You should read the following discussion in conjunction with "Selected Financial Data" and our Consolidated Financial Statements and related notes included in this Annual Report.

Overview

We are a diversified growth company that designs, manufactures and distributes energy systems and controls, medical and scientific imaging products and software, industrial technology products and RF products, services and application software. We market these products and services to a broad range of markets including RF applications, medical, water, energy, research, education, software-as-a-service ("SaaS")-based information networks, security and other niche markets.

We pursue consistent and sustainable growth in earnings and cash flow by emphasizing continuous improvement in the operating performance of our existing businesses and by acquiring other carefully selected businesses. Our acquisitions have represented both bolt-ons and new strategic platforms.

On August 22, 2012, we acquired 100% of the shares of Sunquest Information Systems, Inc. ("Sunquest"), a leading provider of diagnostic and laboratory software solutions to healthcare providers, in a $1.416 billion all-cash transaction. We acquired Sunquest in order to complement and expand our medical platform.

Application of Critical Accounting Policies

Our Consolidated Financial Statements are prepared in conformity with generally accepted accounting principles in the United States ("GAAP"). A discussion of our significant accounting policies can also be found in the notes to our Consolidated Financial Statements for the year ended December 31, 2012 included in this Annual Report.

GAAP offers acceptable alternative methods for accounting for certain issues affecting our financial results, such as determining inventory cost, depreciating long-lived assets and recognizing revenue. We have not changed the application of acceptable accounting methods or the significant estimates affecting the application of these principles in the last three years in a manner that had a material effect on our financial statements.

The preparation of financial statements in accordance with GAAP requires the use of estimates, assumptions, judgments and interpretations that can affect the reported amounts of assets, liabilities, revenues and expenses, the disclosure of contingent assets and liabilities and other supplemental disclosures.

The development of accounting estimates is the responsibility of our management. Our management discusses those areas that require significant judgments with the audit committee of our Board of Directors. The audit committee has reviewed all financial disclosures in our annual filings with the SEC. Although we believe the positions we have taken with regard to uncertainties are reasonable, others might reach different conclusions and our positions can change over time as more information becomes available. If an accounting estimate changes, its effects are accounted for prospectively or through a cumulative catch up adjustment.

Our most significant accounting uncertainties are encountered in the areas of accounts receivable collectibility, inventory valuation, future warranty obligations, revenue recognition (percentage-of-completion), income taxes and goodwill and indefinite-lived asset analyses. These issues, except for income taxes, which are not allocated to our business segments, affect each of our business segments. These issues are evaluated using a combination of historical experience, current conditions and relatively short-term forecasting.

Accounts receivable collectibility is based on the economic circumstances of customers and credits given to customers after shipment of products, including in certain cases credits for returned products. Accounts receivable are regularly reviewed to determine customers who have not paid within agreed upon terms, whether these amounts are consistent with past experiences, what historical experience has been with amounts deemed uncollectible and the impact that economic conditions might have on collection efforts in general and with specific customers. The returns and other sales credit allowance is an estimate of customer returns, exchanges, discounts or other forms of anticipated concessions and is treated as a reduction in revenue. The returns and other sales credits histories are analyzed to determine likely future rates for such credits. At December 31, 2012, our allowance for doubtful accounts receivable was $12.5 million and our allowance for sales returns and sales credits was $3.5 million, for a total of $16.0 million, or 3.0% of total gross accounts receivable. This percentage is influenced by the risk profile of the underlying receivables, and the timing of write-offs of accounts deemed uncollectible. The total allowance at December 31, 2012 was $5.4 million higher than at December 31, 2011. The allowance will continue to fluctuate as a percentage of sales based on specific identification of allowances needed due to changes in our business, the write-off of uncollectible receivables, and the addition of reserve balances at acquired businesses.

We regularly compare inventory quantities on hand against anticipated future usage, which we determine as a function of historical usage or forecasts related to specific items in order to evaluate obsolescence and excessive quantities. When we use historical usage, this information is also qualitatively compared to business trends to evaluate the reasonableness of using historical information as an estimate of future usage. At December 31, 2012, inventory reserves for excess and obsolete inventory were $42.0 million, or 18.0% of gross inventory cost, as compared to $35.2 million, or 14.7% of gross inventory cost, at December 31, 2011. The inventory reserve as a percent of gross inventory cost will continue to fluctuate based upon specific identification of reserves needed based upon changes in our business as well as the physical disposal of obsolete inventory.

Most of our sales are covered by warranty provisions that generally provide for the repair or replacement of qualifying defective items for a specified period after the time of sale, typically 12 months. Future warranty obligations are evaluated using, among other factors, historical cost experience, product evolution and customer feedback. Our expense for warranty obligations was less than 1% of net sales for each of the years ended December 31, 2012, 2011, and 2010.

Revenues related to the use of the percentage-of-completion method of accounting are dependent on total costs incurred compared with total estimated costs for a project. During the year ended December 31, 2012, we recognized revenue of $145.5 million using this method, primarily for major turn-key, longer term toll and traffic and energy projects. We recognized $151.5 million and $131.0 million of revenue using this method during the years ended December 31, 2011 and December 31, 2010, respectively. At December 31, 2012, $190.4 million of revenue related to unfinished percentage-of-completion contracts had yet to be recognized. Contracts accounted for under this method are generally not significantly different in profitability from revenues accounted for under other methods.

Income taxes can be affected by estimates of whether and within which jurisdictions future earnings will occur and if, how and when cash is repatriated to the U.S., combined with other aspects of an overall income tax strategy. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner. During 2012, our effective income tax rate was 29.6%, which was slightly higher than the 2011 rate of 29.4% due primarily to a decrease in research and development ("R&D") deductions.

On January 2, 2013, subsequent to the fourth quarter of 2012, the American Taxpayer Relief Act of 2012 (ATRA) was enacted which retroactively reinstated and extended certain tax provisions, including the Federal Research and Development Tax Credit from January 1, 2012 to December 31, 2013. As a result, the Company expects its income tax provision for the first quarter of 2013 will include a discrete tax benefit, which is estimated to be approximately $3 million. The ATRA also reinstated and extended the exclusion from U.S. federal taxable income of certain interest, dividends, rents and royalty income of foreign affiliates, as well as the tax benefits of the credits associated with that income. This provision is retroactively reinstated to January 1, 2012 and, as a result, the Company expects its income tax provision for the first quarter of 2013 will include a discrete tax benefit which is estimated to be approximately $3 million.

We account for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Goodwill, which is not amortized, is tested for impairment on an annual basis (or an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value) using a two-step process. The first step of the process utilizes both an income approach (discounted cash flows) and a market approach consisting of a comparable public company earnings multiples methodology to estimate the fair value of a reporting unit. To determine the reasonableness of the estimated fair values, we review the assumptions to ensure that neither the income approach nor the market approach provides significantly different valuations. If the estimated fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the estimated fair value, the goodwill of the reporting unit is potentially impaired and then the second step would be completed in order to measure the impairment loss by calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting unit. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss would be recognized.

Key assumptions used in the income and market methodologies are updated when the analysis is performed for each reporting unit. Various assumptions are utilized including forecasted operating results, strategic plans, economic projections, anticipated future cash flows, the weighted-average cost of capital, comparable transactions, market data and earnings multiples. The assumptions that have the most significant effect on the fair value calculations are the anticipated future cash flows, discount rates, and the earnings multiples. While we use reasonable and timely information to prepare our cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly resulting in future non-cash impairment charges related to recorded goodwill balances.

Total goodwill includes 27 reporting units with individual amounts ranging from zero to $992 million. We concluded that the fair value of each of our reporting units was substantially in excess of its carrying value, with no impairment indicated as of December 31, 2012. However, negative industry or economic trends, disruptions to our business, actual results significantly below projections, unexpected significant changes or planned changes in the use of the assets, divestitures and market capitalization declines may have a negative effect on the fair value of our reporting units.

Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. Trade names are determined to have an indefinite useful economic life and are not amortized, but separately tested for impairment during the fourth quarter of the fiscal year or on an interim basis if an event occurs that indicates the fair value is more likely than not below the carrying value.
We conduct these reviews for all of our reporting units using the relief-from-royalty method, which we believe to be an acceptable methodology due to its common use by valuations specialists in determining the fair value of intangible assets. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these assets. The fair value of each trade name is determined by applying a royalty rate to a projection of net sales discounted using a risk adjusted rate of capital. Each royalty rate is determined based on the profitability of the reporting unit to which it relates and observed market royalty rates. Sales growth rates are determined after considering current and future economic conditions, recent sales trends, discussions with customers, planned timing of new product launches or other variables. Reporting units resulting from recent acquisitions generally represent the highest risk of impairment, which typically decreases as the businesses are integrated into our enterprise and positioned for improved future sales growth.

The assessment of fair value for impairment purposes requires significant judgments to be made by management. Although our forecasts are based on assumptions that are considered reasonable by management and consistent with the plans and estimates management is using to operate the underlying businesses, there is significant judgment in determining the expected results attributable to the reporting units. Changes in estimates or the application of alternative assumptions could produce significantly different results. No impairment resulted from the annual reviews performed in 2012; however, the fair value of the trade names of one of our reporting units in the RF Technology segment could have fallen below the carrying value at December 31, 2012, had the assumed sales growth been less than that used in the assessment. The reporting unit is a relatively recent acquisition, therefore we do not believe that impairment is probable; however, it is possible that the trade name could become impaired in the future, at which point we would be required to record a non-cash impairment charge to reduce the carrying level of the trade names at the reporting unit.

We evaluate whether there has been an impairment of identifiable intangible assets with definite useful economic lives, or of the remaining life of such assets, when certain indicators of impairment are present. In the event that facts and circumstances indicate that the cost or remaining period of amortization of any asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to fair value or a revision in the remaining amortization period is required.

Results of Operations

The following table sets forth selected information for the years indicated.
Dollar amounts are in thousands and percentages are of net sales. Amounts may not foot due to rounding.

                                                               Years ended December 31,
                                                        2012             2011             2010
Net sales
Industrial Technology                                $   795,240      $   737,356      $   607,564
Energy Systems and Controls(1)                           646,116          597,802          503,897
Medical and Scientific Imaging(2)                        703,835          610,617          548,718
RF Technology(3)                                         848,298          851,314          725,933
Total                                                $ 2,993,489      $ 2,797,089      $ 2,386,112

Gross profit:
Industrial Technology                                       51.6 %           49.8 %           51.0 %
Energy Systems and Controls                                 56.3             55.5             53.7
Medical and Scientific Imaging                              64.4             63.3             61.3
RF Technology                                               52.4             50.6             49.4
Total                                                       55.8             54.2             53.4

Operating profit:
Industrial Technology                                       30.8 %           28.2 %           26.7 %
Energy Systems and Controls                                 27.8             26.4             23.9
Medical and Scientific Imaging                              26.6             24.3             23.8
RF Technology                                               26.3             23.8             20.8
Total                                                       27.9             25.6             23.6

Corporate administrative expenses                           (2.6 )%          (2.0 )%          (2.1 )%
Income from continuing operations                           25.3             23.6             21.6
Interest expense, net                                       (2.3 )           (2.3 )           (2.8 )
Other income/(expense)                                      (0.1 )            0.3                -
Income from continuing operations before taxes              22.9             21.6             18.8
Income taxes                                                (6.8 )           (6.4 )           (5.3 )

Net earnings                                                16.1 %           15.3 %           13.5 %

(1) Includes results from the acquisition of United Controls Group, Inc. from September 26, 2011.

(2) Includes results from the acquisitions of Heartscape from February 22, 2010, NDI Holding Corp. from June 3, 2011 and Sunquest from August 22, 2012.

(3) Includes results from the acquisition of iTradeNetwork, Inc. from July 27, 2010.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Net sales for the year ended December 31, 2012 were $2.99 billion as compared to sales of $2.80 billion for the year ended December 31, 2011, an increase of 7%. The increase was the result of organic sales growth of 4%, contributions from acquisitions of 4% and an unfavorable effect from foreign exchange of 1%.

Our Medical and Scientific Imaging segment reported a $93.2 million or 15% increase in net sales for the year ended December 31, 2012 over the year ended December 31, 2011. Acquisitions added $94.3 million in sales, while organic sales increased 1% due to increased sales in our medical and electron microscopy businesses, offset by declines in sales of scientific imaging products. The impact from foreign exchange was a negative 1%. Gross margins increased to 64.4% in the year ended December 31, 2012 from 63.3% in the year ended December 31, 2011, due primarily to additional sales from medical products which have a higher gross margin. Selling, general and administrative expenses ("SG&A") as a percentage of net sales decreased to 37.8% in the year ended December 31, 2012 as compared to 39.0% in the year ended December 31, 2011 due to investments in new products in the medical businesses in 2011 that did not recur in 2012. Operating margins were 26.6% in the year ended December 31, 2012 as compared to 24.3% in the year ended December 31, 2011.

In our Energy Systems and Controls segment, net sales for the year ended December 31, 2012 increased by $48.3 million or 8% over the year ended December 31, 2011. Organic sales increased 7% while acquisitions added $18.8 million, or 3%. The increase in organic sales was primarily due to increased demand in industrial process and nuclear plant inspection end markets. The impact from foreign exchange was a negative 2%. Gross margins were 56.3% in the year ended December 31, 2012, compared to 55.5% in the year ended December 31, 2011, due to operating leverage from higher sales volume. SG&A expenses as a percentage of net sales were 28.4% as compared to 29.1% in the prior year due to operating leverage from higher sales volume. Operating margins were 27.8% in the year ended December 31, 2012 as compared to 26.4% in the year ended December 31, 2011.

Net sales for our Industrial Technology segment increased by $57.9 million or 8% for the year ended December 31, 2012 over the year ended December 31, 2011. The increase was due to broad-based growth in nearly all businesses in the segment, with particular strength in our materials testing business and fluid handling businesses, offset in part by a negative 2% impact from foreign exchange. Gross margins were 51.6% for the year ended December 31, 2012 as compared to 49.8% in the year ended December 31, 2011 due to operating leverage on higher sales volume as well as a $5.5 million one-time reduction to cost of goods sold at one of our businesses. This reduction is due to the cumulative effect of an accounting system error which caused the cost of goods sold to be overstated for several years by quarterly and annually immaterial amounts. SG&A expenses as a percentage of net sales were 20.8%, as compared to 21.5% in the prior year, due primarily to operating leverage on higher sales volume. The resulting operating profit margins were 30.8% in the year ended December 31, 2012 as compared to 28.2% in the year ended December 31, 2011.

In our RF Technology segment, net sales for the year ended December 31, 2012 decreased by $3.0 million over the year ended December 31, 2011. Organic sales were flat as growth in toll and traffic systems was offset by a large installation project in gas network monitoring during 2011 that has since been completed. Gross margins were 52.4% in 2012 as compared to 50.6% in the prior year due to product mix. SG&A as a percentage of sales in the year ended December 31, 2012 was 26.1%, a decrease from 26.8% in the prior year due to lower spending, particularly in selling expense related to toll projects.
Operating profit margins were 26.3% in 2012 as compared to 23.8% in 2011.

Corporate expenses increased by $20.6 million to $77.5 million, or 2.6% of sales, in 2012 as compared to $56.9 million, or 2.0% of sales, in 2011. The increase was due to $6.5 million of acquisition expense related to the Sunquest acquisition, higher equity compensation (as a result of higher stock prices) and other compensation related costs.

Interest expense increased $3.9 million, or 6.1%, for the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase is due primarily to higher average debt balances offset in part by lower average interest rates throughout 2012.

Other expense for the year ended December 31, 2012 was $2.3 million, primarily due to foreign exchange losses at our non-U.S. based companies. Other income for the year ended December 31, 2011 was $8.1 million, which was primarily due to a currency remeasurement gain on an intercompany note.

During 2012, our effective income tax rate was 29.6% versus 29.4% in 2011. This increase was due to a decrease in R&D deductions.

At December 31, 2012, the functional currencies of our Canadian and most of our European subsidiaries were stronger against the U.S. dollar compared to currency exchange rates at December 31, 2011. The net result of these changes led to a pre-tax increase in the foreign exchange component of comprehensive earnings of $24.5 million in the year ended December 31, 2012. Approximately $12.7 million of this amount related to goodwill and is not expected to directly affect our projected future cash flows. For the entire year of 2012, operating profit decreased by 1.3% due to fluctuations in non-U.S. currencies.

The following table summarizes our net order information for the years ended December 31, 2012 and 2011 (dollar amounts in thousands).

                                             2012            2011         change
         Industrial Technology            $   783,362     $   767,020         2.1 %
         Energy Systems and Controls          634,051         608,538         4.2
         Medical and Scientific Imaging       703,034         612,787        14.7
         RF Technology                        871,225         834,903         4.4
         Total                            $ 2,991,672     $ 2,823,248         6.0 %

The increase in orders was due to internal growth of 2%, as well as orders from acquisitions which added $124 million. Our Industrial Technology, Energy Systems and Controls and RF Technology segments experienced strong internal growth throughout 2012. Our Medical and Scientific Imaging segment experienced negative internal growth, offset by bookings from recent acquisitions.

                                              2012        2011      change
           Industrial Technology            $ 131,621   $ 141,836      (7.2 )%
           Energy Systems and Controls        109,885     120,497      (8.8 )
           Medical and Scientific Imaging     234,526     118,609      97.7
           RF Technology                      471,185     447,355       5.3
           Total                            $ 947,217   $ 828,297      14.4 %

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Net sales for the year ended December 31, 2011 were $2.80 billion as compared to sales of $2.39 billion for the year ended December 31, 2010, an increase of 17%. The increase was the result of organic sales growth of 13%, favorable effect from foreign exchange of 1% and 3% from acquisitions.

Our Medical and Scientific Imaging segment reported a $61.9 million or 11.3% increase in net sales for the year ended December 31, 2011 over the year ended December 31, 2010. Acquisitions added $26.1 million in sales, while organic sales increased 5.1% due to increased sales in our electron microscopy and medical businesses. The impact from foreign exchange was a positive 1.4%. Gross margins increased to 63.3% in the year ended December 31, 2011 from 61.3% in the year ended December 31, 2010, due primarily to additional sales from medical products which have a higher gross margin. SG&A as a percentage of net sales increased to 39.0% in the year ended December 31, 2011 as compared to 37.5% in the year ended December 31, 2010 due to investments in new products, primarily in the medical businesses. Operating margins were 24.3% in the year ended December 31, 2011 as compared to 23.8% in the year ended December 31, 2010.

In our Energy Systems and Controls segment, net sales for the year ended December 31, 2011 increased by $93.9 million or 19% over the year ended December 31, 2010. Organic sales increased 16% while acquisitions added $4 million, or 1%. The increase in organic sales was primarily due to increased demand in industrial process end markets and growth in our diesel engine safety systems. The impact from foreign exchange was a positive 2%. Gross margins were 55.5% in the year ended December 31, 2011, compared to 53.7% in the year ended December 31, 2010, due to operating leverage from higher sales volume. SG&A expenses as a percentage of net sales were 29.1% as compared to 29.8% in the prior year due to operating leverage from higher sales volume. Operating margins were 26.4% in the year ended December 31, 2011as compared to 23.9% in the year ended December 31, 2010.

Net sales for our Industrial Technology segment increased by $129.8 million or 21% for the year ended December 31, 2011 over the year ended December 31, 2010. The increase was due to broad-based growth in all businesses in the segment, with particular strength in our materials testing and fluid handling businesses, as well as a positive 2% impact from foreign exchange. Gross margins decreased slightly to 49.8% in the year ended December 31, 2011 as compared to 51.0% in the year ended December 31, 2010 due to product mix. SG&A expenses as a . . .