PKI-10.2.11 10Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2011
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-5075
_______________________________________ 
PerkinElmer, Inc.
(Exact name of Registrant as specified in its Charter)
_______________________________________ 
 
Massachusetts
 
04-2052042
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
940 Winter Street
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip code)
(781) 663-6900
(Registrant’s telephone number, including area code)
_______________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of November 1, 2011, there were outstanding 113,083,533 shares of common stock, $1 par value per share.

Table of Contents

TABLE OF CONTENTS
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 



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PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands, except
per share data)
Revenue
$
453,740

 
$
419,143

 
$
1,381,095

 
$
1,234,376

Cost of sales
254,193

 
233,360

 
772,322

 
684,074

Selling, general and administrative expenses
135,105

 
120,552

 
409,677

 
365,392

Research and development expenses
30,234

 
23,814

 
84,716

 
69,797

Restructuring and lease charges, net

 

 
3,340

 
9,833

Operating income from continuing operations
34,208

 
41,417

 
111,040

 
105,280

Interest and other expense (income), net
3,916

 
6,680

 
13,943

 
(11,851
)
Income from continuing operations before income taxes
30,292

 
34,737

 
97,097

 
117,131

Provision for income taxes
3,591

 
8,192

 
16,603

 
23,771

Net income from continuing operations
26,701

 
26,545

 
80,494

 
93,360

Income from discontinued operations before income taxes

 
4,217

 

 
21,676

Gain (loss) on disposition of discontinued operations before income taxes
3,813

 
(495
)
 
2,072

 
2,573

(Benefit from) provision for income taxes on discontinued operations and dispositions
(4,805
)
 
16,876

 
(4,828
)
 
22,184

Net income (loss) from discontinued operations and dispositions
8,618

 
(13,154
)
 
6,900

 
2,065

Net income
$
35,319

 
$
13,391

 
$
87,394

 
$
95,425

Basic earnings (loss) per share:
 
 
 
 
 
 
 
Net income from continuing operations
$
0.24

 
$
0.23

 
$
0.71

 
$
0.80

Net income (loss) from discontinued operations and dispositions
0.08

 
(0.11
)
 
0.06

 
0.02

Net income
$
0.31

 
$
0.11

 
$
0.77

 
$
0.81

Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Net income from continuing operations
$
0.24

 
$
0.22

 
$
0.71

 
$
0.79

Net income (loss) from discontinued operations and dispositions
0.08

 
(0.11
)
 
0.06

 
0.02

Net income
$
0.31

 
$
0.11

 
$
0.77

 
$
0.81

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
112,703

 
117,475

 
113,065

 
117,342

Diluted
113,425

 
118,207

 
114,063

 
118,147

Cash dividends per common share
$
0.07

 
$
0.07

 
$
0.21

 
$
0.21

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

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PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
October 2,
2011
 
January 2,
2011
 
(In thousands, except share
and per share data)
Current assets:
 
 
 
Cash and cash equivalents
$
248,102

 
$
420,086

Accounts receivable, net
359,672

 
356,763

Inventories, net
228,549

 
207,278

Other current assets
93,296

 
100,685

Current assets of discontinued operations
206

 
227

Total current assets
929,825

 
1,085,039

Property, plant and equipment, net:
 
 
 
At cost
441,726

 
416,835

Accumulated depreciation
(275,868
)
 
(255,015
)
Property, plant and equipment, net
165,858

 
161,820

Marketable securities and investments
1,023

 
1,350

Intangible assets, net
512,277

 
424,248

Goodwill
1,758,405

 
1,504,815

Other assets, net
34,550

 
32,101

Total assets
$
3,401,938

 
$
3,209,373

Current liabilities:
 
 
 
Short-term debt
$
358,000

 
$
2,255

Accounts payable
150,813

 
161,042

Accrued restructuring and integration costs
13,079

 
22,611

Accrued expenses
352,518

 
323,038

Current liabilities of discontinued operations
1,547

 
6,256

Total current liabilities
875,957

 
515,202

Long-term debt
150,000

 
424,000

Long-term liabilities
430,841

 
344,353

Total liabilities
1,456,798

 
1,283,555

Commitments and contingencies (see Note 18)

 

Stockholders’ equity:
 
 
 
Preferred stock—$1 par value per share, authorized 1,000,000 shares; none issued or outstanding

 

Common stock—$1 par value per share, authorized 300,000,000 shares; issued and outstanding 113,085,000 shares and 115,715,000 shares at October 2, 2011 and at January 2, 2011, respectively
113,085

 
115,715

Capital in excess of par value
160,003

 
224,013

Retained earnings
1,703,277

 
1,639,581

Accumulated other comprehensive loss
(31,225
)
 
(53,491
)
Total stockholders’ equity
1,945,140

 
1,925,818

Total liabilities and stockholders’ equity
$
3,401,938

 
$
3,209,373

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


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PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Operating activities:
 
 
 
Net income
$
87,394

 
$
95,425

Add: net income from discontinued operations and dispositions, net of income taxes
(6,900
)
 
(2,065
)
Net income from continuing operations
80,494

 
93,360

Adjustments to reconcile net income from continuing operations to net cash provided by continuing operations:
 
 
 
Restructuring and lease charges, net
3,340

 
9,833

Depreciation and amortization
78,718

 
65,870

Stock-based compensation
9,427

 
10,352

Amortization of deferred debt issuance costs
2,114

 
1,906

Losses (gains) on step acquisitions and dispositions, net
200

 
(28,942
)
Amortization of acquired inventory revaluation
432

 

Changes in operating assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested:
 
 
 
Accounts receivable, net
17,373

 
(902
)
Inventories, net
(17,660
)
 
(23,171
)
Accounts payable
(15,512
)
 
8,776

Excess tax benefit from exercise of equity grants
(9,303
)
 
(82
)
Accrued expenses and other
1,834

 
(16,061
)
Net cash provided by operating activities of continuing operations
151,457

 
120,939

Net cash (used in) provided by operating activities of discontinued operations
(9,108
)
 
14,392

Net cash provided by operating activities
142,349

 
135,331

Investing activities:
 
 
 
Capital expenditures
(24,979
)
 
(22,882
)
Proceeds from dispositions of property, plant and equipment, net
456

 
11,014

Changes in restricted cash balances
1,123

 
(1,200
)
Payments for acquisitions and investments, net of cash and cash equivalents acquired
(311,269
)
 
(148,988
)
Net cash used in investing activities of continuing operations
(334,669
)
 
(162,056
)
Net cash provided by investing activities of discontinued operations
32,252

 
4,567

Net cash used in investing activities
(302,417
)
 
(157,489
)
Financing activities:
 
 
 
Payments on debt
(496,000
)
 
(157,846
)
Proceeds from borrowings
580,000

 
261,000

Payments of debt issuance costs
(1,000
)
 
(72
)
Payments on other credit facilities
(2,303
)
 
(111
)
Payments for acquisition-related contingent consideration
(137
)
 
(136
)
Excess tax benefit from exercise of equity grants
9,303

 
82

Proceeds from stock options exercised
23,670

 
15,171

Purchases of common stock
(110,004
)
 
(995
)
Dividends paid
(23,913
)
 
(24,729
)
Net cash (used in) provided by financing activities of continuing operations
(20,384
)
 
92,364

Net cash used in financing activities of discontinued operations
(1,908
)
 
(2,844
)
Net cash (used in) provided by financing activities
(22,292
)
 
89,520

Effect of exchange rate changes on cash and cash equivalents
10,376

 
3,919

Net (decrease) increase in cash and cash equivalents
(171,984
)
 
71,281

Cash and cash equivalents at beginning of period
420,086

 
179,707

Cash and cash equivalents at end of period
$
248,102

 
$
250,988

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

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PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1: Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), without audit, in accordance with accounting principles generally accepted in the United States (the “U.S.”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information in the footnote disclosures of the financial statements has been condensed or omitted where it substantially duplicates information provided in the Company’s latest audited consolidated financial statements, in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended January 2, 2011, filed with the SEC (the “2010 Form 10-K”). The balance sheet amounts at January 2, 2011 in this report were derived from the Company’s audited 2010 consolidated financial statements included in the 2010 Form 10-K. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three and nine months ended October 2, 2011 and October 3, 2010, respectively, are not necessarily indicative of the results for the entire fiscal year or any future period. The Company has evaluated subsequent events from October 2, 2011 through the date of the issuance of these condensed consolidated financial statements and has determined that no material subsequent events have occurred that would affect the information presented in these condensed consolidated financial statements or would require additional disclosure. Certain reclassifications were made to prior year amounts to conform to the current period presentation.
Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (the “FASB”) issued authoritative guidance on multiple-deliverable revenue arrangements. This guidance establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities. This guidance provides amendments to the criteria for separating and measuring deliverables and allocating arrangement consideration to one or more units of accounting. The amendments in this guidance also establish a selling price hierarchy for determining the selling price of a deliverable. The amendments also require a company to provide information about the significant judgments made and changes to those judgments and about the way the application of the relative selling-price method affects the timing or amount of revenue recognition. The Company adopted this authoritative guidance on multiple-deliverable revenue arrangements in the first quarter of fiscal year 2011. The adoption of this guidance did not have a significant impact on the Company’s condensed consolidated financial statements.
In October 2009, the FASB issued authoritative guidance on certain revenue arrangements that include software elements. This guidance changes the accounting model for revenue arrangements that include both tangible products and software elements that are “essential to the functionality” of the product. Products for which software elements are not essential to the functionality of the product are excluded from current software revenue guidance. The guidance includes factors to help companies determine what software elements are considered “essential to the functionality” of the product. The amendments subject software-enabled products to other revenue guidance and disclosure requirements, such as guidance surrounding revenue arrangements with multiple deliverables. The Company adopted this authoritative guidance on revenue arrangements that include software elements in the first quarter of fiscal year 2011. The adoption of this guidance did not have a significant impact on the Company’s condensed consolidated financial statements.
In March 2010, the FASB issued authoritative guidance on the milestone method of revenue recognition. This guidance will allow the milestone method as an acceptable revenue recognition methodology when an arrangement includes substantive milestones. This guidance provides a definition of a substantive milestone that should be applied regardless of whether the arrangement includes single or multiple deliverables or units of accounting. The scope of the applicability of this definition is limited to transactions involving milestones relating to research and development deliverables. This guidance also includes enhanced disclosure requirements about each arrangement, individual milestones and related contingent consideration, information about substantive milestones and factors considered in the determination of whether this methodology is appropriate. The Company adopted this authoritative guidance on the milestone method of revenue recognition on a prospective basis in the first quarter of fiscal year 2011. The adoption of this guidance did not have a significant impact on the Company’s condensed consolidated financial statements.


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Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB and are adopted by the Company as of the specified effective dates. Unless otherwise discussed, the Company believes that such recently issued pronouncements will not have a significant impact on the Company’s condensed consolidated financial position, results of operations and cash flows or do not apply to the Company’s operations.

Note 2: Business Combinations
Acquisition of Caliper Life Sciences, Inc. In September 2011, the Company and a newly formed, indirect wholly owned subsidiary entered into a merger agreement with Caliper Life Sciences, Inc. (“Caliper”) under which Caliper will become a wholly owned subsidiary of the Company. Caliper is a provider of imaging and detection solutions for life sciences research, diagnostics and environmental markets. Caliper develops and sells integrated systems, consisting of instruments, software, reagents, laboratory automation tools, and assay development and discovery services primarily to pharmaceutical, biotechnology, and diagnostics companies, and government and other not-for-profit research institutions. The Company expects this acquisition to enhance its molecular imaging and detection technologies and to complement its offerings in life science, diagnostics, environmental and food markets. The Company expects to pay to the shareholders of Caliper $10.50 per share in cash. The aggregate consideration for this transaction is expected to be approximately $640.0 million and is expected to close in the fourth quarter of fiscal year 2011. The excess of the purchase price over the fair value of the acquired net assets is expected to represent cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and is expected to be allocated to goodwill, none of which will be tax deductible. The Company expects to report the operations for this acquisition within the results of the Company’s Human Health segment from the acquisition date.
In connection with the expected acquisition of Caliper, on October 25, 2011, the Company issued $500.0 million aggregate principal amount of unsecured senior notes due 2021 (the “2021 Notes”) in a registered public offering and received approximately $496.9 million of net proceeds from the issuance. The 2021 Notes mature in November 2021 and bear interest at an annual rate of 5%. Interest on the 2021 Notes is payable semi-annually on May 15th and November 15th each year. See Note 8 to the condensed consolidated financial statements in this quarterly report on Form 10-Q for additional information.
Acquisition of Dexela Limited. In June 2011, the Company acquired all of the outstanding stock of Dexela Limited. (“Dexela”). Dexela is a provider of flat panel complementary metal-oxide-semiconductor (“CMOS”) x-ray detection technologies and services. The Company expects this acquisition to expand its current medical imaging portfolio in key areas including surgery, dental, cardiology and mammography, as well as non-destructive testing. With the addition of the CMOS technology to the Company’s imaging portfolio, customers will be able to choose between two complementary X-ray detector technologies to optimize their system performance and meet their specific application needs. The Company paid the shareholders of Dexela $26.1 million in cash for the stock of Dexela. The Company may pay additional contingent consideration of up to $12.2 million, with an estimated fair value of $4.6 million as of the closing date. The purchase price is also subject to potential adjustments for indemnification obligations of Dexela’s shareholders. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Human Health segment from the acquisition date.
Acquisition of Labtronics, Inc. In May 2011, the Company acquired all of the outstanding stock of Labtronics, Inc. (“Labtronics”). Labtronics is a provider of procedures-based Electronic Laboratory Notebook (“ELN”) solutions for laboratories performing routine analysis in multiple industries. The Company expects this acquisition to extend its ELN and data integration software offerings into laboratories following strict routine procedures, late stage product or method development laboratories and environmental and food testing laboratories. Labtronics tools can be applied to procedure-based problems, including laboratory analysis, equipment calibration and validation, cleaning validation and other problems. The Company paid the shareholders of Labtronics $11.4 million in cash for the stock of Labtronics. The purchase price is also subject to potential adjustments for indemnification obligations of Labtronics’ shareholders. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Environmental Health segment from the acquisition date.
Acquisition of Geospiza, Inc. In May 2011, the Company acquired all of the outstanding stock of Geospiza, Inc. (“Geospiza”). Geospiza is a developer of software systems for the management of genetic analysis and laboratory workflows. Geospiza primarily services biotechnology and pharmaceutical companies, universities, researchers, contract core and diagnostic laboratories involved in genetic testing and manufacturing bio-therapeutics by meeting their combined laboratory, data management and analytical needs. The Company expects this acquisition to enhance its software offerings, which will

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enable researchers to explore the genomic origins of disease effectively, and help address customers’ growing needs to manage knowledge and improve scientific productivity. The Company paid the shareholders of Geospiza $13.3 million in cash for the stock of Geospiza. The purchase price is also subject to potential adjustments for indemnification obligations of Geospiza’s shareholders. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Human Health segment from the acquisition date.
Acquisition of CambridgeSoft Corporation. In April 2011, the Company acquired all of the outstanding stock of CambridgeSoft Corporation (“CambridgeSoft”). CambridgeSoft is a provider of discovery, collaboration and knowledge enterprise solutions, scientific databases and professional services. CambridgeSoft primarily services pharmaceutical, biotechnology and chemical industries with solutions that help customers create, analyze and communicate scientific data while improving the speed, quality, efficiency and predictability of research and development investments. The Company expects this acquisition to enhance its focus on knowledge management in laboratory settings by expanding its software offerings, enabling customers to share data used for scientific decisions. The Company paid the shareholders of CambridgeSoft $227.4 million in cash at the closing for the stock of CambridgeSoft. The purchase price is also subject to potential adjustments for indemnification obligations of CambridgeSoft’s shareholders. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Environmental Health segment from the acquisition date.
Acquisition of ID Biological Systems, Inc. In March 2011, the Company acquired specified assets and assumed specified liabilities of ID Biological Systems, Inc. (“IDB”). IDB is a manufacturer of filter paper-based sample collection devices for neonatal screening and prenatal diagnostics. The Company expects this acquisition to enhance its market position in the prenatal and neonatal markets. The Company paid $7.7 million in cash at the closing for this transaction. The Company may pay additional contingent consideration of up to $3.3 million, with an estimated fair value of $0.3 million as of the closing date. The purchase price is also subject to potential adjustments for indemnification obligations of IDB’s shareholders. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, all of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Human Health segment from the acquisition date.
Acquisition of ArtusLabs, Inc. In March 2011, the Company acquired all of the outstanding stock of ArtusLabs, Inc. (“ArtusLabs”). ArtusLabs offers the Ensemble® scientific knowledge platform, to accelerate research and development in the pharmaceutical, chemical, petrochemical and related industries. Ensemble® integrates disparate data from customers’ ELNs and informatics systems and databases. The Company expects this acquisition to enhance its focus on knowledge management in laboratory settings by expanding its informatics offerings, enabling customers to rapidly access enterprise-wide data. The Company paid the shareholders of ArtusLabs $15.2 million in cash at the closing for the stock of ArtusLabs. The Company may pay additional contingent consideration of up to $15.0 million, with an estimated fair value of $7.5 million as of the closing date. The purchase price is also subject to potential adjustments for indemnification obligations of ArtusLabs’ shareholders. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Environmental Health segment from the acquisition date.
Acquisition of chemagen Biopolymer-Technologie AG. In February 2011, the Company acquired all of the outstanding stock of chemagen Biopolymer-Technologie AG (“chemagen”). chemagen manufactures and sells nucleic acid sample preparation systems and reagents utilizing magnetic bead technology. The Company expects this acquisition to enhance its genetic screening business by expanding the Company’s product offerings to diagnostics, academic and industrial end markets. The Company paid the shareholders of chemagen $34.6 million in cash for the stock of chemagen. The Company may pay additional contingent consideration of up to $20.3 million, with an estimated fair value of $7.7 million as of the closing date. The purchase price is also subject to potential adjustments for indemnification obligations of chemagen’s shareholders. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Human Health segment from the acquisition date.

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The Company does not consider the acquisitions completed as of the end of the third quarter of fiscal year 2011 to be material to its condensed consolidated results of operations and is therefore not presenting pro forma financial information of operations. The Company has also determined that the presentation of the results of operations for each of those acquisitions, from the date of acquisition, is impracticable and immaterial. Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on revenue thresholds or product development milestones achieved through given dates, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of definite-lived intangible assets. Identifiable definite-lived intangible assets, such as customer relationships, core technology, in-process research and development (“IPR&D”), an exclusive supplier agreement and trade names, acquired as part of the acquisitions completed in fiscal year 2011 had a weighted average amortization period between 7.0 years and 11.0 years.
In connection with the purchase price and related allocations for acquisitions, the Company estimates the fair value of deferred revenue assumed with its acquisitions. The estimated fair value of deferred revenue is determined by the legal performance obligation at the date of acquisition, and is generally based on the nature of the activities to be performed and the related costs to be incurred after the acquisition date. The fair value of an assumed liability related to deferred revenue is estimated based on the current market cost of fulfilling the obligation, plus a normal profit margin thereon. The estimated costs to fulfill the deferred revenue are based on the historical direct costs related to providing the services. The Company does not include any costs associated with selling effort, research and development, or the related fulfillment margins on these costs. In most acquisitions, profit associated with selling effort is excluded because the acquired businesses would have concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition. The sum of the costs and operating income approximates, in theory, the amount that the Company would be required to pay a third-party to assume the obligation. As a result of purchase accounting, the Company recognized the deferred revenue related to the acquisitions completed in fiscal year 2011 at fair value and recorded a liability of $10.5 million, which represents a $55.9 million difference between the $66.4 million of deferred revenue that was recorded on the pre-acquisition balance sheets of the acquired business.
As of October 2, 2011, the purchase price and related allocations for the acquisitions completed as of the end of the third quarter of fiscal year 2011 were preliminary. The preliminary allocations of the purchase price were based upon a preliminary valuation and the Company’s estimates and assumptions underlying the preliminary valuation are subject to change within the measurement period (up to one year from the acquisition dates). The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets and liabilities acquired, income and non-income based taxes and residual goodwill. The Company expects to continue to obtain information to assist it in determining the fair values of the net assets acquired at the acquisition dates during the measurement period. For acquisitions completed subsequent to fiscal year 2008, during the measurement period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. Adjustments to the initial allocation of the purchase price during the measurement period require the revision of comparative prior period financial information when reissued in subsequent financial statements. The effect of measurement period adjustments to the allocation of the purchase price would be as if the adjustments had been completed on the acquisition date. The effects of measurement period adjustments may cause changes in depreciation, amortization, or other income or expense recognized in prior periods. All changes that do not qualify as measurement period adjustments are included in current period earnings.

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Table of Contents

The components of the fair values of the business combinations and allocations for the acquisitions completed as of the end of the third quarter of fiscal year 2011 are as follows:
 
 
chemagen
(Preliminary)
 
ArtusLabs
(Preliminary)
 
IDB
(Preliminary)
 
CambridgeSoft
(Preliminary)
 
Geospiza
(Preliminary)
 
Labtronics
(Preliminary)
 
Dexela
(Preliminary)
 
(In thousands)
Fair value of business combination:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash payments
$
33,873

 
$
15,232

 
$
7,664

 
$
227,373

 
$
13,250

 
$
11,389

 
$
24,800

Fair values of stock options assumed

 

 

 
1,417

 

 

 

Contingent
consideration
7,723

 
7,475

 
326

 

 

 

 
4,600

Working capital and other adjustments
762

 

 

 

 
729

 
29

 
1,251

Less: cash acquired
(901
)
 
(125
)
 
(27
)
 
(23,621
)
 
(1
)
 
(207
)
 
(2,041
)
Total
$
41,457

 
$
22,582

 
$
7,963

 
$
205,169

 
$
13,978

 
$
11,211

 
$
28,610

Identifiable assets acquired and liabilities assumed:
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
$
2,288

 
$
199

 
$
635

 
$
17,052

 
$
204

 
$
925

 
$
1,854

Property, plant and equipment
290

 
7

 
699

 
462

 

 
70

 
133

Identifiable intangible assets
14,768

 
4,750

 
2,610

 
101,400

 
3,860

 
3,259

 
12,200

Goodwill
29,347

 
18,221

 
4,657

 
150,901

 
9,086

 
8,406

 
19,393

Deferred taxes
(4,402
)
 
(152
)
 

 
(38,724
)
 
1,517

 
(861
)
 
(3,294
)
Deferred revenue

 
(297
)
 

 
(9,504
)
 
(380
)
 
(315
)
 

Liabilities assumed
(834
)
 
(146
)
 
(638
)
 
(16,418
)
 
(309
)
 
(273
)
 
(1,676
)
Total
$
41,457

 
$
22,582

 
$
7,963

 
$
205,169

 
$
13,978

 
$
11,211

 
$
28,610

The fair values of stock options assumed were estimated using a Black-Scholes option-pricing model. The fair values of unvested stock options as they relate to post-combination services will be recorded in selling, general and administrative expenses over the remaining service periods, while the fair values of vested stock options as they relate to pre-combination services are included in the purchase price of the acquired entity.
Total transaction costs related to acquisition activities for the nine months ended October 2, 2011 and October 3, 2010 were $4.8 million and $2.0 million, respectively, which were expensed as incurred and recorded in selling, general and administrative expenses in the Company's condensed consolidated income statements.

Note 3: Discontinued Operations
As part of the Company’s continuing efforts to focus on higher growth opportunities, the Company has discontinued certain businesses. The Company has accounted for these businesses as discontinued operations and, accordingly, has presented the results of operations and related cash flows as discontinued operations for all periods presented. The assets and liabilities of these businesses have been presented separately, and are reflected within the assets and liabilities from discontinued operations in the accompanying condensed consolidated balance sheets as of October 2, 2011 and January 2, 2011.

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Table of Contents

The Company recorded the following gains and losses, which have been reported as net gain (loss) on disposition of discontinued operations: 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Loss on disposition of Illumination and Detection Solutions business
$
(125
)
 
$

 
$
(1,784
)
 
$

(Loss) gain on disposition of Photoflash business
(55
)
 
(199
)
 
(64
)
 
4,418

Net gain (loss) on disposition of other discontinued operations
3,993

 
(296
)
 
3,920

 
(1,845
)
Net gain (loss) on disposition of discontinued operations before income taxes
$
3,813

 
$
(495
)
 
$
2,072

 
$
2,573

In November 2010, the Company sold its Illumination and Detection Solutions (“IDS”) business, which was included in the Company’s Environmental Health segment, for $510.3 million, including an adjustment for net working capital. The Company expects the divestiture of its IDS business to reduce the complexity of its product offerings and organizational structure, and to provide capital to reinvest in other Human Health and Environmental Health end markets. The buyer acquired the Company’s IDS business through the purchase of all outstanding stock of certain of the Company’s subsidiaries located in Germany, Canada, China, Indonesia, the Philippines, the United Kingdom and the United States as well as the purchase of related assets and the assumption of liabilities held by the Company and certain of its subsidiaries located in Singapore and Germany. The Company recognized a pre-tax gain of $315.3 million, inclusive of the net working capital adjustment, in the fourth quarter of fiscal year 2010 as a result of the sale of its IDS business. During the first nine months of fiscal year 2011, the Company updated the net working capital adjustment associated with the sale of this business and other potential contingencies, which resulted in the recognition of a pre-tax loss of $1.8 million. These gains and losses were recognized as gain (loss) on the disposition of discontinued operations.
As part of the Company’s strategic business alignment into the Human Health and Environmental Health segments, completed at the beginning of fiscal year 2009, and the Company’s continuing efforts to focus on higher growth opportunities, in December 2008, the Company’s management approved a plan to divest its Photoflash business within the Environmental Health segment. In June 2010, the Company sold the Photoflash business for $13.5 million, including an adjustment for net working capital, plus potential additional contingent consideration. The Company recognized a pre-tax gain of $4.6 million, inclusive of the net working capital adjustment, in the second quarter of fiscal year 2010 as a result of the sale. This gain was recognized as a gain on the disposition of discontinued operations.
During the first nine months of both fiscal years 2011 and 2010, the Company settled various commitments related to the divestiture of other discontinued operations. The Company recognized a pre-tax gain of $3.9 million in the first nine months of fiscal year 2011, which included a pre-tax gain of $4.0 million for contingent consideration related to the sale of its semiconductor business in fiscal year 2006. The Company recognized a pre-tax loss of $1.8 million in the first nine months of fiscal year 2010 in connection with the settlement of various commitments.
Summary operating results of the discontinued operations for the periods prior to disposition were as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Sales
$

 
$
78,047

 
$

 
$
243,114

Costs and expenses

 
73,663

 

 
220,722

Operating income from discontinued operations

 
4,384

 

 
22,392

Other expense, net

 
167

 

 
716

Income from discontinued operations before income taxes
$

 
$
4,217

 
$

 
$
21,676


11

Table of Contents

The Company recognized a tax benefit of $4.8 million on discontinued operations for both the three and nine months ended October 2, 2011, respectively. This tax benefit is primarily the net result of a change in estimate related to the federal income tax liability associated with the repatriation of the unremitted earnings of the IDS and Photoflash businesses, as further described in Note 7 to the condensed consolidated financial statements in this quarterly report on Form 10-Q, offset by a tax provision on the contingent consideration received in the three months ended October 2, 2011 related to the sale of the Company's semiconductor business in fiscal year 2006. The Company recorded a tax provision of $16.9 million and $22.2 million on discontinued operations for the three and nine months ended October 3, 2010, respectively. The tax provision in fiscal year 2010 is associated with unremitted earnings of directly-owned foreign subsidiaries that no longer qualified as permanently reinvested once the subsidiary is held for sale.

Note 4: Restructuring and Lease Charges, Net
The Company has undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, alignment with the Company’s growth strategy and the integration of its business units.
A description of the restructuring plans and the activity recorded for the nine months ended October 2, 2011 is listed below. Details of the plans initiated in previous years, particularly those listed under “Previous Restructuring and Integration Plans,” are discussed more fully in Note 4 to the audited consolidated financial statements in the 2010 Form 10-K.
The restructuring plans for the second quarter of fiscal year 2011 and fourth quarter of fiscal year 2010 were intended principally to shift resources to higher growth geographic regions and end markets. The restructuring plan for the second quarter of fiscal year 2010 was intended principally to reduce resources in response to the continued economic downturn and its impact on demand in certain end markets and to shift resources to higher growth geographic regions and end markets. The activities associated with these plans have been reported as restructuring expenses and are included as a component of operating expenses from continuing operations.
Q2 2011 Restructuring Plan
During the second quarter of fiscal year 2011, the Company’s management approved a plan to shift resources to higher growth geographic regions and end markets (the “Q2 2011 Plan”). As a result of the Q2 2011 Plan, the Company recognized a $2.2 million pre-tax restructuring charge in the Human Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. The Company also recognized a $3.4 million pre-tax restructuring charge in the Environmental Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. As part of the Q2 2011 Plan, the Company reduced headcount by 72 employees. All employee notifications and actions related to the closure of excess facility space for the Q2 2011 Plan were completed by July 3, 2011.
The following table summarizes the Q2 2011 Plan activity for the nine months ended October 2, 2011:
 
Severance
 
Closure of
Excess Facility
Space
 
Total
 
(In thousands)
Provision
$
4,927

 
$
659

 
$
5,586

Amounts paid and foreign currency translation
(2,354
)
 
(659
)
 
(3,013
)
Balance at October 2, 2011
$
2,573

 
$

 
$
2,573

All employees have been notified of termination and the Company anticipates that the remaining severance payments of $2.6 million for workforce reductions will be completed by the end of the fourth quarter of fiscal year 2012.

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Table of Contents

Q4 2010 Restructuring Plan
During the fourth quarter of fiscal year 2010, the Company’s management approved a plan to shift resources to higher growth geographic regions and end markets (the “Q4 2010 Plan”). As a result of the Q4 2010 Plan, the Company recognized a $5.6 million pre-tax restructuring charge in the Human Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. The Company also recognized a $7.6 million pre-tax restructuring charge in the Environmental Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. The restructuring costs for the closure of excess facility space were offset by the recognition of a $2.8 million gain that had been deferred from a previous sale-leaseback transaction on this facility. During the second quarter of fiscal year 2011, the Company recorded an additional pre-tax restructuring accrual of $0.2 million relating to the Q4 2010 Plan due to a reduction in the estimated sublease rental payments reasonably expected to be obtained for its excess facility space in the Environmental Health segment. As part of the Q4 2010 Plan, the Company reduced headcount by 113 employees. All employee notifications and actions related to the closure of excess facility space for the Q4 2010 Plan were completed by January 2, 2011.
The following table summarizes the Q4 2010 Plan activity for the nine months ended October 2, 2011:
 
Severance
 
Closure of
Excess Facility
Space
 
Total
 
(In thousands)
Balance at January 2, 2011
$
7,852

 
$
4,070

 
$
11,922

Change in estimates

 
168

 
168

Amounts paid and foreign currency translation
(7,099
)
 
(374
)
 
(7,473
)
Balance at October 2, 2011
$
753

 
$
3,864

 
$
4,617

All employees have been notified of termination and the Company anticipates that the remaining severance payments of $0.8 million for workforce reductions will be completed by the end of the fourth quarter of fiscal year 2012. The Company also anticipates that the remaining payments of $3.9 million for the closure of excess facility space will be paid through fiscal year 2022, in accordance with the terms of the applicable lease.
Q2 2010 Restructuring Plan
During the second quarter of fiscal year 2010, the Company’s management approved a plan to reduce resources in response to the continued economic downturn and its impact on demand in certain end markets and to shift resources to higher growth geographic regions and end markets (the “Q2 2010 Plan”). As a result of the Q2 2010 Plan, the Company recognized a $7.0 million pre-tax restructuring charge in the Human Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. The restructuring costs for the closure of excess facility space were partially offset by the recognition of a $0.1 million gain that had been deferred from a previous sale-leaseback transaction on this facility. The Company also recognized a $3.9 million pre-tax restructuring charge in the Environmental Health segment related to a workforce reduction from reorganization activities. During the second quarter of fiscal year 2011, the Company recorded a pre-tax restructuring reversal of $0.7 million relating to the Q2 2010 Plan due to lower than expected costs associated with the workforce reductions in Europe within both the Human Health and Environmental Health segments. As part of the Q2 2010 Plan, the Company reduced headcount by 115 employees. All employee notifications and actions related to the closure of excess facility space for the Q2 2010 Plan were completed by July 4, 2010.
The following table summarizes the Q2 2010 Plan activity for the nine months ended October 2, 2011:
 
Severance
 
Closure
of Excess
Facility
Space
 
Total
 
(In thousands)
Balance at January 2, 2011
$
2,193

 
$
2,059

 
$
4,252

Change in estimates
(746
)
 

 
(746
)
Amounts paid and foreign currency translation
(1,300
)
 
(326
)
 
(1,626
)
Balance at October 2, 2011
$
147

 
$
1,733

 
$
1,880


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Table of Contents

All employees have been notified of termination and the Company anticipates that the remaining severance payments of $0.1 million for workforce reductions will be completed by the end of the second quarter of fiscal year 2012. The Company also anticipates that the remaining payments of $1.7 million for the closure of excess facility space will be paid through fiscal year 2022, in accordance with the terms of the applicable lease.
Previous Restructuring and Integration Plans
The principal actions of the restructuring and integration plans from fiscal years 2001 through 2009 were workforce reductions related to the integration of the Company’s businesses in order to reduce costs and achieve operational efficiencies as well as workforce reductions in both the Human Health and Environmental Health segments by shifting resources into geographic regions and product lines that are more consistent with the Company’s growth strategy. During the nine months ended October 2, 2011, the Company paid $0.7 million related to these plans and recorded a reversal of $1.7 million related to lower than expected costs associated with the workforce reductions in Europe within both the Human Health and Environmental Health segments. As of October 2, 2011, the Company had $4.0 million of remaining liabilities associated with these restructuring and integration plans, primarily for residual lease obligations related to closed facilities and remaining severance payments for workforce reductions in both the Human Health and Environmental Health segments. The Company expects to make payments for these leases, the terms of which vary in length, through fiscal year 2022.

Note 5: Interest and Other Expense (Income), Net
Interest and other expense (income), net, consisted of the following:
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Interest income
$
(549
)
 
$
(192
)
 
$
(1,354
)
 
$
(542
)
Interest expense
4,449

 
4,185

 
12,578

 
11,937

Gain on step acquisition

 

 

 
(25,586
)
Other expense, net
16

 
2,687

 
2,719

 
2,340

Total interest and other expense (income), net
$
3,916

 
$
6,680

 
$
13,943

 
$
(11,851
)
The Company recognized a pre-tax gain of $25.6 million during the three months ended July 4, 2010 related to the required re-measurement to fair value of its previously held equity interest in a joint venture with the company previously known as MDS, Inc. for the development and manufacturing of its inductively coupled plasma mass spectrometry product line and other related tangible assets.

Note 6: Inventories, Net
Inventories consisted of the following:
 
 
October 2,
2011
 
January 2,
2011
 
(In thousands)
Raw materials
$
79,247

 
$
70,472

Work in progress
12,845

 
12,660

Finished goods
136,457

 
124,146

Total inventories, net
$
228,549

 
$
207,278

Note 7: Income Taxes
The Company regularly reviews its tax positions in each significant taxing jurisdiction in the process of evaluating its unrecognized tax benefits. The Company makes adjustments to its unrecognized tax benefits when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority; and/or (iii) the statute of limitations expires regarding a tax position.

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Table of Contents

At October 2, 2011, the Company had gross tax effected unrecognized tax benefits of $39.0 million, of which $33.2 million, if recognized, would affect the continuing operations effective tax rate. The remaining amount, if recognized, would affect discontinued operations.
At October 2, 2011, the Company had uncertain tax positions of $3.4 million, including accrued interest, net of tax benefits and penalties, which are expected to be resolved within the next year. A portion of the uncertain tax positions could affect the continuing operations effective tax rate depending on the ultimate resolution; however, the Company cannot quantify an estimated range at this time. The Company is subject to U.S. federal income tax as well as to income tax of numerous state and foreign jurisdictions.
Tax years ranging from 2001 through 2010 remain open to examination by various tax jurisdictions in which the Company has significant business operations, such as Singapore, Canada, Finland, Germany, the United Kingdom and the United States. The tax years under examination vary by jurisdiction.
As a result of the sale of the IDS and Photoflash businesses, the Company concluded that the remaining operations within those foreign subsidiaries previously containing IDS and Photoflash operations did not require the same level of capital as previously required, and therefore the Company planned to repatriate approximately $250.0 million of previously unremitted earnings and had provided for the taxes on those earnings. Taxes have not been provided for unremitted earnings that the Company continues to consider permanently reinvested, the determination of which is based on its future operational and capital requirements. The impact of this tax provision in fiscal year 2010 was an increase to the Company’s tax provision of $65.8 million in discontinued operations. The Company expects to utilize existing tax attributes to repatriate these earnings and minimize the taxes paid on the repatriation. As of October 2, 2011, the Company had completed the repatriation of the previously unremitted earnings of the IDS and Photoflash businesses, and reduced its estimated tax liability associated with the repatriation by approximately $7.0 million. This change in estimate was recorded as a credit to discontinued operations in the three months ended October 2, 2011. The Company continues to maintain its permanent reinvestment assertion with regards to the remaining unremitted earnings of its foreign subsidiaries, and therefore does not accrue U.S. tax for the repatriation of its remaining unremitted foreign earnings.

Note 8: Debt
Senior Unsecured Revolving Credit Facility. The Company has a senior unsecured revolving credit facility which provides $650.0 million of revolving loans and has an initial maturity of August 13, 2012. Since the facility expires within the next twelve months, outstanding borrowings under the facility have been classified as short-term debt in the consolidated balance sheet included in this quarterly report on Form 10-Q. As of October 2, 2011, undrawn letters of credit in the aggregate amount of $13.0 million are treated as issued and outstanding under the senior unsecured revolving credit facility. The Company uses the senior unsecured revolving credit facility for general corporate purposes, which may include working capital, refinancing existing indebtedness, capital expenditures, share repurchases, acquisitions and strategic alliances. The interest rates under the senior unsecured revolving credit facility are based on the Eurocurrency rate at the time of borrowing plus a margin, or the base rate from time to time. The base rate is the higher of (i) the corporate base rate announced from time to time by Bank of America, N.A. or (ii) the Federal Funds rate plus 50 basis points. The Eurocurrency margin as of October 2, 2011 was 40 basis points. The weighted average Eurocurrency interest rate as of October 2, 2011 was 0.23%, resulting in a weighted average effective Eurocurrency rate, including the margin, of 0.63%. The Company had $358.0 million of borrowings in U.S. Dollars outstanding under the senior unsecured revolving credit facility as of October 2, 2011, with interest based on the above described Eurocurrency rate. The credit agreement for the facility contains affirmative, negative and financial covenants and events of default customary for financings of this type.
6% Senior Unsecured Notes due 2015. On May 30, 2008, the Company issued $150.0 million aggregate principal amount of unsecured senior notes due 2015 (the “2015 Notes”) in a private placement and received $150.0 million of gross proceeds from the issuance. The 2015 Notes mature in May 2015 and bear interest at an annual rate of 6%. Interest on the 2015 Notes is payable semi-annually on May 30th and November 30th each year. The Company may redeem some or all of the 2015 Notes at any time, at its option, at a make-whole redemption price plus accrued and unpaid interest. The indenture governing the 2015 Notes includes financial covenants similar to those in the senior unsecured revolving credit facility.

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Table of Contents

5% Senior Unsecured Notes due 2021. On October 25, 2011, the Company issued $500.0 million aggregate principal amount of unsecured senior notes due 2021 (the “2021 Notes”) in a registered public offering and received approximately $496.9 million of net proceeds from the issuance. The 2021 Notes were issued at 99.372% of the principal amount, which resulted in a discount of $3.1 million. The 2021 Notes mature in November 2021 and bear interest at an annual rate of 5%. Interest on the 2021 Notes is payable semi-annually on May 15th and November 15th each year. Prior to August 15, 2021 (three months prior to their maturity date), the Company may redeem the 2021 Notes in whole or in part, at its option, at a make-whole redemption price, plus accrued and unpaid interest. At any time on or after August 15, 2021 (three months prior to their maturity date), the Company may redeem the 2021 Notes, at its option, at a redemption price equal to 100% of the principal amount of the 2021 Notes to be redeemed plus accrued and unpaid interest. Upon a change of control (as defined in the indenture governing the 2021 Notes ) and a contemporaneous downgrade of the 2021 Notes below investment grade, each holder of 2021 Notes will have the right to require the Company to repurchase such holder's 2021 Notes for 101% of their principal amount, plus accrued and unpaid interest.

Note 9: Earnings Per Share
Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period less restricted unvested shares. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method. The following table reconciles the number of shares utilized in the earnings per share calculations:
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Number of common shares—basic
112,703

 
117,475

 
113,065

 
117,342

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
566

 
556

 
861

 
657

Restricted stock awards
156

 
176

 
137

 
148

Number of common shares—diluted
113,425

 
118,207

 
114,063

 
118,147

Number of potentially dilutive securities excluded from calculation due to antidilutive impact
2,738

 
5,391

 
1,792

 
5,052

Antidilutive options were excluded from the calculation of diluted net income per share and could become dilutive in the future.

Note 10: Industry Segment Information
The Company discloses information about its operating segments based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. The Company evaluates the performance of its operating segments based on sales and operating income. Intersegment sales and transfers are not significant. The Company’s management reviews the results of the Company’s operations by these two operating segments. The accounting policies of the operating segments are the same as those described in Note 1 to the audited consolidated financial statements in the 2010 Form 10-K. The principal products and services of these operating segments are:
Human Health. Develops diagnostics, tools and applications to help detect diseases earlier and more accurately and to accelerate the discovery and development of critical new therapies. Within the Human Health segment, the Company serves both the diagnostics and research markets.
Environmental Health. Provides technologies and applications to facilitate the creation of safer food and consumer products, more secure surroundings and efficient energy resources. Within the Environmental Health segment, the Company serves the environmental and safety, industrial and laboratory services markets.
The Company has a process to allocate and recharge expenses to the reportable segments when such costs are administered or paid by the Company’s corporate headquarters based on the extent to which the segment benefited from the expenses. The expenses for the Company’s corporate headquarters, such as legal, tax, audit, human resources, information technology, and other management and compliance costs, have been included as “Corporate” below. These amounts have been calculated in a consistent manner and are included in the Company’s calculations of segment results to internally plan and assess the performance of each segment.

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Table of Contents

Sales and operating income by operating segment, excluding discontinued operations, are shown in the table below:
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Human Health
 
 
 
 
 
 
 
Sales
$
207,419

 
$
194,510

 
$
628,669

 
$
580,568

Operating income from continuing operations
26,672

 
24,980

 
74,994

 
72,606

Environmental Health
 
 
 
 
 
 
 
Sales
246,321

 
224,633

 
752,426

 
653,808

Operating income from continuing operations
13,641

 
26,109

 
63,462

 
61,813

Corporate
 
 
 
 
 
 
 
Operating loss from continuing operations
(6,105
)
 
(9,672
)
 
(27,416
)
 
(29,139
)
Continuing Operations
 
 
 
 
 
 
 
Sales
$
453,740

 
$
419,143

 
$
1,381,095

 
$
1,234,376

Operating income from continuing operations
34,208

 
41,417

 
111,040

 
105,280

Interest and other expense (income), net (see Note 5)
3,916

 
6,680

 
13,943

 
(11,851
)
Income from continuing operations before income taxes
$
30,292

 
$
34,737

 
$
97,097

 
$
117,131


Note 11: Stockholders’ Equity
Comprehensive (Loss) Income:
The components of comprehensive (loss) income consisted of the following:
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Net income
$
35,319

 
$
13,391

 
$
87,394

 
$
95,425

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of income taxes
(41,844
)
 
52,896

 
21,536

 
(18,551
)
Unrecognized losses and prior service costs, net of income taxes

 

 
(110
)
 

Unrealized net (losses) gains on securities, net of income taxes
(75
)
 
38

 
(57
)
 
(11
)
Reclassification adjustments for losses on derivatives included in net income, net of income taxes
299

 
299

 
897

 
897

 
(41,620
)
 
53,233

 
22,266

 
(17,665
)
Comprehensive (loss) income
$
(6,301
)
 
$
66,624

 
$
109,660

 
$
77,760

The components of accumulated other comprehensive loss consisted of the following:
 
 
October 2,
2011
 
January 2,
2011
 
(In thousands)
Foreign currency translation adjustments, net of income taxes
$
75,886

 
$
54,350

Unrecognized losses and prior service costs, net of income taxes
(102,567
)
 
(102,457
)
Unrealized net losses on securities, net of income taxes
(157
)
 
(100
)
Unrealized and realized losses on derivatives, net of income taxes
(4,387
)
 
(5,284
)
Accumulated other comprehensive loss
$
(31,225
)
 
$
(53,491
)

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Table of Contents

The Company recorded in other comprehensive (loss) income $1.6 million for the tax expense on the previously unremitted earnings of the IDS and Photoflash businesses, from the end of fiscal year 2010 to the date of each distribution, in the foreign currency translation adjustments.
Stock Repurchase Program:
On October 23, 2008, the Company announced that the Board of Directors (the “Board”) authorized the Company to repurchase up to 10.0 million shares of common stock under a stock repurchase program (the “Repurchase Program”). On August 31, 2010, the Company announced that the Board had authorized the Company to repurchase an additional 5.0 million shares of common stock under the Repurchase Program. The Repurchase Program will expire on October 22, 2012 unless terminated earlier by the Board, and may be suspended or discontinued at any time. During the first nine months of fiscal year 2011, the Company repurchased 4.0 million shares of common stock in the open market at an aggregate cost of $107.8 million, including commissions, under the Repurchase Program. As of October 2, 2011, 6.0 million shares of the Company’s common stock remained available for repurchase from the 15.0 million shares authorized by the Board under the Repurchase Program.
The Board has authorized the Company to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to the Company’s equity incentive plans. During the first nine months of fiscal year 2011, the Company repurchased 84,166 shares of common stock for this purpose at an aggregate cost of $2.2 million. The repurchased shares have been reflected as a reduction in shares outstanding, but remain available to be reissued with the payments reflected in common stock and capital in excess of par value.
Dividends:
The Board declared a regular quarterly cash dividend of $0.07 per share in each of the first three quarters of fiscal year 2011 and in each quarter of fiscal year 2010. In the future, the Board may determine to reduce or eliminate the Company’s common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.

Note 12: Stock Plans
The Company utilizes one stock-based compensation plan, the 2009 Incentive Plan (the “2009 Plan”). Under the 2009 Plan, 10.0 million shares of the Company’s common stock, as well as shares of the Company’s common stock previously granted under the Amended and Restated 2001 Incentive Plan and the 2005 Incentive Plan that were cancelled or forfeited without the shares being issued, are authorized for stock option grants, restricted stock awards, performance units and stock grants as part of the Company’s compensation programs (the “Plan”). The 2009 Plan is described in more detail in the Company’s definitive proxy statement filed with the SEC on March 20, 2009 and Note 18 to the Company’s audited consolidated financial statements filed with the 2010 Form 10-K.
The following table summarizes total pre-tax compensation expense recognized related to the Company’s stock options, restricted stock, restricted stock units, performance units and stock grants, net of estimated forfeitures, included in the Company’s condensed consolidated income statements for the three and nine months ended October 2, 2011 and October 3, 2010:
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Cost of sales
$
243

 
$
276

 
$
750

 
$
751

Research and development expenses
138

 
136

 
432

 
344

Selling, general and administrative and other expenses
1,086

 
3,414

 
8,245

 
9,904

Continuing operations stock-based compensation expense
1,467

 
3,826

 
9,427

 
10,999

Discontinued operations stock-based compensation expense

 
142

 

 
684

Total stock-based compensation expense
$
1,467

 
$
3,968

 
$
9,427

 
$
11,683


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Table of Contents

The total income tax benefit recognized in the condensed consolidated income statements for stock-based compensation was $0.3 million and $3.0 million for the three and nine months ended October 2, 2011, respectively. The total income tax benefit recognized in the condensed consolidated income statements for stock-based compensation was $1.3 million and $3.9 million for the three and nine months ended October 3, 2010, respectively. Stock-based compensation costs capitalized as part of inventory were $0.4 million and $0.3 million as of October 2, 2011 and October 3, 2010, respectively. The excess tax benefit recognized from stock awards, classified as a financing cash activity, was $9.3 million and $0.1 million for the nine months ended October 2, 2011 and October 3, 2010, respectively.
Stock Options: The fair value of each option grant is estimated using the Black-Scholes option pricing model. The Company’s weighted-average assumptions used in the Black-Scholes option pricing model were as follows:
 
 
Three and Nine Months Ended
 
October 2,
2011
 
October 3,
2010
Risk-free interest rate
1.9
%
 
1.8
%
Expected dividend yield
1.1
%
 
1.4
%
Expected lives
4 years

 
4 years

Expected stock volatility
38.1
%
 
37.5
%
The following table summarizes stock option activity for the nine months ended October 2, 2011:
 
 
Number
of
Shares
 
Weighted-
Average
Price
 
Weighted-Average
Remaining
Contractual Term
 
Total
Intrinsic
Value
 
(In thousands)
 
 
 
(In years)
 
(In millions)
Outstanding at January 2, 2011
6,983

 
$
21.86

 
 
 
 
Granted
582

 
26.74

 
 
 
 
Exercised
(1,133
)
 
20.90

 
 
 
 
Canceled
(1,219
)
 
30.40

 
 
 
 
Forfeited
(107
)
 
18.40

 
 
 
 
Outstanding at October 2, 2011
5,106

 
$
20.67

 
3.6

 
$
16.2

Exercisable at October 2, 2011
3,566

 
$
20.75

 
2.9

 
$
10.3

Vested and expected to vest in the future
4,644

 
$
20.67

 
3.6

 
$
14.7

The weighted-average per-share grant-date fair value of options granted for the three and nine months ended October 2, 2011 was $7.99 and $7.86, respectively. The weighted-average per-share grant-date fair value of options granted for the three and nine months ended October 3, 2010 was $5.52 and $5.99, respectively. The total intrinsic value of options exercised for the three and nine months ended October 2, 2011 was $0.05 million and $6.9 million, respectively. The total intrinsic value of options exercised for the three and nine months ended October 3, 2010 was $0.5 million and $3.0 million, respectively. Cash received from option exercises for the nine months ended October 2, 2011 and October 3, 2010 was $23.7 million and $15.2 million, respectively.
The total compensation expense recognized related to the Company’s outstanding options was $1.1 million and $3.3 million for the three and nine months ended October 2, 2011, respectively, and $1.4 million and $5.4 million for the three and nine months ended October 3, 2010, respectively.
There was $5.9 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options granted as of October 2, 2011. This cost is expected to be recognized over a weighted-average period of 1.9 fiscal years and will be adjusted for any future changes in estimated forfeitures.

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Table of Contents

Restricted Stock Awards: The following table summarizes restricted stock award activity for the nine months ended October 2, 2011:
 
 
Number of
Shares
 
Weighted-
Average
Grant-
Date Fair
Value
 
(In thousands)
 
 
Nonvested at January 2, 2011
578

 
$
21.77

Granted
440

 
26.68

Vested
(215
)
 
24.78

Forfeited
(88
)
 
24.52

Nonvested at October 2, 2011
715

 
$
23.56

The weighted-average per-share grant-date fair value of restricted stock awards granted during the three and nine months ended October 2, 2011 was $25.19 and $26.68, respectively. The weighted-average per-share grant-date fair value of restricted stock awards granted during the three and nine months ended October 3, 2010 was $20.88 and $21.20, respectively. The fair value of restricted stock awards vested for the three and nine months ended October 2, 2011 was $0.02 million and $5.3 million, respectively. No restricted stock awards vested during the three months ended October 3, 2010. The fair value of restricted stock awards vested for the nine months ended October 3, 2010 was $1.0 million. The total compensation expense recognized related to the Company’s outstanding restricted stock awards was $1.6 million and $4.6 million for the three and nine months ended October 2, 2011, respectively, and $1.4 million and $3.8 million for the three and nine months ended October 3, 2010, respectively.
As of October 2, 2011, there was $10.9 million of total unrecognized compensation cost, net of forfeitures, related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 1.7 fiscal years.
Performance Units: The Company granted 89,828 performance units and 129,879 performance units during the nine months ended October 2, 2011 and October 3, 2010, respectively, as part of the Company’s executive incentive program. The weighted-average per-share grant-date fair value of performance units granted during the nine months ended October 2, 2011 and October 3, 2010 was $26.71 and $20.89, respectively. The total compensation recognized related to these performance units was a benefit of $1.2 million and an expense of $0.8 million for the three and nine months ended October 2, 2011, respectively, and an expense of $1.1 million and $1.7 million for the three and nine months ended October 3, 2010, respectively. As of October 2, 2011, 346,308 performance units were outstanding, all subject to forfeiture.
Stock Awards: The Company generally grants stock awards only to non-employee directors. The Company granted 3,544 shares and 4,337 shares to each non-employee member of the Board during the nine months ended October 2, 2011 and October 3, 2010, respectively. The weighted-average per-share grant-date fair value of stock awards granted during the nine months ended October 2, 2011 and October 3, 2010 was $28.22 and $23.06, respectively. No compensation expense was recognized related to these stock awards in each of the three months ended October 2, 2011 and October 3, 2010, respectively. The total compensation expense recognized related to these stock awards was $0.8 million in each of the nine months ended October 2, 2011 and October 3, 2010, respectively.
Employee Stock Purchase Plan: During the nine months ended October 2, 2011, the Company issued 36,592 shares of common stock under the Company’s Employee Stock Purchase Plan at a weighted-average price of $25.57 per share. At October 2, 2011, an aggregate of 1.3 million shares of the Company’s common stock remained available for sale to employees out of the 5.0 million shares authorized by shareholders for issuance under this plan.



20

Table of Contents

Note 13: Goodwill and Intangible Assets, Net
The Company tests goodwill and non-amortizing intangible assets at least annually for possible impairment. Accordingly, the Company completes the annual testing of impairment for goodwill and non-amortizing intangible assets on the later of January 1 or the first day of each fiscal year. In addition to its annual test, the Company regularly evaluates whether events or circumstances have occurred that may indicate a potential impairment of goodwill or non-amortizing intangible assets.
The process of testing goodwill for impairment involves the determination of the fair value of the applicable reporting units. The test consists of a two-step process. The first step is the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value. The second step measures the amount of an impairment loss, and is only performed if the carrying value exceeds the fair value of the reporting unit. The Company performed its annual impairment testing for its reporting units as of January 3, 2011, its annual impairment date for fiscal year 2011, and concluded based on the first step of the process that there was no goodwill impairment.
The Company has consistently employed the income approach to estimate the current fair value when testing for impairment of goodwill. A number of significant assumptions and estimates are involved in the application of the income approach to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate and working capital changes. Cash flow forecasts are based on approved business unit operating plans for the early years’ cash flows and historical relationships in later years. The income approach is sensitive to changes in long-term terminal growth rates and the discount rates. The long-term terminal growth rates are consistent with the Company’s historical long-term terminal growth rates, as the current economic trends are not expected to affect the long-term terminal growth rates of the Company. The long-term terminal growth rates for the Company’s reporting units ranged from 5.0% to 7.5% for the fiscal year 2011 impairment analysis. The range for the discount rates for the reporting units was 9.5% to 12.0%. Keeping all other variables constant, a 10.0% change in any one of the input assumptions for the various reporting units would still allow the Company to conclude, based on the first step of the process, that there was no impairment of goodwill.
The Company has consistently employed the relief from royalty model to estimate the current fair value when testing for impairment of non-amortizing intangible assets. The impairment test consists of a comparison of the fair value of the non-amortizing intangible asset with its carrying amount. If the carrying amount of a non-amortizing intangible asset exceeds its fair value, an impairment loss in an amount equal to that excess is recognized. In addition, the Company currently evaluates the remaining useful life of its non-amortizing intangible assets at least annually to determine whether events or circumstances continue to support an indefinite useful life. If events or circumstances indicate that the useful lives of non-amortizing intangible assets are no longer indefinite, the assets will be tested for impairment. These intangible assets will then be amortized prospectively over their estimated remaining useful life and accounted for in the same manner as other intangible assets that are subject to amortization. The Company performed its annual impairment testing as of January 3, 2011, and concluded that there was no impairment of non-amortizing intangible assets. An assessment of the recoverability of amortizing intangible assets takes place only when events have occurred that may give rise to an impairment. No such events occurred during the first nine months of fiscal year 2011.
The changes in the carrying amount of goodwill for the period ended October 2, 2011 from January 2, 2011 were as follows:
 
 
Human
Health
 
Environmental
Health
 
Consolidated
 
(In thousands)
Balance at January 2, 2011
$
974,940

 
$
529,875

 
$
1,504,815

Foreign currency translation
10,020

 
3,559

 
13,579

Acquisitions, earn outs and other
62,480

 
177,531

 
240,011

Balance at October 2, 2011
$
1,047,440

 
$
710,965

 
$
1,758,405


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Table of Contents

Identifiable intangible asset balances at October 2, 2011 and January 2, 2011 by category were as follows:
 
 
October 2,
2011
 
January 2,
2011
 
(In thousands)
Patents
$
107,508

 
$
107,562

Less: Accumulated amortization
(83,319
)
 
(78,735
)
Net patents
24,189

 
28,827

Trade names and trademarks
21,053

 
16,219

Less: Accumulated amortization
(10,321
)
 
(8,243
)
Net trade names and trademarks
10,732

 
7,976

Licenses
68,660

 
60,810

Less: Accumulated amortization
(38,832
)
 
(33,704
)
Net licenses
29,828

 
27,106

Core technology
338,310

 
310,557

Less: Accumulated amortization
(208,350
)
 
(187,289
)
Net core technology
129,960

 
123,268

Customer relationships
229,994

 
140,831

Less: Accumulated amortization
(66,012
)
 
(53,888
)
Net customer relationships
163,982

 
86,943

IPR&D
7,230

 
3,499

Less: Accumulated amortization
(678
)
 
(405
)
Net IPR&D
6,552

 
3,094

Net amortizable intangible assets
365,243

 
277,214

Non-amortizing intangible assets:
 
 
 
Trade names and trademarks
147,034

 
147,034

Totals
$
512,277

 
$
424,248

Total amortization expense related to definite-lived intangible assets for the nine months ended October 2, 2011 and October 3, 2010 was $56.0 million and $44.9 million, respectively.

Note 14: Warranty Reserves
The Company provides warranty protection for certain products for periods usually ranging from one to three years beyond the date of sale. The majority of costs associated with warranty obligations include the replacement of parts and the time for service personnel to respond to repair and replacement requests. A warranty reserve is recorded based upon historical results, supplemented by management’s expectations of future costs. Warranty reserves are included in “Accrued expenses” on the condensed consolidated balance sheets. Warranty reserve activity for the three and nine months ended October 2, 2011 and October 3, 2010 is summarized below:
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Balance beginning of period
$
9,057

 
$
8,166

 
$
8,250

 
$
8,910

Provision charged to income
3,493

 
3,102

 
10,552

 
9,323

Payments
(3,863
)
 
(3,288
)
 
(11,025
)
 
(9,680
)
Adjustments to previously provided warranties, net
365

 
(24
)
 
922

 
(276
)
Foreign currency translation and acquisitions
(255
)
 
389

 
98

 
68

Balance end of period
$
8,797

 
$
8,345

 
$
8,797

 
$
8,345



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Table of Contents

Note 15: Employee Benefit Plans
The following table summarizes the components of net periodic benefit cost (credit) for the Company’s various defined benefit employee pension and postretirement plans for the three and nine months ended October 2, 2011 and October 3, 2010:
 
 
Defined Benefit
Pension Benefits
 
Postretirement
Medical Benefits
 
Three Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Service cost
$
971

 
$
1,153

 
$
23

 
$
20

Interest cost
6,331

 
6,234

 
43

 
48

Expected return on plan assets
(6,072
)
 
(6,029
)
 
(220
)
 
(213
)
Amortization of prior service
(54
)
 
(46
)
 
(63
)
 
(78
)
Recognition of actuarial losses (gains)
2,245

 
2,179

 
(19
)
 
(23
)
Net periodic benefit cost (credit)
$
3,421

 
$
3,491

 
$
(236
)
 
$
(246
)
 
 
 
 
 
 
 
 
 
Defined Benefit
Pension Benefits
 
Postretirement
Medical Benefits
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Service cost
$
2,899

 
$
3,592

 
$
68

 
$
76

Interest cost
18,940

 
18,765

 
128

 
153

Expected return on plan assets
(18,202
)
 
(17,759
)
 
(660
)
 
(624
)
Amortization of prior service
(160
)
 
(135
)
 
(190
)
 
(236
)
Recognition of actuarial losses (gains)
6,732

 
6,214

 
(56
)
 
(36
)
Net periodic benefit cost (credit)
$
10,209

 
$
10,677

 
$
(710
)
 
$
(667
)
During the three months ended October 3, 2010, the Company made a voluntary contribution of $30.0 million for the 2009 plan year to its defined benefit pension plan in the United States, to realize the benefit received from favorable tax provisions included in the Worker, Homeownership, and Business Assistance Act of 2009.

Note 16: Derivatives and Hedging Activities
The Company uses derivative instruments as part of its risk management strategy only, and includes derivatives utilized as economic hedges that are not designated as hedging instruments. By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions and has policies to monitor the credit risk of those counterparties. The Company does not enter into derivative contracts for trading or other speculative purposes, nor does the Company use leveraged financial instruments. Approximately 60% of the Company’s business is conducted outside of the United States, generally in foreign currencies. The fluctuations in foreign currency can increase the costs of financing, investing and operating the business. The intent of these economic hedges is to offset gains and losses that occur on the underlying exposures from these currencies, with gains and losses resulting from the forward currency contracts that hedge these exposures.
In the ordinary course of business, the Company enters into foreign exchange contracts for periods consistent with its committed exposures to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies. Transactions covered by hedge contracts include intercompany and third-party receivables and payables. The contracts are primarily in European and Asian currencies, have maturities that do not exceed 12 months, have no cash requirements until maturity, and are recorded at fair value on the Company’s condensed consolidated balance sheets. Unrealized gains and losses on the Company’s foreign currency contracts are recognized immediately in earnings for hedges designated as fair value and, for hedges designated as cash flow, the related unrealized gains or losses are deferred as a component of other comprehensive (loss) income in the accompanying condensed consolidated balance sheets. Deferred gains and losses are recognized in income in the period in which the underlying anticipated transaction occurs and impacts earnings.

23

Table of Contents

Principal hedged currencies include the British Pound (GBP), Canadian Dollar (CAD), Euro (EUR), Japanese Yen (JPY) and Singapore Dollar (SGD). The Company held forward foreign exchange contracts with U.S. equivalent notional amounts totaling $131.8 million at October 2, 2011 and $116.7 million at October 3, 2010, and the approximate fair value of these foreign currency derivative contracts was insignificant. The gains and losses realized on foreign currency derivative contracts are not material. The duration of these contracts was generally 30 days during both fiscal years 2011 and 2010.
In May 2008, the Company settled forward interest rate contracts with notional amounts totaling $150.0 million upon the issuance of its 2015 Notes, and recognized $8.4 million, net of taxes of $5.4 million, of accumulated derivative losses in other comprehensive (loss) income. The derivative losses are being amortized into interest expense when the hedged exposure affects interest expense. As of October 2, 2011, the balance remaining in accumulated other comprehensive loss related to the effective cash flow hedges was $4.4 million, net of taxes of $2.9 million. The Company amortized into interest expense $1.5 million for the first nine months of fiscal year 2011 and $2.0 million for fiscal year 2010.

Note 17: Fair Value Measurements
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the nine months ended October 2, 2011. The Company’s financial assets and liabilities carried at fair value are primarily comprised of marketable securities, derivative contracts used to hedge the Company’s currency risk, and acquisition-related contingent consideration. The Company has not elected to measure any additional financial instruments or other items at fair value.
Valuation Hierarchy: The following summarizes the three levels of inputs required to measure fair value. For Level 1 inputs, the Company utilizes quoted market prices as these instruments have active markets. For Level 2 inputs, the Company utilizes quoted market prices in markets that are not active, broker or dealer quotations, or utilizes alternative pricing sources with reasonable levels of price transparency. For Level 3 inputs, the Company utilizes unobservable inputs based on the best information available, including estimates by management primarily based on information provided by third-party fund managers, independent brokerage firms and insurance companies. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
The following tables show the assets and liabilities carried at fair value measured on a recurring basis at October 2, 2011 and January 2, 2011 classified in one of the three classifications described above:
 
 
Fair Value Measurements at October 2, 2011 Using:
 
Total Carrying
Value at
October 2,
2011
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(In thousands)
Marketable securities
$
1,023

 
$
1,023

 
$

 
$

Foreign exchange derivative liabilities, net
(57
)
 

 
(57
)
 

Contingent consideration
(21,039
)
 

 

 
(21,039
)
 
 
Fair Value Measurements at January 2, 2011 Using:
 
Total Carrying
Value at
January 2,
2011
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 
(In thousands)
Marketable securities
$
1,178

 
$
1,178

 
$

 
$

Foreign exchange derivative liabilities, net
(84
)
 

 
(84
)
 

Contingent consideration
(1,731
)
 

 

 
(1,731
)
Valuation Techniques: The Company’s Level 1 and Level 2 assets and liabilities are comprised of investments in equity and fixed-income securities as well as derivative contracts. For financial assets and liabilities that utilize Level 1 and Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including common stock price quotes, foreign exchange forward prices and bank price quotes. Below is a summary of valuation techniques for Level 1 and Level 2 financial assets and liabilities. 

24

Table of Contents

Marketable securities
Include equity and fixed-income securities measured at fair value using the quoted market prices at the reporting date.
 
 
Foreign exchange derivative assets and liabilities
Include foreign exchange derivative contracts that are valued using quoted forward foreign exchange prices at the reporting date.
The Company has classified its net liabilities for contingent consideration relating to its acquisitions of chemagen, ArtusLabs, IDB, Dexela and Sym-Bio LifeScience Co., Ltd. within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which included probability weighted cash flows. A description of the acquisitions completed in fiscal year 2011 is included in Note 2 and of the earlier acquisitions within Note 2 to the Company’s audited consolidated financial statements filed with the 2010 Form 10-K. A reconciliation of the beginning and ending Level 3 net liabilities is as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2011
 
October 3,
2010
 
October 2,
2011
 
October 3,
2010
 
(In thousands)
Balance beginning of period
$
(20,909
)
 
$
(1,713
)
 
$
(1,731
)
 
$
(4,251
)
Additions

 

 
(20,131
)
 

Payments

 

 
1,908

 
2,717

Change in fair value (included within selling, general and administrative expenses)
(130
)
 
62

 
(1,085
)
 
(117
)
Balance end of period
$
(21,039
)
 
$
(1,651
)
 
$
(21,039
)
 
$
(1,651
)
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturities of these assets and liabilities.
The Company’s senior unsecured revolving credit facility, with a $650.0 million available limit, and the Company’s 2015 Notes, with a face value of $150.0 million, had outstanding balances as of October 2, 2011 of $358.0 million and $150.0 million, respectively, and as of January 2, 2011 of $274.0 million and $150.0 million, respectively. The interest rate on the Company’s senior unsecured revolving credit facility is reset at least monthly to correspond to variable rates that reflect currently available terms and conditions for similar debt. The Company had no change in credit standing during the first nine months of fiscal year 2011. Consequently, the carrying value of the current year and prior year credit facilities approximate fair value. The fair value of the 2015 Notes is estimated using market quotes from brokers or is based on current rates offered for similar debt. At October 2, 2011, the 2015 Notes had an aggregate carrying value of $150.0 million and a fair value of $168.1 million. At January 2, 2011, the 2015 Notes had an aggregate carrying value of $150.0 million and a fair value of $166.8 million.
As of October 2, 2011, there has not been any significant impact to the fair value of the Company’s derivative liabilities due to credit risk. Similarly, there has not been any significant adverse impact to the Company’s derivative assets based on the evaluation of its counterparties’ credit risks.



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Note 18: Contingencies
The Company is conducting a number of environmental investigations and remedial actions at current and former locations of the Company and, along with other companies, has been named a potentially responsible party (“PRP”) for certain waste disposal sites. The Company accrues for environmental issues in the accounting period that the Company’s responsibility is established and when the cost can be reasonably estimated. The Company has accrued $6.5 million as of October 2, 2011, which represents management’s estimate of the total cost of ultimate disposition of known environmental matters. This amount is not discounted and does not reflect the recovery of any amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on the Company’s condensed consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the condensed consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”) filed a complaint dated October 23, 2002 in the United States District Court for the Southern District of New York, Civil Action No. 02-8448, against Amersham plc, Amersham BioSciences, PerkinElmer, Inc., PerkinElmer Life Sciences, Inc., Sigma-Aldrich Corporation, Sigma Chemical Company, Inc., Molecular Probes, Inc., and Orchid BioSciences, Inc. (the “New York Case”). The complaint alleges that the Company has breached its distributorship and settlement agreements with Enzo, infringed Enzo’s patents, engaged in unfair competition and fraud, and committed torts against Enzo by, among other things, engaging in commercial development and exploitation of Enzo’s patented products and technology, separately and together with the other defendants. Enzo seeks injunctive and monetary relief. In 2003, the court severed the lawsuit and ordered Enzo to serve individual complaints against the five defendants. The Company subsequently filed an answer and a counterclaim alleging that Enzo’s patents are invalid. In July 2006, the court issued a decision regarding the construction of the claims in Enzo’s patents that effectively limited the coverage of certain of those claims and, the Company believes, excludes certain of the Company’s products from the coverage of Enzo’s patents. Summary judgment motions were filed by the defendants in January 2007, and a hearing with oral argument on those motions took place in July 2007. In January 2009, the case was assigned to a new district court judge and in March 2009, the new judge denied the pending summary judgment motions without prejudice and ordered a stay of the case until the federal appellate court decides Enzo’s appeal of the judgment of the United States District Court for the District of Connecticut in Enzo Biochem vs. Applera Corp. and Tropix, Inc. (the “Connecticut Case”), which involves a number of the same patents and which could materially affect the scope of Enzo’s case against the Company. On March 26, 2010, the United States Court of Appeals for the Federal Circuit affirmed-in-part and reversed-in-part the judgment in the Connecticut Case. The New York Case against the Company and other defendants remains stayed except that the district court has permitted the Company and the other defendants to jointly file a motion for summary judgment on certain patent and other issues common to all of the defendants.
The Company believes it has meritorious defenses to the matter described above, and it is contesting the action vigorously. While this matter is subject to uncertainty, in the opinion of the Company’s management, based on its review of the information available at this time, the resolution of this matter will not have a material adverse effect on the Company’s condensed consolidated financial statements.
The Company is also subject to various other claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of its business activities. Although the Company has established accruals for potential losses that it believes are probable and reasonably estimable, in the opinion of the Company’s management, based on its review of the information available at this time, the total cost of resolving these other contingencies at October 2, 2011 should not have a material adverse effect on the Company’s condensed consolidated financial statements. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company.


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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report on Form 10-Q, including the following management’s discussion and analysis, contains forward-looking information that you should read in conjunction with the condensed consolidated financial statements and notes to the condensed consolidated financial statements that we have included elsewhere in this report. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “plans,” “anticipates,” “intends,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors below under the heading “Risk Factors” in Part II, Item 1A. that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview
We are a leading provider of technology, services and solutions to the diagnostics, research, environmental and safety, industrial and laboratory services markets. Through our advanced technologies, solutions and services, we address critical issues that help to improve the health and safety of people and their environment in two reporting segments:
Human Health. Develops diagnostics, tools and applications to help detect diseases earlier and more accurately and to accelerate the discovery and development of critical new therapies. Within the Human Health segment, we serve both the diagnostics and research markets.
Environmental Health. Provides technologies and applications to facilitate the creation of safer food and consumer products, more secure surroundings and efficient energy resources. Within the Environmental Health segment, we serve the environmental and safety, industrial and laboratory services markets.
Overview of the Third Quarter of Fiscal Year 2011
Our fiscal year ends on the Sunday nearest December 31. We report fiscal years under a 52/53 week format, and as a result certain fiscal years will contain 53 weeks. Both our 2011 and 2010 fiscal years include 52 weeks.
During the third quarter of fiscal year 2011, we continued to see good performance from acquisitions, investments in our ongoing technology and sales and marketing initiatives. Our overall sales in the third quarter of fiscal year 2011 increased $34.6 million, or 8%, as compared to the third quarter of fiscal year 2010, reflecting an increase of $12.9 million, or 7%, in our Human Health segment sales and an increase of $21.7 million, or 10%, in our Environmental Health segment sales. The increase in our Human Health segment sales during the three months ended October 2, 2011 was due primarily to growth generated from both our screening and our medical imaging businesses, partially offset by weakening demand in the research market. The increase in our Environmental Health segment sales during the three months ended October 2, 2011 was due primarily to growth in our environmental, food and consumer safety and testing products, as well as in the industrial markets.
In our Human Health segment during the third quarter of fiscal year 2011 as compared to the third quarter of fiscal year 2010, we experienced growth in the diagnostics market from increased demand for our neonatal and infectious disease screening offerings, particularly in the emerging markets such as China and Brazil. In our medical imaging business, we had continued growth from industrial and veterinary applications, as well as increased demand for our complementary metal-oxide-semiconductor (“CMOS”) imaging technology for orthopedic surgical and industrial applications. These increases were partially offset by the impact of tight inventory management in state and national labs for neonatal screening in the diagnostics market. We experienced growth in the research market due to continued demand for our pre-clinical offerings including our Operetta® cellular imaging instrument utilized for in-vitro research, as well as strong demand for our fluorescent reagents utilized for in-vivo imaging. The growth in the research market was offset in part by reduced sales to pharmaceutical companies resulting from continued customer consolidations in the pharmaceutical market. Despite this decline, we are encouraged by growth in China and India as demand from internal pharmaceutical research is migrating to lower cost regions. As the rising cost of healthcare continues to be one of the critical issues facing our customers, we anticipate that even with continued pressure on lab budgets and credit availability, the benefits of providing earlier detection of disease, which can result in savings of long-term health care costs as well as creating better outcomes for patients, are increasingly valued and we expect to see continued growth in these markets.

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In our Environmental Health segment, sales of environmental, food and consumer safety and testing products grew in the third quarter of fiscal year 2011 as increased regulations in environmental and food safety markets continue to drive strong demand for our analytical instrumentation and follow-on consumables. We saw continued strength in our inorganic analysis solutions, such as our recently launched NexION® mass spectrometer, as trace metals identification remains a critical component of contaminant detection for environmental, as well as food and consumer safety, applications. We also had continued growth in our molecular spectroscopy offering utilized primarily for materials analysis, chemical processing and semi-conductor applications in the industrial markets. We believe these trends will continue as emerging contaminant testing protocols and corresponding regulations are developed, resulting in continued demand for highly efficient, analytically sensitive and information rich testing solutions. We had modest growth in our laboratory services business for the third quarter of fiscal year 2011, as compared to the third quarter of fiscal year 2010. Our laboratory services business offers services designed to enable our customers to increase efficiencies and production time, while reducing maintenance costs, all of which continue to be critical for our customers.
Our consolidated gross margins decreased 35 basis points in the third quarter of fiscal year 2011, as compared to the third quarter of fiscal year 2010, due to changes in product mix with growth in sales of lower gross margin product offerings and increased freight costs, partially offset by increased sales volume and productivity improvements. Our consolidated operating margin decreased 234 basis points in the third quarter of fiscal year 2011, as compared to the third quarter of fiscal year 2010, primarily as a result of increased costs related to acquisitions, increased sales and marketing expenses, particularly in emerging territories, and growth investments in research and development, partially offset by cost containment and productivity initiatives.
We believe we are well positioned to continue to take advantage of the stable spending trends in our end markets and to promote our efficiencies in markets where current conditions may increase demand for certain services. Overall, we believe that our strategic focus on Human Health and Environmental Health coupled with our breadth of end markets, deep portfolio of technologies and applications, leading market positions, global scale and financial strength will provide us with a strong foundation for continued growth.

Recent Developments
Business Combinations
Acquisition of Caliper Life Sciences, Inc. In September 2011, we and a newly formed, indirect wholly owned subsidiary entered into a merger agreement with Caliper Life Sciences, Inc. (“Caliper”) under which Caliper will become our wholly owned subsidiary. Caliper is a provider of imaging and detection solutions for life sciences research, diagnostics and environmental markets. Caliper develops and sells integrated systems, consisting of instruments, software, reagents, laboratory automation tools, and assay development and discovery services primarily to pharmaceutical, biotechnology, and diagnostics companies, and government and other not-for-profit research institutions. We expect this acquisition to enhance our molecular imaging and detection technologies and to complement our offerings in life science, diagnostics, environmental and food markets. We expect to pay to the shareholders of Caliper $10.50 per share in cash. The aggregate consideration for this transaction is expected to be approximately $640.0 million and is expected to close in the fourth quarter of fiscal year 2011. We expect to report the operations for this acquisition within the results of our Human Health segment from the acquisition date.
In connection with the expected acquisition of Caliper, on October 25, 2011, we issued $500.0 million aggregate principal amount of unsecured senior notes due 2021 (the “2021 Notes”) in a registered public offering and received approximately $496.9 million of net proceeds from the issuance. The 2021 Notes mature in November 2021 and bear interest at an annual rate of 5%. Interest on the 2021 Notes is payable semi-annually on May 15th and November 15th each year. See Note 8 to our condensed consolidated financial statements in this quarterly report on Form 10-Q for additional information.
Acquisition of Dexela Limited. In June 2011, we acquired all of the outstanding stock of Dexela Limited. (“Dexela”). Dexela is a provider of flat panel CMOS x-ray detection technologies and services. We expect this acquisition to expand our current medical imaging portfolio in key areas including surgery, dental, cardiology and mammography, as well as non-destructive testing. With the addition of the CMOS technology to our imaging portfolio, customers will be able to choose between two complementary X-ray detector technologies to optimize their system performance and meet their specific application needs. We paid the shareholders of Dexela $26.1 million in cash for the stock of Dexela. We may pay additional contingent consideration of up to $12.2 million, with an estimated fair value of $4.6 million as of the closing date. The purchase price is also subject to potential adjustments for indemnification obligations of Dexela’s shareholders. We have reported the operations for this acquisition within the results of our Human Health segment from the acquisition date.
Acquisition of Labtronics, Inc. In May 2011, we acquired all of the outstanding stock of Labtronics, Inc. (“Labtronics”). Labtronics is a provider of procedures-based Electronic Laboratory Notebook (“ELN”) solutions for laboratories performing routine analysis in multiple industries. We expect this acquisition to extend our ELN and data integration software offerings into laboratories following strict routine procedures, late stage product or method development laboratories and environmental

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and food testing laboratories. Labtronics tools can be applied to procedure-based problems, including laboratory analysis, equipment calibration and validation, cleaning validation and other problems. We paid the shareholders of Labtronics $11.4 million in cash for the stock of Labtronics. The purchase price is also subject to potential adjustments for indemnification obligations of Labtronics’ shareholders. We have reported the operations for this acquisition within the results of our Environmental Health segment from the acquisition date.
Acquisition of Geospiza, Inc. In May 2011, we acquired all of the outstanding stock of Geospiza, Inc. (“Geospiza”). Geospiza is a developer of software systems for the management of genetic analysis and laboratory workflows. Geospiza primarily services biotechnology and pharmaceutical companies, universities, researchers, contract core and diagnostic laboratories involved in genetic testing and manufacturing bio-therapeutics by meeting their combined laboratory, data management and analytical needs. We expect this acquisition to enhance our software offerings, which will enable researchers to explore the genomic origins of disease effectively, and help address customers’ growing needs to manage knowledge and improve scientific productivity. We paid the shareholders of Geospiza $13.3 million in cash for the stock of Geospiza. The purchase price is also subject to potential adjustments for indemnification obligations of Geospiza’s shareholders. We have reported the operations for this acquisition within the results of our Human Health segment from the acquisition date.
Acquisition of CambridgeSoft Corporation. In April 2011, we acquired all of the outstanding stock of CambridgeSoft Corporation (“CambridgeSoft”). CambridgeSoft is a provider of discovery, collaboration and knowledge enterprise solutions, scientific databases and professional services. CambridgeSoft primarily services pharmaceutical, biotechnology and chemical industries with solutions that help customers create, analyze and communicate scientific data while improving the speed, quality, efficiency and predictability of research and development investments. We expect this acquisition to enhance our focus on knowledge management in laboratory settings by expanding our software offerings, enabling customers to share data used for scientific decisions. We paid the shareholders of CambridgeSoft $227.4 million in cash at the closing for the stock of CambridgeSoft. The purchase price is also subject to potential adjustments for indemnification obligations of CambridgeSoft’s shareholders. We have reported the operations for this acquisition within the results of our Environmental Health segment from the acquisition date.
Acquisition of ID Biological Systems, Inc. In March 2011, we acquired specified assets and assumed specified liabilities of ID Biological Systems, Inc. (“IDB”). IDB is a manufacturer of filter paper-based sample collection devices for neonatal screening and prenatal diagnostics. We expect this acquisition to enhance our market position in the prenatal and neonatal markets. We paid $7.7 million in cash at the closing for this transaction. We may pay additional contingent consideration of up to $3.3 million, with an estimated fair value of $0.3 million as of the closing date. The purchase price is also subject to potential adjustments for indemnification obligations of IDB’s shareholders. We have reported the operations for this acquisition within the results of our Human Health segment from the acquisition date.
Acquisition of ArtusLabs, Inc. In March 2011, we acquired all of the outstanding stock of ArtusLabs, Inc. (“ArtusLabs”). ArtusLabs offers the Ensemble® scientific knowledge platform, to accelerate research and development in the pharmaceutical, chemical, petrochemical and related industries. Ensemble® integrates disparate data from customers’ ELNs and informatics systems and databases. We expect this acquisition to enhance our focus on knowledge management in laboratory settings by expanding our informatics offerings, enabling customers to rapidly access enterprise-wide data. We paid the shareholders of ArtusLabs $15.2 million in cash at the closing for the stock of ArtusLabs. We may pay additional contingent consideration of up to $15.0 million, with an estimated fair value of $7.5 million as of the closing date. The purchase price is also subject to potential adjustments for indemnification obligations of ArtusLabs’ shareholders. We have reported the operations for this acquisition within the results of our Environmental Health segment from the acquisition date.
Acquisition of chemagen Biopolymer-Technologie AG. In February 2011, we acquired all of the outstanding stock of chemagen Biopolymer-Technologie AG (“chemagen”). chemagen manufactures and sells nucleic acid sample preparation systems and reagents utilizing magnetic bead technology. We expect this acquisition to enhance our genetic screening business by expanding our product offerings to diagnostics, academic and industrial end markets. We paid the shareholders of chemagen $34.6 million in cash for the stock of chemagen. We may pay additional contingent consideration of up to $20.3 million, with an estimated fair value of $7.7 million as of the closing date. The purchase price is also subject to potential adjustments for indemnification obligations of chemagen’s shareholders. We have reported the operations for this acquisition within the results of our Human Health segment from the acquisition date.



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Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, restructuring, pensions and other postretirement benefits, stock-based compensation, warranty costs, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. We believe our critical accounting policies include our policies regarding revenue recognition, allowances for doubtful accounts, inventory valuation, business combinations, value of long-lived assets, including intangibles, employee compensation and benefits, restructuring activities, gains or losses on dispositions and income taxes.
For a more detailed discussion of our critical accounting policies and estimates, please refer to the Notes to our Audited Consolidated Financial Statements and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2011 (the “2010 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”).

Consolidated Results of Continuing Operations
Sales
Sales for the three months ended October 2, 2011 were $453.7 million, as compared to $419.1 million for the three months ended October 3, 2010, an increase of $34.6 million, or 8%, which includes an approximate 3% increase in sales attributable to favorable changes in foreign exchange rates and an approximate 2% increase from acquisitions. The analysis in the remainder of this paragraph compares segment sales for the three months ended October 2, 2011 as compared to the three months ended October 3, 2010 and includes the effect of foreign exchange rate fluctuations and acquisitions. The total increase in sales reflects an increase of $12.9 million, or 7%, in our Human Health segment sales due to an increase in diagnostics market sales of $12.2 million, and an increase in research market sales of $0.7 million. Our Environmental Health segment sales increased $21.7 million, or 10%, due to increases in environmental and safety and industrial markets sales of $17.4 million, and an increase in laboratory services market sales of $4.3 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $9.9 million of revenue primarily related to our informatics business in our Environmental Health segment for the three months ended October 2, 2011 and $0.2 million for the three months ended October 3, 2010 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
Sales for the nine months ended October 2, 2011 were $1,381.1 million, as compared to $1,234.4 million for the nine months ended October 3, 2010, an increase of $146.7 million, or 12%, which includes an approximate 4% increase in sales attributable to favorable changes in foreign exchange rates and an approximate 2% increase from acquisitions. The analysis in the remainder of this paragraph compares segment sales for the nine months ended October 2, 2011 as compared to the nine months ended October 3, 2010 and includes the effect of foreign exchange rate fluctuations and acquisitions. The total increase in sales reflects an increase of $48.1 million, or 8%, in our Human Health segment sales due to an increase in diagnostics market sales of $34.3 million, and an increase in research market sales of $13.8 million. Our Environmental Health segment sales increased $98.6 million, or 15%, due to increases in environmental and safety and industrial markets sales of $68.6 million, and an increase in laboratory services market sales of $30.0 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $16.3 million of revenue primarily related to our informatics business in our Environmental Health segment for the nine months ended October 2, 2011 and $0.5 million for the nine months ended October 3, 2010 that otherwise would have been recorded by the acquired businesses during each of the respective periods.

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Cost of Sales
Cost of sales for the three months ended October 2, 2011 was $254.2 million, as compared to $233.4 million for the three months ended October 3, 2010, an increase of $20.8 million, or 9%. As a percentage of sales, cost of sales increased to 56.0% for the three months ended October 2, 2011, from 55.7% for the three months ended October 3, 2010, resulting in a decrease in gross margin of 35 basis points to 44.0% for the three months ended October 2, 2011, from 44.3% for the three months ended October 3, 2010. Amortization of intangible assets increased and was $13.9 million for the three months ended October 2, 2011, as compared to $11.1 million for the three months ended October 3, 2010. Stock-based compensation expense decreased and was $0.2 million for the three months ended October 2, 2011, as compared to $0.3 million for the three months ended October 3, 2010. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions completed in fiscal year 2011 was $0.1 million for the three months ended October 2, 2011. The decrease in gross margin was primarily the result of changes in product mix with growth in sales of lower gross margin product offerings and increased freight costs, partially offset by increased sales volume and productivity improvements.
Cost of sales for the nine months ended October 2, 2011 was $772.3 million, as compared to $684.1 million for the nine months ended October 3, 2010, an increase of $88.2 million, or 13%. As a percentage of sales, cost of sales increased to 55.9% for the nine months ended October 2, 2011, from 55.4% for the nine months ended October 3, 2010, resulting in a decrease in gross margin of 50 basis points to 44.1% for the nine months ended October 2, 2011, from 44.6% for the nine months ended October 3, 2010. Amortization of intangible assets increased and was $38.8 million for the nine months ended October 2, 2011, as compared to $31.3 million for the nine months ended October 3, 2010. Stock-based compensation expense was $0.8 million for each of the nine months ended October 2, 2011 and October 3, 2010. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions completed in fiscal year 2011 was $0.4 million for the nine months ended October 2, 2011. The decrease in gross margin was primarily the result of changes in product mix with growth in sales of lower gross margin product offerings and increased freight costs, partially offset by increased sales volume, productivity improvements and cost containment initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended October 2, 2011 were $135.1 million, as compared to $120.6 million for the three months ended October 3, 2010, an increase of $14.6 million, or 12%. As a percentage of sales, selling, general and administrative expenses increased and were 29.8% for the three months ended October 2, 2011, as compared to 28.8% for the three months ended October 3, 2010. Amortization of intangible assets increased and was $6.3 million for the three months ended October 2, 2011, as compared to $4.2 million for the three months ended October 3, 2010. Stock-based compensation expense decreased and was $1.1 million for the three months ended October 2, 2011, as compared to $3.4 million for the three months ended October 3, 2010. Acquisition related costs for integration, contingent consideration and other acquisition costs related to certain acquisitions added expense of $1.2 million for the three months ended October 2, 2011 and $0.2 million for the three months ended October 3, 2010. The increase in selling, general and administrative expenses was primarily the result of costs related to acquisitions and increased sales and marketing expenses, particularly in emerging territories, partially offset by cost containment and productivity initiatives.
Selling, general and administrative expenses for the nine months ended October 2, 2011 were $409.7 million, as compared to $365.4 million for the nine months ended October 3, 2010, an increase of $44.3 million, or 12%. As a percentage of sales, selling, general and administrative expenses increased and were 29.7% for the nine months ended October 2, 2011, as compared to 29.6% for the nine months ended October 3, 2010. Amortization of intangible assets increased and was $16.6 million for the nine months ended October 2, 2011, as compared to $12.4 million for the nine months ended October 3, 2010. Stock-based compensation expense decreased and was $8.2 million for the nine months ended October 2, 2011, as compared to $9.9 million for the nine months ended October 3, 2010. Acquisition related costs for integration, contingent consideration and other acquisition costs related to certain acquisitions added an expense of $6.1 million for the nine months ended October 2, 2011 and $2.1 million for the nine months ended October 3, 2010. In addition, $3.4 million from the gain on the sale of a facility in Boston, Massachusetts that was damaged in a fire in March 2005 partially offset selling, general and administrative expense in the nine months ended October 3, 2010. The increase in selling, general and administrative expenses was primarily the result of costs related to acquisitions and increased sales and marketing expenses, particularly in emerging territories, partially offset by cost containment and productivity initiatives.

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Research and Development Expenses
Research and development expenses for the three months ended October 2, 2011 were $30.2 million, as compared to $23.8 million for the three months ended October 3, 2010, an increase of $6.4 million, or 27%. As a percentage of sales, research and development expenses increased and were 6.7% for the three months ended October 2, 2011, as compared to 5.7% for the three months ended October 3, 2010. Amortization of intangible assets decreased and was $0.1 million for the three months ended October 2, 2011, as compared to $0.4 million for the three months ended October 3, 2010. Stock-based compensation expense was $0.1 million for each of the three months ended October 2, 2011 and October 3, 2010.
Research and development expenses for the nine months ended October 2, 2011 were $84.7 million, as compared to $69.8 million for the nine months ended October 3, 2010, an increase of $14.9 million, or 21%. As a percentage of sales, research and development expenses increased and were 6.1% for the nine months ended October 2, 2011, as compared to 5.7% for the nine months ended October 3, 2010. Amortization of intangible assets decreased and was $0.6 million for the nine months ended October 2, 2011, as compared to $1.2 million for the nine months ended October 3, 2010. Stock-based compensation expense increased and was $0.4 million for the nine months ended October 2, 2011, as compared to $0.3 million for the nine months ended October 3, 2010.
Restructuring and Lease Charges, Net
We have undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, alignment with our growth strategy and the integration of our business units.
A description of the restructuring plans and the activity recorded for the nine months ended October 2, 2011 is listed below. Details of the plans initiated in previous years, particularly those listed under “Previous Restructuring and Integration Plans,” are discussed more fully in Note 4 to the audited consolidated financial statements in the 2010 Form 10-K.
The restructuring plans for the second quarter of fiscal year 2011 and fourth quarter of fiscal year 2010 were intended principally to shift resources to higher growth geographic regions and end markets. The restructuring plan for the second quarter of fiscal year 2010 was intended principally to reduce resources in response to the continued economic downturn and its impact on demand in certain end markets and to shift resources to higher growth geographic regions and end markets. The activities associated with these plans have been reported as restructuring expenses and are included as a component of operating expenses from continuing operations. We expect the impact of immediate cost savings from the restructuring plans on operating results and cash flows to approximately offset the increased spending in higher growth regions and the decline in revenue from certain products, respectively. We expect the impact of future cost savings from these restructuring activities on operating results and cash flows to be negligible, as we will incur offsetting costs by shifting resources to higher growth geographic regions and end markets.
Q2 2011 Restructuring Plan
During the second quarter of fiscal year 2011, our management approved a plan to shift resources to higher growth geographic regions and end markets (the “Q2 2011 Plan”). As a result of the Q2 2011 Plan, we recognized a $2.2 million pre-tax restructuring charge in the Human Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. We also recognized a $3.4 million pre-tax restructuring charge in the Environmental Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. As part of the Q2 2011 Plan, we reduced headcount by 72 employees. All employee notifications and actions related to the closure of excess facility space for the Q2 2011 Plan were completed by July 3, 2011.
The following table summarizes the Q2 2011 Plan activity for the nine months ended October 2, 2011: 
 
Severance
 
Closure of
Excess Facility
Space
 
Total
 
(In thousands)
Provision
$
4,927

 
$
659

 
$
5,586

Amounts paid and foreign currency translation
(2,354
)
 
(659
)
 
(3,013
)
Balance at October 2, 2011
$
2,573

 
$

 
$
2,573

All employees have been notified of termination and we anticipate that the remaining severance payments of $2.6 million for workforce reductions will be completed by the end of the fourth quarter of fiscal year 2012.

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Q4 2010 Restructuring Plan
During the fourth quarter of fiscal year 2010, our management approved a plan to shift resources to higher growth geographic regions and end markets (the “Q4 2010 Plan”). As a result of the Q4 2010 Plan, we recognized a $5.6 million pre-tax restructuring charge in the Human Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. We also recognized a $7.6 million pre-tax restructuring charge in the Environmental Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. The restructuring costs for the closure of excess facility space were offset by the recognition of a $2.8 million gain that had been deferred from a previous sale-leaseback transaction on this facility. During the second quarter of fiscal year 2011, we recorded an additional pre-tax restructuring accrual of $0.2 million relating to the Q4 2010 Plan due to a reduction in the estimated sublease rental payments reasonably expected to be obtained for our excess facility space in the Environmental Health segment. As part of the Q4 2010 Plan, we reduced headcount by 113 employees. All employee notifications and actions related to the closure of excess facility space for the Q4 2010 Plan were completed by January 2, 2011.
The following table summarizes the Q4 2010 Plan activity for the nine months ended October 2, 2011: 
 
Severance
 
Closure of
Excess Facility
Space
 
Total
 
(In thousands)
Balance at January 2, 2011
$
7,852

 
$
4,070

 
$
11,922

Change in estimates

 
168

 
168

Amounts paid and foreign currency translation
(7,099
)
 
(374
)