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UNITED STATES SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2011.

Or

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from                   to                  .

Commission file # 001-32976

CALIPER LIFE SCIENCES, INC.

(Exact name of registrant as specified in its charter)

68 Elm Street

Hopkinton, Massachusetts 01748

(Address and zip code of principal executive offices)

Registrant’s telephone number, including area code: (508) 435-9500

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 x  No o

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 x  No o

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. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON October 31, 2011: 55,204,078

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CALIPER LIFE SCIENCES, INC.

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PART I. FINANCIAL INFORMATION

CALIPER LIFE SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

Item 1.    Financial Statements

See accompanying notes.

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CALIPER LIFE SCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

See accompanying notes.

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CALIPER LIFE SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

See accompanying notes.

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CALIPER LIFE SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of Caliper Life Sciences, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Caliper”) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and generally accepted accounting principles for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules or regulations. The December 31, 2010 consolidated balance sheet has been derived from the Company’s audited financial statements as of that date, but does not include all disclosures required by U.S. GAAP.  However, in the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with Caliper’s Annual Report on Form 10-K for the year ended December 31, 2010.

Operating results for the three and nine months ended September 30, 2011, are not necessarily indicative of the results that may be expected for the full fiscal year or for any future periods. For example, the Company typically experiences higher revenue in the fourth quarter of its fiscal year due to spending patterns of its customers, and may realize significant periodic fluctuations in license and contract revenue depending on the timing and circumstances of underlying individual transactions.

On September 7, 2011, the Company entered into an Agreement and Plan of Merger (“the Merger Agreement”) with PerkinElmer, Inc., a Massachusetts corporation (“Buyer”), and PerkinElmer Hopkinton Co., a Delaware corporation and wholly owned subsidiary of Buyer (“Merger Sub”) pursuant to which, subject to satisfaction or waiver of the conditions therein, Merger Sub will merge with and into the Company (the “Merger”) with the Company surviving as a wholly-owned subsidiary of Buyer.  A description of the Merger Agreement is contained in the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2011. The waiting period for the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on October 19, 2011, and clearance for the Merger under Germany’s Act against Restraints of Competition was granted on October 10, 2011.  Completion of the Merger remains subject to the satisfaction of certain conditions, including approval of the Company’s stockholders.  The Company will hold a special meeting of stockholders on November 7, 2011 at which the Company’s stockholders will vote on the Merger Agreement.

Summary of Significant Accounting Principles

The accounting policies underlying the accompanying unaudited consolidated financial statements are those set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 11, 2011. Those policies are not presented herein, except to the extent that new policies have been adopted or that the description of existing policies has been meaningfully updated.

Revenue Recognition

General Policy

Caliper recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured or probable, as applicable. Product revenue is recognized upon passage of title, which for the majority of sales occurs when goods are shipped under Caliper’s standard terms of “FOB origin.” Revenue associated with customer product purchases delivered under terms of “FOB destination” is deferred until the product is received by the customer. Revenues on shipments subject to customer acceptance provisions are recognized only upon customer acceptance provided all other revenue recognition criteria are met. In general, sales made by Caliper do not include general return rights or privileges. In the limited circumstance where a right of return exists, Caliper recognizes revenue when the right has lapsed. Based upon Caliper’s prior experiences, sales returns have not been significant and therefore a general provision for sales returns or other allowances is not recorded at the time of sale. Revenue from services offered by Caliper is generally recognized as the services are performed (or, as applicable, ratably over the contract service term in the case of annual maintenance contracts). Provision is made at the time of sale for estimated costs related to Caliper’s warranty obligations to customers.

Cash received from customers as advance deposits for undelivered products and services including contract research and development services, is recorded within customer deposits until revenue is recognized. Revenue related to annual maintenance contracts or other remaining undelivered performance obligations is deferred and recognized upon completion of the underlying performance criteria.

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Product Revenue

Product revenue is recognized upon the shipment and transfer of title to customers and is recorded net of discounts and allowances. Revenues on shipments subject to customer acceptance provisions are recognized only upon customer acceptance provided all other revenue recognition criteria are met. Customer product purchases are generally delivered under standardized terms of “FOB origin” with the customer assuming the risks and rewards of product ownership at the time of shipping from Caliper’s warehouse. Revenue associated with customer product purchases delivered under terms of “FOB destination” is deferred until product is delivered to the customer. In accordance with Accounting Standards Update (ASU) No. 2009-13, Caliper defers the relative selling price of any elements that remain undelivered after product shipment and/or acceptance (as applicable), such as remaining services to be performed.

 Service and Annual Maintenance Agreements

Caliper’s general policy is to recognize revenue as services are performed, typically using the proportional performance method based upon defined outputs or other reasonable measures, as applicable, or ratably over the contract service term in the case of annual maintenance contracts. Customers may purchase optional warranty coverage during the initial standard warranty term and annual maintenance contracts beyond the standard warranty expiration. These optional service offerings are not included in the price Caliper charges customers for the initial product purchase. Under Caliper’s standard warranty, the customer is entitled to repair or replacement of defective goods.

Licensing and Royalty

Revenue from up-front license fees is recognized when the earnings process is complete and no further obligations exist. If further obligations exist, the up-front license fee is recognized ratably over the obligation period. Royalties and milestone payments under licenses are recorded as earned in accordance with contract terms, when third-party results are reliably measured and collectability is reasonably assured. Imaging patent rights granted to commercial imaging customers are recognized ratably over the term of the license.

Contract Revenue

Revenue from contract research and development services is recognized as earned based on the performance requirements of the contract. Non-refundable contract fees, unless based upon time and materials, time and expense, or substantive milestones, are generally recognized using the proportional performance method.

Fair Value of Assets and Liabilities

Caliper measures fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, prioritizes the assumption that market participants would use in pricing the asset or liability (the “inputs”) into a three-tier fair value hierarchy.  This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exists, requiring companies to develop their own assumptions.

Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2.  Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability, based on the best information available in the circumstances.  Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data.  These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.  Caliper’s investments are all classified as Level 1 inputs because they are valued using quoted market prices, broker or dealer quotations, or market prices received from industry standard pricing data providers.   On September 30, 2011, Caliper’s investments were valued as follows (in thousands):

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As of September 30, 2011, Caliper’s cash and available for sale securities of $47.3 million all have contracted maturities of less than one year, with the exception of six securities with an aggregate value of $2.8 million.  In addition, Caliper held securities that were in an unrealized loss position as of September 30, 2011; however, these unrealized losses were not material either individually or in the aggregate.

Income Taxes

Caliper accounts for income taxes in accordance with FASB ASC 740, Accounting for Income Taxes, and accounts for uncertainty in income taxes recognized in financial statements in accordance with FASB ASC 740-10, Accounting for Uncertainty in Income Taxes. FASB ASC 740 prescribes a comprehensive model for the recognition, measurement, and financial statement disclosure of uncertain tax positions. Unrecognized tax benefits are the difference between tax positions taken, or expected to be taken, in tax returns, and the benefits recognized for accounting purposes pursuant to FASB ASC 740. Caliper classifies uncertain tax positions as short-term liabilities within accrued expenses. For the nine months ended September 30, 2011 and 2010, Caliper’s tax provisions primarily relate to foreign taxes in jurisdictions where its wholly owned subsidiaries are profitable and in certain states, state income taxes.

Goodwill

Caliper performs a test for the impairment of goodwill annually, or more frequently if events or circumstances indicate that goodwill may be impaired. Because Caliper has a single operating segment, which is the sole reporting unit, Caliper performs this test by comparing the fair value of Caliper with its carrying value, including goodwill. If the fair value exceeds the carrying value, goodwill is not impaired. If the book value exceeds the carrying value, Caliper would calculate the potential impairment loss by comparing the implied fair value of goodwill with the book value of goodwill. If the implied fair value of goodwill is less than the book value, an impairment charge would be recorded equal to the difference.  As of September 30, 2011, Caliper analyzed its goodwill for indicators of impairment, and concluded that there were none.

Recently Issued Accounting Standards

There are no recently issued accounting standards, which, if adopted, would have a material impact on Caliper’s reported results of operations.

2. Acquisition

On December 17, 2010, Caliper completed the acquisition of Cambridge Research & Instrumentation, Inc. (“CRi”) for $20.0 million, consisting of approximately $7.9 million in cash, issuance of 1,648,641 shares of Caliper’s common stock valued at $10.3 million and an assumed liability resulting from a litigation settlement of approximately $1.8 million. Caliper incurred approximately $1.0 million in acquisition related costs that were expensed within selling, general and administrative costs, of which approximately $0.9 million was incurred within the fourth quarter of 2010 and approximately $0.1 million was incurred within the first quarter of 2011. CRi’s operations, assumed as of the date of the acquisition, are included in the results of operations of Caliper beginning on December 17, 2010, the closing date of the acquisition.

3.  Divestitures

On May 17, 2010, Caliper entered into a Purchase Agreement (the “Purchase Agreement”) providing for the sale of its specialty product lines, consisting of the TurboVap and RapidTrace instrument groups, to Biotage LLC (“Biotage”) for approximately $16.5 million in cash. The sale of these specialty product lines to Biotage was completed on May 24, 2010.  As of the closing date for this transaction, the specialty product lines had net assets of $5.0 million comprised of $2.7 million of goodwill allocated on a relative fair value basis, $1.6 million in accounts receivable and $1.4 million in inventory, less $0.7 million of assumed liabilities.  The sale resulted in an $11.4 million gain before estimated income taxes of approximately $0.3 million.

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4. Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out basis, or “FIFO”) or market. Amounts are relieved from inventory and recognized as a component of cost of sales on a FIFO basis. Inventories consist of the following (in thousands):

5. Intangibles

Intangibles, net of amortization expense and other charges, consist of the following assets acquired in connection with previous business combinations (in thousands):

In connection with the acquisition of CRi, $2.3 million of the intangible assets acquired relate to in-process research and development (“IPR&D”) assets.  These IPR&D assets represent projects that were in existence as of the acquisition date.  Caliper assesses the status of the projects on a quarterly basis to determine whether they have been completed or abandoned. In the second quarter of 2011, Caliper abandoned certain of these projects, resulting in a $1.1 million impairment charge which is recorded within amortization of intangible assets within the accompanying consolidated statements of operations.  The abandonment of these projects represented an indicator of impairment, which prompted Caliper to perform a recoverability test during the second quarter of 2011. Caliper used a multi-period excess earnings approach which measures fair value by discounting expected future cash flows attributable to a single intangible asset.  Based on information learned by Caliper during the second quarter as our research and analysis of the projects progressed, there were changes in the estimated costs to be incurred to complete the projects.  As such, the results of the recoverability test showed that there was no value to the abandoned projects.

6. Warranty Obligations

Caliper provides for estimated warranty expenses as a component of cost of revenue at the time product revenue is recognized. Caliper offers a one-year limited warranty on most products, which is included in the selling price. Caliper’s standard limited warranty covers repair or replacement of defective goods, a preventative maintenance visit on certain products, and telephone-based technical support. Factors that affect Caliper’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. Caliper periodically assesses the adequacy of its recorded warranty liabilities and adjusts amounts as necessary.

Changes in Caliper’s warranty obligation are as follows (in thousands):

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7. Comprehensive Income (loss)

Comprehensive income (loss) is as follows (in thousands):

8. Accrued Restructuring Costs

Caliper’s accrued restructuring costs as of September 30, 2011 were comprised of future contractual obligations pursuant to facility operating leases covering certain idle space as further described below.  The following table summarizes changes in accrued restructuring obligations during the nine months ended September 30, 2011 (in thousands):

The remaining facility and severance obligations are payable as follows (in thousands):

The restructuring obligations reflected above resulted from the following actions:

Severance

In December 2010, Caliper acquired CRi (see Note 2). In connection with the acquisition in the fourth quarter of 2010, Caliper recorded a $0.7 million restructuring charge related to employee separation costs incurred by Caliper after the acquisition date. This action reduced the total CRi workforce by 13 employees, or approximately 28%. All affected employees were notified in December 2010 and are not required to perform future services to earn severance payments.  In March 2011, Caliper recorded an additional $0.5 million restructuring charge related to employee separation costs incurred in connection with the termination of a former executive officer of CRi.  As of September 30, 2011, the majority of the obligations have been paid.

Facility Closures

During 2008, Caliper consolidated its California-based business operations to reduce overall facility costs and improve productivity and effectiveness of its research and development spending. The consolidation plan entailed vacating approximately 26,300 square feet of occupied space in Mountain View, California. In 2009, Caliper revised its assumptions around the restructuring charge taken in 2008 regarding the facility. The effect of the change was to update the sublease timing and rates assumed as a result of conditions in the current real estate market, as well as to correct an error in the amount of vacated space which was reduced by approximately 10,200 square feet. This facility closure was accounted for in accordance with FASB ASC 420, Accounting for Costs Associated with Exit or Disposal Activities, pursuant to which Caliper

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recorded a liability equal to the fair value of the remaining lease payments as of the cease-use date. The fair value was determined based upon the discounted present value of remaining lease rentals (using a discount rate of 5.5%) for the space no longer occupied, considering future estimated sublease income, estimated broker fees and required tenant improvements. The lease term expires on November 30, 2013.

In April 2010, Caliper vacated approximately 5,400 additional square feet of its Mountain View, California facility to streamline chip manufacturing operations and increase the likelihood of securing a sub-tenant for unutilized space within the facility. Caliper recorded a restructuring charge of approximately $0.6 million related to this action during the three months ended June 30, 2010. This partial facility abandonment was accounted for in accordance with FASB ASC 420, pursuant to which Caliper recorded a liability equal to the fair value of the remaining lease payments as of the cease-use date. The fair value was determined based upon the discounted present value of remaining lease payments (using a discount rate of 5.5%) for the space no longer occupied, considering future estimated sublease income, estimated broker fees and required tenant improvements.

In September 2010, Caliper entered into a two year sublease for approximately 13,200 square feet of the unutilized space in Mountain View, California. As a result of entering into this agreement, Caliper revised its assumptions around the restructuring charge taken with respect to this property in 2009, and recorded an additional $0.7 million restructuring charge during the three months ended September 30, 2010. The effect of the charge was to update the sublease rates for the remaining space as well as to capture the period from the end of the sublease through November 2013 for which Caliper does not expect to receive sublease income.

In April 2011, Caliper entered into a sublease for approximately 13,080 square feet of the unutilized space in Mountain View, California, at terms consistent with those assumed in the previously recorded restructuring charges. As a result of entering into this agreement, Caliper revised its assumptions around the remaining space, concluding that the remaining space would not generate sublease income, and recorded an additional $0.4 million restructuring charge during the three months ended June 30, 2011. The effect of the charge was to update the timing of sublease income related to the remaining space in Mountain View, California.

In July 2009, Caliper vacated approximately 19,000 square feet at its Hopkinton, Massachusetts facilities in order to reduce idle excess capacity created as a result of product line divestitures completed in 2008. Caliper recorded a restructuring charge of approximately $1.0 million related to this action in the third quarter of 2009. Caliper has accounted for this restructuring activity in accordance with FASB ASC 420, pursuant to which Caliper has recorded a liability equal to the fair value of the remaining lease payments as of the cease-use date. Fair value was determined based upon the discounted present value of remaining lease payments (using a discount rate of 6.5%), considering future estimated sublease income, estimated broker fees and required tenant improvements. The lease term expires on December 31, 2015.

 In June 2011, Caliper closed its approximately 30,000 square feet, Woburn, Massachusetts facility which was assumed as part of the acquisition of CRi. The Woburn operations were transitioned to Caliper’s corporate headquarters in Hopkinton, Massachusetts, consistent with its announced integration plan.  Caliper recorded a restructuring charge of approximately $1.3 million related to this action during the three months ended June 30, 2011. The facility closure was accounted for in accordance with FASB ASC 420, pursuant to which Caliper has recorded a liability equal to the fair value of the remaining lease payments as of the cease-use date. Fair value was determined based upon the discounted present value of remaining lease payments (using a discount rate of 4.0%), considering future estimated sublease income, estimated broker fees and required tenant improvements. The lease term expires on August 31, 2015.  In September 2011, Caliper entered into a sublease for approximately 20,000 square feet of the unutilized space at the Woburn, Massachusetts facility at terms consistent with those assumed in the previously recorded restructuring charge; the economics of the sublease were substantially the same as our original sublease assumption and, therefore, an immaterial restructuring charge true up was recorded during the three months ended September 30, 2011.

9. Revolving Credit Facility

On December 31, 2010, Caliper entered into a Third Amended and Restated Loan and Security Agreement (“credit facility”) with a bank, which permits Caliper to borrow up to $25 million in the form of revolving loan advances, including up to $5 million in the form of letters of credit and other contingent reserves. The principal effect of this modification was to extend the maturity date of the credit facility from April 1, 2011 to April 1, 2013.  The modification also established financial covenants that are tested as of the last day of each quarter.  Principal borrowings under the credit facility accrue interest at a floating annual rate equal to the bank’s prime rate (4.0% at September 30, 2011).  Under the credit facility, Caliper is permitted to borrow up to $25 million, subject to a borrowing base limit consisting of (a) 80% of eligible accounts receivable plus (b) the lesser of 90% of Caliper’s unrestricted cash at the bank or $15 million. Eligible accounts receivable do not include internationally billed receivables, unbilled receivables, and receivables aged over 90 days from invoice date. The credit facility serves as a source of capital for ongoing operations and working capital needs.

The credit facility includes traditional lending and reporting covenants including certain financial covenants applicable to liquidity and earnings that are to be maintained by Caliper and tested as of the last day of each quarter. As of September 30, 2011, Caliper was in compliance with all of its covenants in the credit facility. There were no outstanding borrowings under the credit facility as of September 30, 2011.

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10. Commitments and Contingencies

Caliper’s commitments and contingencies are disclosed within Note 11 to the consolidated financial statements included in Caliper’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 11, 2011.  There have not been any material changes to Caliper’s commitments and contingencies during the current period, except as follows.

On December 11, 2009, Caliper entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Taconic Farms, Inc., (“Taconic”), a New York corporation. The Stock Purchase Agreement provided for the sale of Caliper’s XenBio operations to Taconic for a purchase price of approximately $10.8 million, which included $9.7 million in cash together with $1.1 million which was placed into an escrow account until April 30, 2011. On April 18, 2011, Caliper received notice from Taconic regarding a claim for indemnification by Taconic for various potential contingent losses that may be suffered by Taconic and for which, if such losses are actually realized by Taconic, Taconic believes Caliper would have an obligation to indemnify Taconic under the terms of the Stock Purchase Agreement. Under the terms of the Stock Purchase Agreement, Caliper’s maximum liability for any such losses actually suffered by Taconic, and for which Caliper is determined to be responsible, is $3.0 million.  Caliper believes that the $1.1 million placed into escrow will likely remain in escrow until this issue is further clarified or otherwise resolved.

On August 9, 2006, Stanford University (“Stanford”) provided Xenogen Corporation, a wholly owned subsidiary of Caliper (“Xenogen”) with the results of an audit performed pursuant to the exclusive license agreement between Stanford and Xenogen. The audit report, which was prepared by a third party consultant, asserted certain claims of underpayments by Xenogen to Stanford during the period from 2002 through March 31, 2006 based upon a different interpretation of the scope of imaging products that are subject to the royalty provisions of the license than Xenogen had used for the calculation of royalties since the beginning of this licensing arrangement in 1997. Upon review of the audit report, Caliper determined that additional royalties of $71,000 were owed to Stanford, and paid this obligation in 2006. In July 2011, Caliper and Stanford entered into an agreement to resolve all remaining disputes regarding the audit report and how the terms of the license agreement would be interpreted by the parties going forward.  As a result of the agreement, no additional payments were made to Stanford for past licensing or royalties.  However, the original license agreement was modified to increase the prospective royalty rate, effective July 1, 2011, for purposes of calculating any future payments to Stanford from sublicensing revenue received by Caliper.

11. Legal Proceedings

As reported previously, on February 23, 2010, Caliper, Xenogen, and Stanford filed a complaint for patent infringement against Carestream Health, Inc. (“Carestream”) in the U.S. District Court for the Eastern District of Texas.  Caliper, Xenogen, and Stanford sought a judgment that Carestream induced infringement of seven United States patents that Caliper, through Xenogen, exclusively licenses from Stanford.  Caliper and its co-plaintiffs sought an award of compensatory damages, treble damages due to Carestream’s willfulness, a permanent injunction and attorneys’ fees against Carestream for its ongoing, indirect infringement of the patents-in-suit. The complaint was served on Carestream on February 26, 2010.  On April 20, 2010, Carestream filed its answer to the complaint, denying it induced infringement of the asserted patents.  Carestream also counterclaimed for declaratory judgments of non-infringement and invalidity of the asserted patents.  Carestream also filed a motion to transfer the venue of the litigation to another district court.  Caliper and Carestream subsequently agreed to the transfer of this case to the U.S. District Court for the Northern District of California. See below for a description of the settlement agreement for this litigation that was entered into on August 8, 2011.

On June 8, 2010, the U.S. Patent and Trademark Office (“PTO”) issued U.S. Patent Number 7,734,325 (the “325 Patent”) to Carestream.  The next day, Caliper filed a request for reexamination of all claims of the 325 Patent.  On August 12, 2010, the PTO issued an order granting reexamination of all claims of the 325 Patent.  On the same day, the PTO also issued an action closing prosecution of the reexamination of the 325 Patent.  On September 29, 2010, the PTO issued a right of appeal notice notifying Caliper and Carestream of each party’s right to appeal the examiner’s determinations in the reexamination.  Caliper filed a Notice of Appeal with the PTO on October 29, 2010, and filed its appeal brief on February 4, 2011.  Carestream filed its reply to Caliper’s appeal brief on March 7, 2011.  This appeal is still pending in the PTO.

On July 9, 2010, Carestream filed a complaint for patent infringement against Caliper in the U.S. District Court for the Western District of Wisconsin.  Carestream’s complaint alleges that Caliper’s Lumina XR imaging system infringes the 325 Patent and that Caliper indirectly infringes the 325 Patent.  Caliper filed its answer to Carestream’s complaint on August 2, 2010.  Carestream’s allegations of infringement did not involve any of Caliper’s imaging products other than the Lumina XR.  The Lumina XR system is a multi-modal imaging system with both optical and x-ray capabilities that Caliper first introduced in September 2009.  With its complaint for patent infringement, Carestream also filed with the Court a motion for preliminary injunction to prevent Caliper from selling the Lumina XR system during the pendency of this litigation.  Caliper filed its opposition to Carestream’s motion for a preliminary injunction on October 20, 2010.  The hearing on Carestream’s preliminary injunction motion was held on March 4, 2011.  The Court issued its Opinion and Order denying Carestream’s preliminary injunction motion on March 31, 2011, finding that Carestream failed to establish either a reasonable likelihood of success on the merits of its infringement claim or any irreparable harm if the requested preliminary injunction were not entered. In its Opinion and Order the Court also denied both Caliper’s and Carestream’s cross-motions for summary judgment, but indicated that each party could file a new motion for summary judgment after additional discovery has taken place.  The Court also conducted a claim construction hearing on March 4, 2011.

On August 8, 2011, Caliper and Carestream entered into a settlement agreement (the “Settlement Agreement”) which resolves both Caliper’s and Stanford’s complaints against Carestream in the U.S. District Court for the Northern District of California (the “California

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Litigation”) as well as Carestream’s complaint against Caliper in U.S. District Court for the Western District of Wisconsin (the “Wisconsin Litigation”).  In connection with the settlement of the California Litigation, Carestream agreed not to market or sell its optical imaging systems that are capable of performing in vivo optical imaging of mammals for the applications covered by the patents that are exclusively licensed by Stanford to Caliper.  In connection with the settlement of the Wisconsin Litigation, Carestream agreed not to assert any of its intellectual property against Caliper Lumina XR optical imaging system, as such system is presently marketed and sold by Caliper.  Also in connection with the Settlement Agreement, each party’s complaint against the other party was dismissed with prejudice.

On November 10, 2010, GenMark Diagnostics, Inc. (“GenMark”), a life sciences company based in Carlsbad, California, filed a complaint against Caliper in the U.S. District Court for the Northern District of California, seeking declaratory judgment that either (i) GenMark’s products do not infringe three microfluidic patents owned by Caliper (U.S. Patent Nos. 6,366,924; 6,399,025; and 6,495,104) and/or (ii) the claims of the three patents at issue are invalid.  GenMark’s complaint was served on Caliper on November 11, 2010.  The complaint filed by GenMark did not contain any other claims against Caliper, other than a claim for recovery of reasonable attorneys’ fees.  Caliper had been in the beginning stages of license discussions with GenMark when it filed its complaint.  On February 28, 2011, Caliper and GenMark entered an agreement under which Caliper agreed not to assert any infringement claims under certain specified patents against GenMark during the next six-month period and GenMark agreed to dismiss its complaint without prejudice.  On August 24, 2011 Caliper and GenMark entered an amended and restated agreement which extended the prior agreement to February 24, 2012.  Discussions between Caliper and GenMark regarding a potential licensing arrangement are on-going.

On September 12, 2011, a putative stockholder class action lawsuit was filed in the Court of Chancery of the State of Delaware against Caliper, the board of directors of Caliper, PerkinElmer, Inc. and PerkinElmer Hopkinton Co.  This action, styled Betty Greenberg v. Caliper Life Sciences, Inc., E. Kevin Hrusovsky, Kathryn A. Tunstall, David W. Carter, Van Billet, Robert C. Bishop, David V. Milligan, Allan L. Comstock, PerkinElmer, Inc. and PerkinElmer Hopkinton Co., Case No. 6853 (the “Greenberg Action”), alleges that each of the defendants violated applicable law by directly breaching and/or aiding breaches of fiduciary duties owed to the plaintiff and other public stockholders of Caliper. The plaintiff in this lawsuit seeks to enjoin the consummation of the proposed merger (the “Merger”) of Caliper with PerkinElmer Hopkinton Co., a wholly owned subsidiary of PerkinElmer, Inc., pursuant to the Agreement and Plan of Merger dated as of September 7, 2011. The plaintiff also seeks an award of the costs and disbursements of the action, including reasonable attorneys’ and experts’ fees, and the grant of other and further equitable relief as the Court deems just and proper.

On September 16, 2011, a second plaintiff filed a putative stockholder class action lawsuit in the Court of Chancery of the State of Delaware against the board of directors of Caliper, Caliper, PerkinElmer, Inc. and PerkinElmer Hopkinton Co. This action, styled James Dalton v. E. Kevin Hrusovsky, Robert Bishop, Van Billet, David Carter, Allan Comstock, David Milligan, Kathryn Tunstall, Caliper Life Sciences, Inc., PerkinElmer, Inc. and PerkinElmer Hopkinton Co., Case No. 6871 (the “Dalton Action”), contains allegations that are substantially similar to those alleged in the previously-filed complaint—namely, that each of the defendants breached and/or aided in breaches of fiduciary duties owed to Caliper’s stockholders. The plaintiff in this lawsuit seeks to enjoin the consummation of the Merger, an award of the costs of the action, including reasonable allowance for attorneys’ and experts’ fees, and the grant of further relief as the Court deems just and proper.

On October 5, 2011, a third plaintiff, also purportedly a Caliper stockholder, filed a putative stockholder class action complaint in the Court of Chancery of the State of Delaware against Caliper, certain directors and officers of Caliper, PerkinElmer, Inc. and PerkinElmer Hopkinton Co. This action, styled Elizabeth Chaney v. E. Kevin Hrusovsky, Robert Bishop, Van Billet, David Carter, Allan Comstock, David Milligan, Kathryn Tunstall, Caliper Life Sciences, Inc., PerkinElmer, Inc. and PerkinElmer Hopkinton Co., Case No. 6911, (the “Chaney Action”), contains allegations that are substantially similar to those alleged in the previously-filed complaints—namely, that each of the defendants breached and/or aided in breaches of fiduciary duties owed to Caliper’s stockholders. The plaintiff in this lawsuit seeks to enjoin the consummation of the Merger, an award of the costs of the action, including reasonable allowance for attorneys’ and experts’ fees, and the grant of further relief as the Court deems just and proper.

On October 6, 2011, Plaintiff Chaney filed a Motion for Preliminary Injunction with this Court as well as a Proposed Amended Order of Consolidation, following which, on October 7, 2011, the Court entered an amended consolidation order, consolidating the Chaney Action into the Dalton Action and the Greenberg Action and designating the Chaney complaint as the operative complaint.

The three actions described in the paragraphs above are collectively referred to as the “Stockholder Actions.” On October 25, 2011, the parties to the Stockholder Actions, without the defendants admitting any wrongdoing or liability of any kind, reached an agreement in principle providing for the withdrawal of the plaintiffs’ pending motion for a preliminary injunction and to resolve all claims asserted in the Stockholder Actions. Caliper has agreed, pursuant to the terms of the proposed settlement, to make certain supplemental disclosures related to the proposed Merger, which was filed with the SEC on October 26, 2011. The agreement in principle contemplates that the parties will enter into a stipulation of settlement.  The stipulation of settlement will be subject to customary conditions, including court approval following notice to Caliper’s stockholders.  In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the Court will consider the fairness, reasonableness, and adequacy of the settlement.  If the settlement is finally approved by the Court, it will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the proposed Merger, the Merger Agreement, and any disclosure made in connection therewith (but excluding claims for appraisal under Section 262 of the Delaware General Corporation Law).  In addition, in connection with the settlement, the parties contemplate that plaintiffs’ counsel will file a petition in the Court for an award of attorneys’ fees and

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expenses to be paid by Caliper or its successor, which the defendants may oppose.  Caliper or its successor will pay or cause to be paid any attorneys’ fees and expenses awarded by the Court.  There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Court will approve the settlement even if the parties were to enter into such stipulation.  In such event, the proposed settlement as contemplated by the agreement in principle may be terminated.

From time to time Caliper is involved in litigation arising out of claims in the normal course of business, and when a probable loss contingency arises, records a loss provision based upon actual or possible claims and assessments. The amount of possible claim recorded is determined on the basis of the amount of the actual claim, when the amount is both probable and the amount of the claim can be reasonably estimated. If a loss is deemed probable, but the range of potential loss is wide, Caliper records a loss provision based upon the low end estimate of the probable range and may adjust that estimate in future periods as more information becomes available. Litigation loss provisions, when made, are reflected within general and administrative expenses in our statement of operations and are included within accrued legal expenses in the accompanying balance sheet. Based on the information presently available, management believes that there are no outstanding claims or actions pending or threatened against Caliper, the ultimate resolution of which will have a material adverse effect on our financial position, liquidity or results of operations, although the results of litigation are inherently uncertain, and adverse outcomes are possible.

12. Stock-Based Compensation, Options and Restricted Stock Activity and Net Loss per Weighted Average Common Share Outstanding

Warrants

In connection with Caliper’s 2006 acquisition of Xenogen, Caliper granted Xenogen stockholders an aggregate of 4,701,733 warrants, and reserved an additional 411,814 warrants for potential issuance upon the exercise of Xenogen warrants which were assumed by Caliper. Upon the potential exercise of these assumed warrants, the holders are entitled to receive that number of Caliper shares and warrants that such holder would have been entitled to receive as a Xenogen stockholder as of the acquisition date.  Each warrant granted permits the holder to acquire one Caliper common share at an exercise price of $6.79 per share through August 9, 2011. The termination date of the Caliper warrants that are to be issued upon the eventual exercise of the assumed Xenogen warrants may not be extended beyond the 5 year expiration date for the Caliper warrants.

During the nine months ended September 30, 2011, 4,627,424 Caliper warrants were exercised, and all unexercised and unissued Caliper warrants expired on August 9, 2011.  In addition, during the nine months ended September 30, 2011, 310,668 of the assumed Xenogen warrants were exercised resulting in 96,875 Xenogen warrants outstanding as of September 30, 2011.  Collectively, the net effect of the Caliper and Xenogen warrant exercises for the nine months ended September 30, 2011, including the effect of “net or cashless exercises” was the issuance of 1,928,668 shares of Caliper common stock for proceeds of approximately $9.0 million.

The following table summarizes information with respect to warrants assumed from Xenogen which remain outstanding and exercisable at September 30, 2011:

Subsequent to September 30, all of the Xenogen warrants that remained outstanding as of September 30, 2011 were either net exercised or terminated, either because of the warrant’s expiration date or in consideration of a cash payment equal to the excess of the merger consideration of $10.50 per share over the exercise price per share of such warrant.  The net exercise of these remaining Xenogen warrants resulted in the issuance of 17,495 shares of Caliper common stock.

Stock Plans

Caliper’s stock plans are disclosed within Note 13 to the consolidated financial statements included in Caliper’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 11, 2011.  In June 2011, Caliper’s stockholders adopted the 2011 Employee Stock Purchase Plan (the “2011 Purchase Plan”). The initial number of shares reserved was 1.5 million shares, subject to adjustment, and the term of the 2011 Purchase Plan is ten years.  Under the 2011 Purchase Plan, employees have the option to purchase shares of Caliper’s common stock at 85% of the closing price on the first trading day of each offering period or the last trading day of each offering period (as defined in the 2011 Purchase Plan), whichever is lower, up to specified limits. Eligible employees are given the option to purchase shares of Caliper’s common stock, on a tax-favored basis, through regular payroll deductions in compliance with Section 423 of the Internal Revenue Code of 1986, as amended.

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In connection with the Merger, Caliper will terminate all of its stock option plans and all other equity-related plans prior to the effective time of the Merger.

Stock-Based Compensation

Caliper recognizes all share-based payments, including grants of stock options, in the income statement as an operating expense, based on their fair values. Caliper estimates the fair value of each option award on the date of grant using a Black-Scholes-Merton based option-pricing model.  Stock-based compensation expense is included within costs and expenses as follows (in thousands):

On September 30, 2011, Caliper had share-based compensation plans (the “Plans”), which are described within Note 13 to the consolidated financial statements included in Caliper’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 11, 2011.

The fair value of each option award issued under the Plans is estimated on the date of grant using a Black-Scholes-Merton based option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of Caliper’s stock. The expected term of the options is based on Caliper’s historical option exercise data taking into consideration the exercise patterns of the option holders during the option’s life. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of the grant.

Options and Restricted Stock Activity

A summary of stock option and restricted stock activity under the Plans as of September 30, 2011, and changes during the nine months then ended is as follows:

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Restricted stock units do not carry an exercise price and typically vest over a four-year period, although the vesting period of certain awards may vary. As of September 30, 2011, the weighted average remaining vesting term is 1.91 years and the aggregate intrinsic value of outstanding and non-vested restricted stock is approximately $13.4 million.

During the nine months ended September 30, 2011, Caliper granted 946,630 options at a weighted average grant date fair value, using the Black-Scholes-Merton option pricing model, of $4.51 per share, and 240,122 restricted stock units at a weighted average grant date fair value of $6.62 per share. The total fair value of restricted stock that vested during the nine months ended September 30, 2011 was approximately $1.1 million.

As of September 30, 2011, there was $8.9 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average remaining service period of approximately 2.93 years.

In connection with the Merger, at the effective time of the Merger, each stock option representing the right to acquire shares of Caliper common stock outstanding immediately prior to the effective time of the Merger (whether then vested or unvested) will be cancelled in exchange for the right to receive a cash amount, without interest and less any applicable withholding taxes, equal to the product of (1) the total number of shares of common stock subject to such stock option, multiplied by (2) an amount equal to the excess, if any, of the merger consideration of $10.50 per share over the exercise price per share of such stock option. Stock options with an exercise price per share equal to or greater than the merger consideration of $10.50 per share will be cancelled for no consideration and have no further force or effect from and after the effective time of the Merger.

Furthermore, at the effective time of the Merger, each restricted stock unit representing the right to acquire shares of Caliper common stock outstanding immediately prior to the effective time of the Merger (whether then vested or unvested) will be cancelled in exchange for the right to receive a cash amount, without interest and less any applicable withholding taxes, equal to the product of (1) the total number of shares of common stock subject to such restricted stock unit, multiplied by (2) the merger consideration of $10.50 per share.

Common Share Issuances

During the nine months ended September 30, 2011, Caliper issued 2,839,426 shares of common stock as a result of stock option and warrant exercises, issuances of shares under Caliper’s 1999 Employee Stock Purchase Plan and vesting of restricted stock.

Net Loss per Weighted Average Common Share Outstanding

Basic net income (loss) per share is calculated based upon net income (loss) divided by the weighted-average number of common shares outstanding during the period. The calculation of diluted net income per share gives effect to the dilutive effect of common stock equivalents consisting of stock options, unvested restricted stock, unvested restricted stock units and warrants (calculated using the treasury stock method).  Potentially dilutive securities are excluded from the diluted earnings per share computation to the extent they have an antidilutive effect due to Caliper’s net loss.

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A reconciliation of shares used in the calculations is as follows (in thousands):

The following outstanding options, restricted stock and warrants (prior to the application of the treasury stock method) were excluded from the computation of diluted net loss per share as they had an antidilutive effect (in thousands):

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Item 2.             Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2011 and for the three and nine months ended September 30, 2011 should be read in conjunction with our financial statements included in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 11, 2011.

The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed under the caption “Risk Factors” below, as well as those discussed elsewhere. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report.

Executive Summary

Overview

On September 7, 2011, the Company entered into an Agreement and Plan of Merger (“the Merger Agreement”) with PerkinElmer, Inc., a Massachusetts corporation (“Buyer”), and PerkinElmer Hopkinton Co., a Delaware corporation and wholly owned subsidiary of Buyer (“Merger Sub”) pursuant to which, subject to satisfaction or waiver of the conditions therein, Merger Sub will merge with and into the Company (the “Merger”) with the Company surviving as a wholly-owned subsidiary of Buyer.  A description of the Merger Agreement is contained in the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2011. The waiting period for the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on October 19, 2011, and clearance for the Merger under Germany’s Act against Restraints of Competition was granted on October 10, 2011.  Completion of the Merger remains subject to the satisfaction of certain conditions, including approval of the Company’s stockholders.  The Company will hold a special meeting of stockholders on November 7, 2011 at which the Company’s stockholders will vote on the Merger Agreement.

Business

Caliper Life Sciences, Inc. develops and sells innovative and enabling products and services to the life sciences community, a customer base that includes pharmaceutical, biotechnology and diagnostics companies, universities and government and other not-for-profit research institutions. We believe our integrated systems, consisting of instruments, software and reagents, our laboratory automation tools and our assay development and discovery services enable advances in the understanding of disease and will impact the realization of personalized medicine. Our strategy is to transform drug discovery by offering technologies and services that enhance researchers’ ability to predict the effects that new drug candidates or existing approved drugs will have on different groups of humans, and also to enhance our customers’ ability to offer companion diagnostic solutions that may allow prescribing the right drug to the right individual. Our offerings leverage our extensive portfolio of imaging, tissue analysis, microfluidics, automation and liquid handling technologies, and scientific applications expertise to address key opportunities and challenges in drug discovery and implementation of personalized medicine.  These opportunities and challenges include enhancing the efficiency of the complex and costly process to conceive of and bring a new class of drugs to market, including enabling the development of a new class of drugs that can be prescribed based on characteristics of the individual patient, which is referred to as personalized medicine. In addition, we believe our microfluidic systems can provide a highly accurate and reliable platform for life sciences research and for performing molecular diagnostics tests.

We believe that increasing the clinical relevance of drug discovery experimentation at each stage of research from early stage, relatively low cost in vitro testing (in an artificial environment) through later stage ex vivo testing (in cells and tissue), and in vivo testing (in a living organism) will have a profound impact on helping our customers to determine the ultimate likelihood of success of drugs in treating humans. Further, we believe that complementing this drug discovery enablement with companion diagnostic products to enable new drugs to be successful while efficiently and safely targeting a subpopulation of patients is critical to the future success of the pharmaceutical and biotechnology industries. With enabling offerings in the in vitro, in vivo, and ex vivo (cells and tissue) testing arenas, and a unique strategy of enhancing the “bridge” or linkages between preclinical research and clinical diagnostic testing, we expect to continue to address growing, unmet needs in the market, and to drive on-going demand for our products and services. These market needs are underscored by key challenges currently facing the pharmaceutical and biotechnology industry, including late-stage drug failures and unforeseen side effects coming to light late in the development process or after drugs are on the market.

We offer an array of products, assays and services, many of which are based on our proprietary technologies, to address critical needs in drug discovery and preclinical development, and to enable companion diagnostic determinations. Our technologies are also enabling for other life sciences research and applications beyond drug discovery, such as molecular diagnostics, sample preparation for next generation sequencing, environmental testing, and in applied markets such as agriculture and forensics. We also believe that our technology platforms may be able to provide ease of use, cost and data quality benefits for certain in vitro diagnostic applications.

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We have multiple channels of distribution for our products: direct to customers, indirect through our international network of distributors, through partnership channels under our Caliper Driven program and through joint marketing agreements. Through our direct and indirect channels, we sell products, services and complete system solutions, developed by us, to end customers. Our Caliper Driven program is complementary to our direct sales and distribution network activities, as it enables us to extend the commercial potential of our LabChip technology into new industries and new applications with both experienced commercial partners and earlier stage companies with their own proprietary technologies. We also utilize joint marketing agreements to enable others to market and distribute our products. By using direct and indirect distribution, and out-licensing our technology under our Caliper Driven program, we seek to maximize penetration of our products and technologies into the marketplace and position Caliper as a leader in the life sciences tools market.

Our product and service offerings are organized into three core business areas — molecular imaging and tissue analysis (“Imaging”), discovery research (“Research”), and Caliper Discovery Alliances and Services (“CDAS”) — with the goal of creating a more scalable infrastructure while putting increased focus on growth and profitability.

·                  The Imaging business holds, we believe, a global leadership position in the expanding preclinical imaging market. Principal activities of this business area include the expansion of our line of preclinical imaging systems and related software, applications, accessories and reagents. We continue to enhance performance, flexibility and ease of use of our systems, which consist of optical, x-ray, micro computed tomography (micro CT) and multiplex tissue analysis solutions. New imaging applications such as assessing stem cells and lung inflammation are often enabled by complementary reagent products, such as specialized dyes and targeted probes.  These products are being adopted by life sciences and clinical researchers who are developing more targeted (personalized) diagnostic, therapeutic and prognostic solutions, based on the enabling high-quality multiplexed tissue imaging capabilities provided by our products.

·                  The Research business is responsible for utilizing our core automation and microfluidic technologies, including our LabChip systems, to address an expanding array of opportunities in drug discovery and life science research, including molecular biology sample preparation and analysis for genomics (particularly next generation sequencing), proteomics, cellular screening and forensics.

·                  CDAS is responsible for building drug discovery collaborations and alliances, and growing our sales of drug discovery services, with an emphasis on leveraging our core technologies to provide our customers with the option to purchase our instruments and reagents or to engage us to perform experiments for them using our instruments and reagents. The focus of CDAS is to capitalize on market “outsourcing” trends in preclinical drug research.  CDAS emphasizes the development and offering of more comprehensive scientific solutions to our clients in the fields of oncology, predictive toxicology, immunology, and large molecules/biologics, which we believe represent opportunities with growing demand in the life sciences outsourcing and alliances segments.

Third Quarter Key Highlights

Summary Financial Performance

·                  Our total revenues during the third quarter of 2011 increased by approximately $7.2 million, or 24%, to $36.9 million, from $29.7 million in the third quarter of 2010.  This increase included 12% Imaging revenue growth, 42% Research revenue growth, and 3% CDAS revenue growth, as further discussed below.

·                  Combined product and service gross margins were relatively unchanged at 50% in the third quarter of 2011 compared to the third quarter of 2010. Product margins increased approximately 2 percentage points resulting primarily from increased sales volume and, to a lesser extent, from savings on the cost of materials, while service margins decreased approximately 5 percentage points resulting primarily from an incremental investment in resources for our instrument services business, and to a lesser extent, higher cost of revenues associated with CDAS revenues.

·                  Operating expenses increased $3.2 million during the third quarter of 2011 to $18.7 million, from $15.5 million in the third quarter of 2010.  Approximately $1.4 million of this increase was due to the acquisition of CRi, while the majority of the remaining increase resulted from increases in selling and marketing headcount and related costs of $0.8 million, and $1.3 million in non-recurring merger transaction costs incurred in connection with Caliper’s merger with PerkinElmer, offset in part by reduced litigation costs.

·                  Net loss for the third quarter of 2011 was $0.8 million, or $0.01 per share, compared to a net loss of $1.3 million, or $0.03 per share, in 2010. The $0.5 million reduction in net loss was primarily driven by operating profit improvement despite $1.3 million of non-recurring merger transaction costs incurred in connection with Caliper’s merger with PerkinElmer.

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Revenue Performance by Strategic Business Unit

(1)    Foreign currency contributed to overall revenue growth by 2% in the third quarter of 2011, comprising a 4% benefit for Research and a 1% benefit for Imaging.

Imaging revenues increased by 12% to $16.2 million during the third quarter of 2011, from $14.5 million during the third quarter of 2010.  Overall Imaging revenue growth was driven by sales of tissue imaging products which were added as a result of our acquisition of CRi in 2010, offset by a decline in revenues from our in vivo imaging products of approximately 1% in the third quarter principally due to product and channel mix changes.  Although the number of in vivo imaging unit placements increased by approximately 10% in the third quarter of 2011, the average selling price per unit sold decreased due to an increase in sales of our Lumina instruments and an increase in distributor channel mix.

Research revenues increased by 42% to $18.4 million during the third quarter of 2011 from $13.0 million during the third quarter of 2010. Overall Research revenue growth was primarily attributable to an increase in demand in certain end markets for our LabChip (microfluidic) and automation instruments, most notably end market demand for our analytical and preparative next generation sequencing (“NGS”) platforms for sample preparation and process control.  In addition, we experienced an increase in revenues from (i) our OEM relationship with Agilent Technologies, due to both increased volume and improved chip pricing, (ii) an increase in direct channel consumables for our LabChip products, and (iii) an increase in microfluidic license revenues as a result of new licensing arrangements.

CDAS revenues increased by 3% to $2.4 million during the third quarter of 2011 from $2.3 million during the third quarter of 2010. The net increase resulted from revenues generated from compound screening and analysis performed pursuant to Phase II task orders under our contract with the U.S. Environmental Protection Agency (“EPA”) for its ToxCast screening program.  During the third quarter of 2011, we substantially completed work under two of the task orders issued in February 2011 for Phase II follow-up project work.

Critical Accounting Policies and Estimates

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the SEC on March 11, 2011.

Results of Operations for the Three and Nine Months Ended September 30, 2011

Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For example, we typically experience higher revenues in the fourth quarter of our fiscal year as a result of the capital spending patterns of our customers. In addition, service revenues from our CDAS strategic business unit will vary based upon receipt of compounds and issuance of new arrangements which can vary the timing of service revenue recognized within a year.

Revenue

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Product Revenue.   Product revenue increased by $5.5 million during the three months ended September 30, 2011, compared to the same period in 2010.  Included in this increase was $1.7 million of product revenue from tissue imaging products which were added as a result of our acquisition of CRi in 2010.  Within Research product revenues for the third quarter of 2011, microfluidic (LabChip) product revenues increased $3.2 million, or 49%, and automation product revenues increased $1.5 million, or 42%, compared to the same period in 2010. Both LabChip and automation growth were driven by increased end market demand for our analytical and preparative NGS for sample preparation and quality control platforms.  The LabChip revenue increase was primarily driven by a combined 40% increase in unit sales of our LabChip GX and GXII instruments during the three months ended September 30, 2011, resulting in an increase of $1.2 million of revenue, as well as a $1.0 million increase in consumables within our direct sales channel. In addition, LabChip product revenues increased as a result of our OEM relationship with Agilent Technologies due to increases in both chip prices and volume of chips sold.  Imaging product sales increased $0.8 million, or 8%, with the increase relating to tissue imaging products which were added to our imaging platform capabilities as a result of our acquisition of CRi in 2010.  In vivo imaging product sales decreased $0.8 million, or 8%, primarily due to a product and channel mix shift.  In vivo imaging instrument unit sales increased 10% during the quarter (45 units in the third quarter of 2011 compared to 41 units in the comparable period in 2010).  However as a result of longer purchase approval cycles, principally among academic institutions, arising out of concern over future levels of government funding, the overall product mix of in vivo instruments sold during the third quarter favored lower priced instruments, thus resulting in lower overall in vivo instrument product revenues.

Product revenue increased by $16.3 million during the nine months ended September 30, 2011, compared to the same period in 2010, which included $6.4 million of revenue increase from the sale of tissue imaging products which were added by our acquisition of CRi and reflected a $2.9 million decrease in product revenues from the divestiture of the specialty product lines in May 2010.  Imaging product sales increased $8.1 million, or 27%, with approximately 80% of the increase related to newly added tissue imaging products.  Our in vivo imaging product sales increased $1.7 million, or 6%, primarily due to a 22% increase in instrument placements. In vivo instrument revenue reflected a lower average selling price per unit compared to the nine months ended September 30, 2010 due to a higher percentage of lower priced instrument sales and increased sales through our distributor channels.  Within Research product revenues for the nine months ended September 30, 2011, microfluidic (LabChip) product revenues increased $7.6 million, or 42%, compared to the same period in 2010 primarily due to growth in LabChip GX instrument placements (131 units in 2011 compared to 105 units in the comparable period of 2010), an increase in revenues from our OEM relationship with Agilent Technologies due to increases in both chip prices and volume of chips sold, increased sales of the LabChip XT due to an increase in DNA sample sizing needs driven by next generation sequencing market growth, and market adoption of our LabChip Dx instrument for multiplex molecular diagnostic analysis, currently marketed through our recent distribution agreement with Seegene, Inc. (“Seegene”).  Excluding revenues for the specialty product lines which were divested in May 2010, Research product sales also reflected a $3.9 million, or 40%, increase in automation product sales during the nine months ended September 30, 2011 compared to the same period in 2010, which resulted primarily from an increase in sample preparation needs driven by next-generation sequencing and genomic drug discovery research applications.

Service Revenue.   Total service revenue increased $0.9 million in the third quarter of 2011, compared to the same period in 2010, due to an increase in CDAS service revenue of $0.1 million, an increase in instrument-related service revenues of $0.7 million and an increase in contract manufacturing revenue of $0.1 million.  The $0.7 million increase in instrument-related service revenues was primarily due to an increase in the customer installed base of Imaging and LabChip instruments.

Total service revenue increased $4.5 million in the nine months ended September 30, 2011, compared to the same period in 2010, due to an increase in CDAS service revenue of $2.0 million, an increase in instrument-related service revenues of $1.8 million and an increase in contract manufacturing revenue of $0.7 million related to products we manufacture for Biotage. The CDAS increase resulted from the completion of the Phase IIb primary screening task orders under the EPA ToxCast screening program and work substantially completed on two of the three new task orders that were received in 2011 and for which work was completed in the third quarter of 2011.  In the third quarter of 2011, we began work on the third new 2011 task order which has a total value of $1.2 million.  Our work on this task order was approximately 31% complete as of September 30, 2011.  The $1.8 million increase in instrument service revenues was primarily due to an increase in Imaging and LabChip instrument service revenues due to growth in the customer installed bases for our products, offset in part by a decrease in automation instrument service revenue resulting from the divestiture of specialty product lines in 2010 and expired Staccato system contracts.

License Fees and Contract Revenue.    License fees and contract revenue increased by $0.8 million during the third quarter of 2011 compared to the same period of 2010, primarily as a result of two new microfluidic license revenue arrangements, a $0.3 million increase in Imaging license revenue and $0.1 million in revenue from work performed under Small Business Innovation Research (“SBIR”) grants assumed as part of our acquisition of CRi in 2010.  License fees and contract revenue increased by $2.9 million during the nine months ended September 30, 2011 compared to the same period of 2010, primarily as a result of microfluidic license revenue related to a scheduled payment for the extension of rights under an existing license arrangement, a $0.6 million increase in Imaging license revenue and $0.6 million in revenue from work performed under SBIR grants assumed as part of our acquisition of CRi.

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Costs of Revenue

Cost of Product Revenue.    Cost of product revenue increased $2.4 million during the third quarter of 2011, compared to the same period in 2010, primarily as a result of the volume increase in product sales. The net increase of cost of product revenue included an increase in manufacturing labor and overhead spending to support increased production demands including additional personnel costs resulting from our acquisition of CRI in 2010 of approximately $0.8 million, or 3.0% of product revenue, net of an improvement in direct material costs of approximately $0.2 million, or 0.8% of product revenue, driven by favorable mix changes and material cost savings.

Cost of product revenue increased $8.5 million during the nine months ended September 30, 2011, compared to the same period in 2010, primarily as a result of the volume increase in product sales. In addition to volume increases, cost of product revenue was affected by (i) a $0.7 million fair value step-up adjustment related to acquired CRi inventory; (ii) a 0.6%, or approximately $0.5 million, increase in the cost of materials as a percent of revenues influenced by the mix of product sales including product sales from instruments that we in-source from our North American distribution arrangement with 3D Histech for automated whole slide tissue imagers and our International distribution agreement with Seegene for our LabChip DX instrument; and (iii) a $2.1 million increase in manufacturing spending primarily related to the CRi acquisition, including the temporary ongoing operation of CRi’s Woburn, Massachusetts facility in the first half of 2011, which was shut down on June 30, 2011 and transitioned to our Hopkinton, Massachusetts facility.

Cost of Service Revenue.    Cost of service revenue increased $0.8 million during the third quarter of 2011, compared to the same period in 2010, primarily due to a $0.5 million increase in instrument service personnel resources to support the increase in revenues, $0.1 million of new service costs related to our acquisition of CRi and an increase in CDAS costs of approximately $0.2 million to support the increase in CDAS revenue.

Cost of service revenue increased $1.9 million during the nine months ended September 30, 2011, compared to the same period in 2010, primarily due to an increase in contract manufacturing costs of $0.4 million, an increase in CDAS variable material supply costs of approximately $0.6 million, $0.3 million of new service costs related to our acquisition of CRi and a $0.6 million increase in all other service costs to support increased revenue.

Cost of License Revenue.    Cost of license revenue increased during the three and nine months ended September 30, 2011 compared to the comparable periods in 2010 due primarily to an increase in third party royalties owed on Imaging license revenues and the overall increase in license revenue discussed above.  In addition, during the nine months ended September 30, 2011, there was a scheduled microfluidic license payment due us under an existing license arrangement that carried a higher cost of license due to the inclusion of certain sublicensed rights.

Gross Margins.    Product gross margins increased to 51% in the third quarter of 2011, versus 49% in the same period in 2010. The increase included a reduction in cost of product revenue associated with the mix of products sold during the third quarter as well as volume leverage from the increase in product revenues. Gross margin on service revenue was 46% for the third quarter of 2011, compared to 50% for the same period of 2010. This decrease resulted from an increased investment in instrument service infrastructure to support the increasing installed base as well as a mix change in CDAS revenues where we had more lower margin government revenues versus commercial revenues that typically have higher margin.

Product gross margins decreased to 49% in the nine months ended September 30, 2011, versus 50% in the same period in 2010. The decrease included 1 percentage point from the fair value step-up in CRi historic inventory.  Excluding such impact, product gross margins were relatively flat as a result of increased volume offset by unfavorable product mix during the first half of 2011 which included increased sales of products produced for us by others on an OEM basis, such as whole slide tissue imaging instruments produced by 3D Histech, and an increase in sales of our LabChip DX through our distribution channel with Seegene.  Gross margin on service revenue was 46% for the nine months ended September 30, 2011, as compared to 43% for the same period of 2010. This increased service margin resulted primarily from the improved service contribution margins from CDAS revenues as a result of fixed cost leverage over increased service revenues.

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Expenses