10-Q 1 pki-10042015x10qdocument.htm 10-Q 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 4, 2015
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 November 5, 2015, there were outstanding 111,934,189 shares of common stock, $1 par value per share.


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.
 
 
 
 



2

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
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands, except per share data)
Product revenue
$
378,325

 
$
365,933

 
$
1,126,356

 
$
1,113,027

Service revenue
185,111

 
176,116

 
527,887

 
515,802

Total revenue
563,436

 
542,049

 
1,654,243

 
1,628,829

Cost of product revenue
193,375

 
190,041

 
579,659

 
580,974

Cost of service revenue
115,458

 
108,699

 
332,095

 
320,849

Total cost of revenue
308,833

 
298,740

 
911,754

 
901,823

Selling, general and administrative expenses
147,728

 
142,997

 
440,343

 
442,687

Research and development expenses
31,095

 
30,444

 
95,898

 
90,175

Restructuring and contract termination charges, net
(118
)
 
11,092

 
4,838

 
13,969

Operating income from continuing operations
75,898

 
58,776

 
201,410

 
180,175

Interest and other expense, net
11,944

 
10,966

 
32,208

 
31,219

Income from continuing operations before income taxes
63,954

 
47,810

 
169,202

 
148,956

Provision for income taxes
9,057

 
4,912

 
24,998

 
19,104

Income from continuing operations
54,897

 
42,898

 
144,204

 
129,852

Gain (loss) from discontinued operations before income taxes
8

 
(1,091
)
 
6

 
(4,205
)
Loss on disposition of discontinued operations before income taxes
(3
)
 
(7
)
 
(26
)
 
(381
)
Provision for (benefit from) income taxes on discontinued operations and dispositions
39

 
(477
)
 
13

 
(1,725
)
Loss from discontinued operations and dispositions
(34
)
 
(621
)
 
(33
)
 
(2,861
)
Net income
$
54,863

 
$
42,277

 
$
144,171

 
$
126,991

Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.49

 
$
0.38

 
$
1.28

 
$
1.15

Loss from discontinued operations and dispositions
(0.00
)
 
(0.01
)
 
(0.00
)
 
(0.03
)
Net income
$
0.49

 
$
0.38

 
$
1.28

 
$
1.13

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.48

 
$
0.38

 
$
1.27

 
$
1.14

Loss from discontinued operations and dispositions
(0.00
)
 
(0.01
)
 
(0.00
)
 
(0.03
)
Net income
$
0.48

 
$
0.37

 
$
1.27

 
$
1.12

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
112,632

 
112,646

 
112,763

 
112,662

Diluted
113,422

 
113,759

 
113,565

 
113,836

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.

3

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Net income
$
54,863

 
$
42,277

 
$
144,171

 
$
126,991

Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(46,629
)
 
(32,936
)
 
(58,055
)
 
(29,596
)
Unrealized losses on securities, net of tax
(80
)
 
(12
)
 
(143
)
 
(42
)
Other comprehensive loss
(46,709
)
 
(32,948
)
 
(58,198
)
 
(29,638
)
Comprehensive income
$
8,154

 
$
9,329

 
$
85,973

 
$
97,353











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

4

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
October 4,
2015
 
December 28,
2014
 
(In thousands, except share and per share data)
Current assets:
 
 
 
Cash and cash equivalents
$
195,066

 
$
174,821

Accounts receivable, net
414,193

 
470,563

Inventories
313,047

 
285,457

Other current assets
151,531

 
137,710

Total current assets
1,073,837

 
1,068,551

Property, plant and equipment:
 
 
 
At cost
494,768

 
492,814

Accumulated depreciation
(330,591
)
 
(316,620
)
Property, plant and equipment, net
164,177

 
176,194

Marketable securities and investments
1,574

 
1,568

Intangible assets, net
424,239

 
490,265

Goodwill
2,253,943

 
2,284,077

Other assets, net
113,897

 
113,420

Total assets
$
4,031,667

 
$
4,134,075

Current liabilities:
 
 
 
Current portion of long-term debt
$
1,107

 
$
1,075

Accounts payable
149,684

 
173,953

Accrued restructuring and contract termination charges
12,111

 
17,124

Accrued expenses and other current liabilities
389,274

 
403,021

Current liabilities of discontinued operations
2,100

 
2,137

Total current liabilities
554,276

 
597,310

Long-term debt
1,027,269

 
1,051,892

Long-term liabilities
395,798

 
442,771

Total liabilities
1,977,343

 
2,091,973

Commitments and contingencies (see Note 18)

 

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

 
—

Common stock—$1 par value per share, authorized 300,000,000 shares; issued and outstanding 111,905,000 shares and 112,481,000 shares at October 4, 2015 and at December 28, 2014, respectively
111,905

 
112,481

Capital in excess of par value
44,791

 
94,276

Retained earnings
1,931,026

 
1,810,545

Accumulated other comprehensive (loss) income
(33,398
)
 
24,800

Total stockholders’ equity
2,054,324

 
2,042,102

Total liabilities and stockholders’ equity
$
4,031,667

 
$
4,134,075

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

5

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Operating activities:
 
 
 
Net income
$
144,171

 
$
126,991

Loss from discontinued operations and dispositions, net of income taxes
33

 
2,861

Income from continuing operations
144,204

 
129,852

Adjustments to reconcile income from continuing operations to net cash provided by continuing operations:
 
 
 
Restructuring and contract termination charges, net
4,838

 
13,969

Depreciation and amortization
83,757

 
86,833

Stock-based compensation
12,483

 
11,769

Amortization of deferred debt financing costs and accretion of discount
1,112

 
1,071

Amortization of acquired inventory revaluation
7,275

 
—

Changes in operating assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested:
 
 
 
Accounts receivable, net
36,361

 
26,841

Inventories
(50,824
)
 
(28,536
)
Accounts payable
(19,916
)
 
(4,009
)
Accrued expenses and other
(57,361
)
 
(52,133
)
Net cash provided by operating activities of continuing operations
161,929

 
185,657

Net cash used in operating activities of discontinued operations
(70
)
 
(624
)
Net cash provided by operating activities
161,859

 
185,033

Investing activities:
 
 
 
Capital expenditures
(17,814
)
 
(22,214
)
Proceeds from surrender of life insurance policies
757

 
490

Changes in restricted cash balances
59

 
—

Activity related to acquisitions and investments, net of cash and cash equivalents acquired
(18,735
)
 
(1,879
)
Net cash used in investing activities of continuing operations
(35,733
)
 
(23,603
)
Net cash used in investing activities of discontinued operations
—

 
(213
)
Net cash used in investing activities
(35,733
)
 
(23,816
)
Financing activities:
 
 
 
Payments on revolving credit facility
(371,000
)
 
(305,000
)
Proceeds from revolving credit facility
347,000

 
227,000

Payments of debt financing costs
—

 
(1,845
)
Settlement of hedges
19,210

 
—

Net payments on other credit facilities
(800
)
 
(1,225
)
Payments for acquisition-related contingent consideration
(26
)
 
(855
)
Proceeds from issuance of common stock under stock plans
13,081

 
20,947

Purchases of common stock
(76,158
)
 
(39,004
)
Dividends paid
(23,737
)
 
(23,713
)
Net cash used in financing activities
(92,430
)
 
(123,695
)
Effect of exchange rate changes on cash and cash equivalents
(13,451
)
 
(7,081
)
Net increase in cash and cash equivalents
20,245

 
30,441

Cash and cash equivalents at beginning of period
174,821

 
173,242

Cash and cash equivalents at end of period
$
195,066

 
$
203,683

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

6

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 28, 2014, filed with the SEC (the “2014 Form 10-K”). The balance sheet amounts at December 28, 2014 in this report were derived from the Company’s audited 2014 consolidated financial statements included in the 2014 Form 10-K. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three and nine months ended October 4, 2015 and September 28, 2014, respectively, are not necessarily indicative of the results for the entire fiscal year or any future period. The Company has evaluated subsequent events from October 4, 2015 through the date of the issuance of these condensed consolidated financial statements and has determined that other than the events the Company has disclosed within the footnotes to the financial statements, no material subsequent events have occurred that would affect the information presented in these condensed consolidated financial statements or would require additional disclosure.

The Company’s fiscal year ends on the Sunday nearest December 31. The Company reports fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. The fiscal year ending January 3, 2016 ("fiscal year 2015") will include 53 weeks, while the fiscal year ended December 28, 2014 ("fiscal year 2014") included 52 weeks. The additional week in fiscal year 2015 has been reflected in the Company's third quarter, which consisted of 14 weeks as compared to the Company's third quarter of fiscal year 2014, which consisted of 13 weeks.

Recently Adopted and Issued Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB") 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 September 2015, the FASB issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments ("ASU No. 2015-16"). Under this new guidance, an acquirer should recognize adjustments to provisional amounts for items in a business combination that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer should record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The provisions of this guidance are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. During the third quarter of fiscal year 2015, the Company early adopted the new guidance and adjusted the provisional amounts recorded for acquisitions in which the purchase accounting allocations as of October 4, 2015 were preliminary. During the three and nine months ended October 4, 2015, there was an immaterial impact on the current period net income as a result of the change to the provisional amounts for items that would have been recognized in previous periods if the adjustments to provisional amounts had been recognized as of the acquisition date.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory. Under this new guidance, companies that use inventory measurement methods other than last-in, first-out or the retail inventory method should measure inventory at the lower of cost and net realizable value. The provisions of this guidance are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. The Company is evaluating the requirements of this guidance. The adoption is not expected to have a material impact on the Company’s consolidated financial position, results of operations and cash flows.


7

In April 2015, the FASB issued Accounting Standards Update No. 2015-04, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets. Under this new guidance, an entity with a fiscal year-end that does not coincide with a calendar month-end (for example an entity that has a 52/53 week fiscal year) has the ability, as a practical expedient, to measure its defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year end. The guidance should be applied prospectively. During the second quarter of fiscal year 2015, the Company early adopted the new guidance. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs. Under this new guidance, debt issuance costs should be presented in the balance sheet as a reduction of the carrying value of the associated debt liability. The provisions of this guidance are to be applied retrospectively and are effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. The Company is expecting to early adopt this guidance in the fourth quarter of fiscal year 2015. The adoption is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In May 2014, the FASB 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, depicting 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. Subsequent to the issuance of the standard, the FASB decided to defer the effective date for one year to annual periods beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. The standard may be adopted either using a full retrospective approach or a modified retrospective approach. The Company is evaluating the requirements of this guidance and has not yet determined the transition method to use or the impact of its adoption on the Company’s consolidated financial position, results of operations and cash flows.

Note 2: Business Combinations
Acquisitions in fiscal year 2015
During the first nine months of fiscal year 2015, the Company completed the acquisition of three businesses for total consideration of $19.0 million in cash. 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. As a result of these acquisitions, the Company recorded goodwill of $13.2 million and intangible assets of $6.1 million. The Company has reported the operations for these acquisitions within the results of the Company's Human Health and Environmental Health segments from the acquisition dates. As of October 4, 2015, the purchase accounting allocations related to these acquisitions were preliminary.

Subsequent to October 4, 2015, the Company completed the acquisition of a business for total consideration of $23.0 million, in cash, as of the closing date. The operations for this acquisition will be reported within the results of the Company's Human Health segment.
Acquisitions in fiscal year 2014
Acquisition of Perten Instruments Group AB. In December 2014, the Company acquired all of the outstanding stock of Perten Instruments Group AB ("Perten"). Perten is a provider of analytical instruments and services for quality control of food, grain, flour and feed. The Company expects this acquisition to enhance its industrial, environmental and safety business by expanding the Company's product offerings to the academic and industrial end markets. The Company paid the shareholders of Perten $269.9 million in cash for the stock of Perten. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Environmental Health segment from the acquisition date. Identifiable definite-lived intangible assets, such as core technology, customer relationships and trade names, acquired as part of this acquisition had weighted average amortization periods of approximately 5 to 10 years. As of October 4, 2015, the purchase accounting allocations related to the Perten acquisition was preliminary.

Other acquisitions in fiscal year 2014. In addition to the Perten acquisition, the Company completed the acquisition of two businesses in fiscal year 2014 for total consideration of $17.6 million in cash and $4.3 million of assumed debt. The excess of the purchase price over the fair value 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 has been allocated to goodwill, none of which is tax deductible. The Company reported the operations for these acquisitions within the

8

results of the Human Health and Environmental Health segments from the acquisition dates. As of October 4, 2015, the purchase accounting allocations related to one of the acquisitions completed during fiscal year 2014 was finalized.

The total purchase price for the acquisitions in fiscal year 2014 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
 
Perten
 
2014 Other
 
(Preliminary)
 
(In thousands)
Fair value of business combination:
 
 
 
Cash payments
$
269,937

 
$
17,898

Working capital and other adjustments
—

 
(294
)
Less: cash acquired
(16,732
)
 
(124
)
Total
$
253,205

 
$
17,480

Identifiable assets acquired and liabilities assumed:
 
 
 
Current assets
$
32,578

 
$
1,935

Property, plant and equipment
1,485

 
125

Other assets
—

 
364

Identifiable intangible assets:
 
 
 
Core technology
17,000

 
1,705

Trade names
8,000

 
—

Customer relationships
87,000

 
6,800

IPR&D
—

 
1,266

Goodwill
163,816

 
15,518

Deferred taxes, net
(31,652
)
 
(3,072
)
Deferred revenue
—

 
(589
)
Liabilities assumed
(17,422
)
 
(2,285
)
Debt assumed
(7,600
)
 
(4,287
)
Total
$
253,205

 
$
17,480

During the third quarter of fiscal year 2015, the Company obtained information to assist in determining the fair values of certain tangible and intangible assets acquired and liabilities assumed as part of its acquisitions and adjusted its purchase price allocations. Based on such information, for acquisitions completed during 2015, the Company recognized a decrease in deferred taxes of $0.5 million, with a corresponding decrease in goodwill. For the Perten acquisition, the Company recognized increases in intangible assets of $2.0 million, liabilities assumed of $1.2 million and deferred taxes of $0.2 million, which were partially offset by a decrease in other current assets of $0.2 million and a decrease in goodwill of $0.4 million. For other acquisitions completed during fiscal year 2014, the Company recognized a decrease in working capital and other adjustments of $0.5 million with a corresponding decrease in goodwill. In addition, during the third quarter of fiscal year 2015, in connection with updating the provisional purchase accounting for the Perten acquisition, the Company adjusted goodwill and intangible assets which had been preliminarily recorded in U.S. dollars to Swedish Krona. This resulted in a decrease in intangible assets and goodwill of $21.4 million and a corresponding increase in other comprehensive loss through increased foreign currency translation adjustments as a result of the change in the exchange rate between the acquisition date and June 28, 2015. Of the $21.4 million decrease, $8.2 million related to changes in the exchange rate from the acquisition date through December 28, 2014. During the three and nine months ended October 4, 2015, there was an immaterial impact on the current period net income as a result of the change to the provisional amounts for items that would have been recognized in previous periods if the adjustments to provisional amounts had been recognized as of the acquisition date.
The preliminary allocations of the purchase prices for acquisitions are based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective 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

9

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. With the Company's adoption of ASU No. 2015-16 in the third quarter of fiscal year 2015, these adjustments will be made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. The effects of any such adjustments may cause changes in depreciation, amortization, or other income or expense. All changes that do not qualify as adjustments made during the measurement periods are also 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 acquisitions with open contingency periods, of up to $2.4 million as of October 4, 2015. As of October 4, 2015, the Company had recorded contingent consideration obligations with an estimated fair value of $0.5 million. The earnout period for acquisitions with open contingency periods 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 contingent consideration which would be recognized as a component of operating expenses from continuing operations.
Total transaction costs related to acquisition activities for the three and nine months ended October 4, 2015 were $0.1 million and $0.5 million, respectively. 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. These transaction costs were expensed as incurred and recorded in selling, general and administrative expenses in the Company's condensed consolidated statements of operations.

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 assets and liabilities from discontinued operations in the accompanying condensed consolidated balance sheets as of October 4, 2015 and December 28, 2014.
In May 2014, the Company’s management approved the shutdown of its microarray-based diagnostic testing laboratory in the United States, which had 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 net pre-tax loss related to the disposal of fixed assets and inventory for the nine months ended September 28, 2014.
During the first nine months of each of fiscal years 2015 and 2014, the Company settled various commitments related to the divestiture of other discontinued operations and recognized net pre-tax losses. These losses were recognized as a loss on disposition of discontinued operations.

10

Summary pre-tax operating results of the discontinued operations, which include the periods prior to disposition and a $1.0 million pre-tax restructuring 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
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Sales
$
10

 
$
—

 
$
93

 
$
960

Costs and expenses
2

 
1,091

 
87

 
5,165

Gain (loss) from discontinued operations before income taxes
$
8

 
$
(1,091
)
 
$
6

 
$
(4,205
)
The Company recorded tax provisions of $0.04 million and $0.01 million on discontinued operations and dispositions for the three and nine months ended October 4, 2015, respectively. The Company recorded tax benefits of $0.5 million and $1.7 million on discontinued operations and dispositions for the three and nine months ended September 28, 2014, respectively.

Note 4: Restructuring and Contract Termination Charges, Net

The Company's management has approved a series of restructuring actions related to the impact of acquisitions and divestitures, the alignment of the Company's operations with its 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 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.

The Company implemented restructuring plans in the second quarter of fiscal year 2015 and the third quarter of fiscal year 2014 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q2 2015 Plan" and the "Q3 2014 Plan", respectively). The Company implemented restructuring plans in the second and first quarters of fiscal year 2014 consisting of workforce reductions principally intended to focus resources on higher growth end markets (the "Q2 2014 Plan" and the "Q1 2014 Plan", respectively). Details of the plans initiated in previous years (“Previous Plans”) are discussed more fully in Note 4 to the audited consolidated financial statements in the 2014 Form 10-K. The Company also 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 following table summarizes the number of employees reduced, the initial restructuring or contract termination charges by operating segment, and the dates by which payments were substantially completed, or the expected dates by which payments will be substantially completed, for restructuring actions implemented during the nine months ended October 4, 2015 and fiscal year 2014:
 
 
 
Initial Restructuring or Contract Termination Charges
 
Total
 
Date or Expected Date Payments Substantially Completed by
 
Headcount Reduction
 
Human Health
 
Environmental Health
 
 
 
(In thousands, except headcount data)
 
 
Q2 2015 Plan
97

 
$
1,850

 
$
4,160

 
$
6,010

 
Q2 FY2016
2015 Contract Termination Charges
—

 
—

 
25

 
25

 
Q4 FY2015
 
 
 
 
 
 
 
 
 
 
Q3 2014 Plan
152

 
7,126

 
5,925

 
13,051

 
Q4 FY2015
Q2 2014 Plan
22

 
545

 
190

 
735

 
Q2 FY2015
Q1 2014 Plan
17

 
370

 
197

 
567

 
Q4 FY2014
2014 Contract Termination Charges
—

 
—

 
1,545

 
1,545

 
Q4 FY2015
The Company expects to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022.


11

At October 4, 2015, the Company had $17.1 million recorded for accrued restructuring and contract termination charges, of which $12.1 million was recorded in short-term accrued restructuring and contract termination charges and $5.0 million was recorded in long-term liabilities. At December 28, 2014, the Company had $23.8 million recorded for accrued restructuring and contract termination charges, of which $17.1 million was recorded in short-accrued restructuring and $6.7 million was recorded in long-term liabilities. The following table summarizes the Company's restructuring and contract termination accrual balances and related activity by restructuring plan, as well as contract termination, during the nine months ended October 4, 2015:
 
Balance at December 28, 2014
 
2015 Charges
 
2015 Changes in Estimates, Net
 
2015 Amounts Paid
 
Balance at October 4, 2015
 
(In thousands)
Severance:
Q2 2015 Plan(1)
$
—

 
$
6,010

 
$
(540
)
 
$
(3,166
)
 
$
2,304

Q3 2014 Plan
10,059

 
—

 
—

 
(5,257
)
 
4,802

Q2 2014 Plan(2)
251

 
—

 
(179
)
 
(8
)
 
64

Q1 2014 Plan(3)
92

 
—

 
(92
)
 
—

 
—

Previous Plans(4)
13,124

 
—

 
(386
)
 
(2,961
)
 
9,777

Restructuring
23,526

 
6,010

 
(1,197
)
 
(11,392
)
 
16,947

Contract Termination
304

 
25

 
—

 
(200
)
 
129

Total Restructuring and Contract Termination
$
23,830

 
$
6,035

 
$
(1,197
)
 
$
(11,592
)
 
$
17,076


(1) 
During the nine months ended October 4, 2015, the Company recognized pre-tax restructuring reversals of $0.2 million in the Human Health segment and $0.3 million in the Environmental Health segment related to lower than expected costs associated with workforce reductions for the Q2 2015 Plan.
(2) 
During the nine months ended October 4, 2015, the Company recognized pre-tax restructuring reversals of $0.1 million in each of the Human Health and Environmental Health segments related to lower than expected costs associated with workforce reductions for the Q2 2014 Plan.
(3) 
During the nine months ended October 4, 2015, the Company recognized a pre-tax restructuring reversal of $0.1 million in the Human Health segment related to lower than expected costs associated with workforce reductions for the Q1 2014 Plan.
(4) 
During the nine months ended October 4, 2015, the Company recognized a net additional pre-tax restructuring charge of $0.6 million in the Human Health segment primarily related to higher than expected costs associated with the closure of the excess facility space and a pre-tax restructuring reversal of $1.0 million in the Environmental Health segment related to lower than expected costs associated with workforce reductions for the Previous Plans.

Note 5: Interest and Other Expense, Net

Interest and other expense, net, consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Interest income
$
(147
)
 
$
(130
)
 
$
(488
)
 
$
(375
)
Interest expense
9,874

 
8,909

 
28,564

 
27,207

Other expense, net
2,217

 
2,187

 
4,132

 
4,387

Total interest and other expense, net
$
11,944

 
$
10,966

 
$
32,208

 
$
31,219



12

Note 6: Inventories

Inventories as of October 4, 2015 and December 28, 2014 consisted of the following:
 
October 4,
2015
 
December 28,
2014
 
(In thousands)
Raw materials
$
104,743

 
$
96,169

Work in progress
22,088

 
18,783

Finished goods
186,216

 
170,505

Total inventories
$
313,047

 
$
285,457


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 October 4, 2015, the Company had gross tax effected unrecognized tax benefits of $29.9 million, of which $26.1 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 $4.1 million of its uncertain tax positions at October 4, 2015, 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 2007 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 2015 and 2014, the Company recorded net discrete income tax benefits of $5.2 million and $5.8 million, respectively, primarily for reversals of uncertain tax position reserves and resolution of other tax matters.

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 Company's senior unsecured revolving credit facility provides for $700.0 million of revolving loans and has an initial maturity of January 8, 2019. As of October 4, 2015, undrawn letters of credit in the aggregate amount of $11.5 million were treated as issued and outstanding under the senior unsecured revolving credit facility. As of October 4, 2015, the Company had $196.5 million available for additional borrowing under the 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 October 4, 2015, borrowings under the senior unsecured revolving credit facility were accruing interest primarily based on the Eurocurrency rate. The Eurocurrency margin as of October 4, 2015 was 108 basis points. The weighted average Eurocurrency interest rate as of October 4, 2015 was 0.25%, resulting in a weighted average effective Eurocurrency rate, including the margin, of 1.33%. At October 4, 2015 and December 28, 2014, the Company had $492.0 million and $516.0 million, respectively, 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 credit agreement for the Company's 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.
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

13

net proceeds from the issuance. The 2021 Notes were issued at 99.372% of the principal amount, which resulted in a discount of $3.1 million. As of October 4, 2015, the 2021 Notes had an aggregate carrying value of $497.9 million, net of $2.1 million of unamortized original issue discount. As of December 28, 2014, the 2021 Notes had an aggregate carrying value of $497.7 million, net of $2.3 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 fiscal year 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, and as a result the Company was 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 October 4, 2015, the Company had $38.5 million recorded for these financing lease obligations, of which $1.1 million was recorded as short-term debt and $37.4 million was recorded as long-term debt. At December 28, 2014, the Company had $39.3 million recorded for these financing lease obligations, of which $1.1 million was recorded as short-term debt and $38.2 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.

Note 9: Earnings Per Share

Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period less restricted unvested shares. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method. The following table reconciles the number of shares utilized in the earnings per share calculations:
 
Three Months Ended
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Number of common shares—basic
112,632

 
112,646

 
112,763

 
112,662

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
580

 
870

 
633

 
964

Restricted stock awards
210

 
243

 
169

 
210

Number of common shares—diluted
113,422

 
113,759

 
113,565

 
113,836

Number of potentially dilutive securities excluded from calculation due to antidilutive impact
521

 
482

 
649

 
480

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.


14

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 2014 Form 10-K.

The Company realigned its organization at the beginning of fiscal year 2015 to enable the Company to both deliver complete solutions targeted towards certain end markets and develop value-added applications and solutions to foster further expansion of those markets. OneSource, the multivendor service offering business that serves the life sciences end market, was moved from the Environmental Health segment into the Human Health segment. The results reported for the three and nine months ended October 4, 2015 reflect this new alignment of the Company's operating segments. Financial information in this report relating to the three and nine months ended September 28, 2014 and the fiscal year ended 2014 have been retrospectively adjusted to reflect the changes to the operating segments. 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.

15

Revenue and operating income (loss) from continuing operations by operating segment are shown in the table below: 
 
Three Months Ended
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Human Health
 
 
 
 
 
 
 
Product revenue
$
238,553

 
$
237,312

 
$
712,207

 
$
721,449

Service revenue
105,083

 
99,637

 
298,970

 
288,076

Total revenue
343,636

 
336,949

 
1,011,177

 
1,009,525

Operating income from continuing operations
63,147

 
48,089

 
179,560

 
149,979

Environmental Health
 
 
 
 
 
 
 
Product revenue
139,772

 
128,621

 
414,149

 
391,578

Service revenue
80,028

 
76,479

 
228,917

 
227,726

Total revenue
219,800

 
205,100

 
643,066

 
619,304

Operating income from continuing operations
22,838

 
18,540

 
53,606

 
65,725

Corporate
 
 
 
 
 
 
 
Operating loss from continuing operations(1)
(10,087
)
 
(7,853
)
 
(31,756
)
 
(35,529
)
Continuing Operations
 
 
 
 
 
 
 
Product revenue
378,325

 
365,933

 
1,126,356

 
1,113,027

Service revenue
185,111

 
176,116

 
527,887

 
515,802

Total revenue
563,436

 
542,049

 
1,654,243

 
1,628,829

Operating income from continuing operations
75,898

 
58,776

 
201,410

 
180,175

Interest and other expense, net (see Note 5)
11,944

 
10,966

 
32,208

 
31,219

Income from continuing operations before income taxes
$
63,954

 
$
47,810

 
$
169,202

 
$
148,956

____________________________
(1) 
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 during 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 in the second quarter of fiscal year 2014. In addition, the Company incurred $3.4 million of expenses in preparation for the trial during the six months ended June 29, 2014.

Note 11: Stockholders’ Equity
Comprehensive Income:
The components of accumulated other comprehensive (loss) income consisted of the following:
 
October 4,
2015
 
December 28,
2014
 
(In thousands)
Foreign currency translation adjustments
$
(34,723
)
 
$
23,332

Unrecognized prior service costs, net of income taxes
1,575

 
1,575

Unrealized net losses on securities, net of income taxes
(250
)
 
(107
)
Accumulated other comprehensive (loss) income
$
(33,398
)
 
$
24,800


Stock Repurchases:
On October 23, 2014, the Board of Directors (the "Board") authorized the Company to repurchase up to 8.0 million shares of common stock under a stock repurchase program (the "Repurchase Program"). The 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 October 4, 2015, the Company repurchased 1.5 million shares of common stock in the open market at an

16

aggregate cost of $72.0 million, including commissions, under the Repurchase Program. As of October 4, 2015, 5.9 million shares remained available for repurchase under the Repurchase Program.
In addition, 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 October 4, 2015, the Company repurchased 89,558 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 2015 and in each quarter of fiscal year 2014. At October 4, 2015, the Company has accrued $7.8 million for dividends declared on July 22, 2015 for the third quarter of fiscal year 2015, payable in November 2015. On October 29, 2015, the Company announced that the Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2015 that will be payable in February 2016. 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.
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 October 4, 2015 and September 28, 2014:
 
Three Months Ended
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Cost of product and service revenue
$
323

 
$
386

 
$
964

 
$
1,056

Research and development expenses
119

 
39

 
419

 
400

Selling, general and administrative expenses
3,848

 
2,025

 
11,100

 
10,313

Total stock-based compensation expense
$
4,290

 
$
2,450

 
$
12,483

 
$
11,769

The total income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation was $1.4 million and $4.1 million for the three and nine months ended October 4, 2015, respectively. 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. Stock-based compensation costs capitalized as part of inventory were $0.4 million as of both October 4, 2015 and September 28, 2014.
Stock Options: The fair value of each option grant is estimated using the Black-Scholes option pricing model. The Company’s weighted-average assumptions used in the Black-Scholes option pricing model were as follows:
 
Three and Nine Months Ended
 
October 4,
2015
 
September 28,
2014
Risk-free interest rate
1.3
%
 
1.5
%
Expected dividend yield
0.6
%
 
0.7
%
Expected term
5 years

 
5 years

Expected stock volatility
26.5
%
 
30.9
%

17

The following table summarizes stock option activity for the nine months ended October 4, 2015:
 
Number
of
Shares
 
Weighted-
Average Exercise
Price
 
Weighted-Average
Remaining
Contractual Term
 
Total
Intrinsic
Value
 
(In thousands)
 
 
 
(In years)
 
(In millions)
Outstanding at December 28, 2014
2,828

 
$
26.11

 
 
 
 
Granted
490

 
46.25

 
 
 
 
Exercised
(751
)
 
17.42

 
 
 
 
Canceled
(3
)
 
22.49

 
 
 
 
Forfeited
(83
)
 
31.43

 
 
 
 
Outstanding at October 4, 2015
2,481

 
$
32.54

 
3.8
 
$
42.4

Exercisable at October 4, 2015
1,599

 
$
26.48

 
2.7
 
$
37.0

Vested and expected to vest in the future
2,413

 
$
32.28

 
3.7
 
$
41.9

The weighted-average per-share grant-date fair value of options granted during the three and nine months ended October 4, 2015 was $11.44 and $11.00, respectively. 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. The total intrinsic value of options exercised during the three and nine months ended October 4, 2015 was $0.7 million and $22.6 million, respectively. 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. Cash received from option exercises for the nine months ended October 4, 2015 and September 28, 2014 was $13.1 million and $20.9 million, respectively.
The total compensation expense recognized related to the Company’s outstanding options was $1.2 million and $3.2 million for the three and nine months ended October 4, 2015, respectively, and $1.0 million and $3.9 million for the three and nine months ended September 28, 2014, respectively.
There was $6.8 million of total unrecognized compensation cost related to nonvested stock options granted as of October 4, 2015. This cost is expected to be recognized over a weighted-average period of 1.9 years.
Restricted Stock Awards: The following table summarizes restricted stock award activity for the nine months ended October 4, 2015:
 
Number of
Shares
 
Weighted-
Average
Grant-
Date Fair
Value
 
(In thousands)
 
 
Nonvested at December 28, 2014
558

 
$
35.51

Granted
224

 
46.63

Vested
(232
)
 
30.55

Forfeited
(30
)
 
40.38

Nonvested at October 4, 2015
520

 
$
42.23

The weighted-average per-share grant-date fair value of restricted stock awards granted during the three and nine months ended October 4, 2015 was $48.77 and $46.63, respectively. 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 fair value of restricted stock awards vested during the three and nine months ended October 4, 2015 was $0.2 million and $7.1 million, 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 total compensation expense recognized related to the Company’s outstanding restricted stock awards was $2.2 million and $6.5 million for the three and nine months ended October 4, 2015, respectively, and $1.6 million and $5.5 million for the three and nine months ended September 28, 2014, respectively.
As of October 4, 2015, there was $12.7 million of total unrecognized compensation cost related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 1.5 years.

18

Performance Units: The Company granted 66,509 and 79,463 performance units during the nine months ended October 4, 2015 and September 28, 2014, respectively, as part of the Company’s executive incentive program. The weighted-average per-share grant-date fair value of performance units granted during the nine months ended October 4, 2015 and September 28, 2014 was $46.83 and $42.84, respectively. During the nine months ended October 4, 2015 and September 28, 2014, 8,860 and 19,667 performance units were forfeited, respectively. The total compensation expense recognized related to performance units was $0.8 million and $2.1 million for the three and nine months ended October 4, 2015, respectively, and a reversal of an expense of $0.2 million and an expense of $1.6 million for the three and nine months ended September 28, 2014, respectively. As of October 4, 2015, there were 201,415 performance units outstanding and subject to forfeiture, with a corresponding liability of $4.0 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 1,953 shares and 2,373 shares to each non-employee member of the Board during the nine months ended October 4, 2015 and September 28, 2014, respectively. The Company also granted 544 shares to a new non-employee member of the Board during the three months ended March 29, 2015. The weighted-average per-share grant-date fair value of the stock awards granted during the nine months ended October 4, 2015 and September 28, 2014 was $51.01 and $42.14, respectively. The total compensation expense recognized related to these stock awards was $0.7 million for each of the nine months ended October 4, 2015 and September 28, 2014.
Employee Stock Purchase Plan: During the nine months ended October 4, 2015, the Company issued 54,374 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $45.41 per share. 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. At October 4, 2015, 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.

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, 2015, its annual impairment date for fiscal year 2015. 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 20.0% for each reporting unit. The long-term terminal growth rates for the Company’s reporting units ranged from 4.0% to 6.5% for the fiscal year 2015 impairment analysis. The range for the discount rates for the reporting units was 9.5% to 12.5%. 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.
Subsequent to the 2015 annual impairment test, the Company realigned its organization, as discussed in Note 10. While the realignment did not have a significant impact on the fair values of the reporting units as discussed above, the realignment did result in a change in the composition of the Company's reportable segments. OneSource, the multivendor service offering business that serves the life sciences end market, was moved from the Environmental Health segment into the Human Health segment. As a result of the new alignment, the Company reallocated goodwill from the Environmental Health segment to the Human Health segment based on the relative fair value, determined using the income approach, of the business. During the second quarter of 2015, the Company updated its preliminary analysis and the realignment resulted in $41.2 million of goodwill being reallocated from the Environmental Health segment into the Human Health segment as of December 28, 2014.
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 rates 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

19

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 corroborates the income approach with a market approach.
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, 2015, 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 2015.
The changes in the carrying amount of goodwill for the period ended October 4, 2015 from December 28, 2014 were as follows:
 
Human
Health
 
Environmental
Health
 
Consolidated
 
(In thousands)
Balance at December 28, 2014
$
1,662,755

 
$
621,322

 
$
2,284,077

Foreign currency translation
(19,018
)
 
(23,557
)
 
(42,575
)
Acquisitions and other
33

 
12,408

 
12,441

Balance at October 4, 2015
$
1,643,770

 
$
610,173

 
$
2,253,943

Identifiable intangible asset balances at October 4, 2015 and December 28, 2014 by category were as follows:
 
October 4,
2015
 
December 28,
2014
 
(In thousands)
Patents
$
39,923

 
$
39,953

Less: Accumulated amortization
(29,141
)
 
(27,200
)
Net patents
10,782

 
12,753

Trade names and trademarks
40,381

 
40,069

Less: Accumulated amortization
(19,768
)
 
(16,936
)
Net trade names and trademarks
20,613

 
23,133

Licenses
59,058

 
59,631

Less: Accumulated amortization
(44,386
)
 
(41,792
)
Net licenses
14,672

 
17,839

Core technology
295,694

 
298,491

Less: Accumulated amortization
(204,499
)
 
(184,697
)
Net core technology
91,195

 
113,794

Customer relationships
393,240

 
402,185

Less: Accumulated amortization
(182,535
)
 
(156,994
)
Net customer relationships
210,705

 
245,191

IPR&D
9,572

 
10,103

Less: Accumulated amortization
(3,884
)
 
(3,132
)
Net IPR&D
5,688

 
6,971

Net amortizable intangible assets
353,655

 
419,681

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

 
70,584

Total
$
424,239

 
$
490,265


20

Total amortization expense related to definite-lived intangible assets was $18.8 million and $58.5 million for the three and nine months ended October 4, 2015, respectively, and $20.6 million and $61.9 million for the three and nine months September 28, 2014, respectively. Estimated amortization expense related to definite-lived intangible assets for each of the next five years is $21.5 million for the remainder of fiscal year 2015, $70.9 million for fiscal year 2016, $61.1 million for fiscal year 2017, $50.1 million for fiscal year 2018, and $38.3 million for fiscal year 2019.

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.
A summary of warranty reserve activity for the three and nine months ended October 4, 2015 and September 28, 2014 is as follows:
 
Three Months Ended
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Balance at beginning of period
$
10,810

 
$
10,786

 
$
10,783

 
$
10,534

Provision charged to income
4,240

 
4,187

 
12,728

 
12,596

Payments
(4,412
)
 
(4,154
)
 
(12,158
)
 
(12,509
)
Adjustments to previously provided warranties, net
129

 
(130
)
 
(342
)
 
44

Foreign currency translation and acquisitions
(155
)
 
(293
)
 
(399
)
 
(269
)
Balance at end of period
$
10,612

 
$
10,396

 
$
10,612

 
$
10,396


Note 15: Employee Postretirement Benefit Plans

The following table summarizes the components of net periodic benefit (credit) cost for the Company’s various defined benefit employee pension and postretirement plans for the three and nine months ended October 4, 2015 and September 28, 2014:
 
Defined Benefit
Pension Benefits
 
Postretirement
Medical Benefits
 
Three Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Service cost
$
1,083

 
$
1,030

 
$
27

 
$
24

Interest cost
5,176

 
5,914

 
36

 
39

Expected return on plan assets
(6,513
)
 
(6,277
)
 
(265
)
 
(241
)
Amortization of prior service costs
(59
)
 
(72
)
 
—

 
—

Net periodic benefit (credit) cost
$
(313
)
 
$
595

 
$
(202
)
 
$
(178
)

21

 
Defined Benefit
Pension Benefits
 
Postretirement
Medical Benefits
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Service cost
$
3,274

 
$
3,094

 
$
81

 
$
72

Interest cost
15,602

 
17,761

 
108

 
116

Expected return on plan assets
(19,535
)
 
(18,820
)
 
(797
)
 
(723
)
Curtailment gain
(816
)
 
—

 
—

 
—

Actuarial loss
821

 
—

 
—

 
—

Amortization of prior service
(182
)
 
(214
)
 
—

 
—

Net periodic benefit (credit) cost
$
(836
)
 
$
1,821

 
$
(608
)
 
$
(535
)
During the nine months ended October 4, 2015 and September 28, 2014, the Company contributed $6.5 million and $2.8 million, respectively, in the aggregate, to pension plans outside of the United States. During the nine months ended October 4, 2015, the Company contributed $20.0 million to its defined benefit pension plan in the United States.
In the third quarter of fiscal year 2014, the Company notified certain employees of its intention to terminate their employment as part of the Q3 2014 restructuring plan. During the second quarter of fiscal year 2015, the termination of these participants decreased the expected future service lives in excess of the curtailment limit for one of the Company's pension plans, which resulted in a curtailment gain. The Company recorded the curtailment gain of $0.8 million during the second quarter of fiscal year 2015. As part of the curtailment, the Company remeasured the assets and liabilities of the plan that had the curtailment based upon current discount rates and the fair value of the pension plan's assets as of the curtailment date, which resulted in an actuarial loss of $0.8 million.
The Company recognizes actuarial gains and losses, unless an interim remeasurement is required, 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 2014 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. The unrealized gains and losses on the Company’s foreign currency contracts are recognized immediately in earnings, included in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from operating activities within the Company’s condensed consolidated statement of cash flows.

Principal hedged currencies include the British Pound, Euro, Japanese Yen and Singapore Dollar. The Company held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling $104.7 million, $95.0 million and $127.2 million at October 4, 2015, December 28, 2014 and September 28, 2014, respectively, and the fair value of these foreign currency derivative contracts was insignificant. The gains and losses realized on these

22

foreign currency derivative contracts are not material. The duration of these contracts was generally 30 days or less during each of the nine months ended October 4, 2015 and September 28, 2014.

In addition, in connection with certain intercompany loan agreements the Company enters into forward foreign exchange contracts intended to hedge movements in foreign exchange rates prior to settlement of such intercompany loans denominated in foreign currencies. The Company records these hedges at fair value on the Company’s condensed consolidated balance sheets. The unrealized gains and losses on these hedges, as well as the gains and losses associated with the remeasurement of the intercompany loans, are recognized immediately in earnings, included in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from financing activities within the Company’s condensed consolidated statement of cash flows.

During the nine months ended October 4, 2015, the Company settled several of these forward exchange contracts and entered into additional new contracts that will settle in fiscal year 2015. The combined Euro denominated notional amounts of these outstanding hedges was €108.7 million and €238.2 million as of October 4, 2015 and December 28, 2014, respectively. The net gains and losses on these derivatives, combined with the gains and losses on the remeasurement of the hedged intercompany loans were not material for the nine months ending October 4, 2015. The Company received $19.2 million as a result of the settlement of these hedges in the nine months ended October 4, 2015.

The Company does not expect any material net pre-tax gains or losses to be reclassified from accumulated other comprehensive income into interest and other expense, net within the next twelve months.

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 October 4, 2015.
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the nine months ended October 4, 2015. The Company’s financial assets and liabilities carried at fair value are primarily comprised of marketable securities, derivative contracts used to hedge the Company’s currency risk, and acquisition-related contingent consideration. The Company has not elected to measure any additional financial instruments or other items at fair value.
Valuation Hierarchy: The following summarizes the three levels of inputs required to measure fair value. For Level 1 inputs, the Company utilizes quoted market prices as these instruments have active markets. For Level 2 inputs, the Company utilizes quoted market prices in markets that are not active, broker or dealer quotations, or utilizes alternative pricing sources with reasonable levels of price transparency. For Level 3 inputs, the Company utilizes unobservable inputs based on the best information available, including estimates by management primarily based on information provided by third-party fund managers, independent brokerage firms and insurance companies. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
The following tables show the assets and liabilities carried at fair value measured on a recurring basis as of October 4, 2015 and December 28, 2014 classified in one of the three classifications described above:
 
 
 
Fair Value Measurements at October 4, 2015 Using:
 
Total Carrying Value at October 4, 2015
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(In thousands)
Marketable securities
$
1,574

 
$
1,574

 
$
—

 
$
—

Foreign exchange derivative assets
50

 
—

 
50

 
—

Foreign exchange derivative liabilities
(2,295
)
 
—

 
(2,295
)
 
—

Contingent consideration
(519
)
 
—

 
—

 
(519
)
 

23

 
 
 
Fair Value Measurements at December 28, 2014 Using:
 
Total Carrying Value at December 28, 2014
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable 
Inputs
(Level 3)
 
(In thousands)
Marketable securities
$
1,568

 
$
1,568

 
$
—

 
$
—

Foreign exchange derivative assets
3,205

 
—

 
3,205

 
—

Foreign exchange derivative liabilities
(302
)
 
—

 
(302
)
 
—

Contingent consideration
(91
)
 
—

 
—

 
(91
)
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 condensed consolidated balance sheet on a net basis and are recorded in other assets. As of both October 4, 2015 and December 28, 2014, 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 2014 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 acquisitions with open contingency periods, of up to $2.4 million as of October 4, 2015. As of October 4, 2015, the Company had recorded contingent consideration obligations with an estimated fair value of $0.5 million. The earnout period for acquisitions with open contingency periods does not exceed three years from the respective acquisition date, and the remaining weighted average earnout period at October 4, 2015 was 1 year.
A reconciliation of the beginning and ending Level 3 net liabilities for contingent consideration is as follows:
 
Three Months Ended
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Balance at beginning of period
$
(475
)
 
$
(3,430
)
 
$
(91
)
 
$
(4,926
)
Additions
—

 
—

 
(475
)
 
—

Amounts paid and foreign currency translation
26

 
2,137

 
36

 
2,065

Change in fair value (included within selling, general and administrative expenses)
(70
)
 
7

 
11

 
1,575

Balance at end of period
$
(519
)
 
$
(1,286
)
 
$
(519
)
 
$
(1,286
)

24

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 senior unsecured revolving credit facility, which provides for $700.0 million of revolving loans, had amounts outstanding, excluding letters of credit, of $492.0 million and $516.0 million as of October 4, 2015 and December 28, 2014, respectively. The interest rate on the Company’s senior unsecured revolving credit facility is reset at least monthly to correspond to variable rates that reflect currently available terms and conditions for similar debt. The Company had no change in credit standing during the first nine months of fiscal year 2015. 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 $497.9 million, net of $2.1 million of unamortized original issue discount, and a fair value of $528.1 million as of October 4, 2015. The 2021 Notes had an aggregate carrying value of $497.7 million, net of $2.3 million of unamortized original issue discount, and a fair value of $542.7 million as of December 28, 2014. 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 $38.5 million and $39.3 million as of October 4, 2015 and December 28, 2014, respectively. The carrying values of the Company's financing lease obligations approximated their fair value as there has been minimal change in the Company's incremental borrowing rate. As of October 4, 2015, the 2021 Notes and financing lease obligations were classified as Level 2.
As of October 4, 2015, 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: 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 $12.1 million and $12.3 million as of October 4, 2015 and December 28, 2014, respectively, which represents its 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. The Company's environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The 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 subject to various 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 contingencies at October 4, 2015 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.

25

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.
We realigned our organization at the beginning of fiscal year 2015 to enable us to both deliver complete solutions targeted towards certain end markets and develop value-added applications and solutions to foster further expansion of those markets. OneSource, the multivendor service offering business that serves our life sciences end market, was moved from our Environmental Health segment into our Human Health segment. The results reported for the three and nine months ended October 4, 2015 reflect this new alignment of our operating segments. Financial information in this report relating to the three and nine months ended September 28, 2014 and the fiscal year ended 2014 have been retrospectively adjusted to reflect the changes to the operating segments. The principal products and services of our two operating segments are:
•
Human Health.    Concentrates on developing 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.
As a result of the realignment, we reallocated goodwill from our Environmental Health segment to our Human Health segment based on the relative fair value, determined using the income approach, of the business within the historical Environmental Health segment. During the second quarter of 2015, we updated our preliminary analysis and the realignment resulted in $41.2 million of goodwill being reallocated from our Environmental Health segment to our Human Health segment as of December 28, 2014.
Overview of the Third Quarter of Fiscal Year 2015
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. The fiscal year ending January 3, 2016 ("fiscal year 2015") will include 53 weeks, while the fiscal year ended December 28, 2014 ("fiscal year 2014") included 52 weeks. The additional week in fiscal year 2015 has been reflected in our third quarter, which consisted of 14 weeks as compared to our third quarter of fiscal year 2014, which consisted of 13 weeks.
Our overall revenue in the third quarter of fiscal year 2015 was $563.4 million and increased $21.4 million, or 4%, as compared to the third quarter of fiscal year 2014, reflecting an increase of $14.7 million, or 7%, in our Environmental Health segment revenue and an increase of $6.7 million, or 2%, in our Human Health segment revenue. The increase in our Environmental Health segment revenue during the third quarter of fiscal year 2015 was primarily due to revenue from the acquisition of Perten Instruments Group AB ("Perten"), as well as increased demand in our laboratory services business, which was partially offset by unfavorable impacts from foreign currency. The increase in our Human Health segment revenue during the third quarter of fiscal year 2015 was primarily driven by our OneSource service offerings within our research market, as well as increased demand in our newborn and infectious disease screening business within our diagnostics market.
In our Human Health segment, we experienced growth during the third quarter of fiscal year 2015 in several of our products within our end markets, as compared to the third quarter of fiscal year 2014. In our research market, we experienced growth due to increased demand for our OneSource service offerings, as well as new product introductions, such as the Opera Phenix. Our OneSource 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. In our diagnostics market, we

26

experienced growth from continued expansion of our newborn and infectious disease screening solutions in the United States, as well as emerging markets such as China. Birth rates in the United States continue to stabilize and demand for greater access to newborn screening in rural areas outside the United States is also increasing, as evidenced by prenatal trends we saw during the third quarter of fiscal year 2015. The growth in our Human Health segment was partially offset by unfavorable impacts from foreign currency as the U.S. dollar strengthened, particularly versus the Euro. Demand in our medical imaging business was flat. 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, we had an increase in revenue for the third quarter of fiscal year 2015 as compared to the third quarter of fiscal year 2014, despite unfavorable impacts from foreign currency. The increase in revenue was primarily due to revenue from the acquisition of Perten, as well as growth in our materials characterization product family within our environmental and industrial markets, which was partially offset by unfavorable impacts from foreign currency. In addition, we had an increased demand in our laboratory services business, despite unfavorable impacts from foreign currency. 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.
Our consolidated gross margins increased 30 basis points in the third quarter of fiscal year 2015, as compared to the third quarter of fiscal year 2014, due to favorable changes in product mix, with an increase in sales of higher gross margin product offerings and benefits from our initiatives to improve our supply chain. Our consolidated operating margins increased 263 basis points in the third quarter of fiscal year 2015, as compared to the third quarter of fiscal year 2014, primarily due to higher gross margins, and lower restructuring charges and costs as a result of cost containment and productivity initiatives, which were partially offset by increased costs related to investments in new product development.
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 28, 2014 (our “2014 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 October 4, 2015.

Consolidated Results of Continuing Operations
Revenue
Revenue for the three months ended October 4, 2015 was $563.4 million, as compared to $542.0 million for the three months ended September 28, 2014, an increase of $21.4 million, or 4%, which includes an additional week in the third quarter of fiscal year 2015, an approximate 6% decrease in revenue attributable to unfavorable changes in foreign exchange rates and an approximate 4% increase in revenue attributable to acquisitions. The analysis in the remainder of this paragraph compares segment revenue for the three months ended October 4, 2015 as compared to the three months ended September 28, 2014 and

27

includes the effect of foreign exchange rate fluctuations and acquisitions. Our Environmental Health segment revenue increased $14.7 million, or 7%, due to an increase in our environmental and industrial markets revenue of $14.5 million and an increase in our laboratory services market revenue of $0.2 million. Our Human Health segment revenue increased $6.7 million, or 2%, due to an increase in our research market revenue of $5.8 million and an increase in our diagnostics market revenue of $0.8 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize $0.2 million of revenue for the three months ended October 4, 2015 and $0.8 million for the three months ended September 28, 2014 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
Revenue for the nine months ended October 4, 2015 was $1,654.2 million, as compared to $1,628.8 million for the nine months ended September 28, 2014, an increase of $25.4 million, or 2%, which includes an additional week in the third quarter of fiscal year 2015, an approximate 6% decrease in revenue attributable to unfavorable changes in foreign exchange rates and an approximate 4% increase in revenue attributable to acquisitions. The analysis in the remainder of this paragraph compares segment revenue for the nine months ended October 4, 2015 as compared to the nine months ended September 28, 2014 and includes the effect of foreign exchange rate fluctuations and acquisitions. Our Environmental Health segment revenue increased $23.8 million, or 4%, due to an increase in environmental and industrial markets revenue of $31.0 million, partially offset by a decrease in laboratory services market revenue of $7.3 million. Our Human Health segment revenue increased $1.7 million, or 0.2%, due to an increase in research market revenue of $6.1 million, which was partially offset by a decrease in diagnostics market revenue of $4.4 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize $0.6 million of revenue for the nine months ended October 4, 2015 and $2.7 million for the nine months ended September 28, 2014 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 October 4, 2015 was $308.8 million, as compared to $298.7 million for the three months ended September 28, 2014, an increase of $10.1 million, or 3%. As a percentage of revenue, cost of revenue decreased to 54.8% for the three months ended October 4, 2015, from 55.1% for the three months ended September 28, 2014, resulting in an increase in gross margin of 30 basis points from 44.9% for the three months ended September 28, 2014 to 45.2% for the three months ended October 4, 2015. Amortization of intangible assets decreased and was $10.7 million for the three months ended October 4, 2015, as compared to $12.4 million for the three months ended September 28, 2014. Stock-based compensation expense was $0.3 million for the three months ended October 4, 2015, as compared to $0.4 million for the three months ended September 28, 2014. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $0.8 million for the three months ended October 4, 2015. Acquisition related costs added an incremental expense of $0.02 million for each of the three months ended October 4, 2015 and September 28, 2014. 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 and benefits from our initiatives to improve our supply chain.
Cost of revenue for the nine months ended October 4, 2015 was $911.8 million, as compared to $901.8 million for the nine months ended September 28, 2014, an increase of $9.9 million, or 1%. As a percentage of revenue, cost of revenue decreased to 55.1% for the nine months ended October 4, 2015, from 55.4% for the nine months ended September 28, 2014, resulting in an increase in gross margin of 25 basis points from 44.6% for the nine months ended September 28, 2014 to 44.9% for the nine months ended October 4, 2015. Amortization of intangible assets decreased and was $32.2 million for the nine months ended October 4, 2015, as compared to $37.4 million for the nine months ended September 28, 2014. Stock-based compensation expense was $1.0 million for the nine months ended October 4, 2015, as compared to $1.1 million for the nine months ended September 28, 2014. The mark-to-market adjustment for postretirement benefit plans was a loss of $0.2 million for the nine months ended October 4, 2015, as compared to a gain of $0.1 million for the nine months ended September 28, 2014. Acquisition related costs added an incremental expense of $0.05 million for each of the nine months ended October 4, 2015 and September 28, 2014. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $7.3 million for the nine months ended October 4, 2015. 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 and benefits from our initiatives to improve our supply chain.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended October 4, 2015 were $147.7 million, as compared to $143.0 million for the three months ended September 28, 2014, an increase of $4.7 million, or 3%. As a percentage of revenue, selling, general and administrative expenses decreased and were 26.2% for the three months ended October 4, 2015, as compared to 26.4% for the three months ended September 28, 2014. Amortization of intangible assets was

28

$8.0 million for each of the three months ended October 4, 2015 and September 28, 2014. Stock-based compensation expense increased and was $3.8 million for the three months ended October 4, 2015, as compared to $2.0 million for the three months ended September 28, 2014. Acquisition related costs for contingent consideration and other acquisition costs added an incremental expense of $0.1 million for the three months ended October 4, 2015, as compared to adding an incremental expense of $0.04 million for the three months ended September 28, 2014. In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of increased sales and marketing expenses due to the impact of an additional week in the third quarter of fiscal year 2015, which was partially offset by lower costs as a result of cost containment and productivity initiatives.
Selling, general and administrative expenses for the nine months ended October 4, 2015 were $440.3 million, as compared to $442.7 million for the nine months ended September 28, 2014, a decrease of $2.3 million, or 1%. As a percentage of revenue, selling, general and administrative expenses decreased and were 26.6% for the nine months ended October 4, 2015, as compared to 27.2% for the nine months ended September 28, 2014. Amortization of intangible assets increased and was $26.0 million for the nine months ended October 4, 2015, as compared to $24.0 million for the nine months ended September 28, 2014. Stock-based compensation expense increased and was $11.1 million for the nine months ended October 4, 2015, as compared to $10.3 million for the nine months ended September 28, 2014. The mark-to-market adjustment for postretirement benefit plans was a loss of $0.8 million for the nine months ended October 4, 2015. 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 contingent consideration and other acquisition costs added an incremental expense of $0.6 million for the nine months ended October 4, 2015, as compared to decreasing expenses by $1.3 million for the nine months ended September 28, 2014. The decrease in selling, general and administrative expenses was primarily the result of lower costs as a result of cost containment and productivity initiatives, which was partially offset by the impact of an additional week in fiscal year 2015.
Research and Development Expenses
Research and development expenses for the three months ended October 4, 2015 were $31.1 million, as compared to $30.4 million for the three months ended September 28, 2014, an increase of $0.7 million, or 2%. As a percentage of revenue, research and development expenses decreased and were 5.5% for the three months ended October 4, 2015, as compared to 5.6% for the three months ended September 28, 2014. Amortization of intangible assets decreased and was $0.1 million for the three months ended October 4, 2015, as compared to $0.2 million for the three months ended September 28, 2014. Stock-based compensation expense was $0.1 million and $0.04 million for the three months ended October 4, 2015 and September 28, 2014, respectively. The increase in research and development expenses was primarily the result of new product releases, investments in new product development and the impact of an additional week in fiscal year 2015, which was partially offset by lower costs as a result of cost containment and productivity initiatives.
Research and development expenses for the nine months ended October 4, 2015 were $95.9 million, as compared to $90.2 million for the nine months ended September 28, 2014, an increase of $5.7 million, or 6%. As a percentage of revenue, research and development expenses increased and were 5.8% for the nine months ended October 4, 2015, as compared to 5.5% for the nine months ended September 28, 2014. Amortization of intangible assets was $0.4 million for each of the nine months ended October 4, 2015 and September 28, 2014. Stock-based compensation expense was $0.4 million for each of the nine months ended October 4, 2015 and September 28, 2014. In addition to the above items, the increase in research and development expenses was primarily the result of new product releases and investments in new product development and the impact of an additional week in fiscal year 2015, which was partially offset by lower costs as a result of cost containment and productivity initiatives. During the first nine months of each of fiscal years 2015 and 2014, 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
Our management has approved a series of restructuring actions related to the impact of acquisitions and divestitures, the alignment of our operations 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.

We implemented restructuring plans in the second quarter of fiscal year 2015 and the third quarter of fiscal year 2014 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q2 2015 Plan" and the "Q3 2014 Plan", respectively). We implemented restructuring plans in the second and first quarters of fiscal year

29

2014 consisting of workforce reductions principally intended to focus resources on higher growth end markets (the "Q2 2014 Plan" and the "Q1 2014 Plan", respectively). Details of the plans initiated in previous years (“Previous Plans”) are discussed more fully in Note 4 to the audited consolidated financial statements in the 2014 Form 10-K. We have also 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.

The following table summarizes the number of employees reduced, the initial restructuring or contract termination charges by operating segment, and the dates by which payments were substantially completed, or the expected dates by which payments will be substantially completed, for restructuring actions implemented during the nine months ended October 4, 2015 and fiscal year 2014:
 
 
 
Initial Restructuring or Contract Termination Charges
 
Total
 
Date or Expected Date Payments Substantially Completed by
 
Headcount Reduction
 
Human Health
 
Environmental Health
 
 
 
(In thousands, except headcount data)
 
 
Q2 2015 Plan
97

 
$
1,850

 
$
4,160

 
$
6,010

 
Q2 FY2016
2015 Contract Termination Charges
—

 
—

 
25

 
25

 
Q4 FY2015
 
 
 
 
 
 
 
 
 
 
Q3 2014 Plan
152

 
7,126

 
5,925

 
13,051

 
Q4 FY2015
Q2 2014 Plan
22

 
545

 
190

 
735

 
Q2 FY2015
Q1 2014 Plan
17

 
370

 
197

 
567

 
Q4 FY2014
2014 Contract Termination Charges
—

 
—

 
1,545

 
1,545

 
Q4 FY2015
We expect to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022.

At October 4, 2015, we had $17.1 million recorded for accrued restructuring and contract termination charges, of which $12.1 million was recorded in short-term accrued restructuring and contract termination charges and $5.0 million was recorded in long-term liabilities. At December 28, 2014, we had $23.8 million recorded for accrued restructuring and contract termination charges, of which $17.1 million was recorded in short-accrued restructuring and $6.7 million was recorded in long-term liabilities. The following table summarizes our restructuring and contract termination accrual balances and related activity by restructuring plan, as well as contract termination, during the nine months ended October 4, 2015:
 
Balance at December 28, 2014
 
2015 Charges
 
2015 Changes in Estimates, Net
 
2015 Amounts Paid
 
Balance at October 4, 2015
 
(In thousands)
Severance:
Q2 2015 Plan(1)
$
—

 
$
6,010

 
$
(540
)
 
$
(3,166
)
 
$
2,304

Q3 2014 Plan
10,059

 
—

 
—

 
(5,257
)
 
4,802

Q2 2014 Plan(2)
251

 
—

 
(179
)
 
(8
)
 
64

Q1 2014 Plan(3)
92

 
—

 
(92
)
 
—

 
—

Previous Plans(4)
13,124

 
—

 
(386
)
 
(2,961
)
 
9,777

Restructuring
23,526

 
6,010

 
(1,197
)
 
(11,392
)
 
16,947

Contract Termination
304

 
25

 
—

 
(200
)
 
129

Total Restructuring and Contract Termination
$
23,830

 
$
6,035

 
$
(1,197
)
 
$
(11,592
)
 
$
17,076


(1) 
During the nine months ended October 4, 2015, we recognized pre-tax restructuring reversals of $0.2 million in our Human Health segment and $0.3 million in our Environmental Health segment related to lower than expected costs associated with workforce reductions for the Q2 2015 Plan.
(2) 
During the nine months ended October 4, 2015, we recognized pre-tax restructuring reversals of $0.1 million in each of our Human Health and Environmental Health segments related to lower than expected costs associated with workforce reductions for the Q2 2014 Plan.
(3) 
During the nine months ended October 4, 2015, we recognized a pre-tax restructuring reversal of $0.1 million in our Human Health segment related to lower than expected costs associated with workforce reductions for the Q1 2014 Plan.

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(4) 
During the nine months ended October 4, 2015, we recognized a net additional pre-tax restructuring charge of $0.6 million in our Human Health segment primarily related to higher than expected costs associated with the closure of the excess facility space and a pre-tax restructuring reversal of $1.0 million in our Environmental Health segment related to lower than expected costs associated with workforce reductions for the Previous Plans.
Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Interest income
$
(147
)
 
$
(130
)
 
$
(488
)
 
$
(375
)
Interest expense
9,874

 
8,909

 
28,564

 
27,207

Other expense, net
2,217

 
2,187

 
4,132

 
4,387

Total interest and other expense, net
$
11,944

 
$
10,966

 
$
32,208

 
$
31,219

Interest and other expense, net, for the three months ended October 4, 2015 was an expense of $11.9 million, as compared to an expense of $11.0 million for the three months ended September 28, 2014, an increase of $1.0 million. The increase in interest and other expense, net, for the three months ended October 4, 2015, as compared to the three months ended September 28, 2014, was due to an increase in interest expense due to an additional week and higher debt balances during the three months ended October 4, 2015.
Interest and other expense, net for the nine months ended October 4, 2015 was an expense of $32.2 million, as compared to an expense of $31.2 million for the nine months ended September 28, 2014, an increase of $1.0 million. The increase in interest and other expense, net, for the nine months ended October 4, 2015, as compared to the nine months ended September 28, 2014, was primarily due to an increase in interest expense due to an additional week and higher debt balances during the nine months ended October 4, 2015. Other expense, net decreased by $0.3 million for the nine months ended October 4, 2015, as compared to the nine months ended September 28, 2014, and consisted primarily of expenses related to foreign currency transactions and the translation of non-functional currency assets and liabilities.
Provision for Income Taxes
For the three months ended October 4, 2015, the provision for income taxes from continuing operations was $9.1 million, as compared to $4.9 million for the three months ended September 28, 2014. For the nine months ended October 4, 2015, the provision for income taxes from continuing operations was $25.0 million, as compared to $19.1 million for the nine months ended September 28, 2014.
The effective tax rate from continuing operations was 14.2% and 14.8% for the three and nine months ended October 4, 2015, respectively, as compared to 10.3% and 12.8% for the three and nine months ended September 28, 2014, respectively. The higher effective tax rate during the first nine months of fiscal year 2015, as compared to the first nine months of fiscal year 2014, was primarily due to certain jurisdictions with higher tax rates projecting to have higher income in fiscal year 2015, as compared to the first nine months of fiscal year 2014.
Discontinued Operations
As part of our continuing efforts to focus on higher growth opportunities, we have discontinued certain businesses. We have accounted for these businesses as discontinued operations and, accordingly, have 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 assets and liabilities from discontinued operations in the accompanying condensed consolidated balance sheets as of October 4, 2015 and December 28, 2014.
In May 2014, our management approved the shutdown of our microarray-based diagnostic testing laboratory in the United States, which had been reported within our Human Health segment. We determined that, with the lack of adequate reimbursement from health care payers, our 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 our microarray-based diagnostic testing laboratory in the United States resulted in a $0.3 million net pre-tax loss related to the disposal of fixed assets and inventory for the nine months ended September 28, 2014.

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During the first nine months of each of fiscal years 2015 and 2014, we settled various commitments related to the divestiture of other discontinued operations and recognized net pre-tax losses. These losses were recognized as a loss on disposition of discontinued operations.
Summary pre-tax operating results of the discontinued operations, which include the periods prior to disposition and a $1.0 million pre-tax restructuring charge related to workforce reductions in our 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
 
October 4,
2015
 
September 28,
2014
 
October 4,
2015
 
September 28,
2014
 
(In thousands)
Sales
$
10

 
$
—

 
$
93

 
$
960

Costs and expenses
2

 
1,091

 
87

 
5,165

Gain (loss) from discontinued operations before income taxes
$
8

 
$
(1,091
)
 
$
6

 
$
(4,205
)
We recorded tax provisions of $0.04 million and $0.01 million on discontinued operations and dispositions for the three and nine months ended October 4, 2015, respectively. We recorded tax benefits of $0.5 million and $1.7 million on discontinued operations and dispositions for the three and nine months ended September 28, 2014, respectively.
Contingencies, Including Tax Matters
We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party (“PRP”) for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. We have accrued $12.1 million and $12.3 million as of October 4, 2015 and December 28, 2014, respectively, which represents our 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. Our environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The 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 we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect 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 our 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.
Various tax years after 2007 remain open to examination by certain jurisdictions in which we have 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. We regularly review our tax positions in each significant taxing jurisdiction in the process of evaluating our unrecognized tax benefits. We make adjustments to our unrecognized tax benefits when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority; and/or (iii) the statute of limitations expires regarding a tax position.
We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in our opinion, based on our review of the information available at this time, the total cost of resolving these contingencies at October 4, 2015 should not have a material adverse effect on our 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 us.

Reporting Segment Results of Continuing Operations
Human Health
Revenue for the three months ended October 4, 2015 was $343.6 million, as compared to $336.9 million for the three months ended September 28, 2014, an increase of $6.7 million, or 2%, which includes an approximate 5% decrease in revenue

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attributable to unfavorable changes in foreign exchange rates and a 1% increase in revenue attributable to acquisitions. The analysis in the remainder of this paragraph compares selected revenue by market and product type for the three months ended October 4, 2015, as compared to the three months ended September 28, 2014, and includes the effect of foreign exchange fluctuations and acquisitions. The increase in revenue in our Human Health segment reflects an increase in research market revenue of $5.8 million and an increase in our diagnostics market revenue of $0.8 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize $0.2 million of revenue in our Human Health segment for the three months ended October 4, 2015 and $0.8 million for the three months ended September 28, 2014 that otherwise would have been recorded by the acquired businesses during each of the respective periods. In our Human Health segment, we experienced growth during the third quarter of fiscal year 2015 in several of our products within our end markets, as compared to the third quarter of fiscal year 2014. In our research market, we experienced growth due to increased demand for our OneSource service offerings, as well as new product introductions, such as the Opera Phenix. Our OneSource 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. In our diagnostics market, we experienced growth from continued expansion of our newborn and infectious disease screening solutions in the United States, as well as emerging markets such as China. Birth rates in the United States continue to stabilize and demand for greater access to newborn screening in rural areas outside the United States is also increasing, as evidenced by prenatal trends we saw during the third quarter of fiscal year 2015. The growth in our Human Health segment was partially offset by unfavorable impacts from foreign currency as the U.S. dollar strengthened, particularly versus the Euro. Demand in our medical imaging business was flat for the three months ended October 4, 2015.
Revenue for the nine months ended October 4, 2015 was $1,011.2 million, as compared to $1,009.5 million for the nine months ended September 28, 2014, an increase of $1.7 million, or 0.2%, which includes an approximate 5% decrease in revenue attributable to unfavorable changes in foreign exchange rates and an approximate 1% increase in revenue attributable to acquisitions. The analysis in the remainder of this paragraph compares selected revenue by market and product type for the nine months ended October 4, 2015, as compared to the nine months ended September 28, 2014, and includes the effect of foreign exchange fluctuations and acquisitions. The increase in revenue in our Human Health segment reflects an increase in research market revenue of $6.1 million, which was partially offset by a decrease in diagnostics market revenue of $4.4 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize $0.6 million of revenue in our Human Health segment for the nine months ended October 4, 2015 and $2.7 million for the nine months ended September 28, 2014 that otherwise would have been recorded by the acquired businesses during each of the respective periods. In our research market, we experienced growth due to new product introductions, such as the Opera Phenix, as well as increased demand for our radio-chemicals, OneSource and informatics offerings. In our diagnostics market, we experienced growth from continued expansion of our newborn and infectious disease screening solutions in the United States, as well as emerging markets such as China, which was more than offset by the impact of unfavorable foreign currency. Revenue from our medical imaging business declined during the nine months ended October 4, 2015 primarily due to the impact of unfavorable foreign currency.
Operating income from continuing operations for the three months ended October 4, 2015 was $63.1 million, as compared to $48.1 million for the three months ended September 28, 2014, an increase of $15.1 million, or 31%. Amortization of intangible assets decreased and was $15.3 million for the three months ended October 4, 2015, as compared to $18.4 million for the three months ended September 28, 2014. Restructuring and contract termination charges, net, were $0.2 million for the three months ended October 4, 2015, as compared to $6.3 million for the three months ended September 28, 2014. Acquisition related costs for contingent consideration and other acquisition costs added an incremental expense of $0.1 million for the three months ended October 4, 2015, as compared to an incremental expense of $0.04 million for the three months ended September 28, 2014. In addition to the above items, increased operating income for the three months ended October 4, 2015, as compared to the three months ended September 28, 2014, was primarily the result of favorable changes in product mix, with an increase in sales of higher gross margin product offerings and lower costs as a result of cost containment and productivity initiatives, which was partially offset by unfavorable impacts from foreign currency.
Operating income from continuing operations for the nine months ended October 4, 2015 was $179.6 million, as compared to $150.0 million for the nine months ended September 28, 2014, an increase of $29.6 million, or 20%. Amortization of intangible assets decreased and was $46.0 million for the nine months ended October 4, 2015, as compared to $54.7 million for the nine months ended September 28, 2014. Restructuring and contract termination charges, net, were $2.0 million for the nine months ended October 4, 2015, as compared to $7.1 million for the nine months ended September 28, 2014. Acquisition related costs for contingent consideration and other acquisition costs added an incremental expense of $0.4 million for the nine months ended October 4, 2015, as compared to decreasing expenses by $0.6 million for the nine months ended September 28, 2014. In addition to the above items, increased operating income for the nine months ended October 4, 2015, as compared to the nine months ended September 28, 2014, was primarily the result of favorable changes in product mix, with an increase in

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sales of higher gross margin product offerings and lower costs as a result of cost containment and productivity initiatives, which was partially offset by unfavorable impacts from foreign currency.
Environmental Health
Revenue for the three months ended October 4, 2015 was $219.8 million, as compared to $205.1 million for the three months ended September 28, 2014, an increase of $14.7 million, or 7%, which includes an approximate 9% decrease in revenue attributable to unfavorable changes in foreign exchange rates and an approximate 11% increase in revenue attributable to acquisitions. The analysis in the remainder of this paragraph compares selected revenue by market and product type for the three months ended October 4, 2015, as compared to the three months ended September 28, 2014, and includes the effect of foreign exchange fluctuations and acquisitions. The increase in revenue in our Environmental Health segment reflects an increase in our environmental and industrial revenue of $14.5 million and an increase in our laboratory services market revenue of $0.2 million. The increase in our Environmental Health segment revenue during the three months ended October 4, 2015 as compared to the three months ended September 28, 2014 was primarily due to revenue from the acquisition of Perten, as well as growth in our materials characterization product family within our environmental and industrial markets, which was partially offset by unfavorable impacts from foreign currency. In addition, we had an increased demand in our laboratory services business, despite unfavorable impacts from foreign currency.
Revenue for the nine months ended October 4, 2015 was $643.1 million, as compared to $619.3 million for the nine months ended September 28, 2014, an increase of $23.8 million, or 4%, which includes an approximate 8% decrease in revenue attributable to unfavorable changes in foreign exchange rates and an approximate 9% increase in revenue attributable to acquisitions. The analysis in the remainder of this paragraph compares selected revenue by market and product type for the nine months ended October 4, 2015, as compared to the nine months ended September 28, 2014, and includes the effect of foreign exchange fluctuations and acquisitions. The increase in revenue in our Environmental Health segment reflects an increase in environmental and industrial markets revenue of $31.0 million, partially offset by a decrease in laboratory services market revenue of $7.3 million. The increase in our Environmental Health segment revenue during the nine months ended October 4, 2015 was primarily due to revenue from the acquisition of Perten, as well as growth in our materials characterization product family within our environmental and industrial markets, which was partially offset by unfavorable impacts from foreign currency. In addition, we had an increased demand in our laboratory services business, despite a decrease in revenue due to unfavorable impacts from foreign currency.
Operating income from continuing operations for the three months ended October 4, 2015 was $22.8 million, as compared to $18.5 million for the three months ended September 28, 2014, an increase of $4.3 million, or 23%. Amortization of intangible assets increased and was $3.6 million for the three months ended October 4, 2015, as compared to $2.2 million for the three months ended September 28, 2014. Restructuring and contract termination charges, net, was a reversal of an expense of $0.3 million for the three months ended October 4, 2015, as compared to a charge of $4.8 million for the three months ended September 28, 2014. Acquisition related costs for contingent consideration and other acquisition costs added an incremental expense of $0.02 million for each of the three months ended October 4, 2015 and September 28, 2014. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $0.8 million for the three months ended October 4, 2015. In addition to the above items, operating income increased for the three months ended October 4, 2015, as compared to the three months ended September 28, 2014, due to benefits from our initiatives to improve our supply chain and lower costs as a result of cost containment initiatives, which were partially offset by increased costs related to investments in new product development and unfavorable impacts from foreign currency.
Operating income from continuing operations for the nine months ended October 4, 2015 was $53.6 million, as compared to $65.7 million for the nine months ended September 28, 2014, a decrease of $12.1 million, or 18%. Amortization of intangible assets increased and was $12.5 million for the nine months ended October 4, 2015, as compared to $7.1 million for the nine months ended September 28, 2014. Restructuring and contract termination charges, net, were $2.8 million for the nine months ended October 4, 2015, as compared to $6.8 million for the nine months ended September 28, 2014. Acquisition related costs for contingent consideration and other acquisition costs added an incremental expense of $0.2 million for the nine months ended October 4, 2015, as compared to decreasing expenses by $0.7 million for the nine months ended September 28, 2014. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $7.3 million for the nine months ended October 4, 2015. In addition to the above items, decreased operating income for the nine months ended October 4, 2015, as compared to the nine months ended September 28, 2014, was primarily due to increased costs related to investments in new product development and unfavorable impacts from foreign currency, which was partially offset by favorable changes in product mix, with an increase in sales of higher gross margin product offerings, benefits from our initiatives to improve our supply chain and lower costs as a result of cost containment initiatives.


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Liquidity and Capital Resources
We require cash to pay our operating expenses, make capital expenditures, make strategic acquisitions, service our debt and other long-term liabilities, repurchase shares of our common stock and pay dividends on our common stock. Our principal sources of funds are from our operations and the capital markets, particularly the debt markets. We anticipate that our internal operations will generate sufficient cash to fund our operating expenses, capital expenditures, smaller acquisitions, interest payments on our debt and dividends on our common stock. However, we expect to use external sources to satisfy the balance of our debt when due, any larger acquisitions and other long-term liabilities, such as contributions to our postretirement benefit plans.
Principal factors that could affect the availability of our internally generated funds include:
•
changes in sales due to weakness in markets in which we sell our products and services, and
•
changes in our working capital requirements.
Principal factors that could affect our ability to obtain cash from external sources include:
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financial covenants contained in the financial instruments controlling our borrowings that limit our total borrowing capacity,
•
increases in interest rates applicable to our outstanding variable rate debt,
•
a ratings downgrade that could limit the amount we can borrow under our senior unsecured revolving credit facility and our overall access to the corporate debt market,
•
increases in interest rates or credit spreads, as well as limitations on the availability of credit, that affect our ability to borrow under future potential facilities on a secured or unsecured basis,
•
a decrease in the market price for our common stock, and
•
volatility in the public debt and equity markets.
At October 4, 2015, we had cash and cash equivalents of $195.1 million, of which $183.4 million was held by our non-U.S. subsidiaries, and we had $196.5 million of additional borrowing capacity available under a senior unsecured revolving credit facility. We had no other liquid investments at October 4, 2015.
We utilize a variety of tax planning and financing strategies to ensure that our worldwide cash is available in the locations in which it is needed. Of the $183.4 million of cash and cash equivalents held by our non-U.S. subsidiaries at October 4, 2015, we would incur U.S. taxes on approximately $99.6 million if transferred to the U.S. without proper planning. We expect the accumulated non-U.S. cash balances, which may not be transferred to the U.S. without incurring U.S. taxes, will remain outside of the U.S. and that we will meet U.S. liquidity needs through future cash flows, use of U.S. cash balances, external borrowings, or some combination of these sources.
On October 23, 2014, our Board of Directors (our "Board") authorized us to repurchase up to 8.0 million shares of common stock under a stock repurchase program (the "Repurchase Program"). The Repurchase Program will expire on October 23, 2016 unless terminated earlier by our Board, and may be suspended or discontinued at any time. During the nine months ended October 4, 2015, we repurchased 1.5 million shares of common stock in the open market at an aggregate cost of $72.0 million, including commissions, under the Repurchase Program. As of October 4, 2015, 5.9 million shares remained available for repurchase under the Repurchase Program.
In addition, our Board has authorized us 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 our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans. During the nine months ended October 4, 2015, we repurchased 89,558 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. Any repurchased shares will be available for use in connection with corporate programs. If we continue to repurchase shares, the Repurchase Program will be funded using our existing financial resources, including cash and cash equivalents, and our existing senior unsecured revolving credit facility.
Distressed global financial markets could adversely impact general economic conditions by reducing liquidity and credit availability, creating increased volatility in security prices, widening credit spreads and decreasing valuations of certain investments. The widening of credit spreads may create a less favorable environment for certain of our businesses and may affect the fair value of financial instruments that we issue or hold. Increases in credit spreads, as well as limitations on the

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availability of credit at rates we consider to be reasonable, could affect our ability to borrow under future potential facilities on a secured or unsecured basis, which may adversely affect our liquidity and results of operations. In difficult global financial markets, we may be forced to fund our operations at a higher cost, or we may be unable to raise as much funding as we need to support our business activities.
During the first nine months of fiscal year 2015, we contributed $20.0 million, in the aggregate, to our defined benefit pension plan in the United States. During the first nine months of fiscal year 2015, we contributed $6.5 million, in the aggregate, to our defined benefit pension plans outside of the United States, and expect to contribute an additional $0.9 million by the end of fiscal year 2015. We could potentially have to make additional funding payments in future periods for all pension plans. We expect to use existing cash and external sources to satisfy future contributions to our pension plans. In the third quarter of fiscal year 2014, we notified certain employees of our intention to terminate their employment as part of the Q3 2014 restructuring plan. During the second quarter of fiscal year 2015, the termination of these participants decreased the expected future service lives in excess of the curtailment limit for one of our pension plans, which resulted in a curtailment gain. We recorded the curtailment gain of $0.8 million during the second quarter of fiscal year 2015. As part of the curtailment, we remeasured the assets and liabilities of the plan that had the curtailment based upon current discount rates and the fair value of the pension plan's assets as of the curtailment date, which resulted in an actuarial loss of $0.8 million.
Our pension plans have not experienced a material impact on liquidity or counterparty exposure due to the volatility and uncertainty in the credit markets. We recognize actuarial gains and losses in operating results in the fourth quarter of the year in which the gains and losses occur, unless there is an interim remeasurement required for one of our plans. It is difficult to reliably predict the magnitude of such adjustments for gains and losses in fiscal year 2015. These adjustments are primarily driven by events and circumstances beyond our control, including changes in interest rates, the performance of the financial markets and mortality assumptions. To the extent the discount rates decrease or the value of our pension and postretirement investments decrease, a loss to operations will be recorded in fiscal year 2015. Conversely, to the extent the discount rates increase or the value of our pension and postretirement investments increase more than expected, a gain will be recorded in fiscal year 2015.
Cash Flows
Operating Activities. Net cash provided by continuing operations was $161.9 million for the nine months ended October 4, 2015, as compared to net cash provided by continuing operations of $185.7 million for the nine months ended September 28, 2014, a decrease in cash provided of $23.7 million. The cash provided by operating activities for the nine months ended October 4, 2015 was principally a result of income from continuing operations of $144.2 million adjusted for depreciation and amortization of $83.8 million, stock-based compensation expense of $12.5 million and restructuring and contract termination charges of $4.8 million. These items were partially offset by a net cash decrease in accrued expenses, other assets and liabilities and other items of $49.0 million and a net cash decrease in working capital of $34.4 million. Contributing to the net cash decrease in working capital for the nine months ended October 4, 2015, excluding the effect of foreign exchange rate fluctuations, was an increase in inventory of $50.8 million and a decrease in accounts payable of $19.9 million, which were partially offset by a decrease in accounts receivable of $36.4 million. The increase in inventory was primarily a result of expanding the amount of inventory held at sales locations within our Environmental Health and Human Health segments to improve responsiveness to customer requirements and for the introduction of new products. The decrease in accounts payable was primarily a result of the timing of disbursements during the first nine months of fiscal year 2015. The decrease in accounts receivable was a result of strong performance in accounts receivable collections during the first nine months of fiscal year 2015. Changes in accrued expenses, other assets and liabilities and other items decreased cash provided by operating activities by $49.0 million for the nine months ended October 4, 2015, as compared to $51.1 million for the nine months ended September 28, 2014. These changes primarily related to the timing of payments for taxes, restructuring, and salary and benefits. During the nine months ended October 4, 2015, we made contributions of $6.5 million, in the aggregate, to pension plans outside of the United States and $20.0 million to our defined benefit pension plan in the United States, which was included in the change in accrued expenses.
Investing Activities. Net cash used in the investing activities of our continuing operations was $35.7 million for the nine months ended October 4, 2015, as compared to $23.6 million for the nine months ended September 28, 2014, an increase of $12.1 million. For the nine months ended October 4, 2015, the net cash used in investing activities of our continuing operations was principally a result of $18.7 million of cash used for acquisitions and investments and capital expenditures of $17.8 million. These items were partially offset by cash proceeds of $0.8 million due to the settlement of life insurance policies. Net cash used for capital expenditures was $22.2 million for the nine months ended September 28, 2014. The capital expenditures in each period were primarily for manufacturing and other capital equipment purchases. In addition, during the nine months ended September 28, 2014, we received $0.5 million for the settlement of life insurance policies and used $1.9 million in cash for acquisitions and investments.

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Financing Activities. Net cash used in financing activities was $92.4 million for the nine months ended October 4, 2015, as compared to $123.7 million for the nine months ended September 28, 2014, a decrease of $31.3 million. For the nine months ended October 4, 2015, we repurchased 1.6 million shares of our common stock, including 89,558 shares of our common stock pursuant to our equity incentive plans, for a total cost of $76.2 million, including commissions. This compares to repurchases of 0.8 million shares of our common stock, including 97,774 shares of our common stock pursuant to our equity incentive plans, for the nine months ended September 28, 2014, for a total cost of $39.0 million, including commissions. Proceeds from the issuance of common stock under stock plans was $13.1 million for the nine months ended October 4, 2015 as compared to proceeds from the issuance of common stock under stock plans of $20.9 million for the nine months ended September 28, 2014. During the nine months ended October 4, 2015, debt payments on our senior unsecured revolving credit facility totaled $371.0 million, which were partially offset by debt borrowings of $347.0 million. During the nine months ended September 28, 2014, debt payments on our senior unsecured revolving credit facility totaled $305.0 million, which were partially offset by debt borrowings of $227.0 million. We paid $23.7 million in dividends during each of the nine months ended October 4, 2015 and September 28, 2014. During the nine months ended October 4, 2015, we had net payments on other credit facilities of $0.8 million, as compared to net payments on other credit facilities of $1.2 million for the nine months ended September 28, 2014. During the nine months ended October 4, 2015, we received $19.2 million for settlement of forward foreign exchange contracts. During the nine months ended September 28, 2014, we paid $1.8 million of debt financing costs for the refinancing of our debt held under the previous senior unsecured revolving credit facility and made $0.9 million in payments for acquisition-related contingent consideration.
Borrowing Arrangements
Senior Unsecured Revolving Credit Facility. On January 8, 2014, we refinanced our debt held under a previous senior unsecured revolving credit facility and entered into a new senior unsecured revolving credit facility. The senior unsecured revolving credit facility provides for $700.0 million of revolving loans and has an initial maturity of January 8, 2019. As of October 4, 2015, undrawn letters of credit in the aggregate amount of $11.5 million were treated as issued and outstanding under the senior unsecured revolving credit facility. As of October 4, 2015, we had $196.5 million available for additional borrowing under the facility. We use 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 October 4, 2015, borrowings under the senior unsecured revolving credit facility were accruing interest primarily based on the Eurocurrency rate. The Eurocurrency margin as of October 4, 2015 was 108 basis points. The weighted average Eurocurrency interest rate as of October 4, 2015 was 0.25%, resulting in a weighted average effective Eurocurrency rate, including the margin, of 1.33%. At October 4, 2015 and December 28, 2014, we had $492.0 million and $516.0 million, respectively, 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 credit agreement for our previous facility. The financial covenants in our 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 our credit rating is downgraded below investment grade. We were in compliance with all applicable covenants as of October 4, 2015.
5% Senior Unsecured Notes due in 2021. On October 25, 2011, we 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 of $3.1 million. As of October 4, 2015, the 2021 Notes had an aggregate carrying value of $497.9 million, net of $2.1 million of unamortized original issue discount. As of December 28, 2014, the 2021 Notes had an aggregate carrying value of $497.7 million, net of $2.3 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), we may redeem the 2021 Notes in whole or in part, at our 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), we may redeem the 2021 Notes, at our 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 us to repurchase such holder's 2021 Notes for 101% of their principal amount, plus accrued and unpaid interest. We were in compliance with all applicable covenants as of October 4, 2015.

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Financing Lease Obligations. In fiscal year 2012, we entered into agreements with the lessors of certain buildings that we are currently occupying and leasing to expand those buildings. We provided a portion of the funds needed for the construction of the additions to the buildings, and as a result we were considered the owner of the buildings during the construction period. At the end of the construction period, we were not reimbursed by the lessors for all of the construction costs. We are therefore deemed to have continuing involvement and the leases qualify as financing leases under sale-leaseback accounting guidance, representing debt obligations for us and non-cash investing and financing activities. As a result, we capitalized $29.3 million in property and equipment, net, representing the fair value of the buildings with a corresponding increase to debt. We have 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 October 4, 2015, we had $38.5 million recorded for these financing lease obligations, of which $1.1 million was recorded as short-term debt and $37.4 million was recorded as long-term debt. At December 28, 2014, we had $39.3 million recorded for these financing lease obligations, of which $1.1 million was recorded as short-term debt and $38.2 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.

Dividends
Our Board declared a regular quarterly cash dividend of $0.07 per share for each of the first three quarters of fiscal year 2015 and for each quarter of fiscal year 2014. At October 4, 2015, we had accrued $7.8 million for dividends declared on July 22, 2015 for the third quarter of fiscal year 2015, payable in November 2015. On October 29, 2015, we announced that our Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2015 that will be payable in February 2016. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.

Effects of Recently Adopted and Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB") and are adopted by us as of the specified effective dates. Unless otherwise discussed, such pronouncements did not have or will not have a significant impact on our condensed consolidated financial position, results of operations and cash flows or do not apply to our operations.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. Under this new guidance, an acquirer should recognize adjustments to provisional amounts for items in a business combination that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer should record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The provisions of this guidance are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. During the third quarter of fiscal year 2015, we early adopted the new guidance and adjusted the provisional amounts recorded for acquisitions in which the purchase accounting allocations as of October 4, 2015 were preliminary. During the three and nine months ended October 4, 2015, there was an immaterial impact on the current period net income as a result of the change to the provisional amounts for items that would have been recognized in previous periods if the adjustments to provisional amounts had been recognized as of the acquisition date.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory. Under this new guidance, companies that use inventory measurement methods other than last-in, first-out or the retail inventory method should measure inventory at the lower of cost and net realizable value. The provisions of this guidance are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We are evaluating the requirements of this guidance. The adoption is not expected to have a material impact on our consolidated financial position, results of operations and cash flows.

In April 2015, the FASB issued Accounting Standards Update No. 2015-04, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets. Under this new guidance, an entity with a fiscal year-end that does not coincide with a calendar month-end (for example an entity that has a 52/53 week fiscal year) has the ability, as a practical expedient, to measure its defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year end. The guidance should be applied prospectively. During the second quarter of fiscal year 2015, we early adopted the new guidance. The adoption did not have a material impact on our consolidated financial position, results of operations and cash flows.


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In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs. Under this new guidance, debt issuance costs should be presented in the balance sheet as a reduction of the carrying value of the associated debt liability. The provisions of this guidance are to be applied retrospectively and are effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. We are expecting to early adopt this guidance in the fourth quarter of fiscal year 2015. The adoption is not expected to have a material impact on our consolidated financial position, results of operations and cash flows.

In May 2014, the FASB 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, depicting 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. Subsequent to the issuance of the standard, the FASB decided to defer the effective date for one year to annual periods beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. The standard may be adopted either using a full retrospective approach or a modified retrospective approach. We are evaluating the requirements of this guidance and have not yet determined the transition method to use or the impact of its adoption on our consolidated financial position, results of operations and cash flows.


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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk. We are exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, we enter into various derivative transactions pursuant to our policies to hedge against known or forecasted market exposures. We briefly describe several of the market risks we face below. The following disclosure is not materially different from the disclosure provided under the heading, Item 7A. “Quantitative and Qualitative Disclosure About Market Risk,” in our 2014 Form 10-K.
Foreign Currency Exchange Risk. The potential change in foreign currency exchange rates offers a substantial risk to us, as approximately 60% of our business is conducted outside of the United States, generally in foreign currencies. Our risk management strategy currently uses forward contracts to mitigate certain balance sheet foreign currency transaction exposures. The intent of these economic hedges is to offset gains and losses that occur on the underlying exposures, with gains and losses resulting from the forward contracts that hedge these exposures. Moreover, we are able to partially mitigate the impact that fluctuations in currencies have on our net income as a result of our manufacturing facilities located in countries outside the United States, material sourcing and other spending which occur in countries outside the United States, resulting in natural hedges.

We do not enter into derivative contracts for trading or other speculative purposes, nor do we use leveraged financial instruments. Although we attempt to manage our foreign currency exchange risk through the above activities, when the U.S. dollar weakens against other currencies in which we transact business, sales and net income generally will be positively but not proportionately impacted. Conversely, when the U.S. dollar strengthens against other currencies in which we transact business, sales and net income will generally be negatively but not proportionately impacted.

In the ordinary course of business, we enter into foreign exchange contracts for periods consistent with our 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 our condensed consolidated balance sheets. The unrealized gains and losses on our foreign currency contracts are recognized immediately in earnings, included in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from operating activities within our condensed consolidated statement of cash flows.

Principal hedged currencies include the British Pound, Euro, Japanese Yen and Singapore Dollar. We held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling $104.7 million, $95.0 million and $127.2 million at October 4, 2015, December 28, 2014 and September 28, 2014, respectively, and the fair value of these foreign currency derivative contracts was insignificant. The gains and losses realized on these foreign currency derivative contracts are not material. The duration of these contracts was generally 30 days or less during each of the nine months ended October 4, 2015 and September 28, 2014.

In addition, in connection with certain intercompany loan agreements we enter into forward foreign exchange contracts intended to hedge movements in foreign exchange rates prior to settlement of such intercompany loans denominated in foreign currencies. We record these hedges at fair value on our condensed consolidated balance sheets. The unrealized gains and losses on these hedges, as well as the gains and losses associated with the remeasurement of the intercompany loans, are recognized immediately in earnings, included in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from financing activities within our condensed consolidated statement of cash flows.

During the nine months ended October 4, 2015, we settled several of these forward exchange contracts and entered into additional new contracts that will settle in fiscal year 2015. The combined Euro denominated notional amounts of these outstanding hedges was €108.7 million and €238.2 million as of October 4, 2015 and December 28, 2014, respectively. The net gains and losses on these derivatives, combined with the gains and losses on the remeasurement of the hedged intercompany loans were not material for the nine months ending October 4, 2015. We received $19.2 million as a result of the settlement of these hedges in the nine months ended October 4, 2015.
Foreign Currency Exchange Risk—Value-at-Risk Disclosure. We continue to measure foreign currency risk using the Value-at-Risk model described in Item 7A. “Quantitative and Qualitative Disclosure About Market Risk,” in our 2014 Form 10-K. The measures for our Value-at-Risk analysis have not changed materially.
Interest Rate Risk. As described above, our debt portfolio includes variable rate instruments. Fluctuations in interest rates can therefore have a direct impact on both our short-term cash flows, as they relate to interest, and our earnings. To manage the volatility relating to these exposures, we periodically enter into various derivative transactions pursuant to our policies to hedge against known or forecasted interest rate exposures.

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Interest Rate Risk—Sensitivity. Our 2014 Form 10-K presents sensitivity measures for our interest rate risk. The measures for our sensitivity analysis have not changed materially. More information is available in Item 7A. “Quantitative and Qualitative Disclosure About Market Risk,” in our 2014 Form 10-K for our sensitivity disclosure.

Item 4.
Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter ended October 4, 2015. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of our fiscal quarter ended October 4, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended October 4, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION

Item 1.
Legal Proceedings
We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in the opinion of our management, based on its review of the information available at this time, the total cost of resolving these contingencies at October 4, 2015 should not have a material adverse effect on our 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 us.

Item 1A.
Risk Factors
The following important factors affect our business and operations generally or affect multiple segments of our business and operations:
If the markets into which we sell our products decline or do not grow as anticipated due to a decline in general economic conditions, or there are uncertainties surrounding the approval of government or industrial funding proposals, or there are unfavorable changes in government regulations, we may see an adverse effect on the results of our business operations.
Our customers include pharmaceutical and biotechnology companies, laboratories, academic and research institutions, public health authorities, private healthcare organizations, doctors and government agencies. Our quarterly revenue and results of operations are highly dependent on the volume and timing of orders received during the quarter. In addition, our revenues and earnings forecasts for future quarters are often based on the expected trends in our markets. However, the markets we serve do not always experience the trends that we may expect. Negative fluctuations in our customers’ markets, the inability of our customers to secure credit or funding, restrictions in capital expenditures, general economic conditions, cuts in government funding or unfavorable changes in government regulations would likely result in a reduction in demand for our products and services. In addition, government funding is subject to economic conditions and the political process, which is inherently fluid and unpredictable. Our revenues may be adversely affected if our customers delay or reduce purchases as a result of uncertainties surrounding the approval of government or industrial funding proposals. Such declines could harm our consolidated financial position, results of operations, cash flows and trading price of our common stock, and could limit our ability to sustain profitability.
Our growth is subject to global economic and political conditions, and operational disruptions at our facilities.
Our business is affected by global economic conditions and the state of the financial markets, particularly as the United States and other countries balance concerns around debt, inflation, growth and budget allocations in their policy initiatives. There can be no assurance that global economic conditions and financial markets will not worsen and that we will not experience any adverse effects that may be material to our consolidated cash flows, results of operations, financial position or our ability to access capital, such as the adverse effects resulting from a prolonged shutdown in government operations both in the United States and internationally. Our business is also affected by local economic environments, including inflation, recession, financial liquidity and currency volatility or devaluation. Political changes, some of which may be disruptive, could interfere with our supply chain, our customers and all of our activities in a particular location.
While we take precautions to prevent production or service interruptions at our global facilities, a major earthquake, fire, flood, power loss or other catastrophic event that results in the destruction or delay of any of our critical business operations could result in our incurring significant liability to customers or other third parties, cause significant reputational damage or have a material adverse effect on our business, operating results or financial condition.
Certain of these risks can be hedged to a limited degree using financial instruments, or other measures, and some of these risks are insurable, but any such mitigation efforts are costly and may not always be fully successful. Our ability to engage in such mitigation efforts has decreased or become even more costly as a result of recent market developments.
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions, and evolving customer needs and industry standards. Many of the businesses competing with us in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities, and established distribution channels to deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technology that does not lead to revenue growth or continue to sell products for which the demand from our

42

customers is declining, in which case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend upon several factors, including our ability to:
•
accurately anticipate customer needs,
•
innovate and develop new reliable technologies and applications,
•
successfully commercialize new technologies in a timely manner,
•
price our products competitively, and manufacture and deliver our products in sufficient volumes and on time, and
•
differentiate our offerings from our competitors’ offerings.
Many of our products are used by our customers to develop, test and manufacture their products. We must anticipate industry trends and consistently develop new products to meet our customers’ expectations. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenue. We may also suffer a loss in market share and potential revenue if we are unable to commercialize our technology in a timely and efficient manner.
In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications.
We may not be able to successfully execute acquisitions or license technologies, integrate acquired businesses or licensed technologies into our existing businesses, make acquired businesses or licensed technologies profitable, or successfully divest businesses.
We have in the past supplemented, and may in the future supplement, our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our acquisition of Perten Instruments Group AB in the fourth quarter of fiscal year 2014. However, we may be unable to identify or complete promising acquisitions or license transactions for many reasons, such as:
•
competition among buyers and licensees,
•
the high valuations of businesses and technologies,
•
the need for regulatory and other approval, and
•
our inability to raise capital to fund these acquisitions.
Some of the businesses we acquire may be unprofitable or marginally profitable, or may increase the variability of our revenue recognition. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we would have to improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations, such as incompatible management, information or other systems, cultural differences, loss of key personnel, unforeseen regulatory requirements, previously undisclosed liabilities or difficulties in predicting financial results. Additionally, if we are not successful in selling businesses we seek to divest, the activity of such businesses may dilute our earnings and we may not be able to achieve the expected benefits of such divestitures. As a result, our financial results may differ from our forecasts or the expectations of the investment community in a given quarter or over the long term.
To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us. We may also incur expenses related to completing acquisitions or licensing technologies, or in evaluating potential acquisitions or technologies, which may adversely impact our profitability.
We may not be successful in adequately protecting our intellectual property.
Patent and trade secret protection is important to us because developing new products, processes and technologies gives us a competitive advantage, although it is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents. Patent applications we file, however, may not result in issued patents or, if they do, the claims allowed in the patents may be narrower than what is needed to protect fully our products, processes and technologies. The expiration of our previously issued patents may cause us to lose a competitive advantage in certain of the products and services we provide. Similarly, applications to register our trademarks may not be granted in all countries in which they are filed. For our intellectual property that is protected by keeping it secret, such as trade secrets and know-how, we may not use adequate measures to protect this intellectual property.

43

Third parties may also challenge the validity of our issued patents, may circumvent or “design around” our patents and patent applications, or may claim that our products, processes or technologies infringe their patents. In addition, third parties may assert that our product names infringe their trademarks. We may incur significant expense in legal proceedings to protect our intellectual property against infringement by third parties or to defend against claims of infringement by third parties. Claims by third parties in pending or future lawsuits could result in awards of substantial damages against us or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or other countries.
If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage.
We may not be able to renew our existing licenses, or licenses we may obtain in the future, on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.
Our licenses typically subject us to various economic and commercialization obligations. If we fail to comply with these obligations, we could lose important rights under a license, such as the right to exclusivity in a market. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out of our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third-party could obtain a patent that curtails our freedom to operate under one or more licenses.
If we do not compete effectively, our business will be harmed.
We encounter aggressive competition from numerous competitors in many areas of our business. We may not be able to compete effectively with all of these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjust the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.
Our quarterly operating results could be subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate, which could increase the volatility of our stock price and potentially cause losses to our shareholders.
Given the nature of the markets in which we participate, we cannot reliably predict future revenue and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we may not be able to make those adjustments or make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed, due in part to our research and development and manufacturing costs. As a result, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:
•
demand for and market acceptance of our products,
•
competitive pressures resulting in lower selling prices,
•
changes in the level of economic activity in regions in which we do business,
•
changes in general economic conditions or government funding,
•
settlements of income tax audits,
•
expenses incurred in connection with claims related to environmental conditions at locations where we conduct or formerly conducted operations,
•
differing tax laws and changes in those laws, or changes in the countries in which we are subject to taxation,
•
changes in our effective tax rate,
•
changes in industries, such as pharmaceutical and biomedical,
•
changes in the portions of our revenue represented by our various products and customers,
•
our ability to introduce new products,
•
our competitors’ announcement or introduction of new products, services or technological innovations,
•
costs of raw materials, energy or supplies,

44

•
changes in healthcare or other reimbursement rates paid by government agencies and other third parties for certain of our products and services,
•
our ability to realize the benefit of ongoing productivity initiatives,
•
changes in the volume or timing of product orders,
•
fluctuation in the expense related to the mark-to-market adjustment on postretirement benefit plans,
•
changes in our assumptions underlying future funding of pension obligations, and
•
changes in assumptions used to determine contingent consideration in acquisitions.
A significant disruption in third-party package delivery and import/export services, or significant increases in prices for those services, could interfere with our ability to ship products, increase our costs and lower our profitability.
We ship a significant portion of our products to our customers through independent package delivery and import/export companies, including UPS and Federal Express in the United States; TNT, UPS and DHL in Europe; and UPS in Asia. We also ship our products through other carriers, including national trucking firms, overnight carrier services and the United States Postal Service. If one or more of the package delivery or import/export providers experiences a significant disruption in services or institutes a significant price increase, we may have to seek alternative providers and the delivery of our products could be prevented or delayed. Such events could cause us to incur increased shipping costs that could not be passed on to our customers, negatively impacting our profitability and our relationships with certain of our customers.
Disruptions in the supply of raw materials, certain key components and other goods from our limited or single source suppliers could have an adverse effect on the results of our business operations, and could damage our relationships with customers.
The production of our products requires a wide variety of raw materials, key components and other goods that are generally available from alternate sources of supply. However, certain critical raw materials, key components and other goods required for the production and sale of some of our principal products are available from limited or single sources of supply. We generally have multi-year contracts with no minimum purchase requirements with these suppliers, but those contracts may not fully protect us from a failure by certain suppliers to supply critical materials or from the delays inherent in being required to change suppliers and, in some cases, validate new raw materials. Such raw materials, key components and other goods can usually be obtained from alternative sources with the potential for an increase in price, decline in quality or delay in delivery. A prolonged inability to obtain certain raw materials, key components or other goods is possible and could have an adverse effect on our business operations, and could damage our relationships with customers.
We are subject to the rules of the Securities and Exchange Commission requiring disclosure as to whether certain materials known as conflict minerals (tantalum, tin, gold, tungsten and their derivatives), which may be contained in our products are mined from the Democratic Republic of the Congo and adjoining countries. As a result of these rules, we may incur additional costs in complying with the disclosure requirements and in satisfying those customers who require that the components used in our products be certified as conflict-free, and the potential lack of availability of these materials at competitive prices could increase our production costs.
The manufacture and sale of products and services may expose us to product liability claims for which we could have substantial liability.
We face an inherent business risk of exposure to product liability claims if our products, services or product candidates are alleged or found to have caused injury, damage or loss. We may in the future be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms of any insurance policy that we can obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies in the United States and abroad, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil, criminal or monetary penalties.
Our operations are subject to regulation by different state and federal government agencies in the United States and other countries, as well as to the standards established by international standards bodies. If we fail to comply with those regulations or standards, we could be subject to fines, penalties, criminal prosecution or other sanctions. Some of the products produced by our Human Health segment are subject to regulation by the United States Food and Drug Administration and similar foreign and domestic agencies. These regulations govern a wide variety of product activities, from design and development to labeling,

45

manufacturing, promotion, sales and distribution. If we fail to comply with those regulations or standards, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution.
We are also subject to a variety of laws, regulations and standards that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of toxic or hazardous substances, and our business practices in the United States and abroad such as anti-bribery, anti-corruption and competition laws. This requires that we devote substantial resources to maintaining our compliance with those laws, regulations and standards. A failure to do so could result in the imposition of civil, criminal or monetary penalties having a material adverse effect on our operations.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The healthcare industry is highly regulated and if we fail to comply with its extensive system of laws and regulations, we could suffer fines and penalties or be required to make significant changes to our operations which could have a significant adverse effect on the results of our business operations.
The healthcare industry, including the genetic screening market, is subject to extensive and frequently changing international and United States federal, state and local laws and regulations. In addition, legislative provisions relating to healthcare fraud and abuse, patient privacy violations and misconduct involving government insurance programs provide federal enforcement personnel with substantial powers and remedies to pursue suspected violations. We believe that our business will continue to be subject to increasing regulation as the federal government continues to strengthen its position on healthcare matters, the scope and effect of which we cannot predict. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal damages, fines and penalties, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur liabilities from third-party claims, all of which could have a significant adverse effect on our business.
Economic, political and other risks associated with foreign operations could adversely affect our international sales and profitability.
Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented the majority of our total revenue in the nine months ended October 4, 2015. We anticipate that sales from international operations will continue to represent a substantial portion of our total revenue. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results of operations could be harmed by a variety of factors, including:
•
changes in actual, or from projected, foreign currency exchange rates,
•
changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets,
•
longer payment cycles of foreign customers and timing of collections in foreign jurisdictions,
•
embargoes, trade protection measures and import or export licensing requirements,
•
policies in foreign countries benefiting domestic manufacturers or other policies detrimental to companies headquartered in the United States,
•
differing tax laws and changes in those laws, or changes in the countries in which we are subject to tax,
•
adverse income tax audit settlements or loss of previously negotiated tax incentives,
•
differing business practices associated with foreign operations,
•
difficulty in transferring cash between international operations and the United States,
•
difficulty in staffing and managing widespread operations,
•
differing labor laws and changes in those laws,
•
differing protection of intellectual property and changes in that protection,
•
increasing global enforcement of anti-bribery and anti-corruption laws, and

46

•
differing regulatory requirements and changes in those requirements.
If we do not retain our key personnel, our ability to execute our business strategy will be limited.
Our success depends to a significant extent upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers and scientists, and on our ability to continue to attract, retain, and motivate qualified personnel. The competition for these employees is intense. The loss of the services of key personnel could have a material adverse effect on our operating results. In addition, there could be a material adverse effect on us should the turnover rates for key personnel increase significantly or if we are unable to continue to attract qualified personnel. We do not maintain any key person life insurance policies on any of our officers or employees.
Our success also depends on our ability to execute leadership succession plans. The inability to successfully transition key management roles could have a material adverse effect on our operating results.
If we experience a significant disruption in, or breach in security of, our information technology systems, or if we fail to implement new systems, software and technologies successfully, our business could be adversely affected.
We rely on several centralized information technology systems throughout our company to develop, manufacture and provide products and services, keep financial records, process orders, manage inventory, process shipments to customers and operate other critical functions. Our information technology systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophes or other unforeseen events. If we were to experience a prolonged system disruption in the information technology systems that involve our interactions with customers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. In addition, security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in our suffering significant financial or reputational damage.
We have a substantial amount of outstanding debt, which could impact our ability to obtain future financing and limit our ability to make other expenditures in the conduct of our business.
Our debt level and related debt service obligations could have negative consequences, including:
•
requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes, such as acquisitions and stock repurchases;
•
reducing our flexibility in planning for or reacting to changes in our business and market conditions; and
•
exposing us to interest rate risk since a portion of our debt obligations are at variable rates.
In addition, we may incur additional indebtedness in the future to meet future financing needs. If we add new debt, the risks described above could increase.
Restrictions in our senior unsecured revolving credit facility and other debt instruments may limit our activities.
Our senior unsecured revolving credit facility and our 2021 Notes include restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company. These include restrictions on our ability and the ability of our subsidiaries to:
•
pay dividends on, redeem or repurchase our capital stock,
•
sell assets,
•
incur obligations that restrict our subsidiaries’ ability to make dividend or other payments to us,
•
guarantee or secure indebtedness,
•
enter into transactions with affiliates, and
•
consolidate, merge or transfer all, or substantially all, of our assets and the assets of our subsidiaries on a consolidated basis.
We are also required to meet specified financial ratios under the terms of certain of our existing debt instruments. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control, such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition. In addition, if we are unable to maintain our

47

investment grade credit rating, our borrowing costs would increase and we would be subject to different and potentially more restrictive financial covenants under some of our existing debt instruments.
Any future indebtedness that we incur may include similar or more restrictive covenants. Our failure to comply with any of the restrictions in our senior unsecured revolving credit facility, our 2021 Notes or any future indebtedness may result in an event of default under those debt instruments, which could permit acceleration of the debt under those debt instruments, and require us to prepay that debt before its scheduled due date under certain circumstances.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.
As of October 4, 2015, our total assets included $2.7 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights, customer relationships, core technology and technology licenses, net of accumulated amortization. We test certain of these items—specifically all of those that are considered “non-amortizing”—at least annually for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned. All of our amortizing intangible assets are also evaluated for impairment should events occur that call into question the value of the intangible assets.
Adverse changes in our business, adverse changes in the assumptions used to determine the fair value of our reporting units, or the failure to grow our Human Health and Environmental Health segments may result in impairment of our intangible assets, which could adversely affect our results of operations.
Our share price will fluctuate.
Over the last several years, stock markets in general and our common stock in particular have experienced significant price and volume volatility. Both the market price and the daily trading volume of our common stock may continue to be subject to significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our common stock may be affected by:
•
operating results that vary from our financial guidance or the expectations of securities analysts and investors,
•
the financial performance of the major end markets that we target,
•
the operating and securities price performance of companies that investors consider to be comparable to us,
•
announcements of strategic developments, acquisitions and other material events by us or our competitors, and
•
changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, commodity and equity prices and the value of financial assets.
Dividends on our common stock could be reduced or eliminated in the future.
On July 22, 2015, we announced that our Board had declared a quarterly dividend of $0.07 per share for the third quarter of fiscal year 2015 that will be payable in November 2015. On October 29, 2015, we announced that our Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2015 that will be payable in February 2016. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.


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Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchases
The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated.
 
Issuer Repurchases of Equity Securities
Period
Total Number
of Shares
Purchased(1)(2)
 
Average Price
Paid Per
Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
Maximum Number of
Shares that May Yet
Be Purchased
Under the Plans or
Programs
June 29, 2015—August 2, 2015
612

 
$
53.00

 
—

 
7,400,000

August 3, 2015—August 30, 2015
453

 
50.52

 
—

 
7,400,000

August 31, 2015—October 4, 2015
1,500,037

 
47.98

 
1,500,000

 
5,900,000

Activity for quarter ended October 4, 2015
1,501,102

 
$
47.98

 
1,500,000

 
5,900,000

 ____________________
(1)
On October 23, 2014, our Board authorized us to repurchase up to 8.0 million shares of common stock under a stock repurchase program (the "Repurchase Program"). The Repurchase Program will expire on October 23, 2016 unless terminated earlier by our Board, and may be suspended or discontinued at any time. During the third quarter of fiscal year 2015, we repurchased 1.5 million shares of common stock in the open market at an aggregate cost of $72.0 million, including commissions, under the Repurchase Program. As of October 4, 2015, 5.9 million shares remained available for repurchase under the Repurchase Program.
(2)
Our Board has authorized us 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 our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans. During the third quarter of fiscal year 2015, we repurchased 1,102 shares of common stock for this purpose. 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.

Item 6.
Exhibits
 
Exhibit
Number
  
Exhibit Name
 
 
31.1
  
Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
  
Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
  
XBRL Instance Document.
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
  
XBRL Taxonomy Extension Labels Linkbase Document.
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document.
____________________________
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):  
(i) Condensed Consolidated Statements of Operations for the three and nine months ended October 4, 2015 and September 28, 2014, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 4, 2015 and September 28, 2014, (iii) Condensed Consolidated Balance Sheets at October 4, 2015 and December 28,

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2014, (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended October 4, 2015 and September 28, 2014, and (v) Notes to Condensed Consolidated Financial Statements.



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
PERKINELMER, INC.
 
 
 
November 10, 2015
By:
 
/s/    FRANK A. WILSON
 
 
 
Frank A. Wilson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
 
 
PERKINELMER, INC.
 
 
 
November 10, 2015
By:
 
/s/    ANDREW OKUN
 
 
 
Andrew Okun
Vice President and Chief Accounting Officer
(Principal Accounting Officer)


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EXHIBIT INDEX
  
Exhibit
Number
  
Exhibit Name
 
 
31.1
  
Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
  
Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
  
XBRL Instance Document.
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
  
XBRL Taxonomy Extension Labels Linkbase Document.
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document.
____________________________
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):  
(i) Condensed Consolidated Statements of Operations for the three and nine months ended October 4, 2015 and September 28, 2014, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 4, 2015 and September 28, 2014, (iii) Condensed Consolidated Balance Sheets at October 4, 2015 and December 28, 2014, (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended October 4, 2015 and September 28, 2014, and (v) Notes to Condensed Consolidated Financial Statements.


52