NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), in accordance with accounting principles generally accepted in the United States of America (the “U.S.” or the "United States") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information in the footnote disclosures of the financial statements has been condensed or omitted where it substantially duplicates information provided in the Company’s latest audited consolidated financial statements, in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 29, 2019, filed with the SEC (the “2019 Form 10-K”). The balance sheet amounts at December 29, 2019 in this report were derived from the Company’s audited 2019 consolidated financial statements included in the 2019 Form 10-K. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three and nine months ended October 4, 2020 and September 29, 2019, respectively, are not necessarily indicative of the results for the entire fiscal year or any future period.
The Company’s fiscal year ends on the Sunday nearest December 31. The Company reports fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. The fiscal year ending January 3, 2021 ("fiscal year 2020") will include 53 weeks, and the fiscal year ended December 29, 2019 ("fiscal year 2019") included 52 weeks.
Recently Adopted and Issued Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB") and are adopted by the Company as of the specified effective dates. Unless otherwise discussed, such pronouncements did not have or will not have a significant impact on the Company’s consolidated financial position, results of operations and cash flows or do not apply to the Company’s operations.
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the FASB's Accounting Standards Codification ("ASC") are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: (1) modifications of contracts within the scope of Topic 310, Receivables, and Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; and (2) modifications of contracts within the scope of Topic 840, Leases, and Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments. For other Topics or Industry Subtopics in the ASC, the amendments also include a general principle that permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions within the relevant Topic or Industry Subtopic. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the provisions of this guidance and has not yet determined the impact of its adoption on the Company's consolidated financial position, results of operations and cash flows.
In March 2020, the FASB issued Accounting Standards Update No. 2020-03, Codification Improvements to Financial Instruments ("ASU 2020-03"). This guidance clarifies various ASC Topics related to financial instruments, including the following, among others: (1) Fair Value Option Disclosures: all entities are required to provide the fair value option disclosures in paragraphs 825-10-50-24 through 50-32 of the ASC; (2) Cross-Reference to Line-of-Credit or Revolving-Debt Arrangements Guidance in Subtopic 470-50, Modifications and Extinguishments: the amendments improve the understandability of the guidance; (3) Interaction of Topic 842 and Topic 326:the contractual term of a net investment in a lease determined in
accordance with Topic 842, Leases should be the contractual term used to measure expected credit losses under Topic 326, Financial Instruments - Credit Losses; and (4) Interaction of Topic 326 and Subtopic 860-20: the amendments to Subtopic 860- 20 clarify that when an entity regains control of financial assets sold, an allowance for credit losses should be recorded in accordance with Topic 326. For Fair Value Option Disclosures and Cross-Reference to Line-of-Credit or Revolving-Debt Arrangements Guidance, the provisions are effective upon issuance of this guidance. For Interaction of Topic 842 and Topic 326 and Interaction of Topic 326 and 860-20, the effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in ASU 2016-13, as described below. In accordance with ASU 2020-03, the Company adopted the guidance as of April 5, 2020. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 ("ASU 2020-01"). This guidance addresses the accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The amendments clarify that: (a) an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method; and (b) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. The provisions of this guidance are to be applied prospectively upon their effective date. ASU 2020-01 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those years. Early adoption is permitted but requires simultaneous adoption of all provisions of this guidance. The Company is currently evaluating the requirements of this guidance and has not yet determined the impact of its adoption on the Company's consolidated financial position, results of operations and cash flows.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 eliminates certain exceptions and adds guidance to reduce complexity in accounting for income taxes. Specifically, this guidance: (1) removes the intraperiod tax allocation exception to the incremental approach; (2) removes the ownership changes in investments exception in determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting and applies this provision on a modified retrospective basis through a cumulative-effect adjustment to retained earnings at the beginning of the period of adoption; and (3) removes the exception to using the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also simplifies accounting principles by making other changes, including requiring an entity to: (1) evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction; (2) make a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and to apply this provision retrospectively to all periods presented; and (3) recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and apply this provision either retrospectively for all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The provisions of this guidance (except as specifically mentioned above) are to be applied prospectively upon their effective date. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those years. Early adoption is permitted but requires simultaneous adoption of all provisions of this guidance. The Company is currently evaluating the requirements of this guidance and has not yet determined the impact of its adoption on the Company's consolidated financial position, results of operations and cash flows.
In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ("ASU 2019-04"). ASU 2019-04 clarifies certain aspects of previously issued accounting standards related to: (1) ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements ("ASU 2016-13"), in areas of accrued interest receivable, transfers of loans and debt securities between classifications, recoveries and prepayments, (2) ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"), in areas of partial-term fair value hedges, fair value hedge basis adjustments, certain disclosures and transition requirements and (3) ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), in areas of remeasurement of equity securities under ASC 820, Fair Value Measurement, when using the measurement alternative and remeasurement of equity securities at historical exchange rates. The amendments related to ASU 2016-13 are required to be adopted in conjunction with that accounting standards update, as further described below. Since the Company has already adopted ASU 2017-12 and ASU 2016-01, the related amendments in ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years, with early adoption permitted in any interim period. The amendments to ASU 2017-12 can either be adopted retrospectively as of the date of adoption of ASU 2017-12 or they can be adopted prospectively. The amendments to ASU 2016-01 are required to be applied using a modified-retrospective adoption approach with a cumulative-effect adjustment to retained earnings as of the date of adoption of ASU 2016-01, except for those related to equity securities without readily determinable fair values that are measured using the measurement alternative, which are required to be applied prospectively. The standard was effective for the Company beginning on December 30, 2019, the first day of the Company's fiscal year 2020. The Company applied the provisions of this guidance prospectively. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract ("ASU 2018-15"). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software (and hosting arrangements that include an internal-use software license). The provisions of this guidance are to be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The standard was effective for the Company beginning on December 30, 2019, the first day of the Company's fiscal year 2020. The Company applied the provisions of this guidance prospectively. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14"). ASU 2018-14 adds, removes, and clarifies disclosure requirements related to defined benefit pension and other postretirement plans. ASU 2018-14 adds requirements for an entity to disclose the weighted-average interest crediting rates used in the entity’s cash balance pension plans and other similar plans; and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. Further, ASU 2018-14 removes guidance that currently requires the following disclosures: the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year; the amount and timing of plan assets expected to be returned to the employer; information about (1) benefits covered by related-party insurance and annuity contracts and (2) significant transactions between the plan and related parties; and the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost, and the benefit obligation for postretirement health care benefits. ASU 2018-14 also clarifies the guidance in Compensation-Retirement Benefits (Topic 715-20-50-3) on defined benefit plans to require disclosure of (1) the projected benefit obligation ("PBO") and fair value of plan assets for pension plans with PBOs in excess of plan assets (the same disclosure with reference to the accumulated postretirement benefit obligation rather than the PBO is required for other postretirement benefit plans) and (2) the accumulated benefit obligation ("ABO") and fair value of plan assets for pension plans with ABOs in excess of plan assets. The provisions of this guidance are to be applied retrospectively to all periods presented upon their effective date. ASU 2018-14 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those years with early adoption permitted. The Company is currently evaluating the requirements of this guidance and has not yet determined the impact of its adoption on the Company's consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 adds, removes, and modifies certain disclosures related to fair value measurements. ASU 2018-13 adds requirements for an entity to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, ASU 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also modifies existing disclosure requirements related to measurement uncertainty. The amendments regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are to be applied retrospectively to all periods presented upon their effective date. The standard was effective for the Company beginning on December 30, 2019, the first day of the Company's fiscal year 2020. The adoption did not have a material impact on the Company's disclosures related to fair value measurements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net
income. The standard requires entities to use the expected loss impairment model and will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. Entities are required to estimate the lifetime “expected credit loss” for each applicable financial asset and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The standard also amends the impairment model for available-for-sale (“AFS”) debt securities and requires entities to determine whether all or a portion of the unrealized loss on an AFS debt security is a credit loss. An entity will recognize an allowance for credit losses on an AFS debt security as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment. The provisions of this guidance are to be applied using a modified-retrospective approach. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Subsequent to the issuance of ASU 2016-13, in November 2018, the FASB issued Accounting Standards Update No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses ("ASU 2018-19"), in April 2019, the FASB issued ASU 2019-04, and in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments - Credit Losses (Topic 326), Targeted Transition Relief ("ASU 2019-05"). The amendments in ASU 2018-19 clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The amendments in ASU 2019-04 clarify the measurement of allowance for credit losses on accrued interest receivable; the inclusion of expected recoveries in the allowance for credit losses; the permission of a prepayment-adjusted effective interest rate when determining the allowance for credit losses; and the steps entities should take when recording the transfer of loans or debt securities between measurement classifications. The amendments in ASU 2019-05 provide an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments-Overall, on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost basis upon adoption of ASU 2016-13, but this fair value option election does not apply to held-to-maturity debt securities. The effective date and transition requirements for the amendments in ASU 2018-19, ASU 2019-04 and ASU 2019-05 are the same as the effective date and transition requirements of ASU 2016-13, which is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those years. The standards were effective for the Company beginning on December 30, 2019, the first day of the Company's fiscal year 2020. The Company adopted these standards using the modified-retrospective approach. The adoption of the standards resulted in a decrease in retained earnings at December 30, 2019 of approximately $1.3 million from the cumulative effect of initially applying the standards as of that date. In addition, the adoption of the standard resulted in an increase in reserve for doubtful accounts of $1.7 million and an increase in deferred tax assets of $0.4 million from the tax impact of the cumulative adjustments. The adoption did not have an impact on cash from or used in operating, investing or financing activities in the Company's consolidated statement of cash flows at December 30, 2019.
Note 2: Revenue
Disaggregation of revenue
In the following tables, revenue is disaggregated by primary geographical markets, primary end-markets and timing of revenue recognition. The tables also include a reconciliation of the disaggregated revenue with the reportable segments' revenue.
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|
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|
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|
|
|
|
|
|
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Reportable Segments
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|
|
Three Months Ended
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|
|
October 4, 2020
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|
September 29, 2019
|
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Total
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Total
|
|
|
(In thousands)
|
|
Primary geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
173,992
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|
|
$
|
213,347
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|
|
$
|
387,339
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|
|
$
|
178,493
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|
|
$
|
96,759
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|
|
$
|
275,252
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|
|
Europe
|
115,281
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|
|
198,205
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|
|
313,486
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|
|
119,801
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|
|
70,225
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|
|
190,026
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|
|
Asia
|
134,350
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|
|
128,850
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|
|
263,200
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|
|
128,610
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|
|
113,035
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|
|
241,645
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|
|
|
$
|
423,623
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|
|
$
|
540,402
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|
|
$
|
964,025
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|
|
$
|
426,904
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|
|
$
|
280,019
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|
|
$
|
706,923
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary end-markets
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostics
|
$
|
—
|
|
|
$
|
540,402
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|
|
$
|
540,402
|
|
|
$
|
—
|
|
|
$
|
280,019
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|
|
$
|
280,019
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|
|
Life sciences
|
251,929
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|
|
—
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|
|
251,929
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|
|
243,167
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|
|
—
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|
|
243,167
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|
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Applied markets
|
171,694
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|
|
—
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|
|
171,694
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|
|
183,737
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|
|
—
|
|
|
183,737
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|
|
|
$
|
423,623
|
|
|
$
|
540,402
|
|
|
$
|
964,025
|
|
|
$
|
426,904
|
|
|
$
|
280,019
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|
|
$
|
706,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
$
|
293,460
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|
|
$
|
518,867
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|
|
$
|
812,327
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|
|
$
|
311,123
|
|
|
$
|
259,161
|
|
|
$
|
570,284
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|
|
Services transferred over time
|
130,163
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|
|
21,535
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|
|
151,698
|
|
|
115,781
|
|
|
20,858
|
|
|
136,639
|
|
|
|
$
|
423,623
|
|
|
$
|
540,402
|
|
|
$
|
964,025
|
|
|
$
|
426,904
|
|
|
$
|
280,019
|
|
|
$
|
706,923
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
Nine Months Ended
|
|
|
October 4, 2020
|
|
September 29, 2019
|
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Total
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Total
|
|
|
(In thousands)
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|
Primary geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
503,490
|
|
|
$
|
475,113
|
|
|
$
|
978,603
|
|
|
$
|
518,884
|
|
|
$
|
300,403
|
|
|
$
|
819,287
|
|
|
Europe
|
337,435
|
|
|
429,671
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|
|
767,106
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|
|
351,216
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|
|
208,729
|
|
|
559,945
|
|
|
Asia
|
372,095
|
|
|
310,335
|
|
|
682,430
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|
|
379,604
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|
|
319,341
|
|
|
698,945
|
|
|
|
$
|
1,213,020
|
|
|
$
|
1,215,119
|
|
|
$
|
2,428,139
|
|
|
$
|
1,249,704
|
|
|
$
|
828,473
|
|
|
$
|
2,078,177
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary end-markets
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostics
|
$
|
—
|
|
|
$
|
1,215,119
|
|
|
$
|
1,215,119
|
|
|
$
|
—
|
|
|
$
|
828,473
|
|
|
$
|
828,473
|
|
|
Life sciences
|
734,782
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|
|
—
|
|
|
734,782
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|
|
702,406
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|
|
—
|
|
|
702,406
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|
|
Applied markets
|
478,238
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|
|
—
|
|
|
478,238
|
|
|
547,298
|
|
|
—
|
|
|
547,298
|
|
|
|
$
|
1,213,020
|
|
|
$
|
1,215,119
|
|
|
$
|
2,428,139
|
|
|
$
|
1,249,704
|
|
|
$
|
828,473
|
|
|
$
|
2,078,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
$
|
827,270
|
|
|
$
|
1,149,166
|
|
|
$
|
1,976,436
|
|
|
$
|
903,274
|
|
|
$
|
765,858
|
|
|
$
|
1,669,132
|
|
|
Services transferred over time
|
385,750
|
|
|
65,953
|
|
|
451,703
|
|
|
346,430
|
|
|
62,615
|
|
|
409,045
|
|
|
|
$
|
1,213,020
|
|
|
$
|
1,215,119
|
|
|
$
|
2,428,139
|
|
|
$
|
1,249,704
|
|
|
$
|
828,473
|
|
|
$
|
2,078,177
|
|
Contract Balances
Contract assets: The unbilled receivables (contract assets) primarily relate to the Company's right to consideration for work completed but not billed at the reporting date. The unbilled receivables are transferred to trade receivables when billed to customers. Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the consolidated balance sheets. The balance of contract assets as of October 4, 2020 and December 29, 2019 were $35.6 million and $37.0 million, respectively. The amount of unbilled receivables recognized at the beginning of the period that were transferred to trade receivables during the nine months ended October 4, 2020 was $29.5 million. The increase in unbilled receivables during the nine months ended October 4, 2020 as a result of recognition of revenue before billing to customers, excluding amounts transferred to trade receivables during the period, amounted to $28.1 million.
Contract liabilities: The contract liabilities primarily relate to the advance consideration received from customers for products and related installation for which transfer of control has not occurred at the balance sheet date. Contract liabilities are classified as either current in "Accounts payable" or long-term in "Long-term liabilities" in the consolidated balance sheets based on the timing of when the Company expects to recognize revenue. The balance of contract liabilities as of October 4, 2020 and December 29, 2019 were $35.0 million and $29.9 million, respectively. The increase in contract liabilities during the nine months ended October 4, 2020 due to cash received, excluding amounts recognized as revenue during the period, was $29.7 million. The amount of revenue recognized during the nine months ended October 4, 2020 that was included in the contract liability balance at the beginning of the period was $24.7 million.
Contract costs: The Company recognizes the incremental costs of obtaining a contract with a customer as an asset if it expects the benefit of those costs to be longer than one year. The Company determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the period and are included in other current and long-term assets on the consolidated balance sheets. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include the Company's internal sales force compensation program, as the Company determined that annual compensation is commensurate with annual sales activities.
Transaction price allocated to the remaining performance obligations
The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. The estimated revenue expected to be recognized beyond one year in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the period are not material to the Company. The remaining performance obligations primarily include noncancelable purchase orders and noncancelable software subscriptions and cloud service contracts.
Note 3: Business Combinations
Acquisitions in fiscal year 2020
During the second quarter of fiscal year 2020, the Company completed the acquisition of two businesses for aggregate consideration of $4.3 million in cash. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics segment from the acquisition dates. Identifiable definite-lived intangible assets, such as customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 5.0 years.
Subsequent to the third quarter of fiscal year 2020, the Company reached an agreement with Horizon Discovery Group plc (“Horizon”) on the terms of a recommended all cash offer whereby an indirect wholly owned subsidiary of the Company will acquire Horizon for approximately $383.0 million (£296.0 million). The transaction is subject to customary closing conditions and is currently anticipated to close either late in the fourth quarter of fiscal year 2020 or in the first quarter of fiscal year 2021. Horizon is based in Cambridge, UK, has approximately 400 employees, and is widely recognized as a leading provider of CRISPR and RNAi reagents, cell models, cell engineering and base editing offerings which help scientists better understand gene function, genetic disease drivers and biotherapeutics delivery.
Acquisitions in fiscal year 2019
During the fiscal year 2019, the Company completed the acquisition of five businesses for aggregate consideration of $433.1 million in cash. The acquired businesses include Cisbio Bioassays SAS (“Cisbio”), a company based in Codolet, France, which was acquired for a total consideration of $219.9 million in cash, Shandong Meizheng Bio-Tech Co., Ltd. ("Meizheng Group"), a company headquartered in Beijing, China, for a total consideration of $166.5 million in cash, and three other businesses which were acquired for a total consideration of $46.6 million in cash. The Company has a potential obligation to pay the former shareholders of certain of these acquired businesses additional contingent consideration of up to $31.8 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments, as applicable, from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 11.0 years.
The total purchase price for the acquisitions in fiscal year 2019 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cisbio
|
|
Meizheng Group
|
|
Other
|
|
|
(In thousands)
|
|
Fair value of business combination:
|
|
|
|
|
|
|
Cash payments
|
$
|
219,795
|
|
|
$
|
145,000
|
|
|
$
|
45,042
|
|
|
Other liability
|
—
|
|
|
6,446
|
|
|
638
|
|
|
Contingent consideration
|
—
|
|
|
12,100
|
|
|
634
|
|
|
Working capital and other adjustments
|
138
|
|
|
2,961
|
|
|
302
|
|
|
Less: cash acquired
|
(12,542)
|
|
|
(2,108)
|
|
|
(1,334)
|
|
|
Total
|
$
|
207,391
|
|
|
$
|
164,399
|
|
|
$
|
45,282
|
|
|
Identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
Current assets
|
$
|
43,554
|
|
|
$
|
15,160
|
|
|
$
|
4,042
|
|
|
Property, plant and equipment
|
4,835
|
|
|
6,278
|
|
|
727
|
|
|
Other assets
|
100
|
|
|
24
|
|
|
502
|
|
|
Identifiable intangible assets:
|
|
|
|
|
|
|
Core technology
|
89,000
|
|
|
36,600
|
|
|
27,667
|
|
|
Trade names
|
5,000
|
|
|
4,900
|
|
|
1,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
39,000
|
|
|
55,800
|
|
|
6,700
|
|
|
|
|
|
|
|
|
|
Goodwill
|
73,417
|
|
|
78,599
|
|
|
17,092
|
|
|
Deferred taxes
|
(34,962)
|
|
|
(21,494)
|
|
|
(6,657)
|
|
|
|
|
|
|
|
|
|
Debt assumed
|
—
|
|
|
(706)
|
|
|
(2,698)
|
|
|
Liabilities assumed
|
(12,553)
|
|
|
(10,762)
|
|
|
(3,403)
|
|
|
Total
|
$
|
207,391
|
|
|
$
|
164,399
|
|
|
$
|
45,282
|
|
The preliminary allocations of the purchase prices for acquisitions are based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.
Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds, changes in discount rates or product development milestones during the earnout period.
As of October 4, 2020, the Company may have to pay contingent consideration related to acquisitions with open contingency periods of up to $7.3 million. As of October 4, 2020, the Company has recorded contingent consideration obligations with an estimated fair value of $2.8 million, which was recorded in long-term liabilities. As of December 29, 2019, the Company had recorded contingent consideration obligations with an estimated fair value of $35.5 million, of which $20.8 million was recorded in accrued expenses and other current liabilities, and $14.7 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 2.2 years from October 4, 2020, and the remaining weighted average expected earnout period at October 4, 2020 was 1.2 years. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.
Total acquisition and divestiture-related costs for the three and nine months ended October 4, 2020 were $0.2 million and $7.4 million, respectively. These amounts included $0.2 million and $6.9 million of incentive award associated with the Company's acquisition of Meizheng Group for the three and nine months ended October 4, 2020, respectively. Total acquisition and divestiture-related costs for the three and nine months ended September 29, 2019 were $0.8 million and $5.9 million, respectively. These amounts for the nine months ended September 29, 2019 included $2.6 million of net foreign exchange loss related mainly to the Company's acquisition of Cisbio. These acquisition and divestiture-related costs were expensed as incurred and recorded in selling, general and administrative expenses and interest and other expense, net in the Company's consolidated statements of operations.
Note 4: Restructuring and Other Costs, Net
The Company has undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, the alignment of the Company's operations with its growth strategy, the integration of its business units and its productivity initiatives. The activities associated with these plans have been reported as restructuring and other costs, net, as applicable, and are included as a component of income from continuing operations. The current portion of restructuring and other costs is recorded in short-term accrued restructuring and other costs, accrued expense and other current liabilities, and operating lease right-of-use-assets. The long-term portion of restructuring and other costs is recorded in long-term liabilities and operating lease liabilities.
The Company implemented a restructuring plan in the third quarter of fiscal year 2020 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q3 2020 Plan"). The Company implemented a restructuring plan in the first quarter of fiscal year 2020 consisting of workforce reductions and closure of excess facilities principally intended to realign resources to emphasize growth initiatives (the "Q1 2020 Plan"). The Company implemented a restructuring plan in each quarter of fiscal year 2019 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q1 2019 Plan", "Q2 2019 Plan", "Q3 2019 Plan" and "Q4 2019 Plan", respectively). Details of the plans initiated in previous years (the “Previous Plans”) are discussed more fully in Note 5 to the audited consolidated financial statements in the 2019 Form 10-K.
The following table summarizes the reductions in headcount, the initial restructuring or contract termination charges by reporting segment, and the dates by which payments were substantially completed, or the dates by which payments are expected to be substantially completed, for restructuring actions implemented during fiscal years 2020 and 2019 in continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Reductions
|
|
Closure of Excess Facility
|
|
Total
|
|
(Expected) Date Payments Substantially Completed by
|
|
|
Headcount Reduction
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
|
Severance
|
|
Excess Facility
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except headcount data)
|
|
|
|
|
|
Q3 2020 Plan
|
23
|
|
$
|
2,080
|
|
|
$
|
901
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,981
|
|
|
Q2 FY2021
|
|
—
|
|
Q1 2020 Plan
|
32
|
|
2,312
|
|
|
1,134
|
|
|
92
|
|
|
682
|
|
|
4,220
|
|
|
Q4 FY2020
|
|
Q1 FY2022
|
|
Q4 2019 Plan
|
22
|
|
177
|
|
|
2,404
|
|
|
—
|
|
|
—
|
|
|
2,581
|
|
|
Q3 FY2020
|
|
—
|
|
Q3 2019 Plan
|
259
|
|
11,156
|
|
|
2,641
|
|
|
—
|
|
|
—
|
|
|
13,797
|
|
|
Q2 FY2020
|
|
—
|
|
Q2 2019 Plan
|
44
|
|
4,461
|
|
|
1,129
|
|
|
—
|
|
|
—
|
|
|
5,590
|
|
|
Q1 FY2020
|
|
—
|
|
Q1 2019 Plan
|
105
|
|
6,001
|
|
|
1,459
|
|
|
—
|
|
|
—
|
|
|
7,460
|
|
|
Q4 FY2019
|
|
—
|
The Company does not currently expect to incur any future charges for these plans. The Company expects to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022.
In connection with the termination of various contractual commitments, the Company recorded additional pre-tax charges of $0.2 million and $0.1 million during the nine months ended October 4, 2020 in the Discovery & Analytical Solutions segment and Diagnostics segment, respectively.
The Company recorded pre-tax charges of $0.9 million and $3.1 million associated with relocating facilities during the three and nine months ended October 4, 2020, respectively, in the Discovery & Analytical Solutions segment. The Company recorded pre-tax charges of $0.4 million associated with relocating facilities during the nine months ended October 4, 2020 in the Diagnostics segment. The Company expects to make payments on these relocation activities through fiscal year 2021.
At October 4, 2020, the Company had $15.5 million recorded for accrued restructuring and other costs, of which $10.3 million was recorded in short-term accrued restructuring and other costs, $0.5 million was recorded in operating lease right-of-use assets, $1.3 million was recorded in operating lease liabilities and $3.3 million was recorded in long-term liabilities. At December 29, 2019, the Company had $13.9 million recorded for accrued restructuring and other costs, of which $11.6 million was recorded in short-term accrued restructuring and other costs, $0.4 million was recorded in accrued expenses and other current liabilities, $0.8 million was recorded in long-term liabilities, and $1.1 million was recorded in operating lease liabilities.
The following table summarizes the Company's restructuring accrual balances and related activity by restructuring plan, as well as other accrual balances and related activity, during the nine months ended October 4, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2019
|
|
2020 Charges
|
|
2020 Changes in Estimates, Net
|
|
2020 Amounts Paid
|
|
Balance at October 4, 2020
|
|
|
(In thousands)
|
|
Severance:
|
|
|
|
|
|
|
|
|
|
|
Q3 2020 Plan
|
$
|
—
|
|
|
$
|
2,981
|
|
|
$
|
—
|
|
|
$
|
(566)
|
|
|
$
|
2,415
|
|
|
Q1 2020 Plan
|
—
|
|
|
3,446
|
|
|
—
|
|
|
(2,239)
|
|
|
1,207
|
|
|
Q4 2019 Plan
|
889
|
|
|
—
|
|
|
(69)
|
|
|
(454)
|
|
|
366
|
|
|
Q3 2019 Plan
|
6,311
|
|
|
—
|
|
|
—
|
|
|
(2,654)
|
|
|
3,657
|
|
|
Q2 2019 Plan
|
1,889
|
|
|
—
|
|
|
—
|
|
|
(1,241)
|
|
|
648
|
|
|
Q1 2019 Plan
|
2,129
|
|
|
—
|
|
|
—
|
|
|
(669)
|
|
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2020 Plan
|
—
|
|
|
774
|
|
|
—
|
|
|
(95)
|
|
|
679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous Plans
|
1,647
|
|
|
—
|
|
|
269
|
|
|
(511)
|
|
|
1,405
|
|
|
Restructuring
|
12,865
|
|
|
7,201
|
|
|
200
|
|
|
(8,429)
|
|
|
11,837
|
|
|
Contract Termination
|
188
|
|
|
—
|
|
|
212
|
|
|
(68)
|
|
|
332
|
|
|
Other Costs
|
827
|
|
|
3,462
|
|
|
—
|
|
|
(981)
|
|
|
3,308
|
|
|
Total Restructuring and Other Liabilities
|
$
|
13,880
|
|
|
$
|
10,663
|
|
|
$
|
412
|
|
|
$
|
(9,478)
|
|
|
$
|
15,477
|
|
Note 5: Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Interest income
|
$
|
(205)
|
|
|
$
|
(292)
|
|
|
$
|
(662)
|
|
|
$
|
(925)
|
|
|
Interest expense
|
12,057
|
|
|
16,149
|
|
|
37,308
|
|
|
49,206
|
|
|
Loss on disposition of businesses and assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
2,469
|
|
|
Debt extinguishment costs
|
—
|
|
|
471
|
|
|
—
|
|
|
471
|
|
|
Other expense (income), net
|
2,397
|
|
|
(922)
|
|
|
(1,592)
|
|
|
658
|
|
|
Total interest and other expense, net
|
$
|
14,249
|
|
|
$
|
15,406
|
|
|
$
|
35,054
|
|
|
$
|
51,879
|
|
Foreign currency transaction (gains) losses were $(1.9) million and $1.6 million for the three and nine months ended October 4, 2020, respectively. Foreign currency transaction losses were $4.7 million and $9.2 million for the three and nine months ended September 29, 2019, respectively. Net losses from forward currency hedge contracts were $6.0 million and $1.9 million for the three and nine months ended October 4, 2020, respectively. Net gains from forward currency hedge contracts were $4.2 million for each of the three and nine months ended September 29, 2019. The other components of net periodic pension credit were $1.6 million and $4.9 million for the three and nine months ended October 4, 2020, respectively. The other components of net periodic pension credit were $1.4 million and $4.4 million for the three and nine months ended September 29, 2019 respectively. These amounts were included in other expense (income), net.
Note 6: Inventories
Inventories as of October 4, 2020 and December 29, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 4,
2020
|
|
December 29,
2019
|
|
|
(In thousands)
|
|
Raw materials
|
$
|
205,339
|
|
|
$
|
130,673
|
|
|
Work in progress
|
36,501
|
|
|
26,409
|
|
|
Finished goods
|
244,715
|
|
|
199,855
|
|
|
Total inventories
|
$
|
486,555
|
|
|
$
|
356,937
|
|
Note 7: Income Taxes
The Company regularly reviews its tax positions in each significant taxing jurisdiction in the process of evaluating its unrecognized tax benefits. The Company makes adjustments to its unrecognized tax benefits when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority at a differing amount; and/or (iii) the statute of limitations expires regarding a tax position.
The total provision for income taxes included in the condensed consolidated statements of operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Continuing operations
|
$
|
57,021
|
|
|
$
|
4,644
|
|
|
$
|
85,609
|
|
|
$
|
8,642
|
|
|
Discontinued operations
|
37
|
|
|
52
|
|
|
138
|
|
|
147
|
|
|
Total
|
$
|
57,058
|
|
|
$
|
4,696
|
|
|
$
|
85,747
|
|
|
$
|
8,789
|
|
At October 4, 2020, the Company had gross tax effected unrecognized tax benefits of $35.5 million, of which $33.8 million, if recognized, would affect the continuing operations effective tax rate. The remaining amount, if recognized, would affect discontinued operations.
The Company believes that it is reasonably possible that approximately $1.8 million of its uncertain tax positions at October 4, 2020, including accrued interest and penalties, and net of tax benefits, may be resolved over the next twelve months as a result of lapses in applicable statutes of limitations and potential settlements. Various tax years after 2010 remain open to examination by certain jurisdictions in which the Company has significant business operations, such as Finland, Germany, China, Netherlands, Singapore, the United Kingdom, Luxembourg and the United States. The tax years under examination vary by jurisdiction.
During the first nine months of fiscal years 2020 and 2019, the Company recorded a net discrete income tax expense of $7.4 million and a net discrete income tax benefit of $12.7 million, respectively. The discrete tax expense in the first nine months of fiscal year 2020 primarily consisted of a $15.2 million assessment related to foreign entities for which the Company had previously believed, in error, that the relevant tax authority had granted fiscal unity in fiscal years 2019 and 2018. The Company determined that this is not material to any of the previous periods or the current fiscal year. The Company filed an appeal for relief on this matter with the foreign tax authority but cannot be assured of a favorable outcome and has therefore recorded the full impact in the current quarter’s tax provision as a result of not being granted fiscal unity in fiscal years 2019 and 2018. The Company also provided for interest on uncertain tax positions of $1.5 million and $1.2 million related to foreign tax rate changes, offset by recognition of excess tax benefits on stock compensation of $7.6 million and a valuation allowance release of $3.8 million. The discrete tax benefits in the first nine months of fiscal year 2019 included excess tax benefits on stock compensation of $4.6 million, U.S. federal return to provision adjustments of $6.5 million and $3.7 million associated with a tax election made during fiscal year 2019, partially offset by tax expense of $2.7 million related to a change in tax reform transition tax.
Note 8: Debt
Senior Unsecured Revolving Credit Facility. The Company's senior unsecured revolving credit facility provides for $1.0 billion of revolving loans that may be either US Dollar Base Rate loans or Eurocurrency Rate loans, as those terms are defined in the credit agreement, and has an initial maturity of September 16, 2024. As of October 4, 2020, undrawn letters of credit in
the aggregate amount of $11.4 million were treated as issued and outstanding when calculating the borrowing availability under the facility. As of October 4, 2020, the Company had $922.6 million available for additional borrowing under the facility. The Company plans to use the senior unsecured revolving credit facility for general corporate purposes, which may include working capital, refinancing existing indebtedness, capital expenditures, share repurchases, acquisitions and strategic alliances. The interest rates on the Eurocurrency Rate loans are based on the Eurocurrency Rate at the time of borrowing, plus a percentage spread based on the credit rating of the Company's debt. The interest rates on the US Dollar Base Rate loans are based on the US Dollar Base Rate at the time of borrowing, plus a percentage spread based on the credit rating of the Company's debt. The base rate is the higher of (i) the Federal Funds Rate (as defined in the credit agreement) plus 50 basis points (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate," or (iii) the Eurocurrency Rate plus 1.00%. The Eurocurrency margin as of October 4, 2020 was 101.5 basis points. The weighted average Eurocurrency interest rate as of October 4, 2020 was 0.15%, resulting in a weighted average effective Eurocurrency Rate, including the margin, of 1.16%, which was the interest applicable to the borrowings outstanding as of October 4, 2020. As of October 4, 2020, the senior unsecured revolving credit facility had outstanding borrowings of $66.0 million, and $2.8 million of unamortized debt issuance costs. As of December 29, 2019, the senior unsecured revolving credit facility had outstanding borrowings of $325.4 million, and $3.4 million of unamortized debt issuance costs. The credit agreement for the facility contains affirmative, negative and financial covenants and events of default. The financial covenants include a debt-to-capital ratio that remains applicable for so long as the Company's debt is rated as investment grade. In the event that the Company's debt is not rated as investment grade, the debt-to-capital ratio covenant is replaced with a maximum consolidated leverage ratio covenant and a minimum consolidated interest coverage ratio covenant.
1.875% Senior Unsecured Notes due 2026. On July 19, 2016, the Company issued €500.0 million aggregate principal amount of senior unsecured notes due in 2026 (the “2026 Notes”) in a registered public offering and received approximately €492.3 million of net proceeds from the issuance. The 2026 Notes were issued at 99.118% of the principal amount, which resulted in a discount of €4.4 million. The 2026 Notes mature in July 2026 and bear interest at an annual rate of 1.875%. Interest on the 2026 Notes is payable annually on July 19th each year. The proceeds from the 2026 Notes were used to pay in full the outstanding balance of the Company's previous senior unsecured revolving credit facility. As of October 4, 2020, the 2026 Notes had an aggregate carrying value of $579.6 million, net of $3.2 million of unamortized original issue discount and $2.9 million of unamortized debt issuance costs. As of December 29, 2019, the 2026 Notes had an aggregate carrying value of $552.2 million, net of $3.5 million of unamortized original issue discount and $3.3 million of unamortized debt issuance costs.
Prior to April 19, 2026 (three months prior to their maturity date), the Company may redeem the 2026 Notes in whole at any time or in part from time to time, at its option, at a redemption price equal to the greater of (i) 100% of the principal amount of the 2026 Notes to be redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest in respect to the 2026 Notes being redeemed, discounted on an annual basis, at the applicable Comparable Government Bond Rate (as defined in the indenture governing the 2026 Notes) plus 35 basis points; plus, in each case, accrued and unpaid interest. In addition, at any time on or after April 19, 2026 (three months prior to their maturity date), the Company may redeem the 2026 Notes, at its option, at a redemption price equal to 100% of the principal amount of the 2026 Notes due to be redeemed plus accrued and unpaid interest.
Upon a change of control (as defined in the indenture governing the 2026 Notes) and a contemporaneous downgrade of the 2026 Notes below investment grade, the Company will, in certain circumstances, make an offer to purchase the 2026 Notes at a price equal to 101% of their principal amount plus any accrued and unpaid interest.
0.6% Senior Unsecured Notes due in 2021. On April 11, 2018, the Company issued €300.0 million aggregate principal amount of senior unsecured notes due in 2021 (the “2021 Notes”) in a registered public offering and received approximately €298.7 million of net proceeds from the issuance. The 2021 Notes were issued at 99.95% of the principal amount, which resulted in a discount of €0.2 million. As of October 4, 2020, the 2021 Notes had an aggregate carrying value of $351.0 million, net of $30,000 of unamortized original issue discount and $0.4 million of unamortized debt issuance costs. As of December 29, 2019, the 2021 Notes had an aggregate carrying value of $334.2 million, net of $0.1 million of unamortized original issue discount and $1.1 million of unamortized debt issuance costs. The 2021 Notes mature in April 2021 and bear interest at an annual rate of 0.6%. Interest on the 2021 Notes is payable annually on April 9th each year. Prior to the maturity date of the 2021 Notes, the Company may redeem them in whole at any time or in part from time to time, at its option, at a redemption price equal to the greater of (i) 100% of the principal amount of the 2021 Notes to be redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest in respect to the 2021 Notes being redeemed, discounted on an annual basis, at the applicable Comparable Government Bond Rate (as defined in the indenture governing the 2021 Notes) plus 15 basis points; plus, in each case, accrued and unpaid interest. Upon a change of control (as defined in the indenture governing the 2021 Notes) and a contemporaneous downgrade of the 2021 Notes below investment grade, the Company will, in certain circumstances, make an offer to purchase the 2021 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest.
3.3% Senior Unsecured Notes due in 2029. On September 12, 2019, the Company issued $850.0 million aggregate principal amount of senior unsecured notes due in 2029 (the "2029 Notes”) in a registered public offering and received $847.2 million of net proceeds from the issuance. The 2029 Notes were issued at 99.67% of the principal amount, which resulted in a discount of $2.8 million. As of October 4, 2020, the 2029 Notes had an aggregate carrying value of $840.4 million, net of $2.5 million of unamortized original issue discount and $7.0 million of unamortized debt issuance costs. As of December 29, 2019, the 2029 Notes had an aggregate carrying value of $839.9 million, net of $2.7 million of unamortized original issue discount and $7.4 million of unamortized debt issuance costs. The 2029 Notes mature in September 2029 and bear interest at an annual rate of 3.3%. Interest on the 2029 Notes is payable semi-annually on March 15th and September 15th each year. Proceeds from the 2029 Notes were used to repay all outstanding borrowings under the Company’s previous senior unsecured revolving credit facility with the remaining proceeds used in the redemption of the 5% senior unsecured notes that were due in November 2021. Prior to June 15, 2029 (three months prior to their maturity date), the Company may redeem the 2029 Notes in whole or in part, at its option, at a redemption price equal to the greater of (i) 100% of the principal amount of the 2029 Notes to be redeemed, and (ii) the sum of the present values of the remaining scheduled payments of principal and interest in respect to the 2029 Notes being redeemed (not including any portion of such payments of interest accrued but unpaid as of the date of redemption) assuming that such 2029 Notes matured on June 15, 2029, discounted at the date of redemption on a semi-annual basis (assuming a 360-day year of twelve 30-day months), at the Treasury Rate (as defined in the indenture governing the 2029 Notes) plus 25 basis points, plus accrued and unpaid interest. At any time on or after June 15, 2029 (three months prior to their maturity date), the Company may redeem the 2029 Notes, at its option, at a redemption price equal to 100% of the principal amount of the 2029 Notes to be redeemed plus accrued and unpaid interest. Upon a change of control (as defined in the indenture governing the 2029 Notes) and a contemporaneous downgrade of the 2029 Notes below investment grade, each holder of 2029 Notes will have the right to require the Company to repurchase such holder's 2029 Notes for 101% of their principal amount, plus accrued and unpaid interest.
Other Debt Facilities. The Company's other debt facilities include Euro-denominated bank loans with an aggregate carrying value of $17.8 million (or €15.2 million) and $23.8 million (or €21.3 million) as of October 4, 2020 and December 29, 2019, respectively. These bank loans are primarily utilized for financing fixed assets and are required to be repaid in monthly or quarterly installments with maturity dates extending to 2028. Of these bank loans, loans in the aggregate amount of $17.7 million bear fixed interest rates between 1.1% and 4.3% and a loan in the amount of $0.1 million bears a variable interest rate based on the Euribor rate plus a margin of 1.5%. An aggregate amount of $5.0 million of the bank loans are secured by mortgages on real property and the remaining $12.8 million are unsecured. Certain credit agreements for the unsecured bank loans include financial covenants which are based on an equity ratio or an equity ratio and minimum interest coverage ratio.
In addition, the Company had secured bank loans in the aggregate amount of $0.8 million and $1.9 million as of October 4, 2020 and December 29, 2019, respectively. The secured bank loans of $0.8 million bear fixed annual interest rates between 1.95% and 20.0% and are required to be repaid in monthly installments until 2027.
Note 9: Earnings Per Share
Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period less restricted unvested shares. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method. The following table reconciles the number of shares utilized in the earnings per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Number of common shares—basic
|
111,684
|
|
|
110,946
|
|
|
111,378
|
|
|
110,778
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
477
|
|
|
484
|
|
|
476
|
|
|
558
|
|
|
Restricted stock awards
|
131
|
|
|
129
|
|
|
81
|
|
|
124
|
|
|
Number of common shares—diluted
|
112,292
|
|
|
111,559
|
|
|
111,935
|
|
|
111,460
|
|
|
Number of potentially dilutive securities excluded from calculation due to antidilutive impact
|
—
|
|
|
413
|
|
|
294
|
|
|
396
|
|
Antidilutive securities include outstanding stock options with exercise prices and average unrecognized compensation cost in excess of the average fair market value of common stock for the related period. Antidilutive options were excluded from the calculation of diluted net income per share and could become dilutive in the future.
Note 10: Industry Segment Information
The Company discloses information about its operating segments based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. The Company evaluates the performance of its operating segments based on revenue and operating income. Intersegment revenue and transfers are not significant. The accounting policies of the operating segments are the same as those described in Note 1 to the audited consolidated financial statements in the 2019 Form 10-K.
The principal products and services of the Company's two operating segments are:
•Discovery & Analytical Solutions. Provides products and services targeted towards the life sciences and applied markets.
•Diagnostics. Develops diagnostics, tools and applications focused on clinically-oriented customers, especially within the reproductive health, immunodiagnostics and applied genomics markets. The Diagnostics segment serves the diagnostics market.
The Company has included the expenses for its corporate headquarters, such as legal, tax, audit, human resources, information technology, and other management and compliance costs, as well as the activity related to the mark-to-market adjustment on postretirement benefit plans, as “Corporate” below. The Company has a process to allocate and recharge expenses to the reportable segments when these costs are administered or paid by the corporate headquarters based on the extent to which the segment benefited from the expenses. These amounts have been calculated in a consistent manner and are included in the Company’s calculations of segment results to internally plan and assess the performance of each segment for all purposes, including determining the compensation of the business leaders for each of the Company’s operating segments.
Revenue and operating income (loss) from continuing operations by operating segment are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Discovery & Analytical Solutions
|
|
|
|
|
|
|
|
|
Product revenue
|
$
|
245,556
|
|
|
$
|
256,118
|
|
|
$
|
686,529
|
|
|
$
|
738,422
|
|
|
Service revenue
|
178,067
|
|
|
170,786
|
|
|
526,491
|
|
|
511,282
|
|
|
Total revenue
|
423,623
|
|
|
426,904
|
|
|
1,213,020
|
|
|
1,249,704
|
|
|
Operating income from continuing operations
|
42,689
|
|
|
52,347
|
|
|
110,632
|
|
|
146,963
|
|
|
Diagnostics
|
|
|
|
|
|
|
|
|
Product revenue
|
491,290
|
|
|
237,202
|
|
|
1,077,352
|
|
|
695,734
|
|
|
Service revenue
|
49,112
|
|
|
42,817
|
|
|
137,767
|
|
|
132,739
|
|
|
Total revenue
|
540,402
|
|
|
280,019
|
|
|
1,215,119
|
|
|
828,473
|
|
|
Operating income from continuing operations
|
223,819
|
|
|
47,443
|
|
|
413,710
|
|
|
128,184
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Operating loss from continuing operations
|
(18,502)
|
|
|
(21,130)
|
|
|
(56,015)
|
|
|
(51,422)
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
Product revenue
|
736,846
|
|
|
493,320
|
|
|
1,763,881
|
|
|
1,434,156
|
|
|
Service revenue
|
227,179
|
|
|
213,603
|
|
|
664,258
|
|
|
644,021
|
|
|
Total revenue
|
964,025
|
|
|
706,923
|
|
|
2,428,139
|
|
|
2,078,177
|
|
|
Operating income from continuing operations
|
248,006
|
|
|
78,660
|
|
|
468,327
|
|
|
223,725
|
|
|
Interest and other expense, net (see Note 5)
|
14,249
|
|
|
15,406
|
|
|
35,054
|
|
|
51,879
|
|
|
Income from continuing operations before income taxes
|
$
|
233,757
|
|
|
$
|
63,254
|
|
|
$
|
433,273
|
|
|
$
|
171,846
|
|
Note 11: Stockholders’ Equity
Comprehensive Income:
The components of accumulated other comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 4,
2020
|
|
December 29,
2019
|
|
|
(In thousands)
|
|
Foreign currency translation adjustments
|
$
|
(144,600)
|
|
|
$
|
(200,437)
|
|
|
Unrecognized prior service costs, net of income taxes
|
1,052
|
|
|
1,052
|
|
|
|
|
|
|
|
Unrealized net losses on securities, net of income taxes
|
(219)
|
|
|
(261)
|
|
|
Accumulated other comprehensive loss
|
$
|
(143,767)
|
|
|
$
|
(199,646)
|
|
Stock Repurchases:
On July 23, 2018, the Board of Directors (the "Board") authorized the Company to repurchase shares of common stock for an aggregate amount up to $250.0 million under a stock repurchase program (the "Repurchase Program"). The Repurchase Program expired on July 23, 2020, and no shares remain available for repurchase under the Repurchase Program due to its expiration. On July 31, 2020, the Board authorized the Company to repurchase shares of common stock for an aggregate amount up to $250.0 million under a new stock repurchase program (the "New Repurchase Program"). The New Repurchase Program will expire on July 27, 2022 unless terminated earlier by the Board and may be suspended or discontinued at any time. During the nine months ended October 4, 2020, the Company had no stock repurchases under either the Repurchase Program or the New Repurchase Program. As of October 4, 2020, $250.0 million remained available for aggregate repurchases of shares under the New Repurchase Program.
In addition, the Board has authorized the Company to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to the Company’s equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to the Company's equity incentive plans. During the three months ended October 4, 2020, the Company repurchased 1,416 shares of common stock for this purpose at an aggregate cost of $0.2 million. During the nine months ended October 4, 2020, the Company repurchased 71,350 shares of common stock for this purpose at an aggregate cost of $6.8 million. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value.
Dividends:
The Board declared a regular quarterly cash dividend of $0.07 per share for each of the first three quarters of fiscal year 2020 and for each quarter of fiscal year 2019. At October 4, 2020, the Company had accrued $7.8 million for dividends declared on July 23, 2020 for the third quarter of fiscal year 2020 that were paid on November 6, 2020. On October 22, 2020, the Company announced that the Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2020 that will be payable in February 2021. In the future, the Board may determine to reduce or eliminate the Company’s common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
Note 12: Stock Plans
The Company’s 2019 Incentive Plan (the “2019 Plan”) authorizes the issuance of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash awards as part of the Company’s compensation programs. The 2019 Plan was approved by the Company’s Board on January 24, 2019 and by the Company’s shareholders on April 23, 2019. The 2019 Plan replaced the Company’s 2009 Incentive Plan (the “2009 Plan”), under which the Company’s common stock was made available for stock option grants, restricted stock awards, performance restricted stock units, performance units and stock awards as part of the Company’s compensation programs. Upon shareholder approval of the 2019 Plan, 6.25 million shares of the Company’s common stock, as well as shares of the Company’s common stock previously granted under the 2009 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price subject to a contractual repurchase right, became available for grant under the 2019 Plan. Awards granted under the 2009 Plan prior to its expiration remain outstanding. As part of the Company’s compensation programs, the Company also offers shares of its common stock under its Employee Stock Purchase Plan.
The following table summarizes total pre-tax compensation expense recognized related to the Company’s stock option grants, restricted stock awards, performance restricted stock units, performance units and stock awards, included in the
Company’s condensed consolidated statements of operations for the three and nine months ended October 4, 2020 and September 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Cost of revenue
|
$
|
463
|
|
|
$
|
477
|
|
|
$
|
970
|
|
|
$
|
1,188
|
|
|
Research and development expenses
|
327
|
|
|
178
|
|
|
915
|
|
|
802
|
|
|
Selling, general and administrative expenses
|
6,327
|
|
|
11,649
|
|
|
17,885
|
|
|
23,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
$
|
7,117
|
|
|
$
|
12,304
|
|
|
$
|
19,770
|
|
|
$
|
25,105
|
|
The total income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation was $6.3 million and $11.8 million for the three and nine months ended October 4, 2020, respectively. The total income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation was $2.8 million and $10.0 million for the three and nine months ended September 29, 2019, respectively. Stock-based compensation costs capitalized as part of inventory were $0.4 million as of each of October 4, 2020 and September 29, 2019, respectively.
Stock Options: The fair value of each option grant is estimated using the Black-Scholes option pricing model. The Company’s weighted-average assumptions used in the Black-Scholes option pricing model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
Risk-free interest rate
|
0.9
|
%
|
|
1.9
|
%
|
|
Expected dividend yield
|
0.3
|
%
|
|
0.3
|
%
|
|
Expected term
|
5 years
|
|
5 years
|
|
Expected stock volatility
|
23.8
|
%
|
|
22.8
|
%
|
The following table summarizes stock option activity for the nine months ended October 4, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Weighted-
Average Exercise
Price
|
|
Weighted-Average
Remaining
Contractual
Term
|
|
Total
Intrinsic
Value
|
|
|
(In thousands)
|
|
|
|
(In years)
|
|
(In millions)
|
|
Outstanding at December 29, 2019
|
1,535
|
|
|
$
|
60.42
|
|
|
|
|
|
|
Granted
|
266
|
|
|
86.87
|
|
|
|
|
|
|
Exercised
|
(565)
|
|
|
48.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
(65)
|
|
|
87.41
|
|
|
|
|
|
|
Outstanding at October 4, 2020
|
1,171
|
|
|
$
|
70.60
|
|
|
3.9
|
|
$
|
63.2
|
|
|
Exercisable at October 4, 2020
|
758
|
|
|
$
|
61.56
|
|
|
2.8
|
|
$
|
47.8
|
|
The weighted-average per-share grant-date fair value of options granted during the nine months ended October 4, 2020 was $18.98. The weighted-average per-share grant-date fair value of options granted during the nine months ended September 29, 2019 was $22.64. The total intrinsic value of options exercised during the three and nine months ended October 4, 2020 was $25.2 million and $33.9 million, respectively. The total intrinsic value of options exercised during the three and nine months ended September 29, 2019 was $0.6 million and $17.3 million, respectively. Cash received from option exercises for the nine months ended October 4, 2020 and September 29, 2019 was $27.5 million and $17.6 million, respectively.
The total compensation expense recognized related to the Company’s outstanding options was $0.9 million and $2.8 million for the three and nine months ended October 4, 2020, respectively, and $3.1 million and $5.7 million for the three and nine months ended September 29, 2019, respectively.
There was $5.6 million of total unrecognized compensation cost related to nonvested stock options granted as of October 4, 2020. This cost is expected to be recognized over a weighted-average period of 2.0 years.
Restricted Stock Awards: The following table summarizes restricted stock award activity for the nine months ended October 4, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Grant-
Date Fair
Value
|
|
|
(In thousands)
|
|
|
|
Nonvested at December 29, 2019
|
345
|
|
|
$
|
78.69
|
|
|
Granted
|
182
|
|
|
84.39
|
|
|
Vested
|
(190)
|
|
|
72.14
|
|
|
Forfeited
|
(34)
|
|
|
85.10
|
|
|
Nonvested at October 4, 2020
|
303
|
|
|
$
|
85.52
|
|
The fair value of restricted stock awards vested during the three and nine months ended October 4, 2020 was $0.7 million and $13.7 million, respectively. The fair value of restricted stock awards vested during the three and nine months ended September 29, 2019 was $0.4 million and $11.7 million, respectively. The total compensation expense recognized related to the Company’s outstanding restricted stock awards was $2.9 million and $8.1 million for the three and nine months ended October 4, 2020, respectively, and $4.7 million and $10.2 million for the three and nine months ended September 29, 2019, respectively.
As of October 4, 2020, there was $17.6 million of total unrecognized compensation cost related to nonvested restricted stock awards. This cost is expected to be recognized over a weighted-average period of 1.7 years.
Performance Restricted Stock Units: As part of the Company's executive compensation program, the Company granted 89,986 performance restricted stock units during the nine months ended October 4, 2020 that will vest based on performance of the Company. The weighted-average per-share grant date fair value of performance restricted stock units granted during the nine months ended October 4, 2020 was $76.76. During the nine months ended October 4, 2020, 29,943 performance restricted stock units were forfeited. The total compensation expense recognized related to performance restricted stock units was $1.1 million and $3.7 million for the three and nine months ended October 4, 2020, respectively, and $3.2 million and $4.8 million for the three and nine months ended September 29, 2019, respectively. As of October 4, 2020, there were 121,759 performance restricted stock units outstanding.
Performance Units: No performance units were granted during the nine months ended October 4, 2020. During the nine months ended October 4, 2020, 1,948 performance units were forfeited. The total compensation expense recognized related to performance units was $2.2 million and $4.5 million for the three and nine months ended October 4, 2020, respectively, and $1.3 million and $3.7 million for the three and nine months ended September 29, 2019, respectively. As of October 4, 2020, there were 31,207 performance units outstanding and subject to forfeiture, with a corresponding liability of $7.8 million recorded in accrued expenses and other current liabilities.
Stock Awards: The Company’s stock award program provides an annual equity award to non-employee directors. During the nine months ended October 4, 2020, the Company awarded 8,333 shares to non-employee directors. The weighted-average per-share grant-date fair value of the stock awards granted during the nine months ended October 4, 2020 was $91.75. The total compensation expense recognized related to the stock awards was $0.8 million and $0.7 million for the nine months ended October 4, 2020 and September 29, 2019, respectively.
Employee Stock Purchase Plan: During the nine months ended October 4, 2020, the Company issued 27,619 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $92.72 per share. During the nine months ended September 29, 2019, the Company issued 33,843 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $82.25 per share. At October 4, 2020, an aggregate of 0.8 million shares of the Company’s common stock remained available for sale to employees out of the 5.0 million shares authorized by shareholders for issuance under this plan.
Note 13: Goodwill and Intangible Assets, Net
The Company tests goodwill and non-amortizing intangible assets at least annually for possible impairment. Accordingly, the Company completes the annual testing of impairment for goodwill and non-amortizing intangible assets on the later of January 1 or the first day of each fiscal year. In addition to its annual test, the Company regularly evaluates whether events or circumstances have occurred that may indicate a potential impairment of goodwill or non-amortizing intangible assets.
The process of testing goodwill for impairment involves the determination of the fair value of the applicable reporting units. The test consists of the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value. If the carrying value of the reporting unit exceeds its fair value, an impairment loss in an amount equal to that excess is recognized up to the amount of goodwill. The Company performed its annual impairment testing for its reporting units as of January 1, 2020, its annual impairment testing date for fiscal year 2020. The Company concluded that there was no goodwill impairment. The range of the long-term terminal growth rates for the Company’s reporting units was 3% to 5% for the fiscal year 2020 impairment analysis. The range for the discount rates for the reporting units was 9.0% to 14.5%. Keeping all other variables constant, a 10% change in any one of these input assumptions for the various reporting units would still allow the Company to conclude that there was no impairment of goodwill.
The Company has consistently employed the income approach to estimate the current fair value when testing for impairment of goodwill. A number of significant assumptions and estimates are involved in the application of the income approach to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce, tax rates, capital spending, discount rates and working capital changes. Cash flow forecasts are based on approved business unit operating plans for the early years’ cash flows and historical relationships in later years. The income approach is sensitive to changes in long-term terminal growth rates and the discount rates. The long-term terminal growth rates are consistent with the Company’s historical long-term terminal growth rates, as the current economic trends are not expected to affect the long-term terminal growth rates of the Company. The Company corroborates the income approach with a market approach.
Non-amortizing intangibles are also subject to an annual impairment test. The Company has consistently employed the relief from royalty model to estimate the current fair value when testing for impairment of non-amortizing intangible assets. The impairment test consists of a comparison of the fair value of the non-amortizing intangible asset with its carrying amount. If the carrying amount of a non-amortizing intangible asset exceeds its fair value, an impairment loss in an amount equal to that excess is recognized up to the amount of the amortizing intangible asset. In addition, the Company evaluates the remaining useful life of its non-amortizing intangible asset at least annually to determine whether events or circumstances continue to support an indefinite useful life. If events or circumstances indicate that the useful life of the Company's non-amortizing intangible asset is no longer indefinite, the asset will be tested for impairment. This intangible asset will then be amortized prospectively over its estimated remaining useful life and accounted for in the same manner as other intangible assets that are subject to amortization. The Company performed its annual impairment testing as of January 1, 2020 and concluded that there was no impairment of its non-amortizing intangible asset. An assessment of the recoverability of amortizing intangible assets takes place when events have occurred that may give rise to an impairment. No such events occurred during the first nine months of fiscal year 2020.
The changes in the carrying amount of goodwill for the nine months ended October 4, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Consolidated
|
|
|
(In thousands)
|
|
Balance at December 29, 2019
|
$
|
1,498,820
|
|
|
$
|
1,612,407
|
|
|
$
|
3,111,227
|
|
|
Foreign currency translation
|
25,283
|
|
|
27,265
|
|
|
52,548
|
|
|
|
|
|
|
|
|
|
Acquisitions, earn-outs and other
|
(1,777)
|
|
|
—
|
|
|
(1,777)
|
|
|
Balance at October 4, 2020
|
$
|
1,522,326
|
|
|
$
|
1,639,672
|
|
|
$
|
3,161,998
|
|
Identifiable intangible asset balances by category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 4,
2020
|
|
December 29,
2019
|
|
|
(In thousands)
|
|
Patents
|
$
|
30,843
|
|
|
$
|
30,831
|
|
|
Less: Accumulated amortization
|
(28,445)
|
|
|
(27,423)
|
|
|
Net patents
|
2,398
|
|
|
3,408
|
|
|
Trade names and trademarks
|
90,290
|
|
|
87,997
|
|
|
Less: Accumulated amortization
|
(46,177)
|
|
|
(40,295)
|
|
|
Net trade names and trademarks
|
44,113
|
|
|
47,702
|
|
|
Licenses
|
58,512
|
|
|
58,496
|
|
|
Less: Accumulated amortization
|
(51,969)
|
|
|
(49,733)
|
|
|
Net licenses
|
6,543
|
|
|
8,763
|
|
|
Core technology
|
706,508
|
|
|
689,089
|
|
|
Less: Accumulated amortization
|
(372,258)
|
|
|
(320,926)
|
|
|
Net core technology
|
334,250
|
|
|
368,163
|
|
|
Customer relationships
|
1,200,214
|
|
|
1,161,526
|
|
|
Less: Accumulated amortization
|
(477,714)
|
|
|
(378,188)
|
|
|
Net customer relationships
|
722,500
|
|
|
783,338
|
|
|
In-process research and development
|
1,366
|
|
|
1,328
|
|
|
Net amortizable intangible assets
|
1,111,170
|
|
|
1,212,702
|
|
|
Non-amortizing intangible asset:
|
|
|
|
|
Trade name
|
70,584
|
|
|
70,584
|
|
|
Total
|
$
|
1,181,754
|
|
|
$
|
1,283,286
|
|
Total amortization expense related to definite-lived intangible assets was $48.9 million and $142.9 million for the three and nine months ended October 4, 2020, respectively, and $41.3 million and $121.2 million for the three and nine months ended September 29, 2019, respectively. Estimated amortization expense related to amortizable intangible assets for each of the next five years is $48.3 million for the remainder of fiscal year 2020, $180.2 million for fiscal year 2021, $163.2 million for fiscal year 2022, $138.2 million for fiscal year 2023, and $116.1 million for fiscal year 2024.
Note 14: Warranty Reserves
The Company provides warranty protection for certain products usually for a period of one year beyond the date of sale. The majority of costs associated with warranty obligations include the replacement of parts and the time for service personnel to respond to repair and replacement requests. A warranty reserve is recorded based upon historical results, supplemented by management’s expectations of future costs. Warranty reserves are included in “Accrued expenses and other current liabilities” on the condensed consolidated balance sheets.
A summary of warranty reserve activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Balance at beginning of period
|
$
|
10,470
|
|
|
$
|
7,985
|
|
|
$
|
8,812
|
|
|
$
|
8,393
|
|
|
Provision charged to income
|
4,294
|
|
|
2,899
|
|
|
10,479
|
|
|
8,601
|
|
|
Payments
|
(3,876)
|
|
|
(3,999)
|
|
|
(10,031)
|
|
|
(10,536)
|
|
|
Adjustments to previously provided warranties, net
|
(248)
|
|
|
1,239
|
|
|
1,459
|
|
|
1,658
|
|
|
Foreign currency translation and acquisitions
|
180
|
|
|
(169)
|
|
|
101
|
|
|
(161)
|
|
|
Balance at end of period
|
$
|
10,820
|
|
|
$
|
7,955
|
|
|
$
|
10,820
|
|
|
$
|
7,955
|
|
Note 15: Employee Postretirement Benefit Plans
The following table summarizes the components of net periodic pension credit for the Company’s various defined benefit employee pension and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Benefits
|
|
Postretirement
Medical Benefits
|
|
|
Three Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Service and administrative costs
|
$
|
1,708
|
|
|
$
|
1,698
|
|
|
$
|
19
|
|
|
$
|
22
|
|
|
Interest cost
|
3,150
|
|
|
4,136
|
|
|
23
|
|
|
29
|
|
|
Expected return on plan assets
|
(5,382)
|
|
|
(6,132)
|
|
|
(347)
|
|
|
(294)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs
|
—
|
|
|
(38)
|
|
|
—
|
|
|
—
|
|
|
Net periodic pension credit
|
$
|
(524)
|
|
|
$
|
(336)
|
|
|
$
|
(305)
|
|
|
$
|
(243)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Benefits
|
|
Postretirement
Medical Benefits
|
|
|
Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Service cost
|
$
|
5,303
|
|
|
$
|
4,960
|
|
|
$
|
55
|
|
|
$
|
66
|
|
|
Interest cost
|
9,432
|
|
|
12,445
|
|
|
70
|
|
|
87
|
|
|
Expected return on plan assets
|
(16,137)
|
|
|
(18,469)
|
|
|
(1,041)
|
|
|
(882)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs
|
—
|
|
|
(115)
|
|
|
—
|
|
|
—
|
|
|
Net periodic benefit credit
|
$
|
(1,402)
|
|
|
$
|
(1,179)
|
|
|
$
|
(916)
|
|
|
$
|
(729)
|
|
During the nine months ended October 4, 2020 and September 29, 2019, the Company contributed $5.2 million and $6.1 million, respectively, in the aggregate, to pension plans outside of the United States.
The Company recognizes actuarial gains and losses, unless an interim remeasurement is required, in the fourth quarter of the year in which the gains and losses occur, in accordance with the Company's accounting method for defined benefit pension plans and other postretirement benefits as described in Note 1 of the Company's audited consolidated financial statements and notes included in its 2019 Form 10-K. Such adjustments for gains and losses are primarily driven by events and circumstances beyond the Company's control, including changes in interest rates, the performance of the financial markets and mortality assumptions. Service costs for plans in active accrual are included in operating expenses.
Note 16: Derivatives and Hedging Activities
The Company uses derivative instruments as part of its risk management strategy only, and includes derivatives utilized as economic hedges that are not designated as hedging instruments. By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions and has policies to monitor the credit risk of those counterparties. The Company does not enter into derivative contracts for trading or other speculative purposes, nor does the Company use leveraged financial instruments. Approximately 70% of the Company’s business is conducted outside of the United States, generally in foreign currencies. As a result, fluctuations in foreign currency exchange rates can increase the costs of financing, investing and operating the business.
In the ordinary course of business, the Company enters into foreign exchange contracts for periods consistent with its committed exposures to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies. The intent of these economic hedges is to offset gains and losses that occur on the underlying exposures from these currencies, with gains and losses resulting from the forward currency contracts that hedge these exposures. Transactions covered by hedge contracts include intercompany and third-party receivables and payables. The contracts are primarily in European and Asian currencies, have maturities that do not exceed 12 months, have no cash requirements until maturity, and are recorded at fair value on the Company’s condensed consolidated balance sheets. The unrealized gains and losses on the Company’s foreign currency contracts are recognized immediately in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from operating activities within the Company’s condensed consolidated statement of cash flows.
Principal hedged currencies include the Chinese Yuan, Euro, British Pound, Swedish Krona, and Singapore Dollar. The Company held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling $406.3 million, $277.6 million and $282.3 million at October 4, 2020, December 29, 2019 and September 29, 2019, respectively, and the fair value of these foreign currency derivative contracts was insignificant. The gains and losses realized on these foreign currency derivative contracts are not material. The duration of these contracts was generally 30 days or less during each of the nine months ended October 4, 2020 and September 29, 2019.
In addition, in connection with certain intercompany loan agreements utilized to finance its acquisitions and stock repurchase program, the Company enters into forward foreign exchange contracts intended to hedge movements in foreign exchange rates prior to settlement of such intercompany loans denominated in foreign currencies. The Company records these hedges at fair value on the Company’s condensed consolidated balance sheets. The unrealized gains and losses on these hedges, as well as the gains and losses associated with the remeasurement of the intercompany loans, are recognized immediately in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from financing activities within the Company’s condensed consolidated statement of cash flows.
The outstanding forward exchange contracts designated as economic hedges, which were intended to hedge movements in foreign exchange rates prior to the settlement of certain intercompany loan agreements included combined U.S. Dollar notional amounts of $156.2 million as of October 4, 2020, combined Euro notional amounts of €105.8 million and combined U.S. Dollar notional amounts of $5.6 million as of December 29, 2019, and combined Euro notional amounts of €14.9 million and combined U.S. Dollar notional amounts of $8.7 million as of September 29, 2019. The net gains and losses on these derivatives, combined with the gains and losses on the remeasurement of the hedged intercompany loans were not material for each of the three and nine months ended October 4, 2020 and September 29, 2019. The Company paid $2.1 million and $1.6 million during the nine months ended October 4, 2020 and September 29, 2019, respectively, from the settlement of these hedges.
During fiscal year 2018, the Company designated a portion of the 2026 Notes to hedge its investments in certain foreign subsidiaries. Unrealized translation adjustments from a portion of the 2026 Notes were included in the foreign currency translation component of accumulated other comprehensive income ("AOCI"), which offsets translation adjustments on the underlying net assets of foreign subsidiaries. The cumulative translation gains or losses will remain in AOCI until the foreign subsidiaries are liquidated or sold. As of October 4, 2020, the total notional amount of the 2026 Notes that was designated to hedge investments in foreign subsidiaries was €497.2 million. The unrealized foreign exchange losses (gains) recorded in AOCI related to the net investment hedge were $23.4 million and $24.8 million for the three and nine months ended October 4, 2020, respectively, and $(5.8) million and $(8.9) million for the three and nine months ended September 29, 2019, respectively.
During fiscal year 2018, the Company designated the 2021 Notes to hedge its investments in certain foreign subsidiaries. Unrealized translation adjustments from the 2021 Notes were included in the foreign currency translation component of AOCI, which offsets translation adjustments on the underlying net assets of foreign subsidiaries. The cumulative translation gains or losses will remain in AOCI until the foreign subsidiaries are liquidated or sold. During the second quarter of fiscal year 2020, the Company removed the hedging relationship of the first €100.0 million of its 2021 Notes and investments in certain foreign subsidiaries. During the third quarter of fiscal year 2020, the Company removed the hedging relationship of the remaining €200.0 million of its 2021 Notes and investments in certain foreign subsidiaries. The unrealized foreign exchange losses (gains) recorded in AOCI related to the net investment hedge were $3.7 million and $1.8 million for the three and nine months ended October 4, 2020, respectively, and $(12.8) million and $(15.1) million for the three and nine months ended September 29, 2019, respectively.
During fiscal year 2019, the Company entered into a cross-currency swap designated as a net investment hedge to hedge the Euro currency exposure of the Company’s net investment in certain foreign subsidiaries. This agreement is a contract to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. Changes in the fair value of this swap are recorded in equity as a component of AOCI in the same manner as foreign currency translation adjustments. In assessing the effectiveness of this hedge, the Company uses a method based on changes in spot rates to measure the impact of the foreign currency exchange rate fluctuations on both its foreign subsidiary net investment and the related swap. Under this method, changes in the fair value of the hedging instrument other than those due to changes in the spot rate are initially recorded in AOCI as a translation adjustment, and then are amortized into other (income) expense, net in the condensed consolidated statement of operations using a systematic and rational method over the instrument’s term. Changes in the fair value associated with the effective portion (i.e. those changes due to the spot rate) are recorded in AOCI as a translation adjustment and are released and recognized in earnings only upon the sale or liquidation of the hedged net investment. The cross-currency swap has an initial notional value of €197.4 million, or $220.0 million, and matures on November 15, 2021. Interest on the cross-currency swap is payable semi-annually, in Euro, on May 15th and November 15th of each year based on the Euro notional value and a fixed rate of 2.47%. The Company receives interest in U.S. dollars on May 15th and November 15th of each year based on the U.S. dollar equivalent of the Euro notional value and a fixed rate of 5.00%. At October 4, 2020, the fair value of the cross-currency swap was $7.4 million, which was recorded in AOCI.
During the second and third quarter of fiscal year 2020, the Company entered into forward foreign exchange contracts, designated as cash flow hedges, to hedge the 2021 Notes. The effective portion of the gain or loss of the cash flow hedges will be reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. As of October 4, 2020, the total notional amount of the forward foreign exchange contracts that were designated as cash flow hedges was €300.0 million. The unrealized foreign exchange gains recorded in earnings related to the cash flow hedges were $10.5 million and $14.3 million for the three and nine months ended October 4, 2020, respectively.
The Company does not expect any material net pre-tax gains or losses to be reclassified from accumulated other comprehensive loss into interest and other expense, net within the next twelve months.
Note 17: Fair Value Measurements
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, derivatives, marketable securities and accounts receivable. The Company believes it had no significant concentrations of credit risk as of October 4, 2020.
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the nine months ended October 4, 2020. The Company’s financial assets and liabilities carried at fair value are primarily comprised of marketable securities, derivative contracts used to hedge the Company’s currency risk, and acquisition-related contingent consideration. The Company has not elected to measure any additional financial instruments or other items at fair value.
Valuation Hierarchy: The following summarizes the three levels of inputs required to measure fair value. For Level 1 inputs, the Company utilizes quoted market prices as these instruments have active markets. For Level 2 inputs, the Company utilizes quoted market prices in markets that are not active, broker or dealer quotations, or utilizes alternative pricing sources with reasonable levels of price transparency. For Level 3 inputs, the Company utilizes unobservable inputs based on the best information available, including estimates by management primarily based on information provided by third-party fund managers, independent brokerage firms and insurance companies. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
The following tables show the assets and liabilities carried at fair value measured on a recurring basis as of October 4, 2020 and December 29, 2019 classified in one of the three classifications described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at October 4, 2020 Using:
|
|
|
Total Carrying Value at October 4, 2020
|
|
Quoted Prices in
Active Markets
(Level 1)
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|
Significant Other
Observable Inputs
(Level 2)
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|
Significant
Unobservable
Inputs
(Level 3)
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|
(In thousands)
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|
Marketable securities
|
$
|
2,911
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|
|
$
|
2,911
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|
|
$
|
—
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$
|
—
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|
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Foreign exchange derivative assets
|
14,872
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|
|
—
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14,872
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|
|
—
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Foreign exchange derivative liabilities
|
(8,113)
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—
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|
(8,113)
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|
|
—
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|
|
Contingent consideration
|
(2,817)
|
|
|
—
|
|
|
—
|
|
|
(2,817)
|
|
|
|
|
|
|
|
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|
|
|
|
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Fair Value Measurements at December 29, 2019 Using:
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|
|
Total Carrying Value at December 29, 2019
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(In thousands)
|
|
Marketable securities
|
$
|
2,906
|
|
|
$
|
2,906
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign exchange derivative assets
|
451
|
|
|
—
|
|
|
451
|
|
|
—
|
|
|
Foreign exchange derivative liabilities
|
(1,538)
|
|
|
—
|
|
|
(1,538)
|
|
|
—
|
|
|
Contingent consideration
|
(35,481)
|
|
|
—
|
|
|
—
|
|
|
(35,481)
|
|
Level 1 and Level 2 Valuation Techniques: The Company’s Level 1 and Level 2 assets and liabilities are comprised of investments in equity and fixed-income securities as well as derivative contracts. For financial assets and liabilities that utilize
Level 1 and Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including common stock price quotes, foreign exchange forward prices and bank price quotes. Below is a summary of valuation techniques for Level 1 and Level 2 financial assets and liabilities.
Marketable securities: Include equity and fixed-income securities measured at fair value using the quoted market prices in active markets at the reporting date.
Foreign exchange derivative assets and liabilities: Include foreign exchange derivative contracts that are valued using quoted forward foreign exchange prices at the reporting date. The Company’s foreign exchange derivative contracts are subject to master netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's condensed consolidated balance sheet on a net basis and are recorded in other assets. As of both October 4, 2020 and December 29, 2019, none of the master netting arrangements involved collateral.
Level 3 Valuation Techniques: The Company’s Level 3 liabilities are comprised of contingent consideration related to acquisitions. For liabilities that utilize Level 3 inputs, the Company uses significant unobservable inputs. Below is a summary of valuation techniques for Level 3 liabilities.
Contingent consideration: Contingent consideration is measured at fair value at the acquisition date using projected milestone dates, discount rates, probabilities of success and projected revenues (for revenue-based considerations). Projected risk-adjusted contingent payments are discounted back to the current period using a discounted cash flow model.
During fiscal year 2015, the Company acquired certain assets and assumed certain liabilities from Vanadis Diagnostics AB. Under the terms of the acquisition, the initial purchase consideration was $32.0 million, net of cash and the Company was obligated to make potential future milestone payments, based on completion of a proof of concept, regulatory approvals and product sales, of up to $93.0 million ranging from 2016 to 2019. The fair value of the contingent consideration as of the acquisition date was estimated at $56.9 million. During the third quarter of fiscal year 2020, the Company achieved the last milestone. As of October 4, 2020, the Company had $10.0 million recorded in other current liabilities in the consolidated balance sheet related to the remaining milestone payment.
The fair values of contingent consideration are calculated on a quarterly basis based on a collaborative effort of the Company’s regulatory, research and development, operations, finance and accounting groups, as appropriate. Potential valuation adjustments are made as additional information becomes available, including the progress towards achieving proof of concept, regulatory approvals and revenue targets as compared to initial projections, the impact of market competition and market landscape shifts from non-invasive prenatal testing products, with the impact of such adjustments being recorded in the Company's consolidated statements of operations.
As of October 4, 2020, the Company may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to $7.3 million. The expected maximum earnout period for the acquisitions with open contingency periods does not exceed 2.2 years from October 4, 2020, and the remaining weighted average expected earnout period at October 4, 2020 was 1.2 years.
A reconciliation of the beginning and ending Level 3 net liabilities for contingent consideration is as follows:
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Three Months Ended
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|
Nine Months Ended
|
|
|
October 4,
2020
|
|
September 29,
2019
|
|
October 4,
2020
|
|
September 29,
2019
|
|
|
(In thousands)
|
|
Balance at beginning of period
|
$
|
(13,726)
|
|
|
$
|
(34,261)
|
|
|
$
|
(35,481)
|
|
|
$
|
(69,661)
|
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Amounts paid and foreign currency translation
|
(144)
|
|
|
9,997
|
|
|
10,165
|
|
|
48,558
|
|
|
Reclassified to other current liabilities for achieved milestones
|
13,692
|
|
|
—
|
|
|
13,692
|
|
|
—
|
|
|
Change in fair value (included within selling, general and administrative expenses)
|
(2,639)
|
|
|
(1,238)
|
|
|
8,807
|
|
|
(4,399)
|
|
|
Balance at end of period
|
$
|
(2,817)
|
|
|
$
|
(25,502)
|
|
|
$
|
(2,817)
|
|
|
$
|
(25,502)
|
|
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturities of these assets and liabilities. If measured at fair value, cash and cash equivalents would be classified as Level 1.
As of October 4, 2020, the Company’s senior unsecured revolving credit facility had a carrying value of $63.2 million, net of $2.8 million of unamortized debt issuance costs. As of December 29, 2019, the Company’s senior unsecured revolving credit facility had a carrying value of $322.0 million, net of $3.4 million of unamortized debt issuance costs. The interest rate on the Company’s senior unsecured revolving credit facility is reset at least monthly to correspond to variable rates that reflect currently available terms and conditions for similar debt. The Company had no change in credit standing during the first nine months of fiscal year 2020. Consequently, the carrying value approximates fair value and were classified as Level 2.
The Company's 2026 Notes, with a face value of €500.0 million, had an aggregate carrying value of $579.6 million, net of $3.2 million of unamortized original issue discount and $2.9 million of unamortized debt issuance costs as of October 4, 2020. The 2026 Notes had an aggregate carrying value of $552.2 million, net of $3.5 million of unamortized original issue discount and $3.3 million of unamortized debt issuance costs as of December 29, 2019. The 2026 Notes had a fair value of €532.1 million and €518.5 million as of October 4, 2020 and December 29, 2019, respectively. The fair value of the 2026 Notes is estimated using market quotes from brokers and is based on current rates offered for similar debt.
The Company's 2021 Notes, with a face value of €300.0 million, had an aggregate carrying value of $351.0 million, net of $30,000 of unamortized original issue discount and $0.4 million of unamortized debt issuance costs as of October 4, 2020. The 2021 Notes had an aggregate carrying value of $334.2 million, net of $0.1 million of unamortized original issue discount and $1.1 million of unamortized debt issuance costs as of December 29, 2019. The 2021 Notes had a fair value of €314.0 million and €301.9 million as of October 4, 2020 and December 29, 2019, respectively. The fair value of the 2021 Notes is estimated using market quotes from brokers and is based on current rates offered for similar debt.
The Company's 2029 Notes, with a face value of $850.0 million, had an aggregate carrying value of $840.4 million, net of $2.5 million of unamortized original issue discount and $7.0 million of unamortized debt issuance costs as of October 4, 2020. The 2029 Notes had an aggregate carrying value of $839.9 million, net of $2.7 million of unamortized original issue discount and $7.4 million of unamortized debt issuance costs as of December 29, 2019. The 2029 Notes had a fair value of $942.0 million and $872.3 million as of October 4, 2020 and December 29, 2019, respectively. The fair value of the 2029 Notes is estimated using market quotes from brokers and is based on current rates offered for similar debt.
As of October 4, 2020, the 2021 Notes, 2026 Notes and 2029 Notes were classified as Level 2.
The Company’s other debt facilities had an aggregate carrying value of $18.6 million and $25.7 million as of October 4, 2020 and December 29, 2019, respectively. As of October 4, 2020, these consisted of bank loans in the aggregate amount of $18.5 million bearing fixed interest rates between 1.1% and 20.0% and a bank loan in the amount of $0.1 million bearing a variable interest rate based on the Euribor rate plus a margin of 1.5%. The Company had no change in credit standing during the first nine months of fiscal year 2020. Consequently, the carrying value approximates fair value and were classified as Level 2.
As of October 4, 2020, there has not been any significant impact to the fair value of the Company’s derivative liabilities due to credit risk. Similarly, there has not been any significant adverse impact to the Company’s derivative assets based on the evaluation of its counterparties’ credit risks.
Note 18: Contingencies
The Company is conducting a number of environmental investigations and remedial actions at current and former locations of the Company and, along with other companies, has been named a potentially responsible party (“PRP”) for certain waste disposal sites. The Company accrues for environmental issues in the accounting period that the Company’s responsibility is established and when the cost can be reasonably estimated. The Company has accrued $12.7 million and $7.7 million as of October 4, 2020 and December 29, 2019, respectively, which represents its management’s estimate of the cost of the remediation of known environmental matters and does not include any potential liability for related personal injury or property damage claims. These amounts were included in accrued expenses and other current liabilities. The Company's environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on the Company’s condensed consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the condensed consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
The Company is subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of its business activities. Although the Company has established accruals for potential losses that it believes are probable and reasonably estimable, in the opinion of the Company’s management, based on its review of the information available at this time, the total cost of resolving these contingencies at October 4, 2020 would not have a material adverse effect on the Company’s condensed consolidated financial statements. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company.