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Note 16: 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. During fiscal year 2013, the Company accrued an additional $5.7 million related to a particular site for increased monitoring and mitigation activities. The Company has accrued $13.5 million as of December 29, 2013, which represents management’s estimate of the cost of the remediation of known environmental matters, and does not include any potential liability for related personal injury or property damage claims. This amount is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations.
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 consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”) filed a complaint dated October 23, 2002 in the United States District Court for the Southern District of New York, Civil Action No. 02-8448, seeking injunctive and monetary relief against Amersham plc, Amersham BioSciences, PerkinElmer, Inc., PerkinElmer Life Sciences, Inc., Sigma-Aldrich Corporation, Sigma Chemical Company, Inc., Molecular Probes, Inc., and Orchid BioSciences, Inc. The complaint alleges that the Company breached its distributorship and settlement agreements with Enzo, infringed Enzo’s patents, engaged in unfair competition and fraud, and committed torts against Enzo by, among other things, engaging in commercial development and exploitation of Enzo’s patented products and technology, separately and together with the other defendants. The Company filed an answer and a counterclaim alleging that Enzo’s patents are invalid. In 2007, after the court issued a decision in 2006 regarding the construction of the claims in Enzo’s patents that effectively limited the coverage of certain of those claims and, the Company believes, excluded certain of the Company’s products from the coverage of Enzo’s patents, summary judgment motions were filed by the defendants. The case was assigned to a new district court judge in January 2009 and in March 2009, the new judge denied the pending summary judgment motions without prejudice and ordered a stay of the case until the federal appellate court decided Enzo’s appeal of the judgment of the United States District Court for the District of Connecticut in Enzo Biochem vs. Applera Corp.
and Tropix, Inc. (the “Connecticut Case”), which involved a number of the same patents and which could materially affect the scope of Enzo’s case against the Company. In March 2010, the United States Court of Appeals for the Federal Circuit affirmed-in-part and reversed-in-part the judgment in the Connecticut Case. The district court permitted the Company and the other defendants to jointly file a motion for summary judgment on certain patent and other issues common to all of the defendants. On September 12, 2012, the court granted in part and denied in part the Company’s motion for summary judgment of non-infringement. On December 21, 2012, the Company filed a second motion for summary judgment on claims that were not addressed in the first motion, which the court also granted in part and denied in part. The case is expected to go to trial in March 2014.
The Company believes it has meritorious defenses to the matter described above, and it is contesting the action vigorously. While this matter is subject to uncertainty, in the opinion of the Company’s management, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) based on its review of the information available at this time, the resolution of this matter will not have a material adverse effect on the Company’s consolidated financial statements.
The Company is also subject to various other claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of its business activities. Although the Company has established accruals for potential losses that it believes are probable and reasonably estimable, in the opinion of the Company’s management, based on its review of the information available at this time, the total cost of resolving these other contingencies at December 29, 2013 should not have a material adverse effect on the Company’s 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.
Note 17: 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 consolidated balance sheets.
A summary of warranty reserve activity for the fiscal years ended December 29, 2013, December 30, 2012
and January 1, 2012 is as follows:
Note 18: 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, which 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, 10.7 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 consolidated statements of operations for fiscal years 2013, 2012, and 2011:
The total income tax benefit recognized in the consolidated statements of operations for stock-based compensation was $4.4 million in fiscal year 2013, $6.8 million in fiscal year 2012 and $5.1 million in fiscal year
2011. Stock-based compensation costs capitalized as part of inventory were $0.4 million and $0.3 million as of December 29, 2013 and December 30, 2012, respectively. The excess tax benefit recognized from stock awards, classified as a financing cash activity, was zero in fiscal year 2013, $1.8 million in fiscal year 2012 and $9.3 million in fiscal year 2011.
Stock Options: The Company has granted options to purchase common shares at prices equal to the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. Options are generally exercisable in equal annual installments over a period of three years, and will generally expire seven years after the date of grant. Options replaced in association with business combination transactions are generally issued with the same terms of the respective plans under which they were originally issued.
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated primarily based on the historical volatility of the Company’s stock. The average expected life was based on the contractual term of the option and historic exercise experience. The risk-free interest rate is based on United States Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. Forfeitures are estimated based on
voluntary termination behavior, as well as an analysis of actual option forfeitures. The Company’s weightedaverage assumptions used in the Black-Scholes option pricing model were as follows for the fiscal years ended:
The aggregate intrinsic value for stock options outstanding at December 29, 2013 was $51.7 million with a weighted-average remaining contractual term of 3.5 years. The aggregate intrinsic value for stock options exercisable at December 29, 2013 was $41.8 million with a weighted-average remaining contractual term of 2.7 years. At December 29, 2013, there were 3.4 million stock options that were vested, and expected to vest in the future, with an aggregate intrinsic value of $51.3 million and a weighted-average remaining contractual term of
The weighted-average per-share grant-date fair value of options granted during fiscal years 2013, 2012, and 2011 was $10.82, $7.36, and $7.03, respectively. The total intrinsic value of options exercised during fiscal years 2013, 2012, and 2011 was $13.8 million, $13.1 million, and $6.9 million, respectively. Cash received from option exercises for fiscal years 2013, 2012, and 2011 was $20.3 million, $32.5 million, and $23.7 million, respectively. The total compensation expense recognized related to the Company’s outstanding options was $4.4 million in fiscal year 2013, $5.1 million in fiscal year 2012 and $4.5 million in fiscal year 2011.
There was $5.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options granted as of December 29, 2013. This cost is expected to be recognized over a weighted-average period of 1.7 years, and will be adjusted for any future changes in estimated forfeitures.
Restricted Stock Awards: The Company has awarded shares of restricted stock and restricted stock units to certain employees at no cost to them, which cannot be sold, assigned, transferred or pledged during the restriction period. The restricted stock and restricted stock units vest through the passage of time, assuming continued employment. The fair value of the award at the time of the grant is expensed on a straight line basis primarily in selling, general and administrative expenses over the vesting period, which is generally three years. These awards were granted under the Company’s 2009 Plan, 2005 Incentive Plan and 2001 Incentive Plan. Recipients of the restricted stock have the right to vote such shares and receive dividends.
The fair value of restricted stock awards vested during fiscal years 2013, 2012, and 2011 was $8.0 million, $4.3 million, and $6.5 million, respectively. The total compensation expense recognized related to the restricted stock awards was $7.5 million in fiscal year 2013, $8.2 million in fiscal year 2012 and $6.5 million in fiscal year 2011.