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 January 3, 2021, filed with the SEC (the “2020 Form 10-K”). The balance sheet amounts at January 3, 2021 in this report were derived from the Company’s audited 2020 consolidated financial statements included in the 2020 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 months ended April 4, 2021 and April 5, 2020, 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 2, 2022 ("fiscal year 2021") will include 52 weeks, and the fiscal year ended January 3, 2021 ("fiscal year 2020") included 53 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 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. In accordance with ASU 2019-12, the Company adopted the guidance beginning on January 4, 2021. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
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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Reportable Segments
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Three Months Ended
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|
April 4, 2021
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|
April 5, 2020
|
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Total
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Total
|
|
|
(In thousands)
|
|
Primary geographical markets
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
175,115
|
|
|
$
|
400,927
|
|
|
$
|
576,042
|
|
|
$
|
169,116
|
|
|
$
|
105,157
|
|
|
$
|
274,273
|
|
|
Europe
|
135,458
|
|
|
311,743
|
|
|
447,201
|
|
|
118,657
|
|
|
81,599
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|
|
200,256
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Asia
|
144,036
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|
|
140,410
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|
|
284,446
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|
|
110,622
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|
|
67,245
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|
|
177,867
|
|
|
|
$
|
454,609
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|
|
$
|
853,080
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|
|
$
|
1,307,689
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|
|
$
|
398,395
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|
|
$
|
254,001
|
|
|
$
|
652,396
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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Primary end-markets
|
|
|
|
|
|
|
|
|
|
|
|
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Diagnostics
|
$
|
—
|
|
|
$
|
853,080
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|
|
$
|
853,080
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|
|
$
|
—
|
|
|
$
|
254,001
|
|
|
$
|
254,001
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Life sciences
|
277,201
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|
|
—
|
|
|
277,201
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|
|
245,733
|
|
|
—
|
|
|
245,733
|
|
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Applied markets
|
177,408
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|
|
—
|
|
|
177,408
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|
|
152,662
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|
|
—
|
|
|
152,662
|
|
|
|
$
|
454,609
|
|
|
$
|
853,080
|
|
|
$
|
1,307,689
|
|
|
$
|
398,395
|
|
|
$
|
254,001
|
|
|
$
|
652,396
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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Timing of revenue recognition
|
|
|
|
|
|
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|
|
|
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Products and services transferred at a point in time
|
$
|
326,662
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|
|
$
|
615,106
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|
|
$
|
941,768
|
|
|
$
|
267,907
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|
|
$
|
231,653
|
|
|
$
|
499,560
|
|
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Services transferred over time
|
127,947
|
|
|
237,974
|
|
|
365,921
|
|
|
130,488
|
|
|
22,348
|
|
|
152,836
|
|
|
|
$
|
454,609
|
|
|
$
|
853,080
|
|
|
$
|
1,307,689
|
|
|
$
|
398,395
|
|
|
$
|
254,001
|
|
|
$
|
652,396
|
|
Major Customer Concentration
Revenues from one customer in the Company's Diagnostics segment represent approximately $205.6 million of the Company's total revenue for the three months ended April 4, 2021.
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 April 4, 2021 and January 3, 2021 were $50.2 million and $59.5 million, respectively. The amount of unbilled receivables recognized at the beginning of the period that were transferred to trade receivables during the three months ended April 4, 2021 was $37.8 million. The increase in unbilled receivables during the three months ended April 4, 2021 as a result of recognition of revenue before billing to customers, excluding amounts transferred to trade receivables during the period, amounted to $28.5 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 "Accrued expenses and other current liabilities" or as 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 April 4, 2021 and January 3, 2021 were $221.0 million and $238.1 million, respectively. The increase in contract liabilities during the three months ended April 4, 2021 due to cash received, excluding amounts recognized as revenue during the period, was $20.9 million. The amount of revenue recognized during the three months ended April 4, 2021 that was included in the contract liability balance at the beginning of the period was $38.0 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 2021
During the first quarter of fiscal year 2021, the Company completed the acquisition of two businesses for aggregate consideration of $593.4 million. The acquired businesses were Oxford Immunotec Global PLC ("Oxford"), a company based in Abingdon, UK with approximately 275 employees, which was acquired on March 8, 2021 for a total consideration of $590.9 million and one other business, which was acquired for a total consideration of $2.5 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery and Analytical Solutions segments, as applicable, from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names, and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 11.1 years.
The total purchase price for the acquisitions in fiscal year 2021 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
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Preliminary
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Oxford
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Other
|
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(In thousands)
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Fair value of business combination:
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Cash payments
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$
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590,865
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|
|
$
|
2,250
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Other liability
|
—
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|
|
250
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|
|
|
|
|
|
|
|
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Less: cash acquired
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(149,586)
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|
|
—
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Total
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$
|
441,279
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|
|
$
|
2,500
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|
|
Identifiable assets acquired and liabilities assumed:
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Current assets
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$
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25,815
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|
|
$
|
25
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|
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Property, plant and equipment
|
12,404
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|
|
65
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|
|
Other assets
|
10,553
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|
|
—
|
|
|
Identifiable intangible assets:
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|
|
|
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Core technology
|
150,000
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|
|
2,410
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|
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Trade names
|
23,800
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|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
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Customer relationships
|
6,800
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|
|
—
|
|
|
|
|
|
|
|
Goodwill
|
280,944
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|
|
—
|
|
|
Deferred taxes
|
(33,072)
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|
|
—
|
|
|
Deferred revenue
|
(102)
|
|
|
—
|
|
|
Debt assumed
|
(331)
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|
|
—
|
|
|
Liabilities assumed
|
(35,532)
|
|
|
—
|
|
|
Total
|
$
|
441,279
|
|
|
$
|
2,500
|
|
Acquisitions in fiscal year 2020
During the fiscal year 2020, the Company completed the acquisition of four businesses for aggregate consideration of $438.7 million. The acquired businesses were Horizon Discovery Group plc (“Horizon”), a company based in Cambridge, UK with approximately 400 employees, which was acquired on December 23, 2020 for a total consideration of $399.4 million (£296.0 million), and three other businesses, which were acquired for a total consideration of $39.3 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, customer relationships and in-process research and development, 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 2020 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
Preliminary
|
|
|
Horizon
|
|
Other
|
|
|
(In thousands)
|
|
Fair value of business combination:
|
|
|
|
|
Cash payments
|
$
|
399,005
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|
|
$
|
38,243
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|
|
Other liability
|
396
|
|
|
1,263
|
|
|
|
|
|
|
|
Working capital and other adjustments
|
—
|
|
|
(384)
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|
|
Less: cash acquired
|
(25,539)
|
|
|
(1,300)
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|
|
Total
|
$
|
373,862
|
|
|
$
|
37,822
|
|
|
Identifiable assets acquired and liabilities assumed:
|
|
|
|
|
Current assets
|
$
|
29,762
|
|
|
$
|
5,770
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|
|
Property, plant and equipment
|
17,729
|
|
|
2,673
|
|
|
Other assets
|
17,743
|
|
|
371
|
|
|
Identifiable intangible assets:
|
|
|
|
|
Core technology
|
60,000
|
|
|
5,730
|
|
|
Trade names
|
4,900
|
|
|
680
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
97,600
|
|
|
10,923
|
|
|
|
|
|
|
|
Goodwill
|
202,071
|
|
|
16,016
|
|
|
Deferred taxes
|
(22,651)
|
|
|
(1,132)
|
|
|
Deferred revenue
|
(2,031)
|
|
|
—
|
|
|
Debt assumed
|
—
|
|
|
(29)
|
|
|
Liabilities assumed
|
(41,961)
|
|
|
(3,180)
|
|
|
Total
|
$
|
373,862
|
|
|
$
|
37,822
|
|
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.
As of April 4, 2021, the Company may have to pay contingent consideration related to acquisitions with open contingency periods of up to $7.3 million. As of April 4, 2021, the Company has recorded contingent consideration obligations of $3.1 million, of which $3.0 million was recorded in accrued expenses and other current liabilities, and $0.1 million was recorded in long-term liabilities. As of January 3, 2021, the Company had recorded contingent consideration obligations with an estimated fair value of $3.0 million, of which $2.9 million was recorded in accrued expenses and other current liabilities, and $0.1 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 1.8 years from April 4, 2021, and the remaining weighted average expected earnout period at April 4, 2021 was 1.1 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 months ended April 4, 2021 and April 5, 2020 were $4.4 million and $12.4 million, respectively. These amounts included $5.4 million and $12.3 million of incentive award associated with the Company's acquisition of Meizheng Group for the three months ended April 4, 2021 and April 5, 2020, respectively. Net foreign exchange gain and interest expense related to the Company's acquisition of Oxford for the three months ended April 4, 2021 amounted to $5.4 million and $0.2 million, respectively. 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 implemented a restructuring plan in the first quarter of fiscal year 2021 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives and integrate new acquisitions (the "Q1 2021 Plan"). 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"). 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 2020 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 2021 and 2020 in continuing operations:
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|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
Q1 2021 Plan
|
77
|
|
$
|
3,941
|
|
|
$
|
1,615
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,556
|
|
|
Q4 FY2021
|
|
—
|
|
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
|
The Company recorded pre-tax charges of $0.2 million and $1.4 million associated with relocating facilities during the three months ended April 4, 2021 and April 5, 2020, respectively, in the Discovery & Analytical Solutions segment. The Company expects to make payments on these relocation activities through end of fiscal year 2021.
At April 4, 2021, the Company had $10.1 million recorded for accrued restructuring and other costs, of which $8.6 million was recorded in short-term accrued restructuring and other costs, $0.2 million was recorded in operating lease right-of-use assets, and $1.2 million was recorded in operating lease liabilities. At January 3, 2021, the Company had $8.3 million recorded for accrued restructuring and other costs, of which $4.7 million was recorded in short-term accrued restructuring and other costs, $0.3 million was recorded in operating lease right-of-use assets, $2.0 million was recorded in accrued expenses and other current liabilities, and $1.3 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 three months ended April 4, 2021:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2021
|
|
2021 Charges
|
|
2021 Changes in Estimates, Net
|
|
2021 Amounts Paid
|
|
Balance at April 4, 2021
|
|
|
(In thousands)
|
|
Severance:
|
|
|
|
|
|
|
|
|
|
|
Q1 2021 Plan
|
$
|
—
|
|
|
$
|
5,556
|
|
|
$
|
—
|
|
|
$
|
(917)
|
|
|
$
|
4,639
|
|
|
Q3 2020 Plan
|
1,167
|
|
|
—
|
|
|
—
|
|
|
(443)
|
|
|
724
|
|
|
Q1 2020 Plan
|
872
|
|
|
—
|
|
|
—
|
|
|
(268)
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2020 Plan
|
394
|
|
|
—
|
|
|
—
|
|
|
(85)
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous Plans
|
3,550
|
|
|
—
|
|
|
—
|
|
|
(106)
|
|
|
3,444
|
|
|
Restructuring
|
5,983
|
|
|
5,556
|
|
|
—
|
|
|
(1,819)
|
|
|
9,720
|
|
|
Contract Termination
|
318
|
|
|
—
|
|
|
35
|
|
|
(15)
|
|
|
338
|
|
|
Other Costs
|
1,998
|
|
|
188
|
|
|
—
|
|
|
(2,186)
|
|
|
—
|
|
|
Total Restructuring and Other Liabilities
|
$
|
8,299
|
|
|
$
|
5,744
|
|
|
$
|
35
|
|
|
$
|
(4,020)
|
|
|
$
|
10,058
|
|
Note 5: Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
April 4,
2021
|
|
April 5,
2020
|
|
|
|
|
|
|
(In thousands)
|
|
Interest income
|
$
|
(411)
|
|
|
$
|
(265)
|
|
|
|
|
|
|
Interest expense
|
14,126
|
|
|
13,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of financial securities
|
(19,298)
|
|
|
—
|
|
|
|
|
|
|
Other income, net
|
(7,123)
|
|
|
(3,407)
|
|
|
|
|
|
|
Total interest and other (income) expense, net
|
$
|
(12,706)
|
|
|
$
|
9,993
|
|
|
|
|
|
Foreign currency transaction losses were $1.3 million and $7.9 million for the three months ended April 4, 2021 and April 5, 2020, respectively. Net gains from forward currency hedge contracts were $4.7 million and $9.6 million for the three months ended April 4, 2021 and April 5, 2020, respectively.
Note 6: Inventories
Inventories as of April 4, 2021 and January 3, 2021 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4,
2021
|
|
January 3,
2021
|
|
|
(In thousands)
|
|
Raw materials
|
$
|
196,712
|
|
|
$
|
205,022
|
|
|
Work in progress
|
44,676
|
|
|
35,160
|
|
|
Finished goods
|
288,520
|
|
|
274,385
|
|
|
Total inventories
|
$
|
529,908
|
|
|
$
|
514,567
|
|
Note 7: Income Taxes
During the first three months of fiscal years 2021 and 2020, the Company recorded a net discrete income tax expense of $2.0 million and a net discrete income tax benefit of $4.9 million, respectively. The primary components of the discrete tax expense in the first three months of fiscal year 2021 included various tax return to provision adjustments totaling $1.8 million and a $1.5 million accrual for foreign earnings, which were partially offset by excess tax benefits on stock compensation of $3.1 million. The most significant discrete tax benefits in the first three months of fiscal year 2020 included excess tax benefits on stock compensation of $1.6 million and $3.8 million associated with a valuation allowance reversal.
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 17, 2024. As of April 4, 2021, the senior unsecured revolving credit facility had no outstanding borrowings, and $2.4 million of unamortized debt issuance costs. As of January 3, 2021, the senior unsecured revolving credit facility had outstanding borrowings of $158.6 million, and $2.6 million of unamortized debt issuance costs.
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 April 4, 2021, the 2026 Notes had an aggregate carrying value of $582.4 million, net of $3.0 million of unamortized original issue discount and $2.7 million of unamortized debt issuance costs. As of January 3, 2021, the 2026 Notes had an aggregate carrying value of $604.7 million, net of $3.3 million of unamortized original issue discount and $2.8 million of unamortized debt issuance costs.
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 April 4, 2021, the 2021 Notes had an aggregate carrying value of $352.8 million, net of $656 of unamortized original issue discount and $9,631 of unamortized debt issuance costs. As of January 3, 2021, the 2021 Notes had an aggregate carrying value of $366.2 million, net of $16,200 of unamortized original issue discount and $0.2 million of unamortized debt issuance costs. The 2021 Notes matured in April 2021 and bore interest at an annual rate of 0.6%. Interest on the 2021 Notes was payable annually on April 9th each year.
On April 9, 2021, the Company redeemed all of its outstanding 2021 Notes and paid an aggregate principal amount of $337.1 million.
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 April 4, 2021, the 2029 Notes had an aggregate carrying value of $840.8 million, net of $2.4 million of unamortized original issue discount and $6.8 million of unamortized debt issuance costs. As of January 3, 2021, the 2029 Notes had an aggregate carrying value of $840.6 million, net of $2.5 million of unamortized original issue discount and $6.9 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.
2.55% Senior Unsecured Notes due in 2031. On March 8, 2021, the Company issued $400.0 million aggregate principal amount of senior unsecured notes due in 2031 (the "2031 Notes”) in a registered public offering and received $399.9 million of net proceeds from the issuance. The 2031 Notes were issued at 99.965% of the principal amount, which resulted in a discount of $0.1 million. As of April 4, 2021, the 2031 Notes had an aggregate carrying value of $396.1 million, net of $0.1 million of unamortized original issue discount and $3.8 million of unamortized debt issuance costs. The 2031 Notes mature in March 2031 and bear interest at an annual rate of 2.55%. Interest on the 2031 Notes is payable semi-annually on March 15th and September 15th each year. Prior to December 15, 2030 (three months prior to their maturity date), the Company may redeem the 2031 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 (1) 100% of the principal amount of the 2031 Notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued but unpaid as of the date of redemption) assuming that the 2031 Notes matured on December 15, 2030, discounted to 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 2031 Notes) plus 15 basis points, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. At any time on or after December 15, 2030, the Company may redeem the 2031 Notes, in whole or in part, at the Company’s option, at a redemption price equal to 100% of the principal amount of the 2031 Notes due to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. Upon a change of control repurchase event (as defined in the indenture governing the 2031 Notes) of the Company, the Company will, in certain circumstances, make an offer to repurchase the 2031 Notes at a price equal to 101% of their principal amount plus any accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
3.625% Senior Unsecured Notes due in 2051. On March 8, 2021, the Company issued $400.0 million aggregate principal amount of senior unsecured notes due in 2051 (the "2051 Notes”) in a registered public offering and received $400.00 million of net proceeds from the issuance. The 2051 Notes were issued at 99.999% of the principal amount, which resulted in a discount of $4,000. As of April 4, 2021, the 2051 Notes had an aggregate carrying value of $395.3 million, net of $4,000 of unamortized original issue discount and $4.7 million of unamortized debt issuance costs. The 2051 Notes mature in March 2051 and bear interest at an annual rate of 3.625%. Interest on the 2051 Notes is payable semi-annually on March 15th and September 15th each year. Prior to September 15, 2050 (six months prior to their maturity date), the Company may redeem the 2051 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 (1) 100% of the principal amount of the 2051 Notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued but unpaid as of the date of redemption) assuming that the 2051 Notes matured on September 15, 2050, discounted to 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 2051 Notes) plus 20 basis points, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. At any time on or after September 15, 2050, the Company may redeem the 2051 Notes, in whole or in part, at the Company’s option, at a redemption price equal to 100% of the principal amount of the 2051 Notes due to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. Upon a change of control repurchase event (as defined in the indenture governing the 2051 Notes) of the Company, the Company will, in certain circumstances, make an offer to repurchase the 2051 Notes at a price equal to 101% of their principal amount plus any accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
Other Debt Facilities. The Company's other debt facilities include Euro-denominated bank loans with an aggregate carrying value of $11.9 million (or €10.1 million) and $17.0 million (or €13.9 million) as of April 4, 2021 and January 3, 2021, 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.
In addition, the Company had secured bank loans in the aggregate amount of $0.8 million and $6.1 million as of April 4, 2021 and January 3, 2021, respectively. The secured bank loans are required to be repaid in monthly installments until 2022.
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
|
|
|
|
|
April 4,
2021
|
|
April 5,
2020
|
|
|
|
|
|
|
(In thousands)
|
|
Number of common shares—basic
|
112,028
|
|
|
111,121
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
359
|
|
|
480
|
|
|
|
|
|
|
Restricted stock awards
|
108
|
|
|
43
|
|
|
|
|
|
|
Number of common shares—diluted
|
112,495
|
|
|
111,644
|
|
|
|
|
|
|
Number of potentially dilutive securities excluded from calculation due to antidilutive impact
|
162
|
|
|
491
|
|
|
|
|
|
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 2020 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
|
|
|
|
|
April 4,
2021
|
|
April 5,
2020
|
|
|
|
|
|
|
(In thousands)
|
|
Discovery & Analytical Solutions
|
|
|
|
|
|
|
|
|
Product revenue
|
$
|
267,255
|
|
|
$
|
215,356
|
|
|
|
|
|
|
Service revenue
|
187,354
|
|
|
183,039
|
|
|
|
|
|
|
Total revenue
|
454,609
|
|
|
398,395
|
|
|
|
|
|
|
Operating income from continuing operations
|
42,947
|
|
|
28,513
|
|
|
|
|
|
|
Diagnostics
|
|
|
|
|
|
|
|
|
Product revenue
|
544,297
|
|
|
210,173
|
|
|
|
|
|
|
Service revenue
|
308,783
|
|
|
43,828
|
|
|
|
|
|
|
Total revenue
|
853,080
|
|
|
254,001
|
|
|
|
|
|
|
Operating income from continuing operations
|
441,467
|
|
|
29,591
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Operating loss from continuing operations
|
(16,638)
|
|
|
(13,422)
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
Product revenue
|
811,552
|
|
|
425,529
|
|
|
|
|
|
|
Service revenue
|
496,137
|
|
|
226,867
|
|
|
|
|
|
|
Total revenue
|
1,307,689
|
|
|
652,396
|
|
|
|
|
|
|
Operating income from continuing operations
|
467,776
|
|
|
44,682
|
|
|
|
|
|
|
Interest and other (income) expense, net (see Note 5)
|
(12,706)
|
|
|
9,993
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
$
|
480,482
|
|
|
$
|
34,689
|
|
|
|
|
|
Note 11: Stockholders’ Equity
Comprehensive Income:
The components of accumulated other comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4,
2021
|
|
January 3,
2021
|
|
|
(In thousands)
|
|
Foreign currency translation adjustments, net of income taxes
|
$
|
(103,242)
|
|
|
$
|
(30,937)
|
|
|
Unrecognized prior service costs, net of income taxes
|
(747)
|
|
|
(747)
|
|
|
|
|
|
|
|
Unrealized net losses on securities, net of income taxes
|
(183)
|
|
|
(277)
|
|
|
Accumulated other comprehensive loss
|
$
|
(104,172)
|
|
|
$
|
(31,961)
|
|
Stock Repurchases:
On July 31, 2020, the Company's 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 will expire on July 27, 2022 unless terminated earlier by the Board and may be suspended or discontinued at any time. During the three months ended April 4, 2021, the Company repurchased 233,000 shares of common stock under the Repurchase Program for an aggregate cost of $33.6 million. As of April 4, 2021, $216.4 million remained available for aggregate repurchases of shares under the Repurchase Program.
In addition, the Board has authorized the Company to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to the Company’s equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to the Company's equity incentive plans. During the three months ended April 4, 2021, the Company repurchased 61,791 shares of common stock for this purpose at an aggregate cost of $9.2 million. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value.
Dividends:
The Board declared a regular quarterly cash dividend of $0.07 per share for the first quarter of fiscal year 2021 and in each quarter of fiscal year 2020. At April 4, 2021, the Company had accrued $7.9 million for dividends declared on January 28, 2021 for the first quarter of fiscal year 2021 that were paid on May 7, 2021. On April 29, 2021, the Company announced that the Board had declared a quarterly dividend of $0.07 per share for the second quarter of fiscal year 2021 that will be payable in August 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 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 months ended April 4, 2021 and April 5, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
April 4,
2021
|
|
April 5,
2020
|
|
|
|
|
|
|
(In thousands)
|
|
Cost of revenue
|
$
|
396
|
|
|
$
|
254
|
|
|
|
|
|
|
Research and development expenses
|
197
|
|
|
272
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
4,564
|
|
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
$
|
5,157
|
|
|
$
|
3,050
|
|
|
|
|
|
The total income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation was $4.1 million and $2.2 million for the three months ended April 4, 2021 and April 5, 2020, respectively. Stock-based compensation costs capitalized as part of inventory were $0.5 million and $0.3 million as of April 4, 2021 and April 5, 2020, 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 Months Ended
|
|
|
April 4,
2021
|
|
April 5,
2020
|
|
Risk-free interest rate
|
0.6
|
%
|
|
0.9
|
%
|
|
Expected dividend yield
|
0.2
|
%
|
|
0.3
|
%
|
|
Expected term
|
5 years
|
|
5 years
|
|
Expected stock volatility
|
27.3
|
%
|
|
23.8
|
%
|
The following table summarizes stock option activity for the three months ended April 4, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Weighted-
Average Exercise
Price
|
|
Weighted-Average
Remaining
Contractual
Term
|
|
Total
Intrinsic
Value
|
|
|
(In thousands)
|
|
|
|
(In years)
|
|
(In millions)
|
|
Outstanding at January 3, 2021
|
961
|
|
|
$
|
74.40
|
|
|
|
|
|
|
Granted
|
162
|
|
|
134.53
|
|
|
|
|
|
|
Exercised
|
(96)
|
|
|
53.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
(7)
|
|
|
88.54
|
|
|
|
|
|
|
Outstanding at April 4, 2021
|
1,020
|
|
|
$
|
85.78
|
|
|
4.3
|
|
$
|
46.2
|
|
|
Exercisable at April 4, 2021
|
640
|
|
|
$
|
72.63
|
|
|
3.2
|
|
$
|
36.7
|
|
The weighted-average per-share grant-date fair value of options granted during the three months ended April 4, 2021 and April 5, 2020 was $32.90 and $18.98. The total intrinsic value of options exercised during the three months ended April 4, 2021 and April 5, 2020 was $9.5 million and $0.9 million, respectively. Cash received from option exercises for the three months ended April 4, 2021 and April 5, 2020 was $5.0 million and $1.1 million, respectively.
The total compensation expense recognized related to the Company’s outstanding options was $0.9 million and $1.0 million for the three months ended April 4, 2021 and April 5, 2020, respectively.
There was $8.9 million of total unrecognized compensation cost related to nonvested stock options granted as of April 4, 2021. This cost is expected to be recognized over a weighted-average period of 2.3 years.
Restricted Stock Awards: The following table summarizes restricted stock award activity for the three months ended April 4, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Grant-
Date Fair
Value
|
|
|
(In thousands)
|
|
|
|
Nonvested at January 3, 2021
|
296
|
|
|
$
|
85.67
|
|
|
Granted
|
102
|
|
|
129.27
|
|
|
Vested
|
(102)
|
|
|
83.16
|
|
|
Forfeited
|
(5)
|
|
|
86.90
|
|
|
Nonvested at April 4, 2021
|
291
|
|
|
$
|
101.83
|
|
The fair value of restricted stock awards vested during the three months ended April 4, 2021 and April 5, 2020 was $8.5 million and $11.6 million, respectively. The total compensation expense recognized related to the Company’s outstanding restricted stock awards was $2.8 million and $2.4 million for the three months ended April 4, 2021 and April 5, 2020, respectively.
As of April 4, 2021, there was $23.4 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 1.8 years.
Performance Restricted Stock Units: As part of the Company's executive compensation program, the Company granted 77,373 performance restricted stock units during the three months ended April 4, 2021 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 three months ended April 4, 2021 was $113.44. During the three months ended April 4, 2021, no performance restricted stock units were forfeited. The total compensation expense recognized related to performance restricted stock units was $1.4 million and $0.6 million for the three months ended April 4, 2021 and April 5, 2020, respectively. As of April 4, 2021, there were 128,386 performance restricted stock units outstanding.
Performance Units: No performance units were granted during the three months ended April 4, 2021. During the three months ended April 4, 2021, no performance units were forfeited. The total compensation expense (income) recognized related to performance units was $0.1 million and $(1.0) million for the three months ended April 4, 2021 and April 5, 2020, respectively. As of April 4, 2021, there were no performance units outstanding.
Stock Awards: The Company’s stock award program provides an annual equity award to non-employee directors. During the three months ended April 4, 2021, the Company awarded no shares to non-employee directors. The total compensation expense recognized related to the stock awards were minimal for the three months ended April 5, 2020.
Employee Stock Purchase Plan: During the three months ended April 4, 2021, the Company issued 58 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $136.33 per share. During the three months ended April 5, 2020, the Company issued 13,612 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $92.25 per share. At April 4, 2021, 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 4, 2021, its annual impairment testing date for fiscal year 2021. The Company concluded that there was no goodwill impairment, and the fair value exceeded the carrying value by more than 20% for each reporting unit, except for the Company's Tulip reporting unit which had a fair value that was between 10% and 20% more than its carrying value. The range of the long-term terminal growth rates for the Company’s reporting units was 3% to 5% for the fiscal year 2021 impairment analysis. The range for the discount rates for the reporting units was 8.0% to 12.5%. Keeping all other variables constant, a 10% change in any one of these input assumptions for the various reporting units, except for the Tulip reporting unit, would still allow the Company to conclude that there was no impairment of goodwill. As of January 4, 2021, the Company's Tulip reporting unit, which had a goodwill balance of $77.8 million, was at increased risk of an impairment charge given its ongoing weakness due to the impact of COVID-19. Despite the increased risk associated with this reporting unit, the Company does not currently expect a significant change in the key estimates or assumptions driving the fair value of this reporting unit that would lead to a material impairment charge.
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 4, 2021 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 three months of fiscal year 2021.
The changes in the carrying amount of goodwill for the three months ended April 4, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Consolidated
|
|
|
(In thousands)
|
|
Balance at January 3, 2021
|
$
|
1,755,887
|
|
|
$
|
1,691,227
|
|
|
$
|
3,447,114
|
|
|
Foreign currency translation
|
(23,119)
|
|
|
(22,268)
|
|
|
(45,387)
|
|
|
|
|
|
|
|
|
|
Acquisitions, earn-outs and other
|
1,326
|
|
|
280,737
|
|
|
282,063
|
|
|
Balance at April 4, 2021
|
$
|
1,734,094
|
|
|
$
|
1,949,696
|
|
|
$
|
3,683,790
|
|
Identifiable intangible asset balances by category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4,
2021
|
|
January 3,
2021
|
|
|
(In thousands)
|
|
Patents
|
$
|
30,843
|
|
|
$
|
30,855
|
|
|
Less: Accumulated amortization
|
(28,484)
|
|
|
(28,440)
|
|
|
Net patents
|
2,359
|
|
|
2,415
|
|
|
Trade names and trademarks
|
120,444
|
|
|
98,661
|
|
|
Less: Accumulated amortization
|
(49,853)
|
|
|
(48,806)
|
|
|
Net trade names and trademarks
|
70,591
|
|
|
49,855
|
|
|
Licenses
|
58,705
|
|
|
58,700
|
|
|
Less: Accumulated amortization
|
(53,005)
|
|
|
(52,452)
|
|
|
Net licenses
|
5,700
|
|
|
6,248
|
|
|
Core technology
|
936,682
|
|
|
789,799
|
|
|
Less: Accumulated amortization
|
(411,558)
|
|
|
(398,992)
|
|
|
Net core technology
|
525,124
|
|
|
390,807
|
|
|
Customer relationships
|
1,334,715
|
|
|
1,357,660
|
|
|
Less: Accumulated amortization
|
(546,783)
|
|
|
(522,820)
|
|
|
Net customer relationships
|
787,932
|
|
|
834,840
|
|
|
In-process research and development
|
10,966
|
|
|
10,944
|
|
|
Net amortizable intangible assets
|
1,402,672
|
|
|
1,295,109
|
|
|
Non-amortizing intangible asset:
|
|
|
|
|
Trade name
|
70,584
|
|
|
70,584
|
|
|
Total
|
$
|
1,473,256
|
|
|
$
|
1,365,693
|
|
Total amortization expense related to definite-lived intangible assets was $54.2 million and $47.3 million for the three months ended April 4, 2021 and April 5, 2020, respectively. Estimated amortization expense related to amortizable intangible assets for each of the next five years is $167.1 million for the remainder of fiscal year 2021, $205.4 million for fiscal year 2022, $182.0 million for fiscal year 2023, $161.5 million for fiscal year 2024, and $133.7 million for fiscal year 2025.
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
|
|
|
|
|
April 4,
2021
|
|
April 5,
2020
|
|
|
|
|
|
|
(In thousands)
|
|
Balance at beginning of period
|
$
|
12,073
|
|
|
$
|
8,812
|
|
|
|
|
|
|
Provision charged to income
|
3,691
|
|
|
2,712
|
|
|
|
|
|
|
Payments
|
(6,182)
|
|
|
(3,266)
|
|
|
|
|
|
|
Adjustments to previously provided warranties, net
|
2,455
|
|
|
1,052
|
|
|
|
|
|
|
Foreign currency translation and acquisitions
|
(190)
|
|
|
(269)
|
|
|
|
|
|
|
Balance at end of period
|
$
|
11,847
|
|
|
$
|
9,041
|
|
|
|
|
|
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
|
|
|
April 4,
2021
|
|
April 5,
2020
|
|
April 4,
2021
|
|
April 5,
2020
|
|
|
(In thousands)
|
|
Service and administrative costs
|
$
|
1,334
|
|
|
$
|
1,907
|
|
|
$
|
14
|
|
|
$
|
18
|
|
|
Interest cost
|
2,377
|
|
|
3,144
|
|
|
17
|
|
|
24
|
|
|
Expected return on plan assets
|
(6,127)
|
|
|
(5,384)
|
|
|
(397)
|
|
|
(347)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension credit
|
$
|
(2,416)
|
|
|
$
|
(333)
|
|
|
$
|
(366)
|
|
|
$
|
(305)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended April 4, 2021 and April 5, 2020, the Company contributed $1.8 million and $2.1 million, respectively, in the aggregate, to pension plans outside of the United States. During the three months ended April 4, 2021, the Company contributed $20.0 million to its defined benefit pension plan in the United States for the plan year 2019.
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 2020 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 British Pound, Euro, Indian Rupee, Singapore Dollar and Swedish Krona. The Company held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling $969.5 million, $808.0 million and $272.4 million at April 4, 2021, January 3, 2021 and April 5, 2020, 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 three months ended April 4, 2021 and April 5, 2020.
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 $1,309.0 million as of April 4, 2021, combined Euro notional amounts of €33.4 million and combined U.S. Dollar notional amounts of $499.0 million as of January 3, 2021, and combined Euro notional amounts of €108.0 million and combined U.S. Dollar notional amounts of $138.9 million as of April 5, 2020. 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 months ended April 4, 2021 and April 5, 2020. The Company received $6.0 million and $8.7 million during the three months ended April 4, 2021 and April 5, 2020, 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 April 4, 2021, the total notional amount of the 2026 Notes that was designated to hedge investments in foreign subsidiaries was €299.7 million. The unrealized foreign exchange gains recorded in AOCI related to the net investment hedge were $21.6 million and $21.0 million for the three months ended April 4, 2021 and April 5, 2020, 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 April 4, 2021, the fair value of the cross-currency swap was $(10.1) million, which was recorded in AOCI. The unrealized foreign exchange (losses) gains recorded in AOCI related to the cross-currency swap were $(10.1) million and $8.9 million for the three months ended April 4, 2021 and April 5, 2020, respectively.
During fiscal year 2020, the Company entered into a 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 April 4, 2021, 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 $13.6 million for the three months ended April 4, 2021.
During fiscal year 2021, the Company entered into forward foreign exchange contracts, designated as a cash flow hedge, to hedge a portion of the 2026 Notes. The effective portion of the gain or loss of the cash flow hedge 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 April 4, 2021, the total notional amount of the forward foreign exchange contracts that were designated as cash flow hedges was €197.4 million. The unrealized foreign exchange loss recorded in earnings related to the cash flow hedge was $0.9 million for the three months ended April 4, 2021.
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 April 4, 2021.
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the three months ended April 4, 2021. 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 April 4, 2021 and January 3, 2021 classified in one of the three classifications described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at April 4, 2021 Using:
|
|
|
Total Carrying Value at April 4, 2021
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(In thousands)
|
|
Marketable securities
|
$
|
41,531
|
|
|
$
|
41,531
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign exchange derivative assets
|
17,840
|
|
|
—
|
|
|
17,840
|
|
|
—
|
|
|
Foreign exchange derivative liabilities
|
(18,561)
|
|
|
—
|
|
|
(18,561)
|
|
|
—
|
|
|
Contingent consideration
|
(3,124)
|
|
|
—
|
|
|
—
|
|
|
(3,124)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 3, 2021 Using:
|
|
|
Total Carrying Value at January 3, 2021
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(In thousands)
|
|
Marketable securities
|
$
|
2,154
|
|
|
$
|
2,154
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign exchange derivative assets
|
31,248
|
|
|
—
|
|
|
31,248
|
|
|
—
|
|
|
Foreign exchange derivative liabilities
|
(21,413)
|
|
|
—
|
|
|
(21,413)
|
|
|
—
|
|
|
Contingent consideration
|
(2,953)
|
|
|
—
|
|
|
—
|
|
|
(2,953)
|
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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 April 4, 2021 and January 3, 2021, 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.
The fair values of contingent consideration are calculated on a quarterly basis based on a collaborative effort of the Company’s operations, finance and accounting groups, as appropriate. Potential valuation adjustments are made as additional information becomes available, including the progress towards achieving the revenue targets as compared to initial projections, with the impact of such adjustments being recorded in the Company's consolidated statements of operations.
As of April 4, 2021, the Company may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to $7.3 million. The expected maximum earnout period for the acquisitions with open contingency periods does not exceed 1.8 years from April 4, 2021, and the remaining weighted average expected earnout period at April 4, 2021 was 1.1 years.
A reconciliation of the beginning and ending Level 3 net liabilities for contingent consideration is as follows:
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Three Months Ended
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April 4,
2021
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April 5,
2020
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(In thousands)
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Balance at beginning of period
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$
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(2,953)
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$
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(35,481)
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Amounts paid and foreign currency translation
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69
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379
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Change in fair value (included within selling, general and administrative expenses)
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(240)
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12,325
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Balance at end of period
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$
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(3,124)
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$
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(22,777)
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The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturities of these assets and liabilities. If measured at fair value, cash and cash equivalents would be classified as Level 1.
The Company's outstanding senior unsecured notes had a fair value of $2,710.0 million and a carrying value of $2,567.5 million as of April 4, 2021. The Company's outstanding senior unsecured notes had a fair value of $1,984.3 million and a carrying value of $1,811.5 million as of January 3, 2021. The fair values of the outstanding senior unsecured notes were estimated using market quotes from brokers and were based on current rates offered for similar debt, which are Level 2 measurements.
The Company’s other debt facilities, including the senior revolving credit facility, had an aggregate carrying value of $12.7 million and $179.1 million as of April 4, 2021 and January 3, 2021, respectively. As of April 4, 2021, these consisted of bank loans in the aggregate amount of $12.7 million bearing fixed interest rates between 1.1% and 8.9% and a bank loan in the amount of $49,400 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 three months of fiscal year 2021. Consequently, the carrying value approximates fair value and were classified as Level 2.
As of April 4, 2021, there has not been any significant impact to the fair value of the Company’s derivative liabilities due to credit risk. Similarly, there has not been any significant adverse impact to the Company’s derivative assets based on the evaluation of its counterparties’ credit risks.
Note 18: Contingencies
The Company is conducting a number of environmental investigations and remedial actions at current and former locations of the Company and, along with other companies, has been named a potentially responsible party (“PRP”) for certain waste disposal sites. The Company accrues for environmental issues in the accounting period that the Company’s responsibility is established and when the cost can be reasonably estimated. The Company has accrued $12.1 million and $12.9 million as of April 4, 2021 and January 3, 2021, 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 April 4, 2021 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.