PKI-09.28.2014-10Q Document
Table of Contents

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 September 28, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 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 October 30, 2014, there were outstanding 112,962,552 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.
Unaudited Financial Statements

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands, except per share data)
Product revenue
$
365,933

 
$
355,745

 
$
1,113,027

 
$
1,076,389

Service revenue
176,116

 
166,355

 
515,802

 
489,327

Total revenue
542,049

 
522,100

 
1,628,829

 
1,565,716

Cost of product revenue
190,041

 
192,247

 
580,974

 
569,143

Cost of service revenue
108,699

 
96,585

 
320,849

 
297,201

Total cost of revenue
298,740

 
288,832

 
901,823

 
866,344

Selling, general and administrative expenses
142,997

 
142,780

 
442,687

 
441,015

Research and development expenses
30,444

 
31,410

 
90,175

 
99,812

Restructuring and contract termination charges, net
11,092

 
1,124

 
13,969

 
23,681

Operating income from continuing operations
58,776

 
57,954

 
180,175

 
134,864

Interest and other expense, net
10,966

 
12,340

 
31,219

 
37,245

Income from continuing operations before income taxes
47,810

 
45,614

 
148,956

 
97,619

Provision for (benefit from) income taxes
4,912

 
4,851

 
19,104

 
(3,193
)
Income from continuing operations
42,898

 
40,763

 
129,852

 
100,812

Loss from discontinued operations before income taxes
(1,091
)
 
(758
)
 
(4,205
)
 
(2,103
)
(Loss) gain on disposition of discontinued operations before income taxes
(7
)
 
(64
)
 
(381
)
 
457

Income tax benefit from discontinued operations and dispositions
(477
)
 
(257
)
 
(1,725
)
 
(1,173
)
Loss on discontinued operations and dispositions
(621
)
 
(565
)
 
(2,861
)
 
(473
)
Net income
$
42,277

 
$
40,198

 
$
126,991

 
$
100,339

Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.38

 
$
0.36

 
$
1.15

 
$
0.90

Loss on discontinued operations and dispositions
(0.01
)
 
(0.01
)
 
(0.03
)
 
(0.00
)
Net income
$
0.38

 
$
0.36

 
$
1.13

 
$
0.89

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.38

 
$
0.36

 
$
1.14

 
$
0.89

Loss on discontinued operations and dispositions
(0.01
)
 
(0.00
)
 
(0.03
)
 
(0.00
)
Net income
$
0.37

 
$
0.36

 
$
1.12

 
$
0.88

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
112,646

 
111,827

 
112,662

 
112,285

Diluted
113,759

 
113,115

 
113,836

 
113,516

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 STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Net income
$
42,277

 
$
40,198

 
$
126,991

 
$
100,339

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(32,936
)
 
16,407

 
(29,596
)
 
1,703

Reclassification adjustments for losses on derivatives included in net income, net of tax
—

 
299

 
—

 
897

Unrealized (losses) gains on securities, net of tax
(12
)
 
40

 
(42
)
 
10

Other comprehensive (loss) income
(32,948
)
 
16,746

 
(29,638
)
 
2,610

Comprehensive income
$
9,329

 
$
56,944

 
$
97,353

 
$
102,949











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



4
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PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 28,
2014
 
December 29,
2013
 
(In thousands, except share and per share data)
Current assets:
 
 
 
Cash and cash equivalents
$
203,683

 
$
173,242

Accounts receivable, net
427,008

 
466,749

Inventories, net
281,617

 
260,858

Other current assets
161,389

 
140,342

Current assets of discontinued operations
650

 
3,647

Total current assets
1,074,347

 
1,044,838

Property, plant and equipment, net:
 
 
 
At cost
505,905

 
498,111

Accumulated depreciation
(328,581
)
 
(314,923
)
Property, plant and equipment, net
177,324

 
183,188

Marketable securities and investments
1,391

 
1,319

Intangible assets, net
396,466

 
460,430

Goodwill
2,123,235

 
2,143,120

Other assets, net
111,898

 
111,633

Long-term assets of discontinued operations
1,809

 
2,184

Total assets
$
3,886,470

 
$
3,946,712

Current liabilities:
 
 
 
Short-term debt
$
1,157

 
$
2,624

Accounts payable
160,506

 
166,881

Accrued restructuring and contract termination charges
22,175

 
26,374

Accrued expenses and other current liabilities
381,354

 
403,678

Current liabilities of discontinued operations
2,241

 
3,239

Total current liabilities
567,433

 
602,796

Long-term debt
858,578

 
932,104

Long-term liabilities
397,705

 
417,325

Total liabilities
1,823,716

 
1,952,225

Commitments and contingencies (see Note 19)

 

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 112,962,000 shares and 112,626,000 shares at September 28, 2014 and at December 29, 2013, respectively
112,962

 
112,626

Capital in excess of par value
114,225

 
119,906

Retained earnings
1,787,614

 
1,684,364

Accumulated other comprehensive income
47,953

 
77,591

Total stockholders’ equity
2,062,754

 
1,994,487

Total liabilities and stockholders’ equity
$
3,886,470

 
$
3,946,712

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
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Operating activities:
 
 
 
Net income
$
126,991

 
$
100,339

Less: loss from discontinued operations and dispositions, net of income taxes
2,861

 
473

Income from continuing operations
129,852

 
100,812

Adjustments to reconcile income from continuing operations to net cash provided by continuing operations:
Restructuring and contract termination charges, net
13,969

 
23,681

Depreciation and amortization
86,833

 
95,241

Stock-based compensation
11,769

 
11,423

Amortization of deferred debt financing costs, interest rate hedges and accretion of discounts
1,071

 
2,598

Gains on disposition
—

 
(1,566
)
Amortization of acquired inventory revaluation
—

 
203

Changes in operating assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested:
Accounts receivable, net
26,841

 
27,568

Inventories, net
(28,536
)
 
(32,020
)
Accounts payable
(4,009
)
 
(5,514
)
Accrued expenses and other
(52,133
)
 
(134,158
)
Net cash provided by operating activities of continuing operations
185,657

 
88,268

Net cash used in operating activities of discontinued operations
(624
)
 
(1,380
)
Net cash provided by operating activities
185,033

 
86,888

Investing activities:
 
 
 
Capital expenditures
(22,214
)
 
(31,554
)
Proceeds from surrender of life insurance policies
490

 
783

Proceeds from dispositions of property, plant and equipment, net
—

 
52,202

Activity related to acquisitions and investments, net of cash and cash equivalents acquired
(1,879
)
 
(7,049
)
Net cash (used in) provided by investing activities of continuing operations
(23,603
)
 
14,382

Net cash (used in) provided by investing activities of discontinued operations
(213
)
 
484

Net cash (used in) provided by investing activities
(23,816
)
 
14,866

Financing activities:
 
 
 
Payments on revolving credit facility
(305,000
)
 
(429,000
)
Proceeds from revolving credit facility
227,000

 
419,000

Payments of debt financing costs
(1,845
)
 
—

Settlement of cash flow hedges
—

 
1,363

Net (payments on) proceeds from other credit facilities
(1,225
)
 
5,530

Payments for acquisition-related contingent consideration
(855
)
 
—

Proceeds from issuance of common stock under stock plans
20,947

 
15,292

Purchases of common stock
(39,004
)
 
(127,186
)
Dividends paid
(23,713
)
 
(23,733
)
Net cash used in financing activities
(123,695
)
 
(138,734
)
Effect of exchange rate changes on cash and cash equivalents
(7,081
)
 
(2,161
)
Net increase (decrease) in cash and cash equivalents
30,441

 
(39,141
)
Cash and cash equivalents at beginning of period
173,242

 
171,444

Cash and cash equivalents at end of period
$
203,683

 
$
132,303

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 of America (the “U.S.” or the "United States") 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 December 29, 2013, filed with the SEC (the “2013 Form 10-K”). The balance sheet amounts at December 29, 2013 in this report were derived from the Company’s audited 2013 consolidated financial statements included in the 2013 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 September 28, 2014 and September 29, 2013, respectively, are not necessarily indicative of the results for the entire fiscal year or any future period. The Company has evaluated subsequent events from September 28, 2014 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.

Recently Adopted and Issued Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board and are adopted by the Company as of the specified effective dates. Unless otherwise discussed, such pronouncements did not have or 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.

In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under this new guidance, only disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an entity's operations and financial results will be presented as discontinued operations. The standard also requires new disclosures related to individually significant disposals that do not meet the definition of a discontinued operation. The provisions of this guidance are effective for interim and annual periods beginning after December 15, 2014. The Company is evaluating the requirements of this guidance and has not yet determined the impact of its adoption on the Company’s condensed consolidated financial position, results of operations and cash flows.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. Under this new guidance, an entity should use a five-step process to recognize revenue, which depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires new disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The provisions of this guidance are effective for interim and annual periods beginning after December 15, 2016. The Company is evaluating the requirements of this guidance and has not yet determined the impact of its adoption on the Company’s condensed consolidated financial position, results of operations and cash flows.

Note 2: Business Combinations

Acquisitions in fiscal year 2014
During the first nine months of fiscal year 2014, the Company completed an acquisition for total consideration of $1.5 million in cash, and $4.3 million of assumed debt. In addition, during October 2014 the Company completed an acquisition for total consideration of $16.7 million. The excess of the purchase prices over the fair value of the acquired businesses' 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 is allocated to goodwill, none of which is tax deductible. The Company reported, or expects to report, the operations for these acquisitions within the results of the Company's operations from the acquisition dates. As of

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September 28, 2014, the purchase accounting allocation related to the acquisition completed during the first nine months of fiscal year 2014 was preliminary.

Acquisitions in fiscal year 2013
During fiscal year 2013, the Company completed the acquisition of four businesses for total consideration of $11.4 million, in cash. During the first nine months of fiscal year 2014, the Company paid $0.4 million in additional deferred consideration for one of these acquisitions. As of the closing date of that acquisition, the Company potentially had to pay additional contingent consideration for the business of up to $2.2 million, which at closing had an estimated fair value of $1.1 million. The excess of the purchase prices over the fair values of each of the acquired businesses' 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 have been allocated to goodwill, none of which is tax deductible. The Company reported the operations for these acquisitions within the results of the Company's operations from the acquisition dates. As of September 28, 2014, the purchase accounting allocations related to these acquisitions were preliminary, with the exception of those acquisitions completed during the first nine months of fiscal year 2013.
The preliminary allocations of the purchase prices for these acquisitions were based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete the Company's valuations within the measurement periods, which are 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 acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. Adjustments to the preliminary allocations of the purchase prices during the measurement periods require the revision of comparative prior period financial information when reissued in subsequent financial statements. The effect of adjustments to the allocations of the purchase prices made during the measurement periods would be as if the adjustments had been completed on the acquisition dates. The effects of any such adjustments, if material, may cause changes in depreciation, amortization, or other income or expense recognized in prior periods. All changes that do not qualify as adjustments made during the measurement periods are included in current period earnings.
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 the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds or product development milestones during the earnout period.
The Company may have to pay contingent consideration, related to all acquisitions with open contingency periods, of up to $26.4 million as of September 28, 2014. As of September 28, 2014, the Company has recorded contingent consideration obligations relating to its acquisitions of Haoyuan Biotech Co. and Tetra Teknolojik Sistemler Limited Sirketi, with an estimated fair value of $1.3 million. The earnout period for each of these acquisitions does not exceed three years from the respective acquisition date. 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, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional consideration which would be expensed.
Total transaction costs related to acquisition activities for the three and nine months ended September 28, 2014 were $0.04 million and $0.2 million, respectively. Total transaction costs related to acquisition activities for the three and nine months ended September 29, 2013 were zero and $0.1 million, respectively. These transaction costs were expensed as incurred and recorded in selling, general and administrative expenses in the Company's condensed consolidated statements of operations.


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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. Any remaining 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 September 28, 2014 and December 29, 2013.
The Company recorded the following pre-tax gains and losses, which have been reported as a net gain or loss on disposition of discontinued operations:
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Loss on disposition of microarray-based diagnostic testing laboratory
$
—

 
$
—

 
$
(257
)
 
$
—

Gain on disposition of Photoflash business
—

 
—

 
—

 
493

Loss on disposition of other discontinued operations
(7
)
 
(64
)
 
(124
)
 
(36
)
(Loss) gain on disposition of discontinued operations, before income taxes
$
(7
)
 
$
(64
)
 
$
(381
)
 
$
457

In May 2014, the Company’s management approved the shutdown of its microarray-based diagnostic testing laboratory in the United States, which has been reported within the Human Health segment. The Company determined that, with the lack of adequate reimbursement from health care payers, the microarray-based diagnostic testing laboratory in the United States would need significant investment in its operations to reduce costs in order to effectively compete in the market. The shutdown of the microarray-based diagnostic testing laboratory in the United States resulted in a $0.3 million pre-tax loss related to the disposal of fixed assets and inventory during the nine months ended September 28, 2014.
In June 2010, the Company sold its Photoflash business, which was included in the Company's Environmental Health segment. During the nine months ended September 29, 2013, the Company recognized a pre-tax gain of $0.5 million for contingent consideration related to this sale. This gain was recognized as a gain on disposition of discontinued operations.
During the first nine months of both fiscal years 2014 and 2013, the Company settled various commitments related to the divestiture of other discontinued operations. The Company recognized pre-tax losses in the first nine months of both fiscal years 2014 and 2013. These losses were recognized as a loss on disposition of discontinued operations.
Summary pre-tax operating results of the discontinued operations for the periods prior to disposition, which included a $1.0 million pre-tax charge related to workforce reductions in the microarray-based diagnostic testing laboratory in the United States during the second quarter of fiscal year 2014, were as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Sales
$
—

 
$
2,177

 
$
960

 
$
7,236

Costs and expenses
1,091

 
2,935

 
5,165

 
9,339

Loss from discontinued operations before income taxes
$
(1,091
)
 
$
(758
)
 
$
(4,205
)
 
$
(2,103
)
The Company recorded a tax benefit of $0.5 million and a tax benefit of $1.7 million on discontinued operations and dispositions for the three and nine months ended September 28, 2014, respectively. The Company recorded a tax benefit of $0.3 million and a tax benefit of $1.2 million on discontinued operations and dispositions for the three and nine months ended September 29, 2013, respectively.

Note 4: Restructuring and Contract Termination 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, the integration of its business units and productivity initiatives. The current portion of restructuring and contract termination charges is recorded in accrued restructuring and contract termination charges

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and the long-term portion of restructuring and contract termination charges is recorded in long-term liabilities. The activities associated with these plans have been reported as restructuring and contract termination charges, net, and are included as a component of operating expenses from continuing operations.
A description of the restructuring plans and the activity recorded for the nine months ended September 28, 2014 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 2013 Form 10-K.
The restructuring plan for the third quarter of fiscal year 2014 was principally intended to realign resources to emphasize growth initiatives. The restructuring plans for the first and second quarters of fiscal year 2014 and the first quarter of fiscal year 2013 were principally intended to focus resources on higher growth end markets. The restructuring plans for the fourth and third quarters of fiscal year 2013 were principally intended to shift certain of the Company's research and development resources into a newly opened Center for Innovation. The restructuring plan for the second quarter of fiscal year 2013 was principally intended to shift certain of the Company's operations into a newly established shared service center as well as realign operations, research and development resources and production resources as a result of previous acquisitions.

A description of the restructuring plans and the activity recorded are as follows:

Q3 2014 Restructuring Plan
During the third quarter of fiscal year 2014, the Company’s management approved a plan principally intended to realign resources to emphasize growth initiatives (the “Q3 2014 Plan”). As a result of the Q3 2014 Plan, the Company recognized pre-tax restructuring charges of $6.9 million in the Human Health segment and $6.2 million in the Environmental Health segment related to workforce reductions from reorganization activities. As part of the Q3 2014 Plan, the Company reduced headcount by 152 employees. All employees were notified of termination, or in some cases the intention to terminate, under the Q3 2014 Plan by September 28, 2014.

The following table summarizes the Q3 2014 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Provision
$
13,051

Amounts paid and foreign currency translation
(694
)
Balance at September 28, 2014
$
12,357

The Company anticipates that the remaining severance payments of $12.4 million for workforce reductions will be substantially completed by the end of the third quarter of fiscal year 2015.

Q2 2014 Restructuring Plan
During the second quarter of fiscal year 2014, the Company’s management approved a plan principally intended to focus resources on higher growth end markets (the “Q2 2014 Plan”). As a result of the Q2 2014 Plan, the Company recognized pre-tax restructuring charges of $0.5 million in the Human Health segment and $0.3 million in the Environmental Health segment related to workforce reductions from reorganization activities. As part of the Q2 2014 Plan, the Company reduced headcount by 22 employees. All employees were notified of termination under the Q2 2014 Plan by June 29, 2014.

The following table summarizes the Q2 2014 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Provision
$
735

Amounts paid and foreign currency translation
(410
)
Balance at September 28, 2014
$
325

The Company anticipates that the remaining severance payments of $0.3 million for workforce reductions will be substantially completed by the end of the second quarter of fiscal year 2015.


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Q1 2014 Restructuring Plan
During the first quarter of fiscal year 2014, the Company’s management approved a plan principally intended to focus resources on higher growth end markets (the “Q1 2014 Plan”). As a result of the Q1 2014 Plan, the Company recognized pre-tax restructuring charges of $0.4 million in the Human Health segment and $0.2 million in the Environmental Health segment related to workforce reductions from reorganization activities. As part of the Q1 2014 Plan, the Company reduced headcount by 17 employees. All employees were notified of termination under the Q1 2014 Plan by March 30, 2014.

The following table summarizes the Q1 2014 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Provision
$
567

Amounts paid and foreign currency translation
(395
)
Balance at September 28, 2014
$
172

The Company anticipates that the remaining severance payments of $0.2 million for workforce reductions will be substantially completed by the end of the fourth quarter of fiscal year 2014.

Q4 2013 Restructuring Plan
During the fourth quarter of fiscal year 2013, the Company’s management approved a plan principally intended to shift certain of the Company's research and development resources into a newly opened Center for Innovation (the “Q4 2013 Plan”). As a result of the Q4 2013 Plan, the Company recognized an $8.2 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 and recognized a $3.0 million pre-tax restructuring charge in the Environmental Health segment related to a workforce reduction from reorganization activities. As part of the Q4 2013 Plan, the Company reduced headcount by 73 employees. All employees were notified of termination under the Q4 2013 Plan by December 29, 2013.

The following table summarizes the Q4 2013 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
Closure of
Excess Facility
Space
 
Total
 
(In thousands)
Balance at December 29, 2013
$
1,987

 
$
6,854

 
$
8,841

Amounts paid and foreign currency translation
(1,506
)
 
(1,501
)
 
(3,007
)
Balance at September 28, 2014
$
481

 
$
5,353

 
$
5,834


The Company anticipates that the remaining severance payments of $0.5 million for workforce reductions will be substantially completed by the end of the fourth quarter of fiscal year 2014. The Company also anticipates that the remaining payments of $5.4 million, net of estimated sublease income, for the closure of the excess facility space will be paid through fiscal year 2019, in accordance with the terms of the applicable leases.

Q3 2013 Restructuring Plan
During the third quarter of fiscal year 2013, the Company’s management approved a plan principally intended to shift certain of the Company's research and development resources into a newly opened Center for Innovation (the “Q3 2013 Plan”). As a result of the Q3 2013 Plan, the Company recognized a $0.5 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. As part of the Q3 2013 Plan, the Company reduced headcount by 29 employees. All employees were notified of termination under the Q3 2013 Plan by September 29, 2013.


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The following table summarizes the Q3 2013 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Balance at December 29, 2013
$
137

Amounts paid and foreign currency translation
(137
)
Balance at September 28, 2014
$
—

 
There are no severance payments remaining to be made under the Q3 2013 Plan.

Q2 2013 Restructuring Plan
During the second quarter of fiscal year 2013, the Company’s management approved a plan principally intended to shift certain of the Company's operations into a newly established shared service center as well as realign operations, research and development resources, and production resources as a result of previous acquisitions (the “Q2 2013 Plan”). As a result of the Q2 2013 Plan, the Company initially recognized pre-tax restructuring charges of $9.9 million in the Human Health segment and $8.8 million in the Environmental Health segment related to workforce reductions from reorganization activities and the closures of excess facility space. Subsequent to the initial charge, during fiscal year 2013, the Company recorded an additional $0.6 million pre-tax restructuring charge in the Human Health segment for services that were provided for one-time benefits in which the employee was required to render service beyond the legal notification period. During the nine months ended September 28, 2014, the Company recorded additional pre-tax restructuring charges of $0.1 million in each of the Human Health and Environmental Health segments due to higher than expected costs associated with the closure of the excess facility space. As part of the Q2 2013 Plan, the Company reduced headcount by 264 employees. All employees were notified of termination under the Q2 2013 Plan by June 30, 2013.
 
The following table summarizes the Q2 2013 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
Closure of
Excess Facility
Space
 
Total
 
(In thousands)
Balance at December 29, 2013
$
12,750

 
$
—

 
$
12,750

Change in estimates
—

 
184

 
184

Amounts paid and foreign currency translation
(9,610
)
 
(184
)
 
(9,794
)
Balance at September 28, 2014
$
3,140

 
$
—

 
$
3,140

 
The Company anticipates that the remaining severance payments of $3.1 million for workforce reductions will be substantially completed by the end of the fourth quarter of fiscal year 2014, as local law requires some severance to be paid in monthly installments through the fourth quarter of fiscal year 2014. The closure of the excess facility space will not require any additional payments.

Q1 2013 Restructuring Plan
During the first quarter of fiscal year 2013, the Company’s management approved a plan principally intended to focus resources on higher growth end markets (the “Q1 2013 Plan”). As a result of the Q1 2013 Plan, the Company recognized pre-tax restructuring charges of $2.3 million in the Human Health segment and $0.2 million in the Environmental Health segment related to workforce reductions from reorganization activities. During the nine months ended September 28, 2014, the Company recorded a pre-tax restructuring reversal of $0.2 million in the Human Health segment due to lower than expected costs associated with the remaining severance payments. As part of the Q1 2013 Plan, the Company reduced headcount by 62 employees. All employees were notified of termination under the Q1 2013 Plan by March 31, 2013.
 

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The following table summarizes the Q1 2013 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Balance at December 29, 2013
$
208

Change in estimates
(208
)
Balance at September 28, 2014
$
—

 
There are no severance payments remaining to be made under the Q1 2013 Plan.

Previous Restructuring and Integration Plans
The principal actions of the restructuring and integration plans from fiscal year 2001 through fiscal year 2012 were workforce reductions and the closure of excess facility space related to the integration of the Company’s businesses in order to realign operations, reduce costs, achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with the Company’s growth strategy. During the nine months ended September 28, 2014, the Company paid $4.5 million related to these plans and recognized pre-tax restructuring reversals of $0.8 million in the Human Health Segment and $1.1 million in the Environmental Health Segment related to lower than expected costs associated with workforce reductions. As of September 28, 2014, the Company had $6.9 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. The Company anticipates the remaining severance payments for workforce reductions will be substantially completed by the end of the fourth quarter of fiscal year 2014, as local law requires some severance to be paid in monthly installments through the fourth quarter of fiscal year 2014.

Contract Termination Charges
The Company has terminated various contractual commitments in connection with certain disposal activities and has recorded charges, to the extent applicable, for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to the Company. The Company recorded an additional pre-tax charge of $1.5 million, primarily as a result of terminating various contractual commitments in the Environmental Health segment, and the Company made payments for these obligations of $1.5 million in the first nine months of fiscal year 2014. The remaining balance of these accruals as of September 28, 2014 was $0.4 million.

Note 5: Interest and Other Expense, Net

Interest and other expense, net, consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Interest income
$
(130
)
 
$
(119
)
 
$
(375
)
 
$
(288
)
Interest expense
8,909

 
11,704

 
27,207

 
35,310

Other expense, net
2,187

 
755

 
4,387

 
2,223

Total interest and other expense, net
$
10,966

 
$
12,340

 
$
31,219

 
$
37,245


Note 6: Inventories, Net

Inventories as of September 28, 2014 and December 29, 2013 consisted of the following:
 
September 28,
2014
 
December 29,
2013
 
(In thousands)
Raw materials
$
98,737

 
$
92,713

Work in progress
17,450

 
15,505

Finished goods
165,430

 
152,640

Total inventories, net
$
281,617

 
$
260,858


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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 at a differing amount; and/or (iii) the statute of limitations expires regarding a tax position.
At September 28, 2014, the Company had gross tax effected unrecognized tax benefits of $32.1 million, of which $28.3 million, if recognized, would affect the continuing operations effective tax rate. The remaining amount, if recognized, would affect discontinued operations.
The Company believes that it is reasonably possible that approximately $3.0 million of its uncertain tax positions at September 28, 2014, including accrued interest and penalties, and net of tax benefits, may be resolved over the next twelve months as a result of lapses in applicable statutes of limitations and potential settlements. Various tax years after 2006 remain open to examination by certain jurisdictions in which the Company has significant business operations, such as China, Finland, Germany, Italy, Netherlands, Singapore, the United Kingdom and the United States. The tax years under examination vary by jurisdiction.
During the first nine months of fiscal years 2014 and 2013, the Company recorded net discrete income tax benefits of $5.8 million and $15.6 million, respectively, primarily for reversals of uncertain tax position reserves and resolution of other tax matters. The $15.6 million discrete income tax benefits for the nine months ended September 29, 2013 included $9.4 million of reversals as a result of lapses in statutes of limitation during the first quarter of fiscal year 2013.

Note 8: Debt

Senior Unsecured Revolving Credit Facility. On January 8, 2014, the Company refinanced its debt held under a previous senior unsecured revolving credit facility and entered into a new senior unsecured revolving credit facility. The new senior unsecured revolving credit facility provides for $700.0 million of revolving loans and has an initial maturity of January 8, 2019. As of September 28, 2014, undrawn letters of credit in the aggregate amount of $12.2 million were treated as issued and outstanding under the new senior unsecured revolving credit facility. As of September 28, 2014, the Company had $368.8 million available for additional borrowing under the new 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 or the base rate at the time of borrowing, plus a margin. The base rate is the higher of (i) the rate of interest in effect for such day as publicly announced from time to time by JP Morgan Chase Bank, N.A. as its "prime rate," (ii) the Federal Funds rate plus 50 basis points or (iii) one-month Libor plus 1.00%. At September 28, 2014, borrowings under the senior unsecured revolving credit facility were accruing interest based on the Eurocurrency rate. The Eurocurrency margin as of September 28, 2014 was 108 basis points. The weighted average Eurocurrency interest rate as of September 28, 2014 was 0.18%, resulting in a weighted average effective Eurocurrency rate, including the margin, of 1.26%. At September 28, 2014, the Company had $319.0 million of borrowings in U.S. Dollars outstanding under the senior unsecured revolving credit facility. The credit agreement for the facility contains affirmative, negative and financial covenants and events of default similar to those contained in the Company's credit agreement for its previous facility. The financial covenants in the Company's senior unsecured revolving credit facility include a debt-to-capital ratio, and two contingent covenants, a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio, applicable if the Company's credit rating is downgraded below investment grade. During the nine months ended September 28, 2014, the Company capitalized $1.8 million of debt financing costs for the refinancing of debt held under its previous senior unsecured revolving credit facility. These debt financing costs are being amortized into interest and other expense, net, on a straight-line basis, over the term of the new senior unsecured revolving credit facility.

The Company's previous senior unsecured revolving credit facility provided for $700.0 million of revolving loans and had an initial maturity of December 16, 2016. At December 29, 2013, the Company had $397.0 million of borrowings in U.S. Dollars outstanding under the previous senior unsecured revolving credit facility. The credit agreement for the previous facility contained affirmative, negative and financial covenants and events of default similar to those contained in the Company's new credit facility.
5% Senior Unsecured Notes due in 2021. On October 25, 2011, the Company issued $500.0 million aggregate principal amount of senior unsecured notes due in 2021 (the “2021 Notes”) in a registered public offering and received $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

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of $3.1 million. As of September 28, 2014, the 2021 Notes had an aggregate carrying value of $497.6 million, net of $2.4 million of unamortized original issue discount. As of December 29, 2013, the 2021 Notes had an aggregate carrying value of $497.4 million, net of $2.6 million of unamortized original issue discount. 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 redemption price equal to the greater of (i) 100% of the principal amount of the 2021 Notes to be redeemed, plus accrued and unpaid interest, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest in respect to the 2021 Notes being redeemed, discounted on a semi-annual basis, at the Treasury Rate plus 45 basis points, 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.
Financing Lease Obligations. In September 2012, the Company entered into agreements with the lessors of certain buildings that the Company is currently occupying and leasing to expand those buildings. The Company provided a portion of the funds needed for the construction of the additions to the buildings, which resulted in the Company being considered the owner of the buildings during the construction period. At the end of the construction period, the Company was not reimbursed by the lessors for all of the construction costs. The Company is therefore deemed to have continuing involvement and the leases qualify as financing leases under sale-leaseback accounting guidance, representing debt obligations for the Company and non-cash investing and financing activities. As a result, the Company capitalized $29.3 million in property and equipment, net, representing the fair value of the buildings with a corresponding increase to debt. The Company has also capitalized $11.5 million in additional construction costs necessary to complete the renovations to the buildings, which were funded by the lessors, with a corresponding increase to debt. At September 28, 2014, the Company had $39.5 million recorded for these financing lease obligations, of which $1.1 million was recorded as short-term debt and $38.5 million was recorded as long-term debt. At December 29, 2013, the Company had $40.3 million recorded for these financing lease obligations, of which $2.6 million was recorded as short-term debt and $37.7 million was recorded as long-term debt. The buildings are being depreciated on a straight-line basis over the terms of the leases to their estimated residual values, which will equal the remaining financing obligation at the end of the lease term. At the end of the lease term, the remaining balances in property, plant and equipment, net and debt will be reversed against each other.
Other Obligations. At September 28, 2014, the Company had $3.6 million of borrowings under other obligation arrangements, of which $0.1 million was recorded as short-term debt and $3.5 million was recorded as long-term debt. At December 29, 2013, the Company had no borrowings under other obligation arrangements.

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
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Number of common shares—basic
112,646

 
111,827

 
112,662

 
112,285

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
870

 
997

 
964

 
987

Restricted stock awards
243

 
291

 
210

 
244

Number of common shares—diluted
113,759

 
113,115

 
113,836

 
113,516

Number of potentially dilutive securities excluded from calculation due to antidilutive impact
482

 
465

 
480

 
493


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Antidilutive securities include outstanding stock options with exercise prices and average unrecognized compensation cost in excess of the average fair market value of common stock for the related period. 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 revenue and operating income. Intersegment revenue and transfers are not significant. The Company’s management reviews the results of the Company’s operations by the Human Health and Environmental Health 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 2013 Form 10-K. The principal products and services of the Company's two 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. The Human Health segment serves both the diagnostics and research markets.
•
Environmental Health.    Provides products, services and solutions to facilitate the creation of safer food and consumer products, more secure surroundings and efficient energy resources. The Environmental Health segment serves the environmental, industrial and laboratory services markets.
The Company has included the expenses for its corporate headquarters, such as legal, tax, audit, human resources, information technology, and other management and compliance costs, as well as the activity related to the mark-to-market adjustment on postretirement benefit plans, as “Corporate” below. The Company has a process to allocate and recharge expenses to the reportable segments when these costs are administered or paid by the corporate headquarters based on the extent to which the segment benefited from the expenses. 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 for all purposes, including determining the compensation of the business leaders for each of the Company’s operating segments.

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Revenue and operating income (loss) by operating segment, excluding discontinued operations, are shown in the table below: 
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Human Health
 
 
 
 
 
 
 
Product revenue(1)
$
237,312

 
$
227,167

 
$
721,449

 
$
682,164

Service revenue
64,213

 
63,040

 
185,770

 
184,256

Total revenue
301,525

 
290,207

 
907,219

 
866,420

Operating income from continuing operations
45,033

 
44,659

 
141,737

 
101,100

Environmental Health
 
 
 
 
 
 
 
Product revenue
128,621

 
128,578

 
391,578

 
394,225

Service revenue
111,903

 
103,315

 
330,032

 
305,071

Total revenue
240,524

 
231,893

 
721,610

 
699,296

Operating income from continuing operations(1)
21,596

 
21,896

 
73,967

 
61,922

Corporate
 
 
 
 
 
 
 
Operating loss from continuing operations(2) (3)
(7,853
)
 
(8,601
)
 
(35,529
)
 
(28,158
)
Continuing Operations
 
 
 
 
 
 
 
Product revenue
365,933

 
355,745

 
1,113,027

 
1,076,389

Service revenue
176,116

 
166,355

 
515,802

 
489,327

Total revenue
542,049

 
522,100

 
1,628,829

 
1,565,716

Operating income from continuing operations
58,776

 
57,954

 
180,175

 
134,864

Interest and other expense, net (see Note 5)
10,966

 
12,340

 
31,219

 
37,245

Income from continuing operations before income taxes
$
47,810

 
$
45,614

 
$
148,956

 
$
97,619

____________________________
(1) 
In the third quarter of fiscal year 2014, the Company settled litigation and entered into a fully paid license related to the Company's microfluidics technology licensing program. The Company has allocated the proceeds of this license between revenue and litigation settlement using the residual method and concluded that the litigation settlement had no value. The Company has no future performance obligations associated with this license. The Company recognized revenue of $7.5 million in cash from the license within the Human Health segment. Also within the Human Health segment, the Company recognized revenue of $2.6 million in other consideration resulting from concurrent modifications to an existing collaboration agreement.

(2) 
Activity related to the mark-to-market adjustment on postretirement benefit plans has been included in the Corporate operating loss from continuing operations, and in the aggregate constituted a pre-tax gain of $0.1 million for each of the nine months ended September 28, 2014 and September 29, 2013. There were no expenses related to the mark-to-market adjustment on postretirement benefit plans for either the three months ended September 28, 2014 or September 29, 2013.

(3) 
In 2002, Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”) filed a complaint that alleged that the Company separately and together with other defendants breached 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. The Company entered into a settlement agreement with Enzo dated June 20, 2014 and in the third quarter of fiscal year 2014 paid $7.0 million into a designated escrow account to resolve this matter, of which $3.7 million had been accrued in previous years and $3.3 million was recorded during the second quarter of fiscal year 2014. In addition, $3.4 million of expenses were incurred and recorded in preparation for the trial during the six months ended June 29, 2014.


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Note 11: Stockholders’ Equity
Comprehensive Income:
The components of accumulated other comprehensive income consisted of the following:
 
September 28,
2014
 
December 29,
2013
 
(In thousands)
Foreign currency translation adjustments
$
46,687

 
$
76,283

Unrecognized prior service costs, net of income taxes
1,429

 
1,429

Unrealized net losses on securities, net of income taxes
(163
)
 
(121
)
Accumulated other comprehensive income
$
47,953

 
$
77,591

In December 2013, the Company redeemed all of its 6% senior unsecured notes due in 2015 and wrote-off the remaining unamortized derivative losses for previously settled cash flow hedges. During the nine months ended September 29, 2013, pre-tax losses of $1.5 million were reclassified from accumulated other comprehensive income into interest and other expense, net related to previously settled cash flow hedges. The Company recognized a tax benefit of $0.6 million related to these amounts reclassified out of accumulated other comprehensive income for the nine months ended September 29, 2013.

Stock Repurchase Program:
On October 24, 2012, the Company's Board of Directors ("the Board") authorized the Company to repurchase up to 6.0 million shares of common stock under a stock repurchase program (the "Repurchase Program"). The Repurchase Program expired on October 24, 2014. On October 23, 2014, the Board authorized the Company to repurchase up to 8.0 million shares of common stock under a new stock repurchase program (the "New Repurchase Program"). The New Repurchase Program will expire on October 23, 2016 unless terminated earlier by the Board, and may be suspended or discontinued at any time. During the nine months ended September 28, 2014, the Company repurchased 0.8 million shares of common stock in the open market at an aggregate cost of $34.8 million, including commissions, under the Repurchase Program. As of September 28, 2014, 1.7 million shares of the Company’s common stock remained available for repurchase from the 6.0 million shares authorized by the Board under the Repurchase Program. These shares ceased to be available for repurchase under the Repurchase Program upon its expiration on October 24, 2014.
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 and to satisfy obligations related to the exercise of stock options made pursuant to the Company's equity incentive plans. During the nine months ended September 28, 2014, the Company repurchased 97,774 shares of common stock for this purpose at an aggregate cost of $4.2 million. The repurchased shares have been reflected as additional authorized but unissued shares, 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 for each of the first three quarters of fiscal year 2014 and in each quarter of fiscal year 2013. At September 28, 2014, the Company has accrued $7.9 million for dividends declared on July 24, 2014 for the third quarter of fiscal year 2014, payable in November 2014. On October 23, 2014, the Company announced that the Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2014 that will be payable in February 2014. 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

In addition to the Company's Employee Stock Purchase Plan, 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 are authorized for stock option grants, restricted stock awards, performance units and stock grants as part of the Company’s compensation programs. In addition to shares of the Company’s common stock originally authorized for issuance under the 2009 Plan, the 2009 Plan includes shares of the Company’s common stock previously granted under the Amended and Restated 2001 Incentive Plan and the 2005 Incentive Plan that were canceled or forfeited without the shares being issued.



18
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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 statements of operations for the three and nine months ended September 28, 2014 and September 29, 2013:
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Cost of product and service revenue
$
386

 
$
337

 
$
1,056

 
$
958

Research and development expenses
39

 
203

 
400

 
629

Selling, general and administrative expenses
2,025

 
3,241

 
10,313

 
9,836

Total stock-based compensation expense
$
2,450

 
$
3,781

 
$
11,769

 
$
11,423

The total income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation was $0.8 million and $4.2 million for the three and nine months ended September 28, 2014, respectively. The total income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation was $1.2 million and $3.6 million for the three and nine months ended September 29, 2013, respectively. Stock-based compensation costs capitalized as part of inventory were $0.4 million and $0.3 million as of September 28, 2014 and September 29, 2013, respectively. The excess tax benefit recognized from stock compensation, classified as a financing cash activity, was zero for each of the nine months ended September 28, 2014 and September 29, 2013.
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
 
September 28,
2014
 
September 29,
2013
Risk-free interest rate
1.5
%
 
0.9
%
Expected dividend yield
0.7
%
 
0.8
%
Expected lives
5 years

 
5 years

Expected stock volatility
30.9
%
 
38.5
%
The following table summarizes stock option activity for the nine months ended September 28, 2014:
 
Number
of
Shares
 
Weighted-
Average Exercise
Price
 
Weighted-Average
Remaining
Contractual Term
 
Total
Intrinsic
Value
 
(In thousands)
 
 
 
(In years)
 
(In millions)
Outstanding at December 29, 2013
3,494

 
$
23.34

 
 
 
 
Granted
520

 
43.12

 
 
 
 
Exercised
(889
)
 
23.55

 
 
 
 
Canceled
(4
)
 
20.97

 
 
 
 
Forfeited
(108
)
 
34.85

 
 
 
 
Outstanding at September 28, 2014
3,013

 
$
26.28

 
3.6
 
$
58.2

Exercisable at September 28, 2014
2,033

 
$
21.46

 
2.6
 
$
49.1

Vested and expected to vest in the future
2,972

 
$
26.18

 
3.5
 
$
57.8

The weighted-average per-share grant-date fair value of options granted during the three and nine months ended September 28, 2014 was $12.78 and $11.86, respectively. There were no options granted during the three months ended September 29, 2013. The weighted-average per-share grant-date fair value of options granted during the nine months ended September 29, 2013 was $10.82. The total intrinsic value of options exercised during the three and nine months ended September 28, 2014 was $1.9 million and $19.6 million, respectively. The total intrinsic value of options exercised during the three and nine months ended September 29, 2013 was $6.2 million and $10.3 million, respectively. Cash received from option exercises for the nine months ended September 28, 2014 and September 29, 2013 was $20.9 million and $15.3 million, respectively.

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The total compensation expense recognized related to the Company’s outstanding options was $1.0 million and $3.9 million for the three and nine months ended September 28, 2014, respectively, and $1.1 million and $3.2 million for the three and nine months ended September 29, 2013, respectively.
There was $7.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options granted as of September 28, 2014. This cost is expected to be recognized over a weighted-average period of 1.9 years and will be adjusted for any future changes in estimated forfeitures.
Restricted Stock Awards: The following table summarizes restricted stock award activity for the nine months ended September 28, 2014:
 
Number of
Shares
 
Weighted-
Average
Grant-
Date Fair
Value
 
(In thousands)
 
 
Nonvested at December 29, 2013
649

 
$
29.24

Granted
242

 
42.69

Vested
(256
)
 
27.68

Forfeited
(67
)
 
33.35

Nonvested at September 28, 2014
568

 
$
35.20

The weighted-average per-share grant-date fair value of restricted stock awards granted during the three and nine months ended September 28, 2014 was $45.42 and $42.69, respectively. The weighted-average per-share grant-date fair value of restricted stock awards granted during the three and nine months ended September 29, 2013 was $36.11 and $33.74, respectively. The fair value of restricted stock awards vested during the three and nine months ended September 28, 2014 was $0.1 million and $7.1 million, respectively. The fair value of restricted stock awards vested during the three and nine months ended September 29, 2013 was $0.4 million and $7.6 million, respectively. The total compensation expense recognized related to the Company’s outstanding restricted stock awards was $1.6 million and $5.5 million for the three and nine months ended September 28, 2014, respectively, and $1.7 million and $5.6 million for the three and nine months ended September 29, 2013, respectively.
As of September 28, 2014, there was $11.7 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 1.4 years.
Performance Units: The Company granted 79,463 and 98,056 performance units during the nine months ended September 28, 2014 and September 29, 2013, 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 September 28, 2014 and September 29, 2013 was $42.84 and $34.06, respectively. During the nine months ended September 28, 2014 and September 29, 2013, 19,667 and 28,515 performance units were forfeited, respectively. The total compensation expense recognized related to performance units was a reversal of expense of $0.2 million and an expense of $1.6 million for the three and nine months ended September 28, 2014, respectively, and expenses of $1.0 million and $1.9 million for the three and nine months ended September 29, 2013, respectively. As of September 28, 2014, there were 252,012 performance units outstanding and subject to forfeiture, with a corresponding liability of $4.2 million recorded in accrued expenses and other current liabilities.
Stock Awards: The Company generally grants stock awards only to non-employee members of the Board. The Company granted 2,373 shares and 3,263 shares to each non-employee member of the Board during the nine months ended September 28, 2014 and September 29, 2013, respectively. The weighted-average per-share grant-date fair value of the stock awards granted during the nine months ended September 28, 2014 and September 29, 2013 was $42.14 and $30.65, respectively. The total compensation expense recognized related to these stock awards was $0.7 million for each of the nine months ended September 28, 2014 and September 29, 2013.
Employee Stock Purchase Plan: During the nine months ended September 28, 2014, the Company issued 60,870 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $41.71 per share. During the nine months ended September 29, 2013, the Company issued 89,521 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $30.51 per share. At September 28, 2014, an aggregate of 1.0 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.

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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 1, 2014, its annual impairment date for fiscal year 2014. The Company concluded based on the first step of the process that there was no goodwill impairment, and the fair value exceeded the carrying value by more than 90.0% for each reporting unit, with the exception of the life sciences and technology reporting unit where the fair value exceeded the carrying value by approximately 11.0%. The carrying value of the goodwill for the life sciences and technology reporting unit was $796.3 million, at the annual impairment date for fiscal year 2014. The long-term terminal growth rates for the Company’s reporting units ranged from 3.0% to 6.0% for the fiscal year 2014 impairment analysis. The range for the discount rates for the reporting units was 10.0% to 11.5%. 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.
During the second quarter of 2014, the Company realigned its organization which resulted in a change in the composition of the Company's reporting units within the Human Health segment. The Company's informatics business was moved from the life sciences and technology reporting unit to its own reporting unit. As a result of the new alignment, the Company reallocated goodwill based on the relative fair value, determined using the income approach, of each of these businesses. During the third quarter of 2014, the Company finalized this analysis and the realignment resulted in $220.3 million of goodwill being reallocated from the life sciences and technology reporting unit to the informatics reporting unit. The Company concluded based on the first step of the process that there was no goodwill impairment for either the life sciences and technology reporting unit or the informatics reporting unit, and the fair value exceeded the carrying value by more than 20.0% for each of these reporting units.
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 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 evaluates the remaining useful lives 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 lives 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 1, 2014, and concluded that there was no impairment of non-amortizing intangible assets. An assessment of the recoverability of amortizing intangible assets takes place when events have occurred that may give rise to an impairment. No such events occurred during the first nine months of fiscal year 2014.

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The changes in the carrying amount of goodwill for the period ended September 28, 2014 from December 29, 2013 were as follows:
 
Human
Health
 
Environmental
Health
 
Consolidated
 
(In thousands)
Balance at December 29, 2013
$
1,648,332

 
$
494,788

 
$
2,143,120

Foreign currency translation
(18,158
)
 
(5,443
)
 
(23,601
)
Acquisitions and other
3,716

 
—

 
3,716

Balance at September 28, 2014
$
1,633,890

 
$
489,345

 
$
2,123,235

Identifiable intangible asset balances at September 28, 2014 and December 29, 2013 by category were as follows:
 
September 28,
2014
 
December 29,
2013
 
(In thousands)
Patents
$
39,971

 
$
39,591

Less: Accumulated amortization
(26,560
)
 
(24,207
)
Net patents
13,411

 
15,384

Trade names and trademarks
34,846

 
35,809

Less: Accumulated amortization
(17,803
)
 
(16,208
)
Net trade names and trademarks
17,043

 
19,601

Licenses
78,968

 
79,180

Less: Accumulated amortization
(59,135
)
 
(52,930
)
Net licenses
19,833

 
26,250

Core technology
301,668

 
302,070

Less: Accumulated amortization
(194,593
)
 
(169,326
)
Net core technology
107,075

 
132,744

Customer relationships
319,120

 
321,395

Less: Accumulated amortization
(158,084
)
 
(132,833
)
Net customer relationships
161,036

 
188,562

IPR&D
10,388

 
9,483

Less: Accumulated amortization
(2,904
)
 
(2,178
)
Net IPR&D
7,484

 
7,305

Net amortizable intangible assets
325,882

 
389,846

Non-amortizing intangible assets:
 
 
 
Trade names and trademarks
70,584

 
70,584

Total
$
396,466

 
$
460,430

Total amortization expense related to definite-lived intangible assets was $20.6 million and $61.9 million for the three and nine months ended September 28, 2014, respectively, and $22.8 million and $67.0 million for the three and nine months September 29, 2013, respectively. Estimated amortization expense related to definite-lived intangible assets for each of the next five years is $19.9 million for the remainder of fiscal year 2014, $69.2 million in fiscal year 2015, $60.2 million in fiscal year 2016, $50.7 million in fiscal year 2017, and $39.1 million in fiscal year 2018.

Note 14: Warranty Reserves

The Company provides warranty protection for certain products usually for a period of one year 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 and other current liabilities” on the condensed consolidated balance sheets.

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A summary of warranty reserve activity for the three and nine months ended September 28, 2014 and September 29, 2013 is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Balance beginning of period
$
10,786

 
$
10,451

 
$
10,534

 
$
11,003

Provision charged to income
4,187

 
4,160

 
12,596

 
12,673

Payments
(4,154
)
 
(4,113
)
 
(12,509
)
 
(12,781
)
Adjustments to previously provided warranties, net
(130
)
 
268

 
44

 
(54
)
Foreign currency translation and acquisitions
(293
)
 
122

 
(269
)
 
47

Balance end of period
$
10,396

 
$
10,888

 
$
10,396

 
$
10,888


Note 15: Employee Postretirement 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 September 28, 2014 and September 29, 2013:
 
Defined Benefit
Pension Benefits
 
Postretirement
Medical Benefits
 
Three Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Service cost
$
1,030

 
$
916

 
$
24

 
$
28

Interest cost
5,914

 
5,312

 
39

 
36

Expected return on plan assets
(6,277
)
 
(6,261
)
 
(241
)
 
(241
)
Amortization of prior service costs
(72
)
 
(67
)
 
—

 
—

Net periodic benefit cost (credit)
$
595

 
$
(100
)
 
$
(178
)
 
$
(177
)
 
Defined Benefit
Pension Benefits
 
Postretirement
Medical Benefits
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Service cost
$
3,094

 
$
2,757

 
$
72

 
$
85

Interest cost
17,761

 
15,925

 
116

 
107

Expected return on plan assets
(18,820
)
 
(18,778
)
 
(723
)
 
(723
)
Amortization of prior service
(214
)
 
(201
)
 
—

 
—

Net periodic benefit cost (credit)
$
1,821

 
$
(297
)
 
$
(535
)
 
$
(531
)
During the first nine months of fiscal year 2014, the Company contributed $2.8 million, in the aggregate, to pension plans outside of the United States. During the first nine months of fiscal year 2013, the Company contributed $17.9 million, in the aggregate, to pension plans outside of the United States, including an additional contribution of $10.0 million to its defined benefit pension plan in the United Kingdom. During the first nine months of fiscal year 2013, the Company made contributions of $37.0 million for the 2012 plan year to its defined benefit pension plan in the United States.
In the third quarter of fiscal year 2014, the Company notified employees of its intention to terminate their employment as part of the Q3 2014 restructuring plan. The removal of these participants will decrease the expected future service lives in excess of the curtailment limit for one of the Company's pension plans, resulting in a curtailment. The curtailment is expected to be a gain and will be measured and recorded when the notified employees separate from the Company. Employee separation is expected to begin during the fourth quarter of fiscal year 2014 and continue through the first half of fiscal year 2015.

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Table of Contents

The Company recognizes actuarial gains and losses in operating results in the fourth quarter of the year in which the gains and losses occur, in accordance with the Company's accounting method for defined benefit pension plans and other postretirement benefits as described in Note 1 of the Company's audited consolidated financial statements and notes included in its 2013 Form 10-K. Such adjustments for gains and losses are primarily driven by events and circumstances beyond the Company's control, including changes in interest rates, the performance of the financial markets and mortality assumptions.

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 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.
Principal hedged currencies include the British Pound, Euro, Japanese Yen and Singapore Dollar. The Company held forward foreign exchange contracts, designated as fair value hedges, with U.S. equivalent notional amounts totaling $127.2 million, $138.4 million and $110.0 million at September 28, 2014, December 29, 2013 and September 29, 2013, respectively, and the 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 or less during both fiscal years 2014 and 2013.
In December 2012, the Company entered into forward foreign exchange contracts with settlement dates in fiscal year 2013 and combined Euro denominated notional amounts of €50.0 million, designated as cash flow hedges. During the nine months ended September 29, 2013, the Company settled these Euro denominated forward foreign exchange contracts. The derivative gains were recognized in income in the period in which the underlying hedged exposures occurred and impacted earnings, and were recorded in interest and other expense, net. Such amounts were not material for the three and nine months ended September 29, 2013.

Note 17: Fair Value Measurements

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, derivatives, marketable securities and accounts receivable. The Company believes it had no significant concentrations of credit risk as of September 28, 2014.
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 September 28, 2014. 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

24
Table of Contents

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 as of September 28, 2014 and December 29, 2013 classified in one of the three classifications described above:
 
 
 
Fair Value Measurements at September 28, 2014 Using:
 
Total Carrying Value at September 28, 2014
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(In thousands)
Marketable securities
$
1,391

 
$
1,391

 
$
—

 
$
—

Foreign exchange derivative assets
220

 
—

 
220

 
—

Foreign exchange derivative liabilities
(299
)
 
—

 
(299
)
 
—

Contingent consideration
(1,286
)
 
—

 
—

 
(1,286
)
 
 
 
 
Fair Value Measurements at December 29, 2013 Using:
 
Total Carrying Value at December 29, 2013
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable 
Inputs
(Level 3)
 
(In thousands)
Marketable securities
$
1,319

 
$
1,319

 
$
—

 
$
—

Foreign exchange derivative assets
293

 
—

 
293

 
—

Foreign exchange derivative liabilities
(396
)
 
—

 
(396
)
 
—

Contingent consideration
(4,926
)
 
—

 
—

 
(4,926
)
Level 1 and Level 2 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. 
Marketable securities:    Include equity and fixed-income securities measured at fair value using the quoted market prices in active markets 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’s foreign exchange derivative contracts are subject to master netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's consolidated balance sheet on a net basis and are recorded in other assets. As of both September 28, 2014 and December 29, 2013, none of the master netting arrangements involved collateral.
Level 3 Valuation Techniques:    The Company’s Level 3 liabilities are comprised of contingent consideration related to acquisitions. For liabilities that utilize Level 3 inputs, the Company uses significant unobservable inputs. Below is a summary of valuation techniques for Level 3 liabilities.
Contingent consideration:    The Company has classified its net liabilities for contingent consideration relating to its acquisitions 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 significant acquisitions is included within Note 2 to the Company's audited consolidated financial statements filed with the 2013 Form 10-K. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds or product development milestones during the earnout period. The Company may have to pay contingent consideration, related to all acquisitions with open contingency periods, of up to $26.4 million as of September 28, 2014. As of September 28, 2014, the Company has recorded contingent consideration obligations relating to its acquisitions of Haoyuan Biotech Co. and Tetra Teknolojik Sistemler Limited Sirketi, with an estimated fair value of $1.3 million at September 28, 2014. The earnout period for each of

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these acquisitions does not exceed three years from the respective acquisition date, and the remaining weighted average earnout period at September 28, 2014 was one year.
A reconciliation of the beginning and ending Level 3 net liabilities for contingent consideration is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Balance beginning of period
$
(3,430
)
 
$
(3,715
)
 
$
(4,926
)
 
$
(3,017
)
Additions
—

 
—

 
—

 
(1,100
)
Amounts paid and foreign currency translation
2,137

 
31

 
2,065

 
95

Change in fair value (included within selling, general and administrative expenses)
7

 
826

 
1,575

 
1,164

Balance end of period
$
(1,286
)
 
$
(2,858
)
 
$
(1,286
)
 
$
(2,858
)
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. If measured at fair value, cash and cash equivalents would be classified as Level 1.
The Company’s new senior unsecured revolving credit facility, which provides for $700.0 million of revolving loans, had amounts outstanding, excluding letters of credit, of $319.0 million as of September 28, 2014. The Company’s previous senior unsecured revolving credit facility had amounts outstanding, excluding letters of credit, of $397.0 million as of December 29, 2013. 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 2014. Consequently, the carrying value of the current year and prior year credit facilities approximate fair value and would be classified as Level 2. 
The Company's 2021 Notes, with a face value of $500.0 million, had an aggregate carrying value of $497.6 million, net of $2.4 million of unamortized original issue discount, and a fair value of $539.7 million as of September 28, 2014. The 2021 Notes had an aggregate carrying value of $497.4 million, net of $2.6 million of unamortized original issue discount, and a fair value of $513.0 million as of December 29, 2013. The fair value of the 2021 Notes is estimated using market quotes from brokers and is based on current rates offered for similar debt. The Company's financing lease obligations had an aggregate carrying value of $39.5 million and $40.3 million as of September 28, 2014 and December 29, 2013, respectively. The Company's other obligation arrangements had an aggregate carrying value of $3.6 million as of September 28, 2014. The carrying values of the Company's financing lease obligations and other obligations approximated their fair value as there has been minimal change in the Company's incremental borrowing rate. As of September 28, 2014, the 2021 Notes, financing lease obligations, and other obligation arrangements were classified as Level 2.
As of September 28, 2014, 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.

Note 18: Leases

On August 22, 2013, the Company sold one of its facilities located in Boston, Massachusetts for net proceeds of $47.6 million. Simultaneously with the closing of the sale of the property, the Company entered into a lease agreement to lease back the property for its continued use. The lease has an initial term of 15 years and the Company has the right to extend the term of the lease for two additional periods of ten years each. The lease is accounted for as an operating lease and at the transaction date the Company had deferred $26.5 million of gains which are being amortized in operating expenses over the initial lease term of 15 years. During the nine months ended September 28, 2014, the Company amortized $1.3 million of deferred gains related to the lease. At September 28, 2014, $24.5 million of these deferred gains remained to be amortized, which were recorded in long-term liabilities. At December 29, 2013, $25.9 million of deferred gains remained to be amortized, which were recorded in long-term liabilities.



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Note 19: 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 $12.3 million and $13.5 million as of September 28, 2014 and December 29, 2013, respectively, which represents management’s estimate of the cost of the remediation of known environmental matters, and does not include any potential liability for related personal injury or property damage claims. This amount is not discounted and does not reflect the recovery of any material 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.
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 September 28, 2014 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 products, services and solutions to the diagnostics, research, environmental, 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. The principal products and services of our two 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. Our Human Health segment serves both the diagnostics and research markets.
•
Environmental Health.    Provides products, services and solutions to facilitate the creation of safer food and consumer products, more secure surroundings and efficient energy resources. Our Environmental Health segment serves the environmental, industrial and laboratory services markets.
Overview of the Third Quarter of Fiscal Year 2014
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 2014 and 2013 fiscal years include 52 weeks.
Our overall revenue in the third quarter of fiscal year 2014 was $542.0 million and increased $19.9 million, or 4%, as compared to the third quarter of fiscal year 2013, reflecting an increase of $11.3 million, or 4%, in our Human Health segment revenue and an increase of $8.6 million, or 4%, in our Environmental Health segment revenue. The increase in our Human Health segment revenue during the third quarter of fiscal year 2014 was primarily due to growth generated in the diagnostics market from our newborn screening business as well as from our medical imaging business' new wireless cassette detector, and in the research market from revenue related to our microfluidics technology licensing program. The increase in our Environmental Health segment revenue during the third quarter of fiscal year 2014 was primarily due to an increase in our services revenue, which included our OneSource multivendor service offerings within our laboratory service market.
In our Human Health segment during the third quarter of fiscal year 2014 as compared to the third quarter of fiscal year 2013, we experienced growth in the diagnostics market from continued expansion of our prenatal, newborn and infectious disease screening solutions, which continue to have strong demand in emerging markets including Thailand, Brazil and Mexico. Birth rates continue to increase, as evidenced by prenatal trends we saw during the third quarter of fiscal year 2014, and demand for greater access to newborn screening in rural areas is also increasing. Our medical imaging business increased during the third quarter of fiscal year 2014 as compared to the third quarter of fiscal year 2013 due to growth in our new wireless cassette detector used in diagnostic imaging and veterinary applications. In the research market we experienced a slight decline due to weakness in the global academic end market, which was partially offset by revenue related to our microfluidics technology licensing program. As the rising cost of healthcare continues to be one of the critical issues facing our customers, we anticipate that the benefits of providing earlier detection of disease, which can result in savings of long-term health care costs as well as create better outcomes for patients, are increasingly valued and we expect to see continued growth in these markets.
In our Environmental Health segment, 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. During the third quarter of fiscal year 2014, we continued to grow our laboratory services business, which included the addition of new customers to our OneSource multivendor service offering, while demand for our products in the environmental and industrial markets was flat due to funding delays in China. We anticipate that the continued development of contaminant regulations and corresponding testing protocols will result in increased demand for efficient, analytically sensitive and information rich testing solutions.

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Our consolidated gross margins increased 21 basis points in the third quarter of fiscal year 2014, as compared to the third quarter of fiscal year 2013, due to favorable changes in product mix, with an increase in sales of higher gross margin product offerings, increased sales volume and cost containment and productivity initiatives. Our consolidated operating margins decreased 26 basis points in the third quarter of fiscal year 2014, as compared to the third quarter of fiscal year 2013, primarily due to increased costs related to growth investments, which were partially offset by increased sales volume, higher gross margins and cost containment and productivity initiatives.
We believe we are well positioned to continue to take advantage of the 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 foundation for growth.

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, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, warranty costs, bad debts, inventories, accounting for business combinations and dispositions, long-lived assets, income taxes, restructuring, pensions and other postretirement benefits, 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, warranty costs, allowances for doubtful accounts, inventory valuation, business combinations, value of long-lived assets, including goodwill and other 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 December 29, 2013 (our “2013 Form 10-K”), as filed with the Securities and Exchange Commission (the "SEC"). There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 28, 2014.

Consolidated Results of Continuing Operations
Revenue
Revenue for the three months ended September 28, 2014 was $542.0 million, as compared to $522.1 million for the three months ended September 29, 2013, an increase of $19.9 million, or 4%, which includes an approximate 0.2% decrease in revenue attributable to unfavorable changes in foreign exchange rates and no impact to revenue attributable to acquisitions. The analysis in the remainder of this paragraph compares segment revenue for the three months ended September 28, 2014 as compared to the three months ended September 29, 2013 and includes the effect of foreign exchange rate fluctuations and acquisitions. Our Human Health segment revenue increased $11.3 million, or 4%, due to an increase in diagnostics market revenue of $14.5 million, partially offset by a decrease in research market revenue of $3.1 million. Our Environmental Health segment revenue increased $8.6 million, or 4%, due to an increase in laboratory services market revenue of $8.6 million, while the revenue in our environmental and industrial markets was flat. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.8 million of revenue for the three months ended September 28, 2014 and $0.9 million for the three months ended September 29, 2013 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
Revenue for the nine months ended September 28, 2014 was $1,628.8 million, as compared to $1,565.7 million for the nine months ended September 29, 2013, an increase of $63.1 million, or 4%, which includes an approximate 0.1% increase in revenue attributable to favorable changes in foreign exchange rates and an approximate 0.3% increase from acquisitions. The analysis in the remainder of this paragraph compares segment revenue for the nine months ended September 28, 2014 as compared to the nine months ended September 29, 2013 and includes the effect of foreign exchange rate fluctuations and acquisitions. Our Human Health segment revenue increased $40.8 million, or 5%, due to an increase in diagnostics market revenue of $38.3 million and an increase in research market revenue of $2.5 million. Our Environmental Health segment revenue increased $22.3 million, or 3%, due to an increase in laboratory services market revenue of $25.0 million, partially offset by decreases in environmental and industrial markets revenue of $2.7 million. As a result of adjustments to deferred

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revenue related to certain acquisitions required by business combination rules, we did not recognize $2.7 million of revenue for the nine months ended September 28, 2014 and $6.6 million for the nine months ended September 29, 2013 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
Cost of Revenue
Cost of revenue for the three months ended September 28, 2014 was $298.7 million, as compared to $288.8 million for the three months ended September 29, 2013, an increase of $9.9 million, or 3%. As a percentage of revenue, cost of revenue decreased to 55.1% for the three months ended September 28, 2014, from 55.3% for the three months ended September 29, 2013, resulting in an increase in gross margin of 21 basis points to 44.9% for the three months ended September 28, 2014, from 44.7% for the three months ended September 29, 2013. Amortization of intangible assets decreased and was $12.4 million for the three months ended September 28, 2014, as compared to $14.0 million for the three months ended September 29, 2013. Stock-based compensation expense was $0.4 million for the three months ended September 28, 2014, as compared to $0.3 million for the three months ended September 29, 2013. Acquisition related costs added an incremental expense of $0.02 million for the three months ended September 28, 2014, as compared to $0.2 million for the three months ended September 29, 2013. In addition to the above items, the overall increase in gross margin was primarily the result of favorable changes in product mix, with an increase in sales of higher gross margin product offerings, increased sales volume and cost containment and productivity initiatives.
Cost of revenue for the nine months ended September 28, 2014 was $901.8 million, as compared to $866.3 million for the nine months ended September 29, 2013, an increase of $35.5 million, or 4%. As a percentage of revenue, cost of revenue increased to 55.4% for the nine months ended September 28, 2014, from 55.3% for the nine months ended September 29, 2013, resulting in a decrease in gross margin of 3 basis points to 44.6% for the nine months ended September 28, 2014, from 44.7% for the nine months ended September 29, 2013. Amortization of intangible assets decreased and was $37.4 million for the nine months ended September 28, 2014, as compared to $39.0 million for the nine months ended September 29, 2013. Stock-based compensation expense was $1.1 million for the nine months ended September 28, 2014, as compared to $1.0 million for the nine months ended September 29, 2013. Acquisition related costs added an incremental expense of $0.05 million for the nine months ended September 28, 2014, as compared to $0.2 million for the nine months ended September 29, 2013. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $0.2 million for the nine months ended September 29, 2013. In addition to the above items, the overall decrease in gross margin was primarily the result of pricing pressure and unfavorable changes in product mix, with an increase in sales of lower gross margin product offerings, partially offset by increased sales volume and cost containment and productivity initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended September 28, 2014 were $143.0 million, as compared to $142.8 million for the three months ended September 29, 2013, an increase of $0.2 million, or 0.2%. As a percentage of revenue, selling, general and administrative expenses decreased and were 26.4% for the three months ended September 28, 2014, as compared to 27.3% for the three months ended September 29, 2013. Amortization of intangible assets decreased and was $8.0 million for the three months ended September 28, 2014, as compared to $8.8 million for the three months ended September 29, 2013. Stock-based compensation expense decreased and was $2.0 million for the three months ended September 28, 2014, as compared to $3.2 million for the three months ended September 29, 2013. Acquisition related costs for the reversal of contingent consideration and other acquisition costs added an incremental expense of $0.04 million for the three months ended September 28, 2014, as compared to decreasing expenses by $1.1 million for the three months ended September 29, 2013. In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to growth investments, particularly in emerging territories, partially offset by cost containment and productivity initiatives.
Selling, general and administrative expenses for the nine months ended September 28, 2014 were $442.7 million, as compared to $441.0 million for the nine months ended September 29, 2013, an increase of $1.7 million, or 0.4%. As a percentage of revenue, selling, general and administrative expenses decreased and were 27.2% for the nine months ended September 28, 2014, as compared to 28.2% for the nine months ended September 29, 2013. Amortization of intangible assets decreased and was $24.0 million for the nine months ended September 28, 2014, as compared to $27.8 million for the nine months ended September 29, 2013. Stock-based compensation expense increased and was $10.3 million for the nine months ended September 28, 2014, as compared to $9.8 million for the nine months ended September 29, 2013. Significant settlement and litigation expenses related to a particular case were $6.6 million for the nine months ended September 28, 2014. Acquisition related costs for the reversal of contingent consideration and other acquisition costs decreased expenses by $1.3 million for the nine months ended September 28, 2014, as compared to $1.0 million for the nine months ended September 29, 2013. In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of

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costs related to growth investments, particularly in emerging territories, partially offset by cost containment and productivity initiatives.
Research and Development Expenses
Research and development expenses for the three months ended September 28, 2014 were $30.4 million, as compared to $31.4 million for the three months ended September 29, 2013, a decrease of $1.0 million, or 3%. As a percentage of revenue, research and development expenses decreased and were 5.6% for the three months ended September 28, 2014, as compared to 6.0% for the three months ended September 29, 2013. Amortization of intangible assets increased and was $0.2 million for the three months ended September 28, 2014, as compared to $0.1 million for the three months ended September 29, 2013. Stock-based compensation expense was $0.04 million for the three months ended September 28, 2014, as compared to $0.2 million and September 29, 2013. Acquisition related costs added an incremental expense of $0.2 million for the three months ended September 29, 2013. In addition to the above items, the decrease in research and development expenses was primarily the result of the consolidation of research and development activities into our newly opened Center for Innovation.
Research and development expenses for the nine months ended September 28, 2014 were $90.2 million, as compared to $99.8 million for the nine months ended September 29, 2013, a decrease of $9.6 million, or 10%. As a percentage of revenue, research and development expenses decreased and were 5.5% for the nine months ended September 28, 2014, as compared to 6.4% for the nine months ended September 29, 2013. Amortization of intangible assets increased and was $0.4 million for the nine months ended September 28, 2014, as compared to $0.2 million for the nine months ended September 29, 2013. Stock-based compensation expense was $0.4 million for the nine months ended September 28, 2014, as compared to $0.6 million for the nine months ended September 29, 2013. Acquisition related costs added an incremental expense of $0.2 million for the nine months ended September 29, 2013. In addition to the above items, the decrease in research and development expenses was primarily the result of the consolidation of research and development activities into our newly opened Center for Innovation. During the first nine months of both fiscal year 2014 and fiscal year 2013, we directed research and development efforts towards the diagnostics and research markets within our Human Health segment, and the environmental, industrial and laboratory service markets within our Environmental Health segment, in order to help accelerate our growth initiatives.

Restructuring and Contract Termination Charges, Net
We have undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, alignment with our growth strategy, the integration of our business units and productivity initiatives. The current portion of restructuring and contract termination charges is recorded in accrued restructuring and contract termination charges and the long-term portion of restructuring and contract termination charges is recorded in long-term liabilities. The activities associated with these plans have been reported as restructuring and contract termination charges, net, and are included as a component of operating expenses from continuing operations.
A description of the restructuring plans and the activity recorded for the nine months ended September 28, 2014 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 2013 Form 10-K.
The restructuring plan for the third quarter of fiscal year 2014 was principally intended to realign resources to emphasize growth initiatives. The restructuring plans for the first and second quarters of fiscal year 2014 and the first quarter of fiscal year 2013 were principally intended to focus resources on higher growth end markets. The restructuring plans for the fourth and third quarters of fiscal year 2013 were principally intended to shift certain of our research and development resources into a newly opened Center for Innovation. The restructuring plan for the second quarter of fiscal year 2013 was principally intended to shift certain of our operations into a newly established shared service center as well as realign operations, research and development resources and production resources as a result of previous acquisitions. We expect the impact of future cost savings on operating results and cash flows from the restructuring activities executed in fiscal year 2013 will exceed $9.0 million annually beginning in fiscal year 2015. The future cost savings will be primarily a decrease to research and development expenses.

A description of the restructuring plans and the activity recorded are as follows:

Q3 2014 Restructuring Plan
During the third quarter of fiscal year 2014, our management approved a plan principally intended to realign resources to emphasize growth initiatives (the “Q3 2014 Plan”). As a result of the Q3 2014 Plan, we recognized pre-tax restructuring charges of $6.9 million in our Human Health segment and $6.2 million in our Environmental Health segment related to workforce reductions from reorganization activities. As part of the Q3 2014 Plan, we reduced headcount by 152 employees. All

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employees were notified of termination, or in some cases the intention to terminate, under the Q3 2014 Plan by September 28, 2014.

The following table summarizes the Q3 2014 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Provision
$
13,051

Amounts paid and foreign currency translation
(694
)
Balance at September 28, 2014
$
12,357

We anticipate that the remaining severance payments of $12.4 million for workforce reductions will be substantially completed by the end of the third quarter of fiscal year 2015.

Q2 2014 Restructuring Plan
During the second quarter of fiscal year 2014, our management approved a plan principally intended to focus resources on higher growth end markets (the “Q2 2014 Plan”). As a result of the Q2 2014 Plan, we recognized pre-tax restructuring charges of $0.5 million in our Human Health segment and $0.3 million in our Environmental Health segment related to workforce reductions from reorganization activities. As part of the Q2 2014 Plan, we reduced headcount by 22 employees. All employees were notified of termination under the Q2 2014 Plan by June 29, 2014.

The following table summarizes the Q2 2014 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Provision
$
735

Amounts paid and foreign currency translation
(410
)
Balance at September 28, 2014
$
325

We anticipate that the remaining severance payments of $0.3 million for workforce reductions will be substantially completed by the end of the second quarter of fiscal year 2015.

Q1 2014 Restructuring Plan
During the first quarter of fiscal year 2014, our management approved a plan principally intended to focus resources on higher growth end markets (the “Q1 2014 Plan”). As a result of the Q1 2014 Plan, we recognized pre-tax restructuring charges of $0.4 million in our Human Health segment and $0.2 million in our Environmental Health segment related to workforce reductions from reorganization activities. As part of the Q1 2014 Plan, we reduced headcount by 17 employees. All employees were notified of termination under the Q1 2014 Plan by March 30, 2014.
 
The following table summarizes the Q1 2014 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Provision
$
567

Amounts paid and foreign currency translation
(395
)
Balance at September 28, 2014
$
172

We anticipate that the remaining severance payments of $0.2 million for workforce reductions will be substantially completed by the end of the fourth quarter of fiscal year 2014.

Q4 2013 Restructuring Plan
During the fourth quarter of fiscal year 2013, our management approved a plan principally intended to shift certain of our research and development resources into a newly opened Center for Innovation (the “Q4 2013 Plan”). As a result of the Q4 2013 Plan, we recognized an $8.2 million pre-tax restructuring charge in our Human Health segment related to a workforce

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reduction from reorganization activities and the closure of excess facility space and recognized a $3.0 million pre-tax restructuring charge in our Environmental Health segment related to a workforce reduction from reorganization activities. As part of the Q4 2013 Plan, we reduced headcount by 73 employees. All employees were notified of termination under the Q4 2013 Plan by December 29, 2013.

The following table summarizes the Q4 2013 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
Closure of
Excess Facility
Space
 
Total
 
(In thousands)
Balance at December 29, 2013
$
1,987

 
$
6,854

 
$
8,841

Amounts paid and foreign currency translation
(1,506
)
 
(1,501
)
 
(3,007
)
Balance at September 28, 2014
$
481

 
$
5,353

 
$
5,834

 
We anticipate that the remaining severance payments of $0.5 million for workforce reductions will be substantially completed by the end of the fourth quarter of fiscal year 2014. We also anticipate that the remaining payments of $5.4 million, net of estimated sublease income, for the closure of the excess facility space will be paid through fiscal year 2019, in accordance with the terms of the applicable leases.

Q3 2013 Restructuring Plan
During the third quarter of fiscal year 2013, our management approved a plan principally intended to shift certain of our research and development resources into a newly opened Center for Innovation (the “Q3 2013 Plan”). As a result of the Q3 2013 Plan, we recognized a $0.5 million pre-tax restructuring charge in our Human Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. As part of the Q3 2013 Plan, we reduced headcount by 29 employees. All employees were notified of termination under the Q3 2013 Plan by September 29, 2013.
 
The following table summarizes the Q3 2013 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Balance at December 29, 2013
$
137

Amounts paid and foreign currency translation
(137
)
Balance at September 28, 2014
$
—

 
There are no severance payments remaining to be made under the Q3 2013 Plan.

Q2 2013 Restructuring Plan
During the second quarter of fiscal year 2013, our management approved a plan principally intended to shift certain of our operations into a newly established shared service center as well as realign operations, research and development resources, and production resources as a result of previous acquisitions (the “Q2 2013 Plan”). As a result of the Q2 2013 Plan, we initially recognized pre-tax restructuring charges of $9.9 million in our Human Health segment and $8.8 million in our Environmental Health segment related to workforce reductions from reorganization activities and the closures of excess facility space. Subsequent to the initial charge, during fiscal year 2013, we recorded an additional $0.6 million pre-tax restructuring charge in our Human Health segment for services that were provided for one-time benefits in which the employee was required to render service beyond the legal notification period. During the nine months ended September 28, 2014, we recorded additional pre-tax restructuring charges of $0.1 million in each of our Human Health and Environmental Health segments due to higher than expected costs associated with the closure of the excess facility space. As part of the Q2 2013 Plan, we reduced headcount by 264 employees. All employees were notified of termination under the Q2 2013 Plan by June 30, 2013.
 

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The following table summarizes the Q2 2013 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
Closure of
Excess Facility
Space
 
Total
 
(In thousands)
Balance at December 29, 2013
$
12,750

 
$
—

 
$
12,750

Change in estimates
—

 
184

 
184

Amounts paid and foreign currency translation
(9,610
)
 
(184
)
 
(9,794
)
Balance at September 28, 2014
$
3,140

 
$
—

 
$
3,140

 
We anticipate that the remaining severance payments of $3.1 million for workforce reductions will be substantially completed by the end of the fourth quarter of fiscal year 2014, as local law requires some severance to be paid in monthly installments through the fourth quarter of fiscal year 2014. The closure of the excess facility space will not require any additional payments.

Q1 2013 Restructuring Plan
During the first quarter of fiscal year 2013, our management approved a plan principally intended to focus resources on higher growth end markets (the “Q1 2013 Plan”). As a result of the Q1 2013 Plan, we recognized pre-tax restructuring charges of $2.3 million in our Human Health segment and $0.2 million in our Environmental Health segment related to workforce reductions from reorganization activities. During the nine months ended September 28, 2014, we recorded a pre-tax restructuring reversal of $0.2 million in our Human Health segment due to lower than expected costs associated with the remaining severance payments. As part of the Q1 2013 Plan, we reduced headcount by 62 employees. All employees were notified of termination under the Q1 2013 Plan by March 31, 2013.
 
The following table summarizes the Q1 2013 Plan activity for the nine months ended September 28, 2014:
 
Severance
 
(In thousands)
Balance at December 29, 2013
$
208

Change in estimates
(208
)
Balance at September 28, 2014
$
—

 
There are no severance payments remaining to be made under the Q1 2013 Plan.

Previous Restructuring and Integration Plans
The principal actions of the restructuring and integration plans from fiscal year 2001 through fiscal year 2012 were workforce reductions and the closure of excess facility space related to the integration of our businesses in order to realign operations, reduce costs, achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with our growth strategy. During the nine months ended September 28, 2014, we paid $4.5 million related to these plans and recognized pre-tax restructuring reversals of $0.8 million in our Human Health Segment and $1.1 million in our Environmental Health Segment related to lower than expected costs associated with workforce reductions. As of September 28, 2014, we had $6.9 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 our Human Health and Environmental Health segments. We expect to make payments for these leases, the terms of which vary in length, through fiscal year 2022. We anticipate the remaining severance payments for workforce reductions will be substantially completed by the end of the fourth quarter of fiscal year 2014, as local law requires some severance to be paid in monthly installments through the fourth quarter of fiscal year 2014.

Contract Termination Charges
We have terminated various contractual commitments in connection with certain disposal activities and have recorded charges, to the extent applicable, for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us. We recorded an additional pre-tax charge of $1.5 million, primarily as a result of terminating various contractual commitments in our Environmental Health segment, and we made payments for these obligations of $1.5 million in the first nine months of fiscal year 2014. The remaining balance of these accruals as of September 28, 2014 was $0.4 million.


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Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
 
(In thousands)
Interest income
$
(130
)