
20.9
20.6 22
.822
.8
3428
05
Stock Price Range$
06 07 08 09
4031
5638
6335
5631
188
05
Free Cash Flow*$ Millions
*Net cash provided by operations less capital expenditures
06 07 08 09
256
339
314
396
Research Biotech2009 Sales: $332 million
Key Competitors: Thermo-Fisher, Life Technologies, Millipore, Qiagen, Techne
Research Essentials2009 Sales: $418 million
Key Competitors: EMerck, Life Technologies, Thermo-Fisher, VWR, Wako
Research Specialties2009 Sales: $793 million
Key Competitors: EMerck, GE Healthcare, Roche Biomolecular, Thermo-Fisher, Wako
SAFC2009 Sales: $605 million
Key Competitors: BASF, Covidien, DSM, Evonik Degussa, Lonza
The CompanyEnabling Science to Improve Quality of Life
Gilles A. CottierPresident, SAFC
Eric M. GreenVice President & Managing Director, International
Michael C.J. Harris Managing Director, Europe, Middle East, Africa
David W. JulienPresident, Global Supply Chain
Michael F. KananVice President & Corporate Controller
George L. MillerSr. Vice President, General Counsel & Secretary
Karen J. MillerSr. Vice President, Corporate Strategy & Development
Jai P. Nagarkatti Chairman, President & Chief Executive Officer
Douglas W. Rau Vice President, Human Resources
Kirk A. Richter Vice President & Treasurer
Rakesh Sachdev Sr. Vice President, Chief Financial Officer & Chief Administrative Officer
David A. Smoller President, Research Biotech
Gerrit J.C. van den DoolVice President, Sales
Steven G. WaltonVice President, Environmental, Health & Safety
Franklin D. Wicks President, Research Specialties and Research Essentials & Managing Director, North America
Rebecca M. Bergman Vice President, New Therapies and Diagnostics, Cardiac Rhythm Management, Medtronic Inc.
George M. Church Professor of Genetics, Harvard Medical School
David R. Harvey Former Chairman of the Board
W. Lee McCollum Former Executive Vice President and Chief Financial Officer, S.C. Johnson and Son, Inc.
Jai P. Nagarkatti Chairman, President & Chief Executive Officer
Avi M. Nash Managing Director, Avi Nash LLC; Former Partner, Goldman Sachs
Steven M. Paul, M.D. Former Executive Vice President for Science and Technology and Former President of the Lilly Research Laboratories of Eli Lilly and Company
J. Pedro Reinhard President, Reinhard & Associates; Former Chief Financial Officer, Dow Chemical Company
Timothy R.G. Sear Former Chairman & Chief Executive Officer, Alcon, Inc.
D. Dean Spatz Chief Executive Officer, Watasso Ventures; Former Chairman & Chief Executive Officer, Osmonics, Inc.
Barrett A. Toan Former Chairman & Chief Executive Officer, Express Scripts, Inc.
Annual Meeting Date: May 4, 2010 Time: 11:00 a.m. CDT Place: Sigma-Aldrich Life Science and High Technology Center, 2909 Laclede Ave., St. Louis, MO 63103
General Information Shares traded on NASDAQ Global Select Market, Trading symbol: SIAL
Transfer Agent American Stock Transfer and Trust Company, New York, NY 800-937-5449
10-K A copy of the Company’s Form 10-K annual report, as filed with the Securities and Exchange Commission, may be obtained without charge by writing to the Secretary, Sigma-Aldrich Corporation, P.O. Box 14508, St. Louis, Missouri 63178.
Corporate Offices Sigma-Aldrich Corporation 3050 Spruce Street St. Louis, Missouri 63103 800-521-8956 Fax: 314-286-7874 Email: [email protected] Website: sigma-aldrich.com
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For the most up-to-date information about our Company visit our Investor Relations website at sigma-aldrich.com
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This annual report is printed on FSC-certified paper. The pages are printed on 10% recycled stock.
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