NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 1:
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Nature of Operations and Accounting Policies
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Nature of Operations:
PerkinElmer, Inc. is a leading provider of products, services and solutions to the diagnostics, research, environmental, industrial, food and laboratory services markets. Through its advanced technologies and differentiated solutions, critical issues are addressed that help to improve lives and the world around us. The results are reported within two reporting segments: Diagnostics and Discovery & Analytical Solutions.
The consolidated financial statements include the accounts of PerkinElmer, Inc. and its subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
The Company realigned its businesses at the beginning of the fourth quarter of fiscal year 2016 to better organize around customer requirements, position the Company to grow in attractive end markets and expand share with the Company's core product offerings. The Company created two new operating segments, Discovery & Analytical Solutions and Diagnostics, which will enable the Company to deliver improved customer focus, more value-add collaboration and breakthrough innovations. The Company's Diagnostics business became a standalone operating segment targeted towards better meeting the needs of clinically-oriented customers, especially within the growing areas of reproductive health, emerging market diagnostics and applied genomics. The new Diagnostics operating segment includes the products and services of the Company's diagnostics business, formerly in the Human Health segment, and the Company's microfluidics and automation products, formerly within the research business in the Human Health segment. The Company's new Discovery & Analytical Solutions operating segment combines the Company's former environmental health business, formerly in the Environmental Health segment, and the remaining products and services within the research business, formerly in the Human Health segment. The Discovery & Analytical Solutions operating segment will advance the Company's success in serving and innovating for its applications-oriented customers in the environmental, food, industrial, life sciences and laboratory services markets.
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. Each of the fiscal years ended
January 1, 2017
and
December 28, 2014
included
52
weeks. The fiscal year ended
January 3, 2016
included
53
weeks. The additional week in fiscal year 2015 has been reflected in the Company's third quarter. The fiscal year ending
December 31, 2017
will include
52
weeks.
Accounting Policies and Estimates:
The preparation of consolidated financial statements in accordance with United States (“U.S.”) Generally Accepted Accounting Principles (“GAAP”) requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Revenue Recognition:
The Company’s product revenue is recorded when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectability is reasonably assured. For products that include installation, and if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and installation revenue is recognized when the installation is complete. For revenue that includes customer-specified acceptance criteria, revenue is recognized after the acceptance criteria have been met. Certain of the Company’s products require specialized installation. Revenue for these products is deferred until installation is completed. Revenue from services is deferred and recognized over the contractual period, or as services are rendered.
In limited circumstances, the Company has arrangements that include multiple elements that are delivered at different points of time, such as revenue from products and services with a remaining service or storage component, including cord blood processing and storage. For these arrangements, the revenue is allocated to each of the deliverables based upon their relative selling prices as determined by a selling-price hierarchy. A deliverable in an arrangement qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis. A delivered item that does not qualify as a separate unit of accounting is combined with the other undelivered items in the arrangement and revenue is recognized for those combined deliverables as a single unit of accounting. The selling price used for each deliverable is based upon vendor-specific objective evidence ("VSOE") if such evidence is available, third-party evidence ("TPE") if VSOE is not available, and management's best estimate of selling price ("BESP") if neither VSOE nor TPE are available. TPE is the price of the Company's or any competitor's largely interchangeable products or services in stand-alone sales to similarly-situated customers. BESP is the price at which the Company would sell the deliverable if it were sold regularly on a stand-alone basis, considering market conditions and entity-specific factors.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue from software licenses and services was
5%
of the Company's total revenue for each of
fiscal years 2016, 2015 and 2014
. The Company sells its software licenses with maintenance services and, in some cases, also with consulting services. For the undelivered elements, the Company determines VSOE of fair value to be the price charged when the undelivered element is sold separately. The Company determines VSOE for maintenance sold in connection with a software license based on the stated renewal rate method. The Company determines VSOE for consulting services by reference to the amount charged for similar engagements on a stand-alone basis.
The Company recognizes revenue from software licenses sold together with maintenance and/or consulting services upon shipment using the residual method, provided that the above criteria have been met. If VSOE of fair value for the undelivered elements cannot be established, the Company defers all revenue from the arrangement until the earlier of the point at which such sufficient VSOE does exist or all elements of the arrangement have been delivered, or if the only undelivered element is maintenance, then the Company recognizes the entire fee ratably over the maintenance period.
The Company recognizes revenue from the grant of certain intellectual property rights for patented technologies it owns. These rights typically include a combination of the following: the grant of a non-exclusive, retroactive and future license to patented technologies, a covenant-not-to-sue, the release of the licensee from certain claims, and the dismissal of any pending litigation. The intellectual property rights granted may be perpetual in nature, extending until the expiration of the related patents, or can be granted for a defined timeframe. For these arrangements, the revenue is allocated to each of the deliverables based upon their relative selling prices as determined by the selling-price hierarchy. In the case where the agreement includes the dismissal of any pending litigation, the Company allocates between revenue and litigation settlement using the residual method. The Company recognizes revenue when the earnings process is complete and upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront fee for term agreement renewals, and when all other revenue recognition criteria have been met.
Service revenues represent the Company’s service offerings including service contracts, field service including related time and materials, diagnostic testing, cord blood processing and storage, and training. Service revenues are recognized as the service is performed. Revenues for service contracts and storage contracts are recognized over the contract period.
The Company sells products and accessories predominantly through its direct sales force. As a result, the use of distributors is generally limited to geographic regions where the Company has no direct sales force. The Company does not offer product return or exchange rights (other than those relating to defective goods under warranty) or price protection allowances to its customers, including its distributors. Payment terms granted to distributors are the same as those granted to end-user customers and payments are not dependent upon the distributors’ receipt of payment from their end-user customers. Sales incentives related to distributor revenue are also the same as those for end-user customers.
Warranty Costs
: The Company provides for estimated warranty costs for products at the time of their sale. Warranty liabilities are estimated using expected future repair costs based on historical labor and material costs incurred during the warranty period.
Shipping and Handling Costs:
The Company reports shipping and handling revenue in revenue, to the extent they are billed to customers, and the associated costs in cost of product revenue.
Inventories
: Inventories, which include material, labor and manufacturing overhead, are valued at the lower of cost or market. Inventories are accounted for using the first-in, first-out method of determining inventory costs. Inventory quantities on-hand are regularly reviewed, and where necessary, provisions for excess and obsolete inventory are recorded based primarily on the Company’s estimated forecast of product demand and production requirements.
Income Taxes:
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established for any deferred tax asset for which realization is not more likely than not. With respect to earnings expected to be indefinitely reinvested offshore, the Company does not accrue tax for the repatriation of such foreign earnings.
The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. These reserves are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
related to the tax benefit. Potential interest and penalties associated with such uncertain tax positions is recorded as a component of income tax expense. See Note 6 below for additional details.
Property, Plant and Equipment:
The Company depreciates property, plant and equipment using the straight-line method over its estimated useful lives, which generally fall within the following ranges: buildings-
10
to
40
years; leasehold improvements-estimated useful life or remaining term of lease, whichever is shorter; and machinery and equipment-
3
to
7
years. Certain tooling costs are capitalized and amortized over a
3
-year life, while repairs and maintenance costs are expensed.
Asset Retirement Obligations
: The Company records obligations associated with its lease obligations, the retirement of tangible long-lived assets and the associated asset retirement costs in accordance with authoritative guidance on asset retirement obligations. The Company reviews legal obligations associated with the retirement of long-lived assets that result from contractual obligations or the acquisition, construction, development and/or normal use of the assets. If it is determined that a legal obligation exists, regardless of whether the obligation is conditional on a future event, the fair value of the liability for an asset retirement obligation is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset, and this additional carrying amount is depreciated over the life of the asset. The difference between the gross expected future cash flow and its present value is accreted over the life of the related lease as interest expense. The amounts recorded in the consolidated financial statements are not material to any year presented.
Pension and Other Postretirement Benefits:
The Company sponsors both funded and unfunded U.S. and non-U.S. defined benefit pension plans and other postretirement benefits. The Company immediately recognizes actuarial gains and losses in operating results in the year in which the gains and losses occur. Actuarial gains and losses are measured annually as of the calendar month-end that is closest to the Company's fiscal year end and accordingly will be recorded in the fourth quarter, unless the Company is required to perform an interim remeasurement. The remaining components of pension expense, primarily service and interest costs and assumed return on plan assets, are recorded on a quarterly basis. The Company’s funding policy provides that payments to the U.S. pension trusts shall at least be equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Non-U.S. plans are accrued for, but generally not fully funded, and benefits are paid from operating funds.
Translation of Foreign Currencies:
For foreign operations, asset and liability accounts are translated at current exchange rates; income and expenses are translated using weighted average exchange rates for the reporting period. Resulting translation adjustments, as well as translation gains and losses from certain intercompany transactions considered permanent in nature, are reported in accumulated other comprehensive (loss) income, a separate component of stockholders’ equity. Gains and losses arising from transactions and translation of period-end balances denominated in currencies other than the functional currency are included in other expense, net.
Business Combinations:
Business combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses; previously held equity interests are valued at fair value upon the acquisition of a controlling interest; in-process research and development (“IPR&D”) is recorded at fair value as an intangible asset at the acquisition date; restructuring costs associated with a business combination are expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. Measurement period adjustments are made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. All changes that do not qualify as measurement period adjustments are also included in current period earnings. The accounting for business combinations requires estimates and judgment 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 value 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. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of finite-lived intangible assets, or the recognition of additional consideration which would be expensed.
Goodwill and Other Intangible Assets:
The Company’s intangible assets consist of (i) goodwill, which is not being amortized; (ii) indefinite lived intangibles, which consist of a trade name that is not subject to amortization; and (iii) amortizing intangibles, which consist of patents, trade names and trademarks, licenses, customer relationships, and purchased technologies, which are being amortized over their estimated useful lives.
The process of testing goodwill for impairment involves the determination of the fair value of the applicable reporting units. The test consists of a two-step process. The first step is the comparison of the fair value to the carrying value of the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reporting unit to determine if the carrying value exceeds the fair value. The second step measures the amount of an impairment loss, and is only performed if the carrying value exceeds the fair value of the reporting unit. This annual impairment assessment is performed by the Company on the later of January 1 or the first day of each fiscal year. This same impairment test will be performed at other times during the course of the year, should an event occur which suggests that the recoverability of goodwill should be reconsidered. Non-amortizing intangibles are also subject to an annual impairment test. 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
.
In addition, the Company evaluates the remaining useful life of its non-amortizing intangible assets at least annually to determine whether events or circumstances continue to support an indefinite useful life. If events or circumstances indicate that the useful lives of non-amortizing intangible assets are no longer indefinite, the assets will be tested for impairment. These intangible assets will then be amortized prospectively over their estimated remaining useful life and accounted for in the same manner as other intangible assets that are subject to amortization. Amortizing intangible assets are reviewed for impairment when indicators of impairment are present. When a potential impairment has been identified, forecasted undiscounted net cash flows of the operations to which the asset relates are compared to the current carrying value of the long-lived assets present in that operation. If such cash flows are less than such carrying amounts, long-lived assets, including such intangibles, are written down to their respective fair values. See Note 12 below for additional details.
Stock-Based Compensation:
The Company accounts for stock-based compensation expense based on estimated grant date fair value, generally using the Black-Scholes option-pricing model. The fair value is recognized, net of estimated forfeitures, as expense in the consolidated financial statements over the requisite service period. The determination of fair value and the timing of expense using option pricing models such as the Black-Scholes model require the input of highly subjective assumptions, including the expected term and the expected price volatility of the underlying stock. The Company estimates the expected term assumption based on historical experience. In determining the Company’s expected stock price volatility assumption, the Company reviews both the historical and implied volatility of the Company’s common stock, with implied volatility based on the implied volatility of publicly traded options on the Company’s common stock. The Company has
one
stock-based compensation plan from which it makes grants, which is described more fully in Note 18 below.
Marketable Securities and Investments:
The cost of securities sold is based on the specific identification method. If securities are classified as available for sale, the Company records these investments at their fair values with unrealized gains and losses included in accumulated other comprehensive (loss) income. Under the cost method of accounting, equity investments in private companies are carried at cost and are adjusted for other-than-temporary declines in fair value, additional investments or distributions.
Cash and Cash Equivalents:
The Company considers all highly liquid unrestricted instruments with a purchased maturity of three months or less to be cash equivalents. The carrying amount of cash equivalents approximates fair value due to the short maturities of these instruments.
Environmental Matters:
The Company accrues for costs associated with the remediation of environmental pollution when it is probable that a liability has been incurred and the Company’s proportionate share of the amount can be reasonably estimated. The recorded liabilities have not been discounted.
Research and Development:
Research and development costs are expensed as incurred. The fair value of acquired IPR&D costs are recorded at fair value as an intangible asset at the acquisition date and amortized once the product is ready for sale or expensed if abandoned.
Restructuring Charges:
In recent fiscal years, the Company has undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, the alignment of its operations with its growth strategy, the integration of its business units and its productivity initiatives. In connection with these initiatives, the Company has recorded restructuring charges, as more fully described in Note 4 below. Generally, costs associated with an exit or disposal activity are recognized when the liability is incurred. Prior to recording restructuring charges for employee separation agreements, the Company notifies all employees of termination. Costs related to employee separation arrangements requiring future service beyond a specified minimum retention period are recognized over the service period. Costs related to lease terminations are recorded at the fair value of the liability based on the remaining lease rental payments, reduced by estimated sublease rentals that could be reasonably obtained for the property, at the date the Company ceases use.
Comprehensive Income:
Comprehensive income is defined as net income or loss and other changes in stockholders’ equity from transactions and other events from sources other than stockholders. Comprehensive income is reflected in the consolidated statements of comprehensive income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivative Instruments and Hedging:
Derivatives are recorded on the consolidated balance sheets at fair value. Accounting for gains or losses resulting from changes in the values of those derivatives depends on the use of the derivative instrument and whether it qualifies for hedge accounting.
For a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently amortized into net earnings when the hedged exposure affects net earnings. Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge by matching the terms of the contract to the underlying transaction. The Company classifies the cash flows from hedging transactions in the same categories as the cash flows from the respective hedged items. Once established, cash flow hedges are generally recorded in other comprehensive income, unless an anticipated transaction is no longer likely to occur, and subsequently amortized into net earnings when the hedged exposure affects net earnings. Discontinued or dedesignated cash flow hedges are immediately settled with counterparties, and the related accumulated derivative gains or losses are recognized into net earnings on the consolidated financial statements. Settled cash flow hedges related to forecasted transactions that remain probable are recorded as a component of other comprehensive (loss) income and are subsequently amortized into net earnings when the hedged exposure affects net earnings. Forward contract effectiveness for cash flow hedges is calculated by comparing the fair value of the contract to the change in value of the anticipated transaction using forward rates on a monthly basis. The Company also has entered into other foreign currency forward contracts that are not designated as hedging instruments for accounting purposes. These contracts are recorded at fair value, with the changes in fair value recognized into interest and other expense, net on the consolidated financial statements.
The Company also uses foreign currency denominated debt to hedge its investments in certain foreign subsidiaries. Realized and unrealized translation adjustments from these hedges are included in the foreign currency translation component of Accumulated Other Comprehensive Income ("AOCI"), as well as the offset 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.
Recently 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 January 2017, the FASB issued Accounting Standards Update No. 2017-04,
Intangibles-Goodwill and Other Topic (Topic 350), Simplifying the Test for Goodwill Impairment
("ASU 2017-04")
,
which amends Topic 350 to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 requires that an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize the impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The provisions of this guidance are to be applied on a prospective basis. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company intends to early adopt ASU 2017-04 and will apply the provisions of this standard in its interim or annual goodwill impairment tests subsequent to January 1, 2017.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations (Topic 805), Clarifying the Definition of a Business
("ASU 2017-01"), which amends Topic 805 to provide a screen to determine when a set of assets and liabilities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the standard (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace missing elements. The standard provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The standard also provides a framework that includes two sets of criteria to consider that depend on whether a set has outputs and a more stringent criteria for sets without outputs. Lastly, the standard narrows the definition of the term "output" so that the term is consistent with how outputs are described in Topic 606. The provisions of this guidance are to be applied prospectively. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted in limited circumstances. The Company is evaluating the requirements of this guidance. The adoption is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In November 2016, the FASB issued Accounting Standards Update No. 2016-18,
Statement of Cash Flows (Topic 230), Restricted Cash
("ASU 2016-18"), which amends Topic 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The provisions of this guidance are to be applied using a retrospective transition method to each period presented. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company is evaluating the requirements of this guidance. The adoption is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16,
Income Taxes (Topic 740), Intra-entity Transfer of Assets Other than Inventory
("ASU 2016-16"). ASU 2016-16 removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The standard requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The provisions of this guidance are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company is 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 2016, the FASB issued Accounting Standards Update No. 2016-15,
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
("ASU 2016-15"). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230 and other topics. The provisions of this guidance are to be applied using a retrospective transition method to each period presented, and if it is impracticable to apply the amendments retrospectively for some of the issues, ASU 2016-15 allows the amendments for those issues to be applied prospectively as of the earliest date practicable. ASU 2015-16 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company is evaluating the requirements of this guidance. The adoption is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
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. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is 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 March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Compensation—Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
("ASU No. 2016-09"). The new standard simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory withholding requirements, as well as the related classification in the statement of cash flows. The new standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years, with early adoption permitted. The standard requires an entity to recognize all excess tax benefits and tax deficiencies as income tax benefit or expense in the income statement as discrete items in the reporting period in which they occur, and such tax benefits and tax deficiencies are not included in the estimate of an entity’s annual effective tax rate, applied on a prospective basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Further, the standard eliminates the requirement to defer the recognition of excess tax benefits until the benefit is realized through a reduction to taxes payable. All excess tax benefits previously unrecognized, along with any valuation allowance, should be recognized on a modified retrospective basis as a cumulative adjustment to retained earnings as of the date of adoption. Under ASU No. 2016-09, an entity that applies the treasury stock method in calculating diluted earnings per share is required to exclude excess tax benefits and deficiencies from the calculation of assumed proceeds since such amounts are recognized in the income statement. Excess tax benefits should also be classified as operating activities in the same manner as other cash flows related to income taxes on the statement of cash flows, as such excess tax benefits no longer represent financing activities since they are recognized in the income statement, and should be applied prospectively or retrospectively to all periods presented. The Company adopted ASU No. 2016-09 at the beginning of the first quarter of fiscal year 2016. The Company recorded a cumulative increase of
$14.2 million
in the beginning of the first quarter of fiscal year 2016 retained earnings with a corresponding increase in deferred tax assets related to the prior years' unrecognized excess tax benefits. Excess tax benefits related to exercised options and vested restricted stock and restricted stock units during the
fiscal year 2016
have been recognized in the current period’s income statement. The Company also excluded the excess tax benefits from the calculation of diluted earnings per share for
fiscal year 2016
. The Company applied the cash flow presentation section of the guidance on a prospective basis, and the prior period statement of cash flows was not adjusted. ASU No. 2016-09 also allows an entity to elect as an accounting policy either to continue to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures for service based awards as they occur. An entity that elects to account for forfeitures as they occur should apply the accounting change on a modified retrospective basis as a cumulative effect adjustment to retained earnings as of the date of adoption. The Company has elected to account for forfeitures as they occur. The adoption of this accounting policy did not have a material impact on the Company’s consolidated financial position, results of operations and cash flows.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
("ASU 2016-02"). ASU 2016-02 requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. ASU 2016-02 also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The provisions of this guidance are effective for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. ASU 2016-02 is to be applied using a modified retrospective approach. The Company is evaluating the requirements of this guidance and has not yet determined the impact of the adoption on its consolidated financial position, results of operations and cash flows.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11,
Simplifying the Measurement of Inventory
. Under this new guidance, companies that use inventory measurement methods other than last-in, first-out or the retail inventory method should measure inventory at the lower of cost and net realizable value. The provisions of this guidance are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. The adoption is not expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
("ASU 2014-09"). Under this new guidance, an entity should use a five-step process to recognize revenue, depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires new disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Subsequent to the issuance of the standard, the FASB decided to defer the effective date for one year to annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. In May 2016, the FASB also issued Accounting Standards Update No. 2016-12,
Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients
("ASU 2016-12")
,
which amended its revenue recognition guidance in ASU 2014-09 on transition, collectibility, non-cash consideration, contract modifications and completed contracts at transition and the presentation of sales and other similar taxes collected from customers. In April 2016, the FASB also issued Accounting Standards Update No. 2016-10,
Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing
("ASU 2016-10")
,
which amended its revenue recognition guidance in ASU 2014-09 on identifying performance obligations to allow entities to disregard items that are immaterial in the context of the contract, clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow an entity to elect to account for the cost of shipping and handling performed after control of a good has been transferred to the customer as a fulfillment cost (i.e., an expense). ASU 2016-10 also clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property ("IP") and requires entities to classify IP in one of two categories: functional IP or symbolic IP, which will determine whether it recognizes revenue over time or at a point in time. ASU 2016-10 also address how entities should consider
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
license renewals and restrictions and apply the exception for sales- and usage-based royalties received in exchange for licenses of IP. In March 2016, the FASB also issued Accounting Standards Update No. 2016-08,
Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
("ASU 2016-08"), which amended the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. ASU 2016-08 clarifies that an entity should evaluate when it is the principal or agent for each specified good or service promised in a contract with a customer. ASU 2016-12, ASU 2016-10, ASU 2016-08 and ASU 2014-09 may be adopted either using a full retrospective approach or a modified retrospective approach. The Company is evaluating the requirements of the foregoing standards and has not yet determined the impact of their adoption on the Company’s consolidated financial position, results of operations and cash flows. The Company intends to adopt these standards using the modified retrospective approach, and the Company does not intend to early adopt these standards.
While the Company is currently evaluating the impact of the new revenue standard, the Company believes the key changes in the standard that impact revenue recognition relate to the accounting for certain transactions with multiple elements or “bundled” arrangements (for example, sales of software subscriptions for which the Company does not have VSOE for maintenance and/or support) because the requirement to have VSOE for undelivered elements under current accounting standards is eliminated under the new standard. Accordingly, the Company may be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over the maintenance period.
|
|
|
|
Note 2:
|
Business Combinations
|
Acquisitions in fiscal year 2016
During
fiscal year 2016
, the Company completed the acquisition of two businesses for a total consideration of
$72.2 million
in cash. The acquired businesses were Bioo Scientific Corporation, which was acquired for total consideration of
$63.5 million
in cash and one other business acquired for a total consideration of
$8.8 million
in cash. The excess of the purchase prices over the fair values of each 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 workforce acquired. As a result of the acquisitions, the Company recorded goodwill of
$45.6 million
, which is not tax deductible, and intangible assets of
$19.9 million
. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments 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
9.5
years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The total purchase price for the acquisitions in
fiscal year 2016
has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
|
|
|
|
|
|
|
|
|
2016 Acquisitions
|
|
|
(In thousands)
|
|
Fair value of business combination:
|
|
|
Cash payments
|
$
|
72,497
|
|
|
Working capital and other adjustments
|
(261
|
)
|
|
Less: cash acquired
|
(2,152
|
)
|
|
Total
|
$
|
70,084
|
|
|
Identifiable assets acquired and liabilities assumed:
|
|
|
Current assets
|
$
|
7,293
|
|
|
Property, plant and equipment
|
7,542
|
|
|
Identifiable intangible assets:
|
|
|
Core technology
|
5,500
|
|
|
Trade names
|
570
|
|
|
Customer relationships
|
13,800
|
|
|
Goodwill
|
45,648
|
|
|
Deferred taxes
|
(8,284
|
)
|
|
Liabilities assumed
|
(1,985
|
)
|
|
Total
|
$
|
70,084
|
|
Subsequent to
January 1, 2017
, the Company completed the acquisition of Tulip Diagnostics Private Limited (“Tulip”), a company based in Goa, India, for a total consideration of
$125.0 million
in cash, net of cash acquired, as of the closing date. The Company has a potential obligation to pay the shareholders of Tulip additional contingent consideration of up to
$25.0 million
that will be accounted for as compensation expense in the Company's financial statements over a two year period. The operations for this acquisition will be reported within the results of the Company's Diagnostics segment from the acquisition date.
Acquisitions in fiscal year 2015
During fiscal year 2015, the Company completed the acquisition of five businesses for a total consideration of
$77.1 million
in cash. The acquired businesses included Vanadis Diagnostics AB (“Vanadis”), which was acquired for total consideration of
$35.1 million
in cash, as further described in Note 21 below, and other acquisitions for an aggregate consideration of
$42.0 million
in cash. The Company has a potential obligation to pay the shareholders of Vanadis additional contingent consideration of up to
$93.0 million
, which at closing had an estimated fair value of
$56.9 million
. The excess of the purchase prices over the fair values of each 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 workforce acquired, and has been allocated to goodwill, of which
$9.2 million
is tax deductible. The Company has reported the operations for all of these acquisitions within the results of the Company’s Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology and trade names, acquired as part of this acquisition had a weighted average amortization period of
9 years
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The total purchase price for the acquisitions in fiscal year 2015 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
|
|
|
|
|
|
|
|
|
2015 Acquisitions
|
|
|
(In thousands)
|
|
Fair value of business combination:
|
|
|
Cash payments
|
$
|
75,285
|
|
|
Contingent consideration
|
56,878
|
|
|
Working capital and other adjustments
|
1,832
|
|
|
Less: cash acquired
|
(3,864
|
)
|
|
Total
|
$
|
130,131
|
|
|
Identifiable assets acquired and liabilities assumed:
|
|
|
Current assets
|
$
|
2,551
|
|
|
Property, plant and equipment
|
998
|
|
|
Identifiable intangible assets:
|
|
|
Core technology
|
15,759
|
|
|
Trade names
|
200
|
|
|
Licenses
|
116
|
|
|
Customer relationships
|
3,073
|
|
|
IPR&D
|
75,700
|
|
|
Goodwill
|
53,112
|
|
|
Deferred taxes
|
(18,528
|
)
|
|
Liabilities assumed
|
(2,850
|
)
|
|
Total
|
$
|
130,131
|
|
Acquisitions in fiscal year 2014
Acquisition of Perten Instruments Group AB.
In December 2014, the Company acquired all of the outstanding stock of Perten Instruments Group AB ("Perten"). Perten is a provider of analytical instruments and services for quality control of food, grain, flour and feed. The Company expects this acquisition to enhance its industrial, environmental and safety business by expanding the Company's product offerings to the academic and industrial end markets. The Company paid the shareholders of Perten
$269.9 million
in cash for the stock of Perten. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill,
none
of which is tax deductible. The Company has reported the operations for this acquisition within the results of the Company’s Discovery & Analytical Solutions segment from the acquisition date. Identifiable definite-lived intangible assets, such as core technology, customer relationships and trade names, acquired as part of this acquisition had weighted average amortization periods of approximately
5
to
10 years
.
Other acquisitions in fiscal year 2014.
In addition to the Perten acquisition, the Company completed the acquisition of two businesses in fiscal year 2014 for total consideration of
$17.6 million
in cash and
$4.3 million
of assumed debt. The excess of the purchase price over the fair value of each 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 workforce acquired, and has been allocated to goodwill,
none
of which is tax deductible. The Company reported the operations for these acquisitions within the results of the Discovery & Analytical Solutions and Diagnostics segments from the acquisition dates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The total purchase price for the acquisitions in fiscal year 2014 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Perten
|
|
2014 Other Acquisitions
|
|
|
(In thousands)
|
|
Fair value of business combination:
|
|
|
|
|
Cash payments
|
$
|
269,937
|
|
|
$
|
17,898
|
|
|
Working capital and other adjustments
|
—
|
|
|
(294
|
)
|
|
Less: cash acquired
|
(16,732
|
)
|
|
(124
|
)
|
|
Total
|
$
|
253,205
|
|
|
$
|
17,480
|
|
|
Identifiable assets acquired and liabilities assumed:
|
|
|
|
|
Current assets
|
$
|
32,578
|
|
|
$
|
1,935
|
|
|
Property, plant and equipment
|
1,485
|
|
|
125
|
|
|
Other assets
|
—
|
|
|
364
|
|
|
Identifiable intangible assets:
|
|
|
|
|
Core technology
|
17,000
|
|
|
1,705
|
|
|
Trade names
|
8,000
|
|
|
—
|
|
|
Customer relationships
|
87,000
|
|
|
6,800
|
|
|
IPR&D
|
—
|
|
|
1,266
|
|
|
Goodwill
|
160,776
|
|
|
15,518
|
|
|
Deferred taxes
|
(28,612
|
)
|
|
(3,072
|
)
|
|
Deferred revenue
|
—
|
|
|
(589
|
)
|
|
Liabilities assumed
|
(17,422
|
)
|
|
(2,285
|
)
|
|
Debt assumed
|
(7,600
|
)
|
|
(4,287
|
)
|
|
Total
|
$
|
253,205
|
|
|
$
|
17,480
|
|
The Company does not consider the acquisitions completed during
fiscal years 2016, 2015 and 2014
to be material to its consolidated results of operations; therefore, the Company is not presenting pro forma financial information of operations. During
fiscal years 2016 and 2015
, the Company recognized
$80.7 million
and
$65.7 million
, respectively, of revenue for Perten. The Company has determined that the presentation of the results of operations for each of the other acquisitions, from the date of acquisition, is impracticable due to the integration of the operations upon acquisition.
As of
January 1, 2017
, the allocations of purchase prices for acquisitions completed in fiscal years
2015
and
2014
were final. The preliminary allocations of the purchase prices for acquisitions completed in
fiscal year 2016
were 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.
During
fiscal year 2016
, the Company obtained information to assist in determining the fair values of certain tangible and intangible assets acquired and liabilities assumed as part of its acquisitions and adjusted its purchase price allocations. Based on this information, for acquisitions completed during fiscal year 2015, the Company recognized an increase in deferred taxes of
$1.8 million
, with a corresponding increase in goodwill.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 or product development milestones during the earnout period.
As of
January 1, 2017
, the Company may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to
$84.6 million
. As of
January 1, 2017
, the Company has recorded contingent consideration obligations of
$63.2 million
, of which
$15.4 million
was recorded in accrued expenses and other current liabilities, and
$47.8 million
was recorded in long-term liabilities. As of
January 3, 2016
, the Company has recorded contingent consideration obligations of
$57.4 million
, of which
$9.4 million
was recorded in accrued expenses and other current liabilities, and
$48.0 million
was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed
3
years from the respective acquisition dates, and the remaining weighted average expected earnout period at
January 1, 2017
was
1.75
years. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the 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.
In connection with the purchase price allocations for acquisitions, the Company estimates the fair value of deferred revenue assumed with its acquisitions. The estimated fair value of deferred revenue is determined by the legal performance obligation at the date of acquisition, and is generally based on the nature of the activities to be performed and the related costs to be incurred after the acquisition date. The fair value of an assumed liability related to deferred revenue is estimated based on the current market cost of fulfilling the obligation, plus a normal profit margin thereon. The estimated costs to fulfill the deferred revenue are based on the historical direct costs related to providing the services. The Company does not include any costs associated with selling effort, research and development, or the related margins on these costs. In most acquisitions, profit associated with selling effort is excluded because the acquired businesses would have concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition. The sum of the costs and operating income approximates, in theory, the amount that the Company would be required to pay a third-party to assume the obligation.
Total transaction costs related to acquisition and divestiture activities for
fiscal years 2016, 2015 and 2014
were
$1.2 million
,
$0.7 million
and
$3.1 million
, respectively. These transaction costs were expensed as incurred and recorded in selling, general and administrative expenses in the Company's consolidated statements of operations.
|
|
|
|
Note 3:
|
Disposition of Businesses and Assets
|
As part of the Company’s continuing efforts to focus on higher growth opportunities, the Company has discontinued certain businesses. When the discontinued operations represented a strategic shift that will have a major effect on the Company's operations and financial statements, the Company has accounted for these businesses as discontinued operations and accordingly, has presented the results of operations and related cash flows as discontinued operations. Any business deemed to be a discontinued operation prior to the adoption of ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of An Entity,
continues to be reported as a discontinued operation, and the results of operations and related cash flows are presented as discontinued operations for all periods presented. Any remaining assets and liabilities of these businesses have been presented separately, and are reflected within assets and liabilities from discontinued operations in the accompanying condensed consolidated balance sheets as of
January 1, 2017
and
January 3, 2016
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recorded the following pre-tax gains and losses, which have been reported as a net gain or loss on disposition of discontinued operations during the three fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Loss on disposition of microarray-based diagnostic testing laboratory
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(90
|
)
|
|
Gain (loss) on disposition of Technical Services business
|
1,753
|
|
|
(28
|
)
|
|
(156
|
)
|
|
Loss on disposition of Fluid Sciences Segment
|
(1,134
|
)
|
|
—
|
|
|
—
|
|
|
Other discontinued operations
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
Gain (loss) on disposition of discontinued operations before income taxes
|
$
|
619
|
|
|
$
|
(28
|
)
|
|
$
|
(260
|
)
|
During
fiscal year 2016
, the Company sold PerkinElmer Labs, Inc. for cash consideration of
$20.0 million
, recognizing a pre-tax gain of
$7.1 million
. The sale generated a capital loss for tax purposes of
$7.3 million
, which resulted in an income tax benefit of
$2.5 million
that was recognized as a discrete benefit during the second quarter of 2016. PerkinElmer Labs, Inc. was a component of the Company's Diagnostics segment. The pre-tax gain recognized in
fiscal year 2016
is included in interest and other expense, net in the condensed consolidated statement of operations. The divestiture of PerkinElmer Labs, Inc. has not been classified as a discontinued operation in this Form 10-K because the disposition does not represent a strategic shift that will have a major effect on the Company's operations and financial statements.
During
fiscal year 2016
, the Company entered into a letter of intent to contribute certain assets to an academic institution in the United Kingdom. The Company recognized a pre-tax loss of
$1.6 million
related to the write-off of assets in the second quarter of 2016 which is included in interest and other expense, net in the condensed consolidated statement of operations.
In December 2016, the Company entered into a Master Purchase and Sale Agreement (the “Agreement”) with Varian Medical Systems, Inc. (the “Purchaser”), under which the Company agreed to sell to the Purchaser all of the outstanding equity interests in the Company’s wholly owned indirect subsidiaries PerkinElmer Medical Holdings, Inc. and Dexela Limited, together with certain assets of the Company and its direct and indirect subsidiaries relating to the Company’s business of designing, manufacturing and marketing flat panel x-ray detectors, and related software, accessories and ancillary products, to x-ray system manufacturers (the “Medical Imaging Business”), for cash consideration of approximately
$276.0 million
and the Purchaser’s assumption of specified liabilities relating to the Medical Imaging Business (collectively, the “Transaction”). The Medical Imaging Business had been reported in the Diagnostics segment. The Agreement contemplates that the Purchaser will finance the Transaction through a debt financing and that, except as determined otherwise by the Purchaser, the closing will occur no earlier than April 2017. However, the closing of the Transaction is not conditioned upon the receipt of any such financing. The Transaction is subject to customary closing conditions, including the expiration of specified antitrust waiting periods. The Agreement contains certain termination rights of the Company and the Purchaser and provides that under specified circumstances, upon termination of the Agreement, the Purchaser will be required to pay the Company a termination fee of up to
$22.1 million
. The pending sale of the Medical Imaging Business represents a strategic shift that will have a major effect on the Company's operations and financial statements. Accordingly, the Company has classified the assets and liabilities related to the Medical Imaging Business as assets and liabilities of discontinued operations in the Company's consolidated balance sheets and its results of operations are classified as income from discontinued operations in the Company's consolidated statements of operations. Financial information in this report relating to
fiscal years 2015 and 2014
has been retrospectively adjusted to reflect this discontinued operation.
In May 2014, the Company approved the shutdown of microarray-based diagnostic testing laboratory in the United States, which had been reported within our Diagnostics segment. The Company determined that, with the lack of adequate reimbursement from health care payers, the microarray-based diagnostic testing laboratory in the United States would need significant investment in its operations to reduce costs in order to effectively compete in the market. The shutdown of the microarray-based diagnostic testing laboratory in the United States resulted in a
$0.1 million
net pre-tax
gain
primarily related to the disposal of fixed assets, which was partially offset by the sale of a building in fiscal year 2014.
In August 1999, the Company sold the assets of its Technical Service business. The Company recorded pre-tax gain (losses) of
$1.8 million
in
fiscal year 2016
,
$(0.03) million
in
fiscal year 2015
and
$(0.2) million
in
fiscal year 2014
for a contingency related to this business. These gain (losses) were recognized as a gain (loss) on disposition of discontinued operations before income taxes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The summary pre-tax operating results of the discontinued operations, which include the periods prior to disposition and a
$1.0 million
pre-tax restructuring charge related to workforce reductions in the microarray-based diagnostic testing laboratory in the United States during fiscal year 2014, were as follows during the three fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Revenue
|
$
|
146,217
|
|
|
$
|
158,128
|
|
|
$
|
168,124
|
|
|
Cost of revenue
|
95,395
|
|
|
97,777
|
|
|
100,512
|
|
|
Selling, general and administrative expenses
|
13,657
|
|
|
11,712
|
|
|
12,503
|
|
|
Research and development expenses
|
14,368
|
|
|
13,391
|
|
|
13,222
|
|
|
Restructuring and contract termination charges, net
|
568
|
|
|
43
|
|
|
1,111
|
|
|
Income from discontinued operations before income taxes
|
$
|
22,229
|
|
|
$
|
35,205
|
|
|
$
|
40,776
|
|
The Company recorded a tax
provision
of
$4.3 million
,
$11.5 million
and
$12.9 million
on discontinued operations and dispositions in
fiscal years 2016, 2015 and 2014
, respectively.
The carrying amounts of the major classes of assets and liabilities included in discontinued operations as of
January 1, 2017
and
January 3, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Current assets of discontinued operations:
|
|
|
|
|
Accounts receivables
|
$
|
28,400
|
|
|
$
|
23,951
|
|
|
Inventories
|
26,977
|
|
|
28,542
|
|
|
Prepaid income taxes
|
425
|
|
|
68
|
|
|
Other current assets
|
3,183
|
|
|
3,771
|
|
|
Total current assets of discontinued operations
|
58,985
|
|
|
56,332
|
|
|
Property, plant and equipment
|
25,219
|
|
|
29,465
|
|
|
Intangible assets
|
3,292
|
|
|
5,174
|
|
|
Goodwill
|
38,794
|
|
|
39,286
|
|
|
Other assets, net
|
1,084
|
|
|
1,104
|
|
|
Long-term assets of discontinued operations
|
68,389
|
|
|
75,029
|
|
|
Total assets of discontinued operations
|
$
|
127,374
|
|
|
$
|
131,361
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations:
|
|
|
|
|
Accounts payable
|
$
|
16,770
|
|
|
$
|
11,746
|
|
|
Accrued restructuring and contract termination charges
|
209
|
|
|
48
|
|
|
Accrued expenses and other current liabilities
|
9,992
|
|
|
8,212
|
|
|
Total current liabilities of discontinued operations
|
26,971
|
|
|
20,006
|
|
|
Deferred income taxes
|
7,851
|
|
|
9,460
|
|
|
Long-term liabilities
|
7,109
|
|
|
7,657
|
|
|
Total long-term liabilities
|
14,960
|
|
|
17,117
|
|
|
Total liabilities of discontinued operations
|
$
|
41,931
|
|
|
$
|
37,123
|
|
The following operating and investing non-cash items from discontinued operations were as follows during the three fiscal years ended:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Depreciation
|
$
|
4,418
|
|
|
$
|
4,705
|
|
|
$
|
4,678
|
|
|
Amortization
|
1,848
|
|
|
1,938
|
|
|
1,932
|
|
|
Capital expenditures
|
1,302
|
|
|
1,414
|
|
|
2,133
|
|
Note 4: Restructuring and Contract Termination Charges, 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 current portion of restructuring and contract termination charges is recorded in accrued restructuring and contract termination charges and the long-term portion of restructuring and contract termination charges is recorded in long-term liabilities. The activities associated with these plans have been reported as restructuring and contract termination charges, net, as applicable, and are included as a component of income from continuing operations.
The Company implemented a restructuring plan in the third quarter of fiscal year 2016 consisting of workforce reductions principally intended to focus resources on higher growth product lines (the "Q3 2016 Plan"). The Company implemented a restructuring plan in the second quarter of fiscal year 2016 consisting of workforce reductions principally intended to focus resources on higher growth end markets (the "Q2 2016 Plan"). The Company implemented restructuring plans in the fourth quarter of fiscal year 2015 and the second and first quarters of fiscal year 2014 consisting of workforce reductions and the closure of excess facility space principally intended to focus resources on higher growth end markets (the "Q4 2015 Plan", "Q2 2014 Plan", and "Q1 2014 Plan", respectively). The Company implemented restructuring plans in the second quarter of fiscal year 2015 and the third quarter of fiscal year 2014 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q2 2015 Plan" and "Q3 2014 Plan", respectively). All other previous restructuring plans were workforce reductions or the closure of excess facility space principally intended to integrate the Company's businesses in order to realign operations, reduce costs, achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with the Company's growth strategy (the "Previous Plans").
The following table summarizes the number of employees reduced, the initial restructuring or contract termination charges by operating segment, and the dates by which payments were substantially completed, or the expected dates by which payments will be substantially completed, for restructuring actions implemented during
fiscal years 2016, 2015 and 2014
in continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Reductions
|
|
Closure of Excess Facility
|
|
Total
|
|
(Expected) Date Payments Substantially Completed by
|
|
|
Headcount Reduction
|
|
Diagnostics
|
|
Discovery & Analytical Solutions
|
|
Diagnostics
|
|
Discovery & Analytical Solutions
|
|
|
Severance
|
|
Excess Facility
|
|
|
(In thousands, except headcount data)
|
|
|
|
|
|
Q3 2016 Plan
|
22
|
|
|
$
|
41
|
|
|
$
|
1,779
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,820
|
|
|
Q4 FY2017
|
|
—
|
|
Q2 2016 Plan
|
72
|
|
|
561
|
|
|
4,106
|
|
|
—
|
|
|
—
|
|
|
4,667
|
|
|
Q3 FY2017
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 2015 Plan
|
174
|
|
|
1,315
|
|
|
9,980
|
|
|
—
|
|
|
285
|
|
|
11,580
|
|
|
Q1 FY2017
|
|
Q4 FY2017
|
|
Q2 2015 Plan
|
95
|
|
|
673
|
|
|
5,290
|
|
|
—
|
|
|
—
|
|
|
5,963
|
|
|
Q2 FY2016
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3 2014 Plan
|
152
|
|
|
2,885
|
|
|
10,166
|
|
|
—
|
|
|
—
|
|
|
13,051
|
|
|
Q4 FY2015
|
|
—
|
|
Q2 2014 Plan
|
21
|
|
|
235
|
|
|
435
|
|
|
—
|
|
|
—
|
|
|
670
|
|
|
Q2 FY2015
|
|
—
|
|
Q1 2014 Plan
|
17
|
|
|
281
|
|
|
286
|
|
|
—
|
|
|
—
|
|
|
567
|
|
|
Q4 FY2014
|
|
—
|
The Company expects to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year
2022
.
The Company also has terminated various contractual commitments in connection with certain disposal activities and has recorded charges, to the extent applicable, for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to the Company. The Company recorded
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
additional pre-tax charges of
$0.1 million
,
$0.1 million
and
$1.5 million
in the Discovery & Analytical Solutions segment during
fiscal years 2016, 2015 and 2014
, respectively, as a result of these contract terminations.
At
January 1, 2017
, the Company had
$10.5 million
recorded for accrued restructuring and contract termination charges, of which
$7.5 million
was recorded in short-term accrued restructuring and
$3.1 million
was recorded in long-term liabilities. At
January 3, 2016
, the Company had
$22.2 million
recorded for accrued restructuring and contract termination charges, of which
$17.0 million
was recorded in short-term accrued restructuring and
$5.1 million
was recorded in long-term liabilities. The following table summarizes the Company's restructuring accrual balances and related activity by restructuring plan, as well as contract termination accrual balances and related activity, during
fiscal years 2016, 2015 and 2014
in continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2013
|
|
2014 Charges and Changes in Estimates, Net
|
|
2014 Amounts Paid
|
|
Balance at December 28, 2014
|
|
2015 Charges and Changes in Estimates, Net
|
|
2015 Amounts Paid
|
|
Balance at January 3, 2016
|
|
2016 Charges and Changes in Estimates, Net
|
|
2016 Amounts Paid
|
|
Balance at January 1, 2017
|
|
|
(In thousands)
|
|
Severance:
|
|
|
|
|
|
|
|
Q3 2016 Plan
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,820
|
|
|
$
|
(612
|
)
|
|
$
|
1,208
|
|
|
Q2 2016 Plan
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,667
|
|
|
(3,231
|
)
|
|
1,436
|
|
|
Q4 2015 Plan
(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,295
|
|
|
(925
|
)
|
|
10,370
|
|
|
(953
|
)
|
|
(8,198
|
)
|
|
1,219
|
|
|
Q2 2015 Plan
(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,423
|
|
|
(4,322
|
)
|
|
1,101
|
|
|
(533
|
)
|
|
(370
|
)
|
|
198
|
|
|
Q3 2014 Plan
|
|
—
|
|
|
13,051
|
|
|
(2,992
|
)
|
|
10,059
|
|
|
(3,064
|
)
|
|
(5,460
|
)
|
|
1,535
|
|
|
—
|
|
|
(672
|
)
|
|
863
|
|
|
Q2 2014 Plan
|
|
—
|
|
|
670
|
|
|
(419
|
)
|
|
251
|
|
|
(179
|
)
|
|
(13
|
)
|
|
59
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
Q1 2014 Plan
|
|
—
|
|
|
567
|
|
|
(475
|
)
|
|
92
|
|
|
(92
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility:
|
|
|
|
|
|
|
|
|
Q4 2015 Plan
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
285
|
|
|
(26
|
)
|
|
259
|
|
|
—
|
|
|
(248
|
)
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous Plans including 2013 plans
|
|
35,200
|
|
|
(2,508
|
)
|
|
(19,572
|
)
|
|
13,120
|
|
|
(204
|
)
|
|
(4,222
|
)
|
|
8,694
|
|
|
35
|
|
|
(3,299
|
)
|
|
$
|
5,430
|
|
|
Restructuring
|
|
35,200
|
|
|
11,780
|
|
|
(23,458
|
)
|
|
23,522
|
|
|
13,464
|
|
|
(14,968
|
)
|
|
22,018
|
|
|
5,036
|
|
|
(16,630
|
)
|
|
10,424
|
|
|
Contract Termination
|
|
300
|
|
|
1,545
|
|
|
(1,541
|
)
|
|
304
|
|
|
83
|
|
|
(255
|
)
|
|
132
|
|
|
88
|
|
|
(103
|
)
|
|
$
|
117
|
|
|
Total Restructuring and Contract Termination
|
|
$
|
35,500
|
|
|
$
|
13,325
|
|
|
$
|
(24,999
|
)
|
|
$
|
23,826
|
|
|
$
|
13,547
|
|
|
$
|
(15,223
|
)
|
|
$
|
22,150
|
|
|
$
|
5,124
|
|
|
$
|
(16,733
|
)
|
|
$
|
10,541
|
|
____________________________
|
|
|
|
(1)
|
During
fiscal year 2016
, the Company recognized pre-tax restructuring reversals of
$1.0 million
in the Discovery & Analytical Solutions segment related to lower than expected costs associated with workforce reductions for the Q4 2015 Plan.
|
|
|
|
|
(2)
|
During
fiscal year 2016
, the Company recognized pre-tax restructuring reversals of
$0.1 million
in the Diagnostics segments and
$0.5 million
in the Discovery & Analytical Solutions segments related to lower than expected costs associated with workforce reductions for the Q2 2015 Plan.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
Note 5:
|
Interest and Other Expense, Net
|
Interest and other expense, net, consisted of the following for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Interest income
|
$
|
(702
|
)
|
|
$
|
(673
|
)
|
|
$
|
(667
|
)
|
|
Interest expense
|
41,528
|
|
|
37,997
|
|
|
36,270
|
|
|
Gain on disposition of businesses and assets (see Note 3)
|
(5,562
|
)
|
|
—
|
|
|
—
|
|
|
Other expense, net
|
3,734
|
|
|
4,795
|
|
|
5,536
|
|
|
Total interest and other expense, net
|
$
|
38,998
|
|
|
$
|
42,119
|
|
|
$
|
41,139
|
|
Foreign currency transaction (gains) losses were
$(1.5) million
,
$25.3 million
and
$5.5 million
in
fiscal years 2016, 2015 and 2014
, respectively. Net losses (gains) from forward currency hedge contracts were
$5.4 million
,
$(20.6) million
and
$(0.2) million
in
fiscal years 2016, 2015 and 2014
, respectively. These amounts were included in other expense, net.
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 tabular reconciliation of the total amounts of unrecognized tax benefits is as follows for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Unrecognized tax benefits, beginning of year
|
$
|
28,143
|
|
|
$
|
32,342
|
|
|
$
|
39,410
|
|
|
Gross increases—tax positions in prior periods
|
1,514
|
|
|
325
|
|
|
—
|
|
|
Gross decreases—tax positions in prior periods
|
(183
|
)
|
|
(2,305
|
)
|
|
(1,809
|
)
|
|
Gross increases—current-period tax positions
|
3,547
|
|
|
—
|
|
|
239
|
|
|
Settlements
|
—
|
|
|
(441
|
)
|
|
(1,400
|
)
|
|
Lapse of statute of limitations
|
(4,109
|
)
|
|
(1,077
|
)
|
|
(4,129
|
)
|
|
Foreign currency translation adjustments
|
695
|
|
|
(701
|
)
|
|
31
|
|
|
Unrecognized tax benefits, end of year
|
$
|
29,607
|
|
|
$
|
28,143
|
|
|
$
|
32,342
|
|
The Company classifies interest and penalties as a component of income tax expense. At
January 1, 2017
, the Company had accrued interest and penalties of
$1.8 million
and
$0.4 million
, respectively. At
January 3, 2016
, the Company had accrued interest and penalties of
$2.1 million
and
$0.1 million
, respectively. During
fiscal year 2016
, the Company recognized a net benefit of
$0.4 million
for interest and an expense of
$0.3 million
for penalties in its total tax provision primarily due to settlements and statutes of limitations that had lapsed. During
fiscal year 2015
, the Company recognized net benefits of
$1.5 million
for interest and
$0.1 million
for penalties in its total tax provision primarily due to settlements and statutes of limitations that had lapsed. During
fiscal year 2014
, the Company recognized benefits of
$0.7 million
for interest and
$0.2 million
for penalties in its total tax provision due to settlements and statutes of limitations that had lapsed. At
January 1, 2017
, the Company had gross tax effected unrecognized tax benefits of
$29.6 million
, of which
$27.9 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
$4.6 million
of its uncertain tax positions at
January 1, 2017
, 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, Italy, Netherlands, Singapore, the United Kingdom and the United States. The tax years under examination vary by jurisdiction.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During
fiscal years 2016, 2015 and 2014
, the Company recorded net discrete income tax benefits of
$9.6 million
,
$6.4 million
and
$7.1 million
, respectively, primarily related to the recognition of excess tax benefits on stock compensation, reversals of uncertain tax position reserves, and resolution of other tax matters.
The components of income (loss) from continuing operations before income taxes were as follows for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
U.S.
|
$
|
39,689
|
|
|
$
|
(21,510
|
)
|
|
$
|
(58,886
|
)
|
|
Non-U.S.
|
204,379
|
|
|
230,317
|
|
|
182,754
|
|
|
Total
|
$
|
244,068
|
|
|
$
|
208,807
|
|
|
$
|
123,868
|
|
On a U.S. income tax basis, the Company has reported significant taxable income over the three year period ended
January 1, 2017
. The Company has utilized tax attributes to minimize cash taxes paid on that taxable income.
The components of the provision for (benefit from) income taxes for continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Expense (Benefit)
|
|
Deferred Expense
(Benefit)
|
|
Total
|
|
|
(In thousands)
|
|
Fiscal year ended January 1, 2017
|
|
|
|
|
|
|
Federal
|
$
|
14
|
|
|
$
|
2,994
|
|
|
$
|
3,008
|
|
|
State
|
2,143
|
|
|
(575
|
)
|
|
1,568
|
|
|
Non-U.S.
|
30,754
|
|
|
(6,968
|
)
|
|
23,786
|
|
|
Total
|
$
|
32,911
|
|
|
$
|
(4,549
|
)
|
|
$
|
28,362
|
|
|
Fiscal year ended January 3, 2016
|
|
|
|
|
|
|
Federal
|
$
|
(10,952
|
)
|
|
$
|
(4,794
|
)
|
|
$
|
(15,746
|
)
|
|
State
|
2,613
|
|
|
(2,563
|
)
|
|
50
|
|
|
Non-U.S.
|
37,963
|
|
|
(2,245
|
)
|
|
35,718
|
|
|
Total
|
$
|
29,624
|
|
|
$
|
(9,602
|
)
|
|
$
|
20,022
|
|
|
Fiscal year ended December 28, 2014
|
|
|
|
|
|
|
Federal
|
$
|
(6,417
|
)
|
|
$
|
(20,164
|
)
|
|
$
|
(26,581
|
)
|
|
State
|
2,373
|
|
|
(4,166
|
)
|
|
(1,793
|
)
|
|
Non-U.S.
|
31,878
|
|
|
(9,775
|
)
|
|
22,103
|
|
|
Total
|
$
|
27,834
|
|
|
$
|
(34,105
|
)
|
|
$
|
(6,271
|
)
|
The total provision for (benefit from) income taxes included in the consolidated financial statements is as follows for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Continuing operations
|
$
|
28,362
|
|
|
$
|
20,022
|
|
|
$
|
(6,271
|
)
|
|
Discontinued operations
|
4,255
|
|
|
11,537
|
|
|
12,877
|
|
|
Total
|
$
|
32,617
|
|
|
$
|
31,559
|
|
|
$
|
6,606
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of income tax expense at the U.S. federal statutory income tax rate to the recorded tax provision is as follows for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Tax at statutory rate
|
$
|
85,424
|
|
|
$
|
73,082
|
|
|
$
|
43,354
|
|
|
Non-U.S. rate differential, net
|
(52,648
|
)
|
|
(47,994
|
)
|
|
(34,845
|
)
|
|
U.S. taxation of multinational operations
|
6,941
|
|
|
1,732
|
|
|
2,367
|
|
|
State income taxes, net
|
1,509
|
|
|
80
|
|
|
1,352
|
|
|
Prior year tax matters
|
(9,621
|
)
|
|
(6,387
|
)
|
|
(7,146
|
)
|
|
Federal tax credits
|
(7,189
|
)
|
|
(2,096
|
)
|
|
(3,399
|
)
|
|
Change in valuation allowance
|
(2,755
|
)
|
|
2,593
|
|
|
(7,679
|
)
|
|
Non-deductible acquisition expense
|
5,701
|
|
|
—
|
|
|
—
|
|
|
Other, net
|
1,000
|
|
|
(988
|
)
|
|
(275
|
)
|
|
Total
|
$
|
28,362
|
|
|
$
|
20,022
|
|
|
$
|
(6,271
|
)
|
The variation in the Company's effective tax rate for each year is primarily a result of the recognition of earnings in foreign jurisdictions, predominantly Singapore, Finland, and China, which are taxed at rates lower than the U.S. federal statutory rate, resulting in a benefit from income taxes of
$45.8 million
in
fiscal year 2016
,
$34.2 million
in
fiscal year 2015
and
$29.1 million
in
fiscal year 2014
. These amounts include
$11.4 million
in
fiscal year 2016
,
$8.3 million
in
fiscal year 2015
and
$7.1 million
in
fiscal year 2014
of benefits derived from tax holidays in China and Singapore. The effect of these benefits derived from tax holidays on basic and diluted earnings per share for
fiscal year 2016
was
$0.10
and
$0.10
, respectively, for
fiscal year 2015
was
$0.07
and
$0.07
, respectively, and for
fiscal year 2014
was
$0.06
and
$0.06
, respectively. The tax holiday in China is scheduled to expire in fiscal year
2017
and the tax holiday in Singapore is scheduled to expire in fiscal year
2018
.
The tax effects of temporary differences and attributes that gave rise to deferred income tax assets and liabilities as of
January 1, 2017
and
January 3, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
Inventory
|
$
|
10,994
|
|
|
$
|
8,231
|
|
|
Reserves and accruals
|
24,669
|
|
|
28,984
|
|
|
Accrued compensation
|
26,715
|
|
|
23,010
|
|
|
Net operating loss and credit carryforwards
|
113,415
|
|
|
100,336
|
|
|
Accrued pension
|
37,005
|
|
|
34,736
|
|
|
Restructuring reserve
|
1,954
|
|
|
6,362
|
|
|
Deferred revenue
|
38,113
|
|
|
40,065
|
|
|
All other, net
|
682
|
|
|
695
|
|
|
Total deferred tax assets
|
253,547
|
|
|
242,419
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Postretirement health benefits
|
(4,785
|
)
|
|
(4,202
|
)
|
|
Unrealized foreign exchange gain or loss
|
(15,730
|
)
|
|
(782
|
)
|
|
Depreciation and amortization
|
(130,176
|
)
|
|
(128,173
|
)
|
|
Total deferred tax liabilities
|
(150,691
|
)
|
|
(133,157
|
)
|
|
Valuation allowance
|
(65,640
|
)
|
|
(67,400
|
)
|
|
Net deferred tax assets
|
$
|
37,216
|
|
|
$
|
41,862
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of net deferred tax assets as of
January 1, 2017
and
January 3, 2016
were recognized in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Other assets, net
|
$
|
85,312
|
|
|
$
|
94,035
|
|
|
Long-term liabilities
|
(48,096
|
)
|
|
(52,173
|
)
|
|
Total
|
$
|
37,216
|
|
|
$
|
41,862
|
|
At
January 1, 2017
, for income tax return purposes the Company had U.S. federal net operating loss carryforwards of
$27.7 million
, state net operating loss carryforwards of
$211.9 million
, foreign net operating loss carryforwards of
$227.2 million
, state tax credit carryforwards of
$10.7 million
, general business tax credit carryforwards of
$33.1 million
, and foreign tax credit carryforwards of
$5.7 million
. These are subject to expiration in years ranging from
2017
to
2035
, and without expiration for certain foreign net operating loss carryforwards and certain state credit carryforwards.
Valuation allowances take into consideration limitations imposed upon the use of the tax attributes and reduce the value of such items to the likely net realizable amount. The Company regularly evaluates positive and negative evidence available to determine if valuation allowances are required or if existing valuation allowances are no longer required. Valuation allowances have been provided on state net operating loss and state tax credit carryforwards and on certain foreign tax attributes that the Company has determined are not more likely than not to be realized. The decrease in the valuation allowance in
fiscal year 2016
is primarily due to a decrease in tax attributes that the Company does not expect to realize for one of its non-U.S. subsidiaries. The increase in valuation allowance of
$11.9 million
in
fiscal year 2015
is primarily due to an increase in tax attributes that the Company does not expect to realize for two of its non-U.S. subsidiaries.
The components of net deferred tax assets (liabilities) as of
January 1, 2017
and
January 3, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
U.S.
|
$
|
52,604
|
|
|
$
|
63,872
|
|
|
Non-U.S.
|
(15,388
|
)
|
|
(22,010
|
)
|
|
Total
|
$
|
37,216
|
|
|
$
|
41,862
|
|
Taxes have not been provided on unremitted earnings of international subsidiaries that the Company considers indefinitely reinvested because the Company plans to keep these amounts indefinitely reinvested overseas except for instances where the Company can remit such earnings to the U.S. without an associated net tax cost. The Company's indefinite reinvestment determination is based on the future operational and capital requirements of its U.S. and non-U.S. operations. As of
January 1, 2017
, the amount of foreign earnings that the Company has the intent and ability to keep invested outside the U.S. indefinitely and for which no U.S. tax cost has been provided was approximately
$1.1 billion
. It is not practical to calculate the unrecognized deferred tax liability on those earnings.
|
|
|
|
Note 7:
|
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 for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Number of common shares—basic
|
109,478
|
|
|
112,507
|
|
|
112,593
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Stock options
|
640
|
|
|
621
|
|
|
922
|
|
|
Restricted stock awards
|
195
|
|
|
187
|
|
|
224
|
|
|
Number of common shares—diluted
|
110,313
|
|
|
113,315
|
|
|
113,739
|
|
|
Number of potentially dilutive securities excluded from calculation due to antidilutive impact
|
458
|
|
|
607
|
|
|
475
|
|
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 8:
|
Accounts Receivable, Net
|
Accounts receivable were net of reserves for doubtful accounts of
$29.2 million
and
$29.9 million
as of
January 1, 2017
and
January 3, 2016
, respectively.
Inventories as of
January 1, 2017
and
January 3, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Raw materials
|
$
|
79,189
|
|
|
$
|
85,100
|
|
|
Work in progress
|
6,561
|
|
|
5,919
|
|
|
Finished goods
|
161,097
|
|
|
168,467
|
|
|
Total inventories
|
$
|
246,847
|
|
|
$
|
259,486
|
|
|
|
|
|
Note 10:
|
Property, Plant and Equipment, Net
|
Property, plant and equipment, at cost, as of
January 1, 2017
and
January 3, 2016
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Land
|
$
|
4,250
|
|
|
$
|
802
|
|
|
Building and leasehold improvements
|
162,780
|
|
|
156,035
|
|
|
Machinery and equipment
|
260,873
|
|
|
244,903
|
|
|
Total property, plant and equipment
|
427,903
|
|
|
401,740
|
|
|
Accumulated depreciation
|
(282,409
|
)
|
|
(264,176
|
)
|
|
Total property, plant and equipment, net
|
$
|
145,494
|
|
|
$
|
137,564
|
|
Depreciation expense on property, plant and equipment for the fiscal years ended
January 1, 2017
,
January 3, 2016
and
December 28, 2014
was
$28.5 million
,
$28.7 million
and
$29.0 million
, respectively.
|
|
|
|
Note 11:
|
Marketable Securities and Investments
|
Investments as of
January 1, 2017
and
January 3, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Marketable securities
|
$
|
1,678
|
|
|
$
|
1,586
|
|
Marketable securities include equity and fixed-income securities held to meet obligations associated with the Company’s supplemental executive retirement plan and other deferred compensation plans. The Company has, accordingly, classified these securities as long-term.
The net unrealized holding gain and loss on marketable securities, net of deferred income taxes, reported as a component of other comprehensive income (loss) in the statements of stockholders’ equity, were not material in fiscal years 2016 and 2015. The proceeds from the sales of securities and the related gains and losses are not material for any period presented.
Marketable securities classified as available for sale as of
January 1, 2017
and
January 3, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
Gross Unrealized Holding
|
|
Value
|
|
Cost
|
|
Gains
|
|
(Losses)
|
|
|
|
(In thousands)
|
|
|
|
January 1, 2017
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
598
|
|
|
$
|
1,077
|
|
|
$
|
—
|
|
|
$
|
(479
|
)
|
|
Fixed-income securities
|
22
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
Other
|
1,058
|
|
|
1,121
|
|
|
—
|
|
|
(63
|
)
|
|
|
$
|
1,678
|
|
|
$
|
2,220
|
|
|
$
|
—
|
|
|
$
|
(542
|
)
|
|
January 3, 2016
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
908
|
|
|
$
|
1,299
|
|
|
$
|
—
|
|
|
$
|
(391
|
)
|
|
Fixed-income securities
|
57
|
|
|
57
|
|
|
—
|
|
|
—
|
|
|
Other
|
621
|
|
|
822
|
|
|
—
|
|
|
(201
|
)
|
|
|
$
|
1,586
|
|
|
$
|
2,178
|
|
|
$
|
—
|
|
|
$
|
(592
|
)
|
|
|
|
|
Note 12:
|
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 a two-step process. The first step is the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value. The second step measures the amount of an impairment loss, and is only performed if the carrying value exceeds the fair value of the reporting unit. The Company performed its annual impairment testing for its reporting units as of
January 4, 2016
, its annual impairment date for
fiscal year 2016
. The Company concluded based on the first step of the process that there was no goodwill impairment, and the fair value exceeded the carrying value by more than
20.0%
for each reporting unit. The long-term terminal growth rate for the Company’s reporting units was
3.0%
for the
fiscal year 2016
impairment analysis. The range for the discount rates for the reporting units was
10.5%
to
13.2%
. Keeping all other variables constant, a
10.0%
change in any one of the input assumptions for the various reporting units would still allow the Company to conclude, based on the first step of the process, 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
As discussed in Note 23, the Company realigned its organization into two new operating segments at the beginning of the fourth quarter of fiscal year 2016. In conjunction with the realignment of its operating segments, the Company also redefined its reporting units based on the new operating segments. Financial information in this report relating to fiscal years 2015 and 2014 has been retrospectively adjusted to reflect the changes in the Company's operating segments. The Company's segment management reviews the results of the operations one level below its operating segments. The Company has determined that the reporting units that should be used to test goodwill for impairment are environmental health excluding food, food, life sciences and technology, informatics, OneSource, diagnostics excluding cord blood, cord blood and medical imaging. The income approach, specifically the discounted cash flow model, was used to determine the fair values of each of the reporting units in order to allocate goodwill on a relative fair value basis. As a result of the realignment, the Company reallocated goodwill of
$125.8 million
from its life sciences and technology reporting unit to the diagnostics excluding cord blood reporting unit based on the relative fair value, determined using the income approach, of the applied genomics business as of October 3, 2016.
As of January 2, 2017, the Company's Informatics reporting unit, which had a goodwill balance of
$211.0 million
, had a fair value that was less than 20% but greater than 10% more than its carrying value. Informatics is at increased risk of an impairment charge given its ongoing weakness due to a highly competitive industry. Despite the increased risk associated with this reporting unit, the Company does not believe there will be 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 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
.
In addition, the Company evaluates the remaining useful lives of its non-amortizing intangible assets at least annually to determine whether events or circumstances continue to support an indefinite useful life. If events or circumstances indicate that the useful lives of non-amortizing intangible assets are no longer indefinite, the assets will be tested for impairment. These intangible assets will then be amortized prospectively over their estimated remaining useful lives 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, 2016
, and concluded that there was no impairment of non-amortizing intangible assets. 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
fiscal year 2016
.
The changes in the carrying amount of goodwill for
fiscal years 2016 and 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostics
|
|
Discovery & Analytical Solutions
|
|
Consolidated
|
|
|
(In thousands)
|
|
Balance at December 28, 2014
|
$
|
922,582
|
|
|
$
|
1,321,547
|
|
|
$
|
2,244,129
|
|
|
Foreign currency translation
|
(15,939
|
)
|
|
(38,778
|
)
|
|
(54,717
|
)
|
|
Acquisitions, earnouts and other
|
33,496
|
|
|
13,955
|
|
|
47,451
|
|
|
Balance at January 3, 2016
|
940,139
|
|
|
1,296,724
|
|
|
2,236,863
|
|
|
Foreign currency translation
|
(11,873
|
)
|
|
(16,602
|
)
|
|
(28,475
|
)
|
|
Acquisitions, earnouts and other
|
15,764
|
|
|
23,814
|
|
|
39,578
|
|
|
Balance at January 1, 2017
|
$
|
944,030
|
|
|
$
|
1,303,936
|
|
|
$
|
2,247,966
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Identifiable intangible asset balances at
January 1, 2017
by category and by business segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostics
|
|
Discovery & Analytical Solutions
|
|
Consolidated
|
|
|
(In thousands)
|
|
Patents
|
$
|
11,900
|
|
|
$
|
28,001
|
|
|
$
|
39,901
|
|
|
Less: Accumulated amortization
|
(9,556
|
)
|
|
(22,852
|
)
|
|
(32,408
|
)
|
|
Net patents
|
2,344
|
|
|
5,149
|
|
|
7,493
|
|
|
Trade names and trademarks
|
11,523
|
|
|
28,563
|
|
|
40,086
|
|
|
Less: Accumulated amortization
|
(8,090
|
)
|
|
(15,927
|
)
|
|
(24,017
|
)
|
|
Net trade names and trademarks
|
3,433
|
|
|
12,636
|
|
|
16,069
|
|
|
Licenses
|
7,936
|
|
|
49,831
|
|
|
57,767
|
|
|
Less: Accumulated amortization
|
(7,762
|
)
|
|
(38,745
|
)
|
|
(46,507
|
)
|
|
Net licenses
|
174
|
|
|
11,086
|
|
|
11,260
|
|
|
Core technology
|
70,896
|
|
|
233,291
|
|
|
304,187
|
|
|
Less: Accumulated amortization
|
(49,380
|
)
|
|
(184,340
|
)
|
|
(233,720
|
)
|
|
Net core technology
|
21,516
|
|
|
48,951
|
|
|
70,467
|
|
|
Customer relationships
|
123,884
|
|
|
259,419
|
|
|
383,303
|
|
|
Less: Accumulated amortization
|
(93,720
|
)
|
|
(119,342
|
)
|
|
(213,062
|
)
|
|
Net customer relationships
|
30,164
|
|
|
140,077
|
|
|
170,241
|
|
|
IPR&D
|
72,946
|
|
|
5,569
|
|
|
78,515
|
|
|
Less: Accumulated amortization
|
(960
|
)
|
|
(3,445
|
)
|
|
(4,405
|
)
|
|
Net IPR&D
|
71,986
|
|
|
2,124
|
|
|
74,110
|
|
|
Net amortizable intangible assets
|
129,617
|
|
|
220,023
|
|
|
349,640
|
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
Trade name
|
—
|
|
|
70,584
|
|
|
70,584
|
|
|
Total
|
$
|
129,617
|
|
|
$
|
290,607
|
|
|
$
|
420,224
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Identifiable intangible asset balances at
January 3, 2016
by category and business segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostics
|
|
Discovery & Analytical Solutions
|
|
Consolidated
|
|
|
(In thousands)
|
|
Patents
|
$
|
11,900
|
|
|
$
|
28,011
|
|
|
$
|
39,911
|
|
|
Less: Accumulated amortization
|
(8,475
|
)
|
|
(21,313
|
)
|
|
(29,788
|
)
|
|
Net patents
|
3,425
|
|
|
6,698
|
|
|
10,123
|
|
|
Trade names and trademarks
|
11,503
|
|
|
28,746
|
|
|
40,249
|
|
|
Less: Accumulated amortization
|
(7,002
|
)
|
|
(13,684
|
)
|
|
(20,686
|
)
|
|
Net trade names and trademarks
|
4,501
|
|
|
15,062
|
|
|
19,563
|
|
|
Licenses
|
7,939
|
|
|
48,226
|
|
|
56,165
|
|
|
Less: Accumulated amortization
|
(6,942
|
)
|
|
(36,029
|
)
|
|
(42,971
|
)
|
|
Net licenses
|
997
|
|
|
12,197
|
|
|
13,194
|
|
|
Core technology
|
71,821
|
|
|
231,004
|
|
|
302,825
|
|
|
Less: Accumulated amortization
|
(43,182
|
)
|
|
(166,471
|
)
|
|
(209,653
|
)
|
|
Net core technology
|
28,639
|
|
|
64,533
|
|
|
93,172
|
|
|
Customer relationships
|
128,604
|
|
|
256,921
|
|
|
385,525
|
|
|
Less: Accumulated amortization
|
(94,222
|
)
|
|
(93,836
|
)
|
|
(188,058
|
)
|
|
Net customer relationships
|
34,382
|
|
|
163,085
|
|
|
197,467
|
|
|
IPR&D
|
78,479
|
|
|
7,200
|
|
|
85,679
|
|
|
Less: Accumulated amortization
|
(756
|
)
|
|
(3,389
|
)
|
|
(4,145
|
)
|
|
Net IPR&D
|
77,723
|
|
|
3,811
|
|
|
81,534
|
|
|
Net amortizable intangible assets
|
149,667
|
|
|
265,386
|
|
|
415,053
|
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
Trade name
|
—
|
|
|
70,584
|
|
|
70,584
|
|
|
Total
|
$
|
149,667
|
|
|
$
|
335,970
|
|
|
$
|
485,637
|
|
Total amortization expense related to definite-lived intangible assets was
$71.5 million
in
fiscal year 2016
,
$76.6 million
in
fiscal year 2015
and
$81.4 million
in
fiscal year 2014
. Estimated amortization expense related to definite-lived intangible assets for each of the next five years is
$63.1 million
in fiscal year
2017
,
$61.2 million
in fiscal year
2018
,
$49.8 million
in fiscal year
2019
,
$41.1 million
in fiscal year
2020
, and
$28.7 million
in fiscal year
2021
.
The Company entered into a strategic agreement in fiscal year 2012 under which it acquired certain intangible assets and received a license to certain core technology for an analytics and data discovery platform, as well as the exclusive right to distribute the platform in certain scientific research and development markets. During fiscal year 2012, the Company paid
$6.8 million
for net intangible assets and
$25.0 million
for prepaid royalties. During fiscal year 2013, the Company extended the existing agreement for an additional year. In addition, the Company entered into a new agreement to expand the distribution rights to the clinical and other related markets and acquired additional intangible assets. During fiscal year 2013, the Company paid
$7.0 million
for net intangible assets and
$40.3 million
for prepaid royalties. During fiscal year 2016, the Company extended the existing agreement for an additional 3 years and expanded the distribution rights to the related markets. During fiscal year 2016, the Company paid
$6.0 million
for prepaid royalties related to the extension and new agreement. During the
fiscal years 2016 and 2015
, the Company paid
$9.4 million
and
$9.8 million
, respectively, for additional prepaid royalties. The prepaid royalties have been recorded primarily as other long-term assets. The Company expects to pay
$7.5 million
of additional prepaid royalties within the next twelve months. The Company expenses royalties as revenue is recognized. These intangible assets are being amortized over their estimated useful lives. The Company has reported the amortization of these intangible assets within the results of the Company's Discovery & Analytical Solutions segment from the execution date.
Senior Unsecured Revolving Credit Facility.
On August 11, 2016, the Company terminated its previous senior unsecured revolving credit facility and entered into a new senior unsecured revolving credit facility with a five year term and an expansion of borrowing capacity from
$700.0 million
to
$1.0 billion
. The new senior unsecured revolving credit facility
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
provides for
$1.0 billion
of revolving loans and has an initial maturity of
August 11, 2021
. As of
January 1, 2017
, 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 new senior unsecured revolving credit facility. As of
January 1, 2017
, the Company had
$988.6 million
available for additional borrowing under the facility. The Company uses the new 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 under the senior unsecured revolving credit facility are based on the Eurocurrency rate or the base rate at the time of borrowing, plus a margin. The base rate is the higher of (i) the rate of interest in effect for such day as publicly announced from time to time by JP Morgan Chase Bank, N.A. as its "prime rate," (ii) the Federal Funds rate plus 50 basis points or (iii) an adjusted one-month Libor plus 1.00%. As of
January 1, 2017
, the new senior unsecured revolving credit facility had no outstanding borrowings, and
$4.3 million
of unamortized debt issuance costs. As of
January 3, 2016
, the previous senior unsecured revolving credit facility had an aggregate carrying value of
$479.6 million
, which was net of
$2.4 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.
5%
Senior Unsecured Notes due in 2021.
On October 25, 2011, the Company issued
$500.0 million
aggregate principal amount of senior unsecured notes due in 2021 (the “2021 Notes”) in a registered public offering and received
$496.9 million
of net proceeds from the issuance. The 2021 Notes were issued at
99.372%
of the principal amount, which resulted in a discount of
$3.1 million
. As of
January 1, 2017
, the 2021 Notes had an aggregate carrying value of
$495.8 million
, net of
$1.7 million
of unamortized original issue discount and
$2.5 million
of unamortized debt issuance costs. As of
January 3, 2016
, the 2021 Notes had an aggregate carrying value of
$495.1 million
, net of
$2.0 million
of unamortized original issue discount and
$2.9 million
of unamortized debt issuance costs. The 2021 Notes mature in November 2021 and bear interest at an annual rate of
5%
. Interest on the 2021 Notes is payable semi-annually on May 15th and November 15th each year. Prior to August 15, 2021 (three months prior to their maturity date), the Company may redeem the 2021 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 2021 Notes to be redeemed, plus accrued and unpaid interest, 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 a semi-annual basis, at the Treasury Rate plus 45 basis points, plus accrued and unpaid interest. At any time on or after August 15, 2021 (three months prior to their maturity date), the Company may redeem the 2021 Notes, at its option, at a redemption price equal to 100% of the principal amount of the 2021 Notes to be redeemed plus 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, each holder of 2021 Notes will have the right to require the Company to repurchase such holder's 2021 Notes for
101%
of their principal amount, plus accrued and unpaid interest.
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
January 1, 2017
, the 2026 Notes had an aggregate carrying value of
$517.8 million
, net of
$4.5 million
of unamortized original issue discount and
$4.8 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.
Financing Lease Obligations.
In fiscal year 2012, the Company entered into agreements with the lessors of certain buildings that the Company is currently occupying and leasing to expand those buildings. The Company provided a portion of the funds needed for the construction of the additions to the buildings, and as a result the Company was considered the owner
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the buildings during the construction period. At the end of the construction period, the Company was not reimbursed by the lessors for all of the construction costs. The Company is therefore deemed to have continuing involvement and the leases qualify as financing leases under sale-leaseback accounting guidance, representing debt obligations for the Company and non-cash investing and financing activities. As a result, the Company capitalized
$29.3 million
in property, plant and equipment, net, representing the fair value of the buildings with a corresponding increase to debt. The Company has also capitalized
$11.5 million
in additional construction costs necessary to complete the renovations to the buildings, which were funded by the lessors, with a corresponding increase to debt. At
January 1, 2017
, the Company had
$37.1 million
recorded for these financing lease obligations, of which
$1.2 million
was recorded as short-term debt and
$35.9 million
was recorded as long-term debt. At
January 3, 2016
, the Company had
$38.2 million
recorded for these financing lease obligations, of which
$1.1 million
was recorded as short-term debt and
$37.1 million
was recorded as long-term debt. The buildings are being depreciated on a straight-line basis over the terms of the leases to their estimated residual values, which will equal the remaining financing obligation at the end of the lease term. At the end of the lease term, the remaining balances in property, plant and equipment, net and debt will be reversed against each other.
The following table summarizes the maturities of the Company’s indebtedness as of
January 1, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sr. Unsecured
Revolving
Credit Facility
Maturing 2021
|
|
5.0% Sr. Notes
Maturing 2021
|
|
1.875% Sr. Notes
Maturing 2026
|
|
Financing Lease Obligations
|
|
Total
|
|
|
(In thousands)
|
|
2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,172
|
|
|
$
|
1,172
|
|
|
2018
|
—
|
|
|
—
|
|
|
—
|
|
|
1,367
|
|
|
1,367
|
|
|
2019
|
—
|
|
|
—
|
|
|
—
|
|
|
1,532
|
|
|
1,532
|
|
|
2020
|
—
|
|
|
—
|
|
|
—
|
|
|
1,597
|
|
|
1,597
|
|
|
2021
|
—
|
|
|
500,000
|
|
|
—
|
|
|
1,664
|
|
|
501,664
|
|
|
2022 and thereafter
|
—
|
|
|
—
|
|
|
527,050
|
|
|
29,742
|
|
|
556,792
|
|
|
Total before unamortized discount and debt issuance costs
|
—
|
|
|
500,000
|
|
|
527,050
|
|
|
37,074
|
|
|
1,064,124
|
|
|
Unamortized discount and debt issuance costs
|
(4,260
|
)
|
|
(4,167
|
)
|
|
(9,271
|
)
|
|
—
|
|
|
(17,698
|
)
|
|
Total
|
$
|
(4,260
|
)
|
|
$
|
495,833
|
|
|
$
|
517,779
|
|
|
$
|
37,074
|
|
|
$
|
1,046,426
|
|
|
|
|
|
Note 14:
|
Accrued Expenses and Other Current Liabilities
|
Accrued expenses and other current liabilities as of
January 1, 2017
and
January 3, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Payroll and incentives
|
$
|
61,474
|
|
|
$
|
61,319
|
|
|
Employee benefits
|
31,039
|
|
|
31,979
|
|
|
Deferred revenue
|
162,987
|
|
|
163,006
|
|
|
Federal, non-U.S. and state income taxes
|
8,189
|
|
|
2,882
|
|
|
Other accrued operating expenses
|
136,011
|
|
|
123,148
|
|
|
Total accrued expenses and other current liabilities
|
$
|
399,700
|
|
|
$
|
382,334
|
|
|
|
|
|
Note 15:
|
Employee Benefit Plans
|
Savings Plan:
The Company has a 401(k) Savings Plan for the benefit of all qualified U.S. employees, with such employees receiving matching contributions in the amount equal to
100.0%
of the first
5.0%
of eligible compensation up to applicable Internal Revenue Service limits. Savings plan expense was
$12.8 million
in fiscal years 2016 and
2015
, and
$12.2 million
in
fiscal year 2014
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pension Plans:
The Company has a defined benefit pension plan covering certain U.S. employees and non-U.S. pension plans for certain non-U.S. employees. The principal U.S. defined benefit pension plan was closed to new hires effective January 31, 2001, and benefits for those employed by the Company’s former Life Sciences business were frozen as of that date. Plan benefits were frozen as of March 2003 for those employed by the Company’s former Analytical Instruments business and corporate employees. Plan benefits were frozen as of January 31, 2011 for all remaining employees that were still actively accruing in the plan. The plans provide benefits that are based on an employee’s years of service and compensation near retirement.
Net periodic pension cost for U.S. and non-U.S. plans included the following components for fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Service cost
|
$
|
4,337
|
|
|
$
|
4,332
|
|
|
$
|
4,070
|
|
|
Interest cost
|
18,638
|
|
|
20,696
|
|
|
23,475
|
|
|
Expected return on plan assets
|
(24,245
|
)
|
|
(26,021
|
)
|
|
(25,007
|
)
|
|
Curtailment gain
|
—
|
|
|
(907
|
)
|
|
—
|
|
|
Actuarial loss
|
15,890
|
|
|
12,953
|
|
|
71,700
|
|
|
Amortization of prior service cost
|
(210
|
)
|
|
(238
|
)
|
|
(281
|
)
|
|
Net periodic pension cost
|
$
|
14,410
|
|
|
$
|
10,815
|
|
|
$
|
73,957
|
|
During fiscal year 2014, the Company notified certain employees of its intention to terminate their employment as part of the Q3 2014 restructuring plan. During fiscal year 2015, the termination of these participants decreased the expected future service lives in excess of the curtailment limit for one of the Company's pension plans, which resulted in a curtailment gain. The Company recorded the curtailment gain of
$0.8 million
during fiscal year 2015. As part of the curtailment, the Company remeasured the assets and liabilities of the plan that had the curtailment based upon current discount rates and the fair value of the pension plan's assets as of the curtailment date, which resulted in an actuarial loss of
$0.8 million
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the changes in the funded status of the principal U.S. pension plan and the principal non-U.S. pension plans and the amounts recognized in the Company’s consolidated balance sheets as of
January 1, 2017
and
January 3, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
January 3, 2016
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
(In thousands)
|
|
Actuarial present value of benefit obligations:
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
$
|
271,127
|
|
|
$
|
300,650
|
|
|
$
|
267,862
|
|
|
$
|
301,416
|
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
Projected benefit obligations at beginning of year
|
$
|
276,960
|
|
|
$
|
301,416
|
|
|
$
|
303,809
|
|
|
$
|
327,632
|
|
|
Service cost
|
2,262
|
|
|
2,075
|
|
|
2,532
|
|
|
1,800
|
|
|
Interest cost
|
6,205
|
|
|
12,433
|
|
|
7,695
|
|
|
13,001
|
|
|
Benefits paid and plan expenses
|
(11,940
|
)
|
|
(19,424
|
)
|
|
(11,100
|
)
|
|
(24,127
|
)
|
|
Participants’ contributions
|
209
|
|
|
—
|
|
|
343
|
|
|
—
|
|
|
Business divestiture
|
(2,955
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Plan curtailments
|
—
|
|
|
—
|
|
|
(759
|
)
|
|
—
|
|
|
Plan settlements
|
(993
|
)
|
|
—
|
|
|
(1,401
|
)
|
|
—
|
|
|
Actuarial loss (gain)
|
38,623
|
|
|
4,150
|
|
|
131
|
|
|
(16,890
|
)
|
|
Effect of exchange rate changes
|
(28,849
|
)
|
|
—
|
|
|
(24,290
|
)
|
|
—
|
|
|
Projected benefit obligations at end of year
|
$
|
279,522
|
|
|
$
|
300,650
|
|
|
$
|
276,960
|
|
|
$
|
301,416
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
150,894
|
|
|
$
|
244,693
|
|
|
$
|
156,767
|
|
|
$
|
256,254
|
|
|
Actual return on plan assets
|
32,581
|
|
|
18,548
|
|
|
3,745
|
|
|
(7,434
|
)
|
|
Benefits paid and plan expenses
|
(11,940
|
)
|
|
(19,424
|
)
|
|
(11,100
|
)
|
|
(24,127
|
)
|
|
Employer’s contributions
|
9,562
|
|
|
—
|
|
|
10,908
|
|
|
20,000
|
|
|
Participants’ contributions
|
209
|
|
|
—
|
|
|
343
|
|
|
—
|
|
|
Plan settlements
|
(993
|
)
|
|
—
|
|
|
(1,401
|
)
|
|
—
|
|
|
Effect of exchange rate changes
|
(27,032
|
)
|
|
—
|
|
|
(8,368
|
)
|
|
—
|
|
|
Fair value of plan assets at end of year
|
153,281
|
|
|
243,817
|
|
|
150,894
|
|
|
244,693
|
|
|
Net liabilities recognized in the consolidated balance sheets
|
$
|
(126,241
|
)
|
|
$
|
(56,833
|
)
|
|
$
|
(126,066
|
)
|
|
$
|
(56,723
|
)
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
$
|
12,944
|
|
|
$
|
—
|
|
|
$
|
12,135
|
|
|
$
|
—
|
|
|
Current liabilities
|
(6,033
|
)
|
|
—
|
|
|
(6,261
|
)
|
|
—
|
|
|
Noncurrent liabilities
|
(133,152
|
)
|
|
(56,833
|
)
|
|
(131,940
|
)
|
|
(56,723
|
)
|
|
Net liabilities recognized in the consolidated balance sheets
|
$
|
(126,241
|
)
|
|
$
|
(56,833
|
)
|
|
$
|
(126,066
|
)
|
|
$
|
(56,723
|
)
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
Prior service cost
|
$
|
(603
|
)
|
|
$
|
—
|
|
|
$
|
(932
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial assumptions as of the year-end measurement date:
|
|
|
|
|
|
|
|
|
Discount rate
|
2.06
|
%
|
|
4.06
|
%
|
|
2.88
|
%
|
|
4.25
|
%
|
|
Rate of compensation increase
|
3.64
|
%
|
|
None
|
|
|
3.26
|
%
|
|
None
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Actuarial assumptions used to determine net periodic pension cost during the year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
January 3, 2016
|
|
December 28, 2014
|
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Discount rate
|
2.88
|
%
|
|
4.25
|
%
|
|
2.75
|
%
|
|
4.08
|
%
|
|
3.77
|
%
|
|
4.77
|
%
|
|
Rate of compensation increase
|
3.26
|
%
|
|
None
|
|
|
3.28
|
%
|
|
None
|
|
|
3.23
|
%
|
|
None
|
|
|
Expected rate of return on assets
|
5.30
|
%
|
|
7.25
|
%
|
|
4.60
|
%
|
|
7.25
|
%
|
|
5.30
|
%
|
|
7.25
|
%
|
The following table provides a breakdown of the non-U.S. benefit obligations and fair value of assets for pension plans that have benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Pension Plans with Projected Benefit Obligations in Excess of Plan Assets
|
|
|
|
|
Projected benefit obligations
|
$
|
139,185
|
|
|
$
|
138,201
|
|
|
Fair value of plan assets
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets
|
|
|
|
|
Accumulated benefit obligations
|
$
|
136,197
|
|
|
$
|
134,858
|
|
|
Fair value of plan assets
|
—
|
|
|
—
|
|
Assets of the defined benefit pension plans are primarily equity and debt securities. Asset allocations as of
January 1, 2017
and
January 3, 2016
, and target asset allocations for
fiscal year 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
Percentage of Plan Assets at
|
|
|
December 31, 2017
|
|
January 1, 2017
|
|
January 3, 2016
|
|
Asset Category
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Equity securities
|
45-55%
|
|
|
40-50%
|
|
|
48
|
%
|
|
41
|
%
|
|
49
|
%
|
|
42
|
%
|
|
Debt securities
|
45-55%
|
|
|
50-60%
|
|
|
51
|
%
|
|
59
|
%
|
|
50
|
%
|
|
58
|
%
|
|
Other
|
0-5%
|
|
|
0-5%
|
|
|
1
|
%
|
|
—
|
%
|
|
1
|
%
|
|
—
|
%
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The Company maintains target allocation percentages among various asset classes based on investment policies established for the pension plans which are designed to maximize the total rate of return (income and appreciation) after inflation within the limits of prudent risk taking, while providing for adequate near-term liquidity for benefit payments.
The Company’s expected rate of return on assets assumptions are derived from management’s estimates, as well as other information compiled by management, including studies that utilize customary procedures and techniques. The studies include a review of anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the anticipated requirements of the plans to determine the average rate of earnings expected on the funds invested to provide for the pension plans benefits. While the study gives appropriate consideration to recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate.
The Company's discount rate assumptions are derived from a range of factors, including a yield curve for certain plans, composed of the rates of return on high-quality fixed-income corporate bonds available at the measurement date and the related expected duration for the obligations, and a bond matching approach for certain plans.
For the plans in the United States, the Company adopted the updated projection scale, MP-2015, that was published by the Society of Actuaries in 2015, as of January 3, 2016. The adoption of the updated projection scale resulted in a
$6.8 million
decrease to the projected benefit obligation as of January 3, 2016. During fiscal year 2016, the Society of Actuaries issued an updated projection scale, MP-2016, which reduced the life expectancy used to determine the projected benefit obligation. The Company adopted MP-2016 as of January 1, 2017. The adoption of the updated projection scale resulted in a
$5.5 million
decrease to the projected benefit obligation at January 1, 2017. The changes to the projected benefit obligations due to the adoption of the mortality base table and projection scale are included within "Actuarial loss (gain)" in the Change in Benefit Obligations for fiscal years 2016 and 2015 above
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The target allocations for plan assets are listed in the above table. Equity securities primarily include investments in large-cap and mid-cap companies located in the United States and abroad, and equity index funds. Debt securities include corporate bonds of companies from diversified industries, high-yield bonds, and U.S. government securities. Other types of investments include investments in non-U.S. government index linked bonds, multi-strategy hedge funds and venture capital funds that follow several different strategies.
The fair values of the Company’s pension plan assets as of
January 1, 2017
and
January 3, 2016
by asset category, classified in the three levels of inputs described in Note 21 to the consolidated financial statements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 1, 2017 Using:
|
|
Total Carrying
Value at
January 1, 2017
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In thousands)
|
|
Cash
|
$
|
6,079
|
|
|
$
|
6,079
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
25,523
|
|
|
25,523
|
|
|
—
|
|
|
—
|
|
|
International large-cap value
|
28,267
|
|
|
28,267
|
|
|
—
|
|
|
—
|
|
|
U.S. small mid-cap
|
1,756
|
|
|
1,756
|
|
|
—
|
|
|
—
|
|
|
Emerging markets growth
|
12,144
|
|
|
12,144
|
|
|
—
|
|
|
—
|
|
|
Equity index funds
|
74,274
|
|
|
—
|
|
|
74,274
|
|
|
—
|
|
|
Domestic real estate funds
|
1,401
|
|
|
1,401
|
|
|
—
|
|
|
—
|
|
|
Commodity funds
|
6,854
|
|
|
6,854
|
|
|
—
|
|
|
—
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
Non-U.S. Treasury Securities
|
22,059
|
|
|
—
|
|
|
22,059
|
|
|
—
|
|
|
Corporate and U.S. debt instruments
|
133,406
|
|
|
35,971
|
|
|
97,435
|
|
|
—
|
|
|
Corporate bonds
|
23,906
|
|
|
—
|
|
|
23,906
|
|
|
—
|
|
|
High yield bond funds
|
5,636
|
|
|
5,636
|
|
|
—
|
|
|
—
|
|
|
Other types of investments:
|
|
|
|
|
|
|
|
|
Multi-strategy hedge funds
|
23,790
|
|
|
—
|
|
|
—
|
|
|
23,790
|
|
|
Non-U.S. government index linked bonds
|
32,003
|
|
|
—
|
|
|
32,003
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
397,098
|
|
|
$
|
123,631
|
|
|
$
|
249,677
|
|
|
$
|
23,790
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 3, 2016 Using:
|
|
Total Carrying
Value at
January 3, 2016
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In thousands)
|
|
Cash
|
$
|
2,890
|
|
|
$
|
2,890
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
30,357
|
|
|
30,357
|
|
|
—
|
|
|
—
|
|
|
International large-cap value
|
26,686
|
|
|
26,686
|
|
|
—
|
|
|
—
|
|
|
Emerging markets growth
|
10,600
|
|
|
10,600
|
|
|
—
|
|
|
—
|
|
|
Equity index funds
|
74,974
|
|
|
—
|
|
|
74,974
|
|
|
—
|
|
|
Domestic real estate funds
|
2,735
|
|
|
2,735
|
|
|
—
|
|
|
—
|
|
|
Commodity funds
|
8,128
|
|
|
8,128
|
|
|
—
|
|
|
—
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
Non-U.S. Treasury Securities
|
21,531
|
|
|
—
|
|
|
21,531
|
|
|
—
|
|
|
Corporate and U.S. debt instruments
|
137,117
|
|
|
28,746
|
|
|
108,371
|
|
|
—
|
|
|
Corporate bonds
|
23,871
|
|
|
—
|
|
|
23,871
|
|
|
—
|
|
|
High yield bond funds
|
3,324
|
|
|
3,324
|
|
|
—
|
|
|
—
|
|
|
Other types of investments:
|
|
|
|
|
|
|
|
|
Multi-strategy hedge funds
|
23,415
|
|
|
—
|
|
|
—
|
|
|
23,415
|
|
|
Venture capital funds
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Non-U.S. government index linked bonds
|
29,958
|
|
|
—
|
|
|
29,958
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
395,587
|
|
|
$
|
113,466
|
|
|
$
|
258,705
|
|
|
$
|
23,416
|
|
Valuation Techniques:
Valuation techniques utilized need to maximize the use of observable inputs and minimize the use of unobservable inputs. There have been no changes in the methodologies utilized at
January 1, 2017
compared to
January 3, 2016
. The following is a description of the valuation techniques utilized to measure the fair value of the assets shown in the table above.
Equity Securities:
Shares of registered investment companies that are publicly traded are categorized as Level 1 assets; they are valued at quoted market prices that represent the net asset value of the fund. These instruments have active markets.
Equity index funds are mutual funds that are not publicly traded and are comprised primarily of underlying equity securities that are publicly traded on exchanges. Price quotes for the assets held by these funds are readily observable and available. Equity index funds are categorized as Level 2 assets.
Fixed Income Securities:
Fixed income mutual funds that are publicly traded are valued at quoted market prices that represent the net asset value of securities held by the fund and are categorized as Level 1 assets.
Fixed income index funds that are not publicly traded are stated at net asset value as determined by the issuer of the fund based on the fair value of the underlying investments and are categorized as Level 2 assets.
Individual fixed income bonds are categorized as Level 2 assets except where sufficient quoted prices exist in active markets, in which case such securities are categorized as Level 1 assets. These securities are valued using third-party pricing services. These services may use, for example, model-based pricing methods that utilize observable market data as inputs. Broker dealer bids or quotes of securities with similar characteristics may also be used.
Other Types of Investments:
Non-U.S. government index link bond funds are not publicly traded and are stated at net asset value as determined by the issuer of the fund based on the fair value of the underlying investments. Underlying investments consist of bonds in which payment of income on the principal is related to a specific price index and are categorized as Level 2 assets.
Hedge funds, private equity funds and venture capital funds are valued at fair value by using the net asset values provided by the investment managers and are updated, if necessary, using analytical procedures, appraisals, public market data and/or inquiry of the investment managers. The net asset values are determined based upon the fair values of the underlying investments in the funds. These other investments invest primarily in readily available marketable securities and allocate gains,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
losses, and expense to the investor based on the ownership percentage as described in the fund agreements. They are categorized as Level 3 assets.
The Company's policy is to recognize significant transfers between levels at the actual date of the event.
A reconciliation of the beginning and ending Level 3 assets for
fiscal years 2016, 2015 and 2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3):
|
|
Venture
Capital
Funds
|
|
Multi-strategy
Hedge
Funds
|
|
Total
|
|
(In thousands)
|
|
Balance at December 29, 2013
|
$
|
8
|
|
|
$
|
22,689
|
|
|
$
|
22,697
|
|
|
Unrealized (losses) gains
|
(7
|
)
|
|
643
|
|
|
636
|
|
|
Balance at December 28, 2014
|
1
|
|
|
23,332
|
|
|
23,333
|
|
|
Unrealized gains
|
—
|
|
|
83
|
|
|
83
|
|
|
Balance at January 3, 2016
|
1
|
|
|
23,415
|
|
|
23,416
|
|
|
Realized losses
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
Unrealized gains
|
—
|
|
|
375
|
|
|
375
|
|
|
Balance at January 1, 2017
|
$
|
—
|
|
|
$
|
23,790
|
|
|
$
|
23,790
|
|
With respect to plans outside of the United States, the Company expects to contribute
$7.6 million
in the aggregate during fiscal year 2017. During
fiscal year 2016
, the Company contributed
$9.6 million
, in the aggregate, to pension plans outside of the United States. During fiscal year 2015, the Company made contributions of
$14.9 million
, in the aggregate, to plans outside of the United States and
$20.0 million
to its defined benefit pension plan in the United States. During fiscal year 2014, the Company contributed
$11.2 million
, in the aggregate, to plans outside of the United States.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
U.S.
|
|
|
(In thousands)
|
|
2017
|
$
|
10,147
|
|
|
$
|
18,406
|
|
|
2018
|
10,474
|
|
|
18,559
|
|
|
2019
|
10,839
|
|
|
18,651
|
|
|
2020
|
11,232
|
|
|
18,775
|
|
|
2021
|
11,749
|
|
|
19,103
|
|
|
2022-2026
|
62,667
|
|
|
96,349
|
|
The Company also sponsors a supplemental executive retirement plan to provide senior management with benefits in excess of normal pension benefits. Effective July 31, 2000, this plan was closed to new entrants. At
January 1, 2017
and
January 3, 2016
, the projected benefit obligations were
$21.8 million
and
$21.5 million
, respectively. Assets with a fair value of
$1.1 million
and
$0.6 million
, segregated in a trust (which is included in marketable securities and investments on the consolidated balance sheets), were available to meet this obligation as of
January 1, 2017
and
January 3, 2016
, respectively. Pension expenses and income for this plan netted to
expense
of
$1.6 million
in
fiscal year 2016
,
income
of
$1.6 million
in
fiscal year 2015
and
expense
of
$4.8 million
in
fiscal year 2014
.
Postretirement Medical Plans:
The Company provides healthcare benefits for eligible retired U.S. employees under a comprehensive major medical plan or under health maintenance organizations where available. Eligible U.S. employees qualify for retiree health benefits if they retire directly from the Company and have at least ten years of service. Generally, the major medical plan pays stated percentages of covered expenses after a deductible is met and takes into consideration payments by other group coverage and by Medicare. The plan requires retiree contributions under most circumstances and has provisions for cost-sharing charges. Effective January 1, 2000, this plan was closed to new hires. For employees retiring after 1991, the Company has capped its medical premium contribution based on employees’ years of service. The Company funds the amount allowable under a 401(h) provision in the Company’s defined benefit pension plan. Assets of the plan are primarily equity and debt securities and are available only to pay retiree health benefits.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net periodic postretirement medical benefit (credit) cost included the following components for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Service cost
|
$
|
101
|
|
|
$
|
108
|
|
|
$
|
95
|
|
|
Interest cost
|
142
|
|
|
143
|
|
|
155
|
|
|
Expected return on plan assets
|
(1,035
|
)
|
|
(1,062
|
)
|
|
(964
|
)
|
|
Actuarial loss (gain)
|
(539
|
)
|
|
971
|
|
|
(384
|
)
|
|
Net periodic postretirement medical benefit (credit) cost
|
$
|
(1,331
|
)
|
|
$
|
160
|
|
|
$
|
(1,098
|
)
|
The following table sets forth the changes in the postretirement medical plan’s funded status and the amounts recognized in the Company’s consolidated balance sheets as of
January 1, 2017
and
January 3, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
|
(In thousands)
|
|
Actuarial present value of benefit obligations:
|
|
|
|
|
Retirees
|
$
|
907
|
|
|
$
|
1,033
|
|
|
Active employees eligible to retire
|
423
|
|
|
424
|
|
|
Other active employees
|
2,031
|
|
|
2,119
|
|
|
Accumulated benefit obligations at beginning of year
|
3,361
|
|
|
3,576
|
|
|
Service cost
|
101
|
|
|
108
|
|
|
Interest cost
|
142
|
|
|
143
|
|
|
Benefits paid
|
(145
|
)
|
|
(158
|
)
|
|
Actuarial gain
|
(329
|
)
|
|
(308
|
)
|
|
Change in accumulated benefit obligations during the year
|
(231
|
)
|
|
(215
|
)
|
|
Retirees
|
804
|
|
|
907
|
|
|
Active employees eligible to retire
|
379
|
|
|
423
|
|
|
Other active employees
|
1,948
|
|
|
2,031
|
|
|
Accumulated benefit obligations at end of year
|
$
|
3,131
|
|
|
$
|
3,361
|
|
|
Change in plan assets:
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
14,353
|
|
|
$
|
14,728
|
|
|
Actual return on plan assets
|
1,100
|
|
|
(375
|
)
|
|
Fair value of plan assets at end of year
|
$
|
15,453
|
|
|
$
|
14,353
|
|
|
Net assets recognized in the consolidated balance sheets
|
$
|
12,322
|
|
|
$
|
10,992
|
|
|
|
|
|
|
|
Net amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
Noncurrent assets
|
$
|
12,322
|
|
|
$
|
10,992
|
|
|
Net assets recognized in the consolidated balance sheets
|
$
|
12,322
|
|
|
$
|
10,992
|
|
|
|
|
|
|
|
Net amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
Prior service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
Net amounts recognized in accumulated other comprehensive income
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Actuarial assumptions as of the year-end measurement date:
|
|
|
|
|
Discount rate
|
4.11
|
%
|
|
4.34
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Actuarial assumptions used to determine net cost during the year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
Discount rate
|
4.34
|
%
|
|
4.10
|
%
|
|
4.77
|
%
|
|
Expected rate of return on assets
|
7.25
|
%
|
|
7.25
|
%
|
|
7.25
|
%
|
The Company maintains a master trust for plan assets related to the U.S. defined benefit plans and the U.S. postretirement medical plan. Accordingly, investment policies, target asset allocations and actual asset allocations are the same as those disclosed for the U.S. defined benefit plans.
The fair values of the Company’s plan assets at
January 1, 2017
and
January 3, 2016
by asset category, classified in the three levels of inputs described in Note 21, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 1, 2017 Using:
|
|
Total Carrying
Value at
January 1, 2017
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In thousands)
|
|
Cash
|
$
|
319
|
|
|
$
|
319
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
1,618
|
|
|
1,618
|
|
|
—
|
|
|
—
|
|
|
International large-cap value
|
1,792
|
|
|
1,792
|
|
|
—
|
|
|
—
|
|
|
U.S. small mid-cap
|
111
|
|
|
111
|
|
|
—
|
|
|
—
|
|
|
Emerging markets growth
|
770
|
|
|
770
|
|
|
—
|
|
|
—
|
|
|
Domestic real estate funds
|
89
|
|
|
89
|
|
|
—
|
|
|
—
|
|
|
Commodity funds
|
434
|
|
|
434
|
|
|
—
|
|
|
—
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
Corporate debt instruments
|
8,456
|
|
|
2,280
|
|
|
6,176
|
|
|
—
|
|
|
High yield bond funds
|
356
|
|
|
356
|
|
|
—
|
|
|
—
|
|
|
Other types of investments:
|
|
|
|
|
|
|
|
|
Multi-strategy hedge funds
|
1,508
|
|
|
—
|
|
|
—
|
|
|
1,508
|
|
|
Total assets measured at fair value
|
$
|
15,453
|
|
|
$
|
7,769
|
|
|
$
|
6,176
|
|
|
$
|
1,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 3, 2016 Using:
|
|
Total Carrying
Value at
January 3, 2016
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In thousands)
|
|
Cash
|
$
|
133
|
|
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
1,781
|
|
|
1,781
|
|
|
—
|
|
|
—
|
|
|
International large-cap value
|
1,566
|
|
|
1,566
|
|
|
—
|
|
|
—
|
|
|
Emerging markets growth
|
622
|
|
|
622
|
|
|
—
|
|
|
—
|
|
|
Domestic real estate funds
|
160
|
|
|
160
|
|
|
—
|
|
|
—
|
|
|
Commodity funds
|
477
|
|
|
477
|
|
|
—
|
|
|
—
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
Corporate debt instruments
|
8,045
|
|
|
1,687
|
|
|
6,358
|
|
|
—
|
|
|
High yield bond funds
|
195
|
|
|
195
|
|
|
—
|
|
|
—
|
|
|
Other types of investments:
|
|
|
|
|
|
|
|
|
Multi-strategy hedge funds
|
1,374
|
|
|
—
|
|
|
—
|
|
|
1,374
|
|
|
Total assets measured at fair value
|
$
|
14,353
|
|
|
$
|
6,621
|
|
|
$
|
6,358
|
|
|
$
|
1,374
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation Techniques:
Valuation techniques are the same as those disclosed for the U.S. defined benefit plans above.
A reconciliation of the beginning and ending Level 3 assets for
fiscal years 2016, 2015 and 2014
is as follows:
|
|
|
|
|
|
|
|
|
Fair Value
Measurements
Using
Significant
Unobservable
Inputs
(Level 3):
|
|
Multi-strategy
Hedge
Funds
|
|
(In thousands)
|
|
Balance at December 29, 2013
|
$
|
1,217
|
|
|
Unrealized gains
|
124
|
|
|
Balance at December 28, 2014
|
1,341
|
|
|
Unrealized gains
|
33
|
|
|
Balance at January 3, 2016
|
1,374
|
|
|
Unrealized gains
|
134
|
|
|
Balance at January 1, 2017
|
$
|
1,508
|
|
The Company does
no
t expect to make any contributions to the postretirement medical plan during
fiscal year 2017
.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
|
|
|
|
|
|
|
|
Postretirement Medical Plan
|
|
|
|
(In thousands)
|
|
2017
|
$
|
152
|
|
|
2018
|
159
|
|
|
2019
|
166
|
|
|
2020
|
173
|
|
|
2021
|
184
|
|
|
2022-2026
|
1,057
|
|
Deferred Compensation Plans:
During fiscal year 1998, the Company implemented a nonqualified deferred compensation plan that provides benefits payable to officers and certain key employees or their designated beneficiaries at specified future dates, or upon retirement or death. The plan was amended to eliminate deferral elections, with the exception of Company 401(k) excess contributions for eligible participants, for plan years beginning January 1, 2011. Benefit payments under the plan are funded by contributions from participants, and for certain participants, contributions by the Company. The obligations related to the deferred compensation plan totaled
$0.9 million
at
January 1, 2017
and
$1.2 million
at
January 3, 2016
.
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
$9.9 million
and
$11.8 million
as of
January 1, 2017
and
January 3, 2016
, respectively, in accrued expenses and other current liabilities, 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. During fiscal year 2014, the Company recorded a benefit of
$2.3 million
for cost reimbursements related to a particular site for monitoring and mitigation activities. 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 consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
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
January 1, 2017
should not have a material adverse effect on the Company’s consolidated financial statements. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company.
|
|
|
|
Note 17:
|
Warranty Reserves
|
The Company provides warranty protection for certain products usually for a period of
one
year beyond the date of sale. The majority of costs associated with warranty obligations include the replacement of parts and the time for service personnel to respond to repair and replacement requests. A warranty reserve is recorded based upon historical results, supplemented by management’s expectations of future costs. Warranty reserves are included in “Accrued expenses and other current liabilities” on the consolidated balance sheets.
A summary of warranty reserve activity for the fiscal years ended
January 1, 2017
,
January 3, 2016
and
December 28, 2014
is as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balance at December 29, 2013
|
$
|
9,643
|
|
|
Provision charged to income
|
15,995
|
|
|
Payments
|
(15,634
|
)
|
|
Adjustments to previously provided warranties, net
|
73
|
|
|
Foreign currency translation and acquisitions
|
(484
|
)
|
|
Balance at December 28, 2014
|
9,593
|
|
|
Provision charged to income
|
15,792
|
|
|
Payments
|
(14,936
|
)
|
|
Adjustments to previously provided warranties, net
|
(146
|
)
|
|
Foreign currency translation and acquisitions
|
(460
|
)
|
|
Balance at January 3, 2016
|
9,843
|
|
|
Provision charged to income
|
14,901
|
|
|
Payments
|
(14,749
|
)
|
|
Adjustments to previously provided warranties, net
|
(850
|
)
|
|
Foreign currency translation and acquisitions
|
(133
|
)
|
|
Balance at January 1, 2017
|
$
|
9,012
|
|
Stock-Based Compensation:
In addition to the Company’s Employee Stock Purchase Plan, the Company utilizes
one
stock-based compensation plan, the 2009 Incentive Plan (the “2009 Plan”). Under the 2009 Plan,
10.0 million
shares of the Company's common stock are authorized for stock option grants, restricted stock awards, performance units and stock grants as part of the Company’s compensation programs. In addition to shares of the Company’s common stock originally authorized for issuance under the 2009 Plan, the 2009 Plan includes shares of the Company’s common stock previously granted under the Amended and Restated 2001 Incentive Plan and the 2005 Incentive Plan that were canceled or forfeited without the shares being issued.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes total pre-tax compensation expense recognized related to the Company’s stock options, restricted stock, restricted stock units, performance units and stock grants, net of estimated forfeitures, included in the Company’s consolidated statements of operations for
fiscal years 2016, 2015 and 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Cost of product and service revenue
|
$
|
1,031
|
|
|
$
|
1,272
|
|
|
$
|
1,380
|
|
|
Research and development expenses
|
902
|
|
|
526
|
|
|
484
|
|
|
Selling, general and administrative expenses
|
15,225
|
|
|
15,480
|
|
|
12,193
|
|
|
Total stock-based compensation expense
|
$
|
17,158
|
|
|
$
|
17,278
|
|
|
$
|
14,057
|
|
The total income tax benefit recognized in the consolidated statements of operations for stock-based compensation was
$10.5 million
in
fiscal year 2016
,
$5.8 million
in
fiscal year 2015
and
$5.4 million
in
fiscal year 2014
. Stock-based compensation costs capitalized as part of inventory were
$0.3 million
and
$0.2 million
as of
January 1, 2017
and
January 3, 2016
, respectively. The excess tax benefit recognized from stock compensation, classified as a financing cash activity, was
$2.4 million
in fiscal year 2015.
Stock Options:
The Company has granted options to purchase common shares at prices equal to the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. Options are generally exercisable in equal annual installments over a period of
three
years, and will generally expire
seven
years after the date of grant. Options replaced in association with business combination transactions are generally issued with the same terms of the respective plans under which they were originally issued.
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical and implied volatility of the Company’s stock. The average expected life was based on the contractual term of the option and historic exercise experience. The risk-free interest rate is based on United States Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The Company’s weighted-average assumptions used in the Black-Scholes option pricing model were as follows for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
Risk-free interest rate
|
1.7
|
%
|
|
1.3
|
%
|
|
1.5
|
%
|
|
Expected dividend yield
|
0.6
|
%
|
|
0.6
|
%
|
|
0.7
|
%
|
|
Expected lives
|
5 years
|
|
|
5 years
|
|
|
5 years
|
|
|
Expected stock volatility
|
25.2
|
%
|
|
26.5
|
%
|
|
30.9
|
%
|
The following table summarizes stock option activity for the fiscal year ended
January 1, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
|
Number
of
Shares
|
|
Weighted-
Average Exercise
Price
|
|
|
(Shares in thousands)
|
|
Outstanding at beginning of year
|
2,372
|
|
|
$
|
33.12
|
|
|
Granted
|
607
|
|
|
44.79
|
|
|
Exercised
|
(576
|
)
|
|
25.04
|
|
|
Canceled
|
(1
|
)
|
|
12.95
|
|
|
Forfeited
|
(115
|
)
|
|
45.50
|
|
|
Outstanding at end of year
|
2,287
|
|
|
$
|
37.64
|
|
|
Exercisable at end of year
|
1,342
|
|
|
$
|
32.46
|
|
The aggregate intrinsic value for stock options outstanding at
January 1, 2017
was
$33.4 million
with a weighted-average remaining contractual term of
3.9
years. The aggregate intrinsic value for stock options exercisable at
January 1, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
was
$26.5 million
with a weighted-average remaining contractual term of
2.6
years. At
January 1, 2017
, there were
2.3 million
stock options that were vested, and expected to vest in the future, with an aggregate intrinsic value of
$33.4 million
and a weighted-average remaining contractual term of
3.9
years.
The weighted-average per-share grant-date fair value of options granted during
fiscal years 2016, 2015 and 2014
was
$10.20
,
$11.02
, and
$11.86
, respectively. The total intrinsic value of options exercised during
fiscal years 2016, 2015 and 2014
was
$16.6 million
,
$25.9 million
, and
$22.0 million
, respectively. Cash received from option exercises for
fiscal years 2016, 2015 and 2014
was
$14.4 million
,
$14.9 million
, and
$24.5 million
, respectively. The total compensation expense recognized related to the Company’s outstanding options was
$4.4 million
in
fiscal year 2016
,
$4.1 million
in
fiscal year 2015
and
$4.9 million
in
fiscal year 2014
.
There was
$5.6 million
of total unrecognized compensation cost related to nonvested stock options granted as of
January 1, 2017
. This cost is expected to be recognized over a weighted-average period of
1.8
years.
Restricted Stock Awards:
The Company has awarded shares of restricted stock and restricted stock units to certain employees and non-employee directors at no cost to them, which cannot be sold, assigned, transferred or pledged during the restriction period. The restricted stock and restricted stock units vest through the passage of time, assuming continued employment. The fair value of the award at the time of the grant is expensed on a straight line basis primarily in selling, general and administrative expenses over the vesting period, which is generally
3
years. These awards were granted under the Company’s 2009 Plan. Recipients of the restricted stock have the right to vote such shares and receive dividends.
The following table summarizes restricted stock award activity for the fiscal year ended
January 1, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
|
Number
of
Shares
|
|
Weighted-
Average
Grant-
Date Fair
Value
|
|
|
(Shares in thousands)
|
|
Nonvested at beginning of year
|
502
|
|
|
$
|
42.61
|
|
|
Granted
|
296
|
|
|
47.60
|
|
|
Vested
|
(214
|
)
|
|
39.23
|
|
|
Forfeited
|
(63
|
)
|
|
45.52
|
|
|
Nonvested at end of year
|
521
|
|
|
$
|
46.48
|
|
The fair value of restricted stock awards vested during
fiscal years 2016, 2015 and 2014
was
$8.4 million
,
$7.8 million
, and
$7.1 million
, respectively. The total compensation expense recognized related to the restricted stock awards was
$9.3 million
in
fiscal year 2016
,
$8.4 million
in
fiscal year 2015
and
$6.8 million
in
fiscal year 2014
.
As of
January 1, 2017
, there was
$12.4 million
of total unrecognized compensation cost, net of forfeitures, related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of
1.4
years.
Performance Units:
The Company’s performance unit program provides a cash award based on the achievement of specific performance criteria. A target number of units are granted at the beginning of a three-year performance period. The number of units earned at the end of the performance period is determined by multiplying the number of units granted by a performance factor ranging from
0%
to
200%
. Awards are determined by multiplying the number of units earned by the stock price at the end of the performance period, and are paid in cash and accounted for as a liability based award. The compensation expense associated with these units is recognized over the period that the performance targets are expected to be achieved. The Company granted
72,164
performance units,
66,509
performance units, and
79,463
performance units during
fiscal years 2016, 2015 and 2014
, respectively. The weighted-average per-share grant-date fair value of performance units granted during
fiscal years 2016, 2015 and 2014
was
$42.79
,
$46.83
, and
$42.84
, respectively. During
fiscal years 2016, 2015 and 2014
,
19,584
,
8,860
and
35,954
performance units were forfeited, respectively. The total compensation expense related to performance units was
$2.7 million
,
$4.0 million
, and
$1.6 million
for
fiscal years 2016, 2015 and 2014
, respectively. As of
January 1, 2017
, there were
190,700
performance units outstanding subject to forfeiture, with a corresponding liability of
$6.1 million
recorded in accrued expenses and long-term liabilities.
Stock Awards:
The Company’s stock award program provides non-employee directors an annual equity award. For
fiscal years 2016, 2015 and 2014
the award equaled the number of shares of the Company’s common stock which has an aggregate fair market value of
$100,000
on the date of the award. The stock award is prorated for non-employee directors who
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
serve for only a portion of the year. The compensation expense associated with these stock awards is recognized when the stock award is granted. In
fiscal years 2016, 2015 and 2014
, each non-employee director was awarded
1,821
shares,
1,953
shares, and
2,373
shares, respectively. The Company also granted
2,672
shares to new non-employee directors during fiscal year 2016. The weighted-average per-share grant-date fair value of stock awards granted during
fiscal years 2016, 2015 and 2014
was
$54.58
,
$51.01
, and
$42.14
, respectively. In each of
fiscal years 2016, 2015 and 2014
, the total compensation expense recognized related to these stock awards was
$0.8 million
.
Employee Stock Purchase Plan:
In April 1999, the Company’s shareholders approved the 1998 Employee Stock Purchase Plan. In April 2005, the Compensation and Benefits Committee of the Board voted to amend the Employee Stock Purchase Plan, effective July 1, 2005, whereby participating employees have the right to purchase common stock at a price equal to
95%
of the closing price on the last day of each six-month offering period. The number of shares which an employee may purchase, subject to certain aggregate limits, is determined by the employee’s voluntary contribution, which may not exceed
10%
of the employee’s base compensation. During
fiscal year 2016
, the Company issued
49,578
shares of common stock under the Company’s Employee Stock Purchase Plan at a weighted-average price of
$49.67
per share. During
fiscal year 2015
, the Company issued
78,294
shares under this plan at a weighted-average price of
$47.08
per share. During
fiscal year 2014
, the Company issued
60,870
shares under this plan at a weighted-average price of
$41.71
per share. At
January 1, 2017
there remains available for sale to employees an aggregate of
0.9 million
shares of the Company’s common stock out of the
5.0 million
shares authorized by shareholders for issuance under this plan.
|
|
|
|
Note 19:
|
Stockholders’ Equity
|
Comprehensive Income:
The components of accumulated other comprehensive (loss) income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment,
net of tax
|
|
Unrecognized
Prior Service
Costs, net of
tax
|
|
Unrealized
(Losses)
Gains on
Securities,
net of tax
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
(In thousands)
|
|
Balance, December 29, 2013
|
$
|
76,283
|
|
|
$
|
1,429
|
|
|
$
|
(121
|
)
|
|
$
|
77,591
|
|
|
Current year change
|
(52,951
|
)
|
|
146
|
|
|
14
|
|
|
(52,791
|
)
|
|
Balance, December 28, 2014
|
23,332
|
|
|
1,575
|
|
|
(107
|
)
|
|
24,800
|
|
|
Current year change
|
(70,178
|
)
|
|
(316
|
)
|
|
(262
|
)
|
|
(70,756
|
)
|
|
Balance, January 3, 2016
|
(46,846
|
)
|
|
1,259
|
|
|
(369
|
)
|
|
(45,956
|
)
|
|
Current year change
|
(54,077
|
)
|
|
(860
|
)
|
|
32
|
|
|
(54,905
|
)
|
|
Balance, January 1, 2017
|
$
|
(100,923
|
)
|
|
$
|
399
|
|
|
$
|
(337
|
)
|
|
$
|
(100,861
|
)
|
During
fiscal years 2016, 2015 and 2014
, pre-tax income of
$0.9 million
, pre-tax expense of
$0.3 million
, and pre-tax income of
$0.1 million
, respectively, were reclassified from accumulated other comprehensive income into selling, general and administrative expenses as a component of net periodic benefit cost.
Stock Repurchases:
On October 23, 2014, the Board of Directors (the "Board") authorized the Company to repurchase up to
8.0 million
shares of common stock under a stock repurchase program (the "Repurchase Program"). On July 27, 2016, the Board authorized the Company to immediately terminate the Repurchase Program and further authorized the Company to repurchase up to
8.0 million
shares of common stock under a new stock repurchase program (the "New Repurchase Program"). The New Repurchase Program will expire on July 26, 2018 unless terminated earlier by the Board, and may be suspended or discontinued at any time. During the
fiscal year 2016
, the Company repurchased
3.2 million
shares of common stock in the open market at an aggregate cost of
$148.2 million
, including commissions, under the Repurchase Program. No shares remain available for repurchase under the Repurchase Program due to its cancellation. As of
January 1, 2017
,
8.0 million
shares remained available for repurchase under the New Repurchase Program.
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
fiscal year 2016
, the Company repurchased
75,198
shares of common
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
stock for this purpose at an aggregate cost of
$3.6 million
. During
fiscal year 2015
, the Company repurchased
95,129
shares of common stock for this purpose at an aggregate cost of
$4.4 million
. During
fiscal year 2014
, the Company repurchased
98,269
shares of common stock for this purpose at an aggregate cost of
$4.3 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 in each quarter of
fiscal years 2016 and 2015
. At
January 1, 2017
, the Company has accrued
$7.7 million
for dividends declared on
October 26, 2016
for the
fourth
quarter of
fiscal year 2016
that was paid in
February 2017
. On
January 27, 2017
, the Company announced that the Board had declared a quarterly dividend of
$0.07
per share for the
first
quarter of
fiscal year 2017
that will be payable in
May 2017
. 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 20:
|
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
60%
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 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 consolidated statement of cash flows.
Principal hedged currencies include the British Pound, Euro, Japanese Yen and Singapore Dollar. The Company held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling
$137.5 million
at
January 1, 2017
,
$127.3 million
at
January 3, 2016
, and
$95.0 million
at
December 28, 2014
, 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
fiscal years 2016, 2015 and 2014
.
In addition, in connection with certain intercompany loan agreements utilized to finance its acquisitions, 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 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 consolidated statement of cash flows.
As of
January 1, 2017
, the outstanding forward exchange contracts designated as economic hedges, that were intended to hedge movements in foreign exchange rates prior to the settlement of certain intercompany loan agreements included combined Euro notional amounts of
€58.6 million
, combined U.S. Dollar notional amounts of
$8.7 million
and combined Swedish Krona notional amounts of
kr969.5 million
. The combined Euro notional amounts of these outstanding hedges was
€107.4 million
as of
January 3, 2016
. 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
fiscal years 2016 and 2015
. The Company paid
$1.9 million
and received
$18.7 million
during the
fiscal years 2016 and 2015
, respectively, from the settlement of these hedges.
During
fiscal year 2016
, the Company entered into a series of foreign currency forward contracts with a notional amount of
€492.3 million
to hedge its investments in certain foreign subsidiaries. Realized and unrealized translation adjustments from these hedges were included in the foreign currency translation component of accumulated other comprehensive income ("AOCI"), which offsets the 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. The foreign currency forward contracts were settled during the third quarter of 2016 and the Company recorded a net realized foreign exchange gain in AOCI amounting to
$1.8 million
during
fiscal year 2016
.
During the
fiscal year 2016
, in connection with the issuance of the 2026 Notes, the Company designated the 2026 Notes to hedge its investments in certain foreign subsidiaries. Realized and unrealized translation adjustments from these hedges will be included in the foreign currency translation component of AOCI, which will offset 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
January 1, 2017
, the total notional amount of foreign currency denominated debt designated to hedge investments in foreign subsidiaries was
€495.8 million
. The unrealized foreign exchange loss recorded in AOCI related to the net investment hedge was
$23.8 million
for the
fiscal year 2016
.
The Company does
no
t expect any material net pre-tax gains or losses to be reclassified from accumulated other comprehensive (loss) income into interest and other expense, net within the next twelve months.
|
|
|
|
Note 21:
|
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
January 1, 2017
.
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during
fiscal years 2016 and 2015
. 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
January 1, 2017
and
January 3, 2016
classified in one of the three classifications described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 1, 2017 Using:
|
|
|
Total Carrying
Value at
January 1, 2017
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
(In thousands)
|
|
Marketable securities
|
$
|
1,678
|
|
|
$
|
1,678
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign exchange derivative assets
|
1,208
|
|
|
—
|
|
|
1,208
|
|
|
—
|
|
|
Foreign exchange derivative liabilities
|
(1,370
|
)
|
|
—
|
|
|
(1,370
|
)
|
|
—
|
|
|
Contingent consideration
|
(63,201
|
)
|
|
—
|
|
|
—
|
|
|
(63,201
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 3, 2016 Using:
|
|
|
Total Carrying
Value at
January 3, 2016
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
(In thousands)
|
|
Marketable securities
|
$
|
1,586
|
|
|
$
|
1,586
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign exchange derivative assets
|
2,659
|
|
|
—
|
|
|
2,659
|
|
|
—
|
|
|
Foreign exchange derivative liabilities, net
|
(442
|
)
|
|
—
|
|
|
(442
|
)
|
|
—
|
|
|
Contingent consideration
|
(57,350
|
)
|
|
—
|
|
|
—
|
|
|
(57,350
|
)
|
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 consolidated balance sheet on a net basis and are recorded in other assets. As of both
January 1, 2017
and
January 3, 2016
, 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 all the shares of Vanadis. Under the terms of the acquisition, the initial purchase consideration was
$32.0 million
, net of cash and the Company will be 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 key assumptions used to determine the fair value of the contingent consideration included projected milestone dates of
2016
to
2019
, discount rates ranging from
3.1%
to
11.3%
, conditional probabilities of success of each individual milestone ranging from
85%
to
95%
and cumulative probabilities of success for each individual milestone ranging from
53%
to
90%
. The fair value of the contingent consideration as of the acquisition date was estimated at
$56.9 million
. During the
fiscal year 2016
, the Company updated the fair value of the contingent consideration and recorded a liability of
$63.2 million
as of
January 1, 2017
. The key assumptions used to determine the fair value of the contingent consideration as of
January 1, 2017
included projected milestone dates of
2017
to
2019
, discount rates ranging from
1.9%
to
8.5%
, conditional probabilities of success of each individual milestone ranging from
90%
to
95%
and cumulative probabilities of success for each individual milestone ranging from
65.8%
to
95%
. A significant delay in the product development (including projected regulatory milestone) achievement date in isolation could result in a significantly lower fair value measurement; a significant acceleration in the product development (including projected regulatory milestone) achievement date in isolation would not have a material impact on the fair value measurement; a significant change in the discount rate in isolation would not have a material impact on the fair value measurement; and a significant change in the probabilities of success in isolation could result in a significant change in fair value measurement.
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 consolidated statements of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of
January 1, 2017
, the Company may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to
$84.6 million
. The expected maximum earnout period for acquisitions with open contingency periods does not exceed
3
years from the respective acquisition dates, and the remaining weighted average expected earnout period at
January 1, 2017
was
1.75
years.
A reconciliation of the beginning and ending Level 3 net liabilities for contingent consideration is as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balance at December 29, 2013
|
$
|
(4,926
|
)
|
|
Additions
|
—
|
|
|
Amounts paid and foreign currency translation
|
2,074
|
|
|
Change in fair value (included within selling, general and administrative expenses)
|
2,761
|
|
|
Balance at December 28, 2014
|
(91
|
)
|
|
Additions
|
(57,353
|
)
|
|
Amounts paid and foreign currency translation
|
113
|
|
|
Change in fair value (included within selling, general and administrative expenses)
|
(19
|
)
|
|
Balance at January 3, 2016
|
(57,350
|
)
|
|
Additions
|
—
|
|
|
Amounts paid and foreign currency translation
|
332
|
|
|
Reclassified to other current liabilities for milestone achieved
|
10,000
|
|
|
Change in fair value (included within selling, general and administrative expenses)
|
(16,183
|
)
|
|
Balance at January 1, 2017
|
$
|
(63,201
|
)
|
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
January 1, 2017
, the Company’s new senior unsecured revolving credit facility, which provides for
$1.0 billion
of revolving loans, had
no
outstanding borrowings. As of
January 3, 2016
, the Company's previous senior unsecured revolving credit facility had
$482.0 million
of borrowings outstanding, which excluded
$2.4 million
unamortized debt issuance costs and letters of credit. The interest rate on the Company’s new 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
fiscal year 2016
. Consequently, the borrowing value of the current year and prior year credit facilities approximate fair value and would be classified as Level 2.
The Company's 2021 Notes, with a face value of
$500.0 million
, had an aggregate carrying value of
$495.8 million
, net of
$1.7 million
of unamortized original issue discount and
$2.5 million
of unamortized debt issuance costs as of
January 1, 2017
. The 2021 Notes had an aggregate carrying value of
$495.1 million
, net of
$2.0 million
of unamortized original issue discount and
$2.9 million
of unamortized debt issuance costs as of
January 3, 2016
. The 2021 Notes had a fair value of
$539.2 million
and
$518.9 million
as of
January 1, 2017
and
January 3, 2016
, 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 2026 Notes, with a face value of
€500.0 million
, had an aggregate carrying value of
$517.8 million
, net of
$4.5 million
of unamortized original issue discount and
$4.8 million
of unamortized debt issuance costs as of
January 1, 2017
. The 2026 Notes had a fair value of
€507.5 million
as of
January 1, 2017
. 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 financing lease obligations had an aggregate carrying value of
$37.1 million
and
$38.2 million
as of
January 1, 2017
and
January 3, 2016
, respectively. The carrying values of the Company's financing lease obligations approximated their fair value as there has been minimal change in the Company's incremental borrowing rate.
As of
January 1, 2017
, the 2021 Notes, 2026 Notes and financing lease obligations were classified as Level 2.
As of
January 1, 2017
, 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.
The Company leases certain property and equipment under operating leases. Rental expense charged to continuing operations for
fiscal years 2016, 2015 and 2014
amounted to
$52.0 million
,
$52.4 million
, and
$52.8 million
, respectively. Minimum rental commitments under noncancelable operating leases are as follows:
$49.8 million
in fiscal year
2017
,
$33.9 million
in fiscal year
2018
,
$26.0 million
in fiscal year
2019
,
$20.8 million
in fiscal year
2020
,
$16.3 million
in fiscal year
2021
and
$52.1 million
in fiscal year
2022 and thereafter
.
On
August 22, 2013
, the Company sold one of its facilities located in Boston, Massachusetts for net proceeds of
$47.6 million
. Simultaneously with the closing of the sale of the property, the Company entered into a lease agreement to lease back the property for its continued use. The lease has an initial term of
15 years
and the Company has the right to extend the term of the lease for two additional periods of ten years each. The lease is accounted for as an operating lease and at the transaction date the Company had deferred
$26.5 million
of gains which are being amortized in operating expenses over the initial lease term of
15 years
. The Company amortized
$1.8 million
of the deferred gains related to the lease during each of the
fiscal years 2016, 2015 and 2014
. The deferred gains remaining to be amortized were
$20.6 million
at
January 1, 2017
, of which
$1.8 million
was recorded in accrued expenses and other current liabilities, and
$18.8 million
was recorded in long-term liabilities. The deferred gains remaining to be amortized were
$22.3 million
at
January 3, 2016
, of which
$1.8 million
was recorded in accrued expenses and other current liabilities, and
$20.5 million
was recorded in long-term liabilities.
|
|
|
|
Note 23:
|
Industry Segment and Geographic Area 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.
Effective October 3, 2016, the Company realigned its businesses to better position the Company to grow in attractive end markets and expand share with the Company's core product offerings. Diagnostics became a standalone operating segment and the Company formed a new operating segment, Discovery & Analytical Solutions. The results reported for
fiscal year 2016
reflect this new alignment of the Company's operating segments. Financial information in this report relating to
fiscal years 2015 and 2014
has been retrospectively adjusted to reflect this change to the Company's operating segments.
The principal products and services of the Company's
two
operating segments are:
|
|
|
|
•
|
Discovery & Analytical Solutions
. Provides products and services targeted towards the environmental, industrial, food, life sciences research and laboratory services markets.
|
|
|
|
|
•
|
Diagnostics
. Develops diagnostics, tools and applications focused on clinically-oriented customers, especially within the reproductive health, emerging market diagnostics 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue and operating income (loss) from continuing operations by operating segment are shown in the table below for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Discovery & Analytical Solutions
|
|
|
|
|
|
|
Product revenue
|
$
|
934,098
|
|
|
$
|
968,034
|
|
|
$
|
944,446
|
|
|
Service revenue
|
578,886
|
|
|
560,385
|
|
|
539,694
|
|
|
Total revenue
|
1,512,984
|
|
|
1,528,419
|
|
|
1,484,140
|
|
|
Operating income from continuing operations
(1)
|
207,487
|
|
|
173,668
|
|
|
162,074
|
|
|
Diagnostics
|
|
|
|
|
|
|
Product revenue
|
462,798
|
|
|
427,068
|
|
|
428,290
|
|
|
Service revenue
|
139,735
|
|
|
149,336
|
|
|
157,450
|
|
|
Total revenue
|
602,533
|
|
|
576,404
|
|
|
585,740
|
|
|
Operating income from continuing operations
|
138,909
|
|
|
135,572
|
|
|
124,610
|
|
|
Corporate
|
|
|
|
|
|
|
Operating loss from continuing operations
(2)(3)
|
(63,330
|
)
|
|
(58,314
|
)
|
|
(121,677
|
)
|
|
Continuing Operations
|
|
|
|
|
|
|
Product revenue
|
1,396,896
|
|
|
1,395,102
|
|
|
1,372,736
|
|
|
Service revenue
|
718,621
|
|
|
709,721
|
|
|
697,144
|
|
|
Total revenue
|
2,115,517
|
|
|
2,104,823
|
|
|
2,069,880
|
|
|
Operating income from continuing operations
|
283,066
|
|
|
250,926
|
|
|
165,007
|
|
|
Interest and other expense, net (see Note 5)
|
38,998
|
|
|
42,119
|
|
|
41,139
|
|
|
Income from continuing operations before income taxes
|
$
|
244,068
|
|
|
$
|
208,807
|
|
|
$
|
123,868
|
|
____________________________
|
|
|
|
(1)
|
Legal costs for a particular case in the Discovery & Analytical Solutions segment were
$0.8 million
for
fiscal year 2015
.
|
|
|
|
|
(2)
|
Activity related to the mark-to-market adjustment on postretirement benefit plans has been included in the Corporate operating loss from continuing operations, and in the aggregate constituted a pre-tax
loss
of
$15.3 million
in
fiscal year 2016
, a pre-tax
loss
of
$12.4 million
in
fiscal year 2015
, and pre-tax
loss
of
$75.4 million
in
fiscal year 2014
.
|
|
|
|
|
(3)
|
Includes expenses related to litigation with Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”). Enzo filed a complaint in 2002 that alleged that the Company separately and together with other defendants breached distributorship and settlement agreements with Enzo, infringed Enzo's patents, engaged in unfair competition and fraud, and committed torts against Enzo by, among other things, engaging in commercial development and exploitation of Enzo's patented products and technology. The Company entered into a settlement agreement with Enzo dated June 20, 2014 and during fiscal year 2014 paid
$7.0 million
into a designated escrow account to resolve this matter, of which
$3.7 million
had been accrued in previous years and
$3.3 million
was recorded during fiscal year 2014. In addition,
$3.4 million
of expenses were incurred and recorded in preparation for the trial during fiscal year 2014.
|
Additional information relating to the Company’s reporting segments is as follows for the three fiscal years ended
January 1, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
Expense
|
|
Capital Expenditures
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
(In thousands)
|
|
Discovery & Analytical Solutions
|
$
|
72,484
|
|
|
$
|
74,177
|
|
|
$
|
72,288
|
|
|
$
|
21,486
|
|
|
$
|
18,175
|
|
|
$
|
18,234
|
|
|
Diagnostics
|
25,339
|
|
|
29,728
|
|
|
36,146
|
|
|
8,556
|
|
|
6,854
|
|
|
7,196
|
|
|
Corporate
|
2,149
|
|
|
1,459
|
|
|
2,031
|
|
|
1,660
|
|
|
3,189
|
|
|
1,722
|
|
|
Continuing operations
|
$
|
99,972
|
|
|
$
|
105,364
|
|
|
$
|
110,465
|
|
|
$
|
31,702
|
|
|
$
|
28,218
|
|
|
$
|
27,152
|
|
|
Discontinued operations
|
$
|
6,266
|
|
|
$
|
6,643
|
|
|
$
|
6,610
|
|
|
$
|
1,302
|
|
|
$
|
1,414
|
|
|
$
|
2,133
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Discovery & Analytical Solutions
|
$
|
2,612,757
|
|
|
$
|
2,546,583
|
|
|
$
|
2,614,911
|
|
|
Diagnostics
|
1,505,381
|
|
|
1,459,854
|
|
|
1,343,110
|
|
|
Corporate
|
31,171
|
|
|
28,497
|
|
|
28,482
|
|
|
Current and long-term assets of discontinued operations
|
127,374
|
|
|
131,361
|
|
|
141,073
|
|
|
Total assets
|
$
|
4,276,683
|
|
|
$
|
4,166,295
|
|
|
$
|
4,127,576
|
|
The following geographic area information for continuing operations includes revenue based on location of external customers for the three fiscal years ended
January 1, 2017
and net long-lived assets based on physical location as of
January 1, 2017
and
January 3, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
U.S.
|
$
|
842,364
|
|
|
$
|
854,336
|
|
|
$
|
794,568
|
|
|
International:
|
|
|
|
|
|
|
China
|
336,728
|
|
|
296,908
|
|
|
257,669
|
|
|
United Kingdom
|
65,904
|
|
|
69,081
|
|
|
81,127
|
|
|
Germany
|
89,839
|
|
|
86,632
|
|
|
88,071
|
|
|
Italy
|
70,948
|
|
|
71,225
|
|
|
80,834
|
|
|
France
|
71,104
|
|
|
70,665
|
|
|
77,637
|
|
|
Japan
|
65,980
|
|
|
69,381
|
|
|
90,284
|
|
|
Other international
|
572,650
|
|
|
586,595
|
|
|
599,690
|
|
|
Total international
|
1,273,153
|
|
|
1,250,487
|
|
|
1,275,312
|
|
|
Total sales
|
$
|
2,115,517
|
|
|
$
|
2,104,823
|
|
|
$
|
2,069,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Long-Lived Assets
|
|
|
January 1,
2017
|
|
January 3,
2016
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
U.S.
|
$
|
182,186
|
|
|
$
|
165,827
|
|
|
$
|
161,430
|
|
|
International:
|
|
|
|
|
|
|
China
|
36,458
|
|
|
34,494
|
|
|
36,951
|
|
|
United Kingdom
|
14,638
|
|
|
14,244
|
|
|
12,155
|
|
|
Finland
|
12,295
|
|
|
12,203
|
|
|
12,758
|
|
|
Singapore
|
6,820
|
|
|
7,679
|
|
|
7,041
|
|
|
Netherlands
|
4,162
|
|
|
3,835
|
|
|
3,614
|
|
|
Italy
|
3,398
|
|
|
2,958
|
|
|
4,142
|
|
|
Sweden
|
2,645
|
|
|
1,247
|
|
|
742
|
|
|
Other international
|
12,448
|
|
|
10,539
|
|
|
12,871
|
|
|
Total international
|
92,864
|
|
|
87,199
|
|
|
90,274
|
|
|
Total net long-lived assets
|
$
|
275,050
|
|
|
$
|
253,026
|
|
|
$
|
251,704
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
Note 24:
|
Quarterly Financial Information (Unaudited)
|
Selected quarterly financial information is as follows for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
(1)
|
|
Year
|
|
|
(In thousands, except per share data)
|
|
January 1, 2017
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
498,016
|
|
|
$
|
536,242
|
|
|
$
|
514,489
|
|
|
$
|
566,770
|
|
|
$
|
2,115,517
|
|
|
Gross profit
|
235,086
|
|
|
253,554
|
|
|
248,550
|
|
|
276,163
|
|
|
1,013,353
|
|
|
Restructuring and contract termination charges, net
|
—
|
|
|
4,468
|
|
|
656
|
|
|
—
|
|
|
5,124
|
|
|
Operating income from continuing operations
|
60,577
|
|
|
66,266
|
|
|
75,781
|
|
|
80,442
|
|
|
283,066
|
|
|
Income from continuing operations before income taxes
|
49,491
|
|
|
60,873
|
|
|
64,518
|
|
|
69,186
|
|
|
244,068
|
|
|
Income from continuing operations
|
41,744
|
|
|
57,756
|
|
|
53,917
|
|
|
62,289
|
|
|
215,706
|
|
|
Income from discontinued operations and dispositions
|
5,722
|
|
|
6,101
|
|
|
4,210
|
|
|
2,560
|
|
|
18,593
|
|
|
Net income
|
47,466
|
|
|
63,857
|
|
|
58,127
|
|
|
64,849
|
|
|
234,299
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.38
|
|
|
$
|
0.53
|
|
|
$
|
0.49
|
|
|
$
|
0.57
|
|
|
$
|
1.97
|
|
|
Income from discontinued operations and dispositions
|
0.05
|
|
|
0.06
|
|
|
0.04
|
|
|
0.02
|
|
|
0.17
|
|
|
Net income
|
0.43
|
|
|
0.59
|
|
|
0.53
|
|
|
0.59
|
|
|
2.14
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.38
|
|
|
$
|
0.53
|
|
|
$
|
0.49
|
|
|
$
|
0.57
|
|
|
$
|
1.96
|
|
|
Income from discontinued operations and dispositions
|
0.05
|
|
|
0.06
|
|
|
0.04
|
|
|
0.02
|
|
|
0.17
|
|
|
Net income
|
0.43
|
|
|
0.58
|
|
|
0.53
|
|
|
0.59
|
|
|
2.12
|
|
|
Cash dividends declared per common share
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2016
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
484,143
|
|
|
$
|
525,268
|
|
|
$
|
525,509
|
|
|
$
|
569,903
|
|
|
$
|
2,104,823
|
|
|
Gross profit
|
219,206
|
|
|
237,923
|
|
|
239,371
|
|
|
267,731
|
|
|
964,231
|
|
|
Restructuring and contract termination charges, net
|
—
|
|
|
4,910
|
|
|
(115
|
)
|
|
8,752
|
|
|
13,547
|
|
|
Operating income from continuing operations
|
46,771
|
|
|
59,543
|
|
|
67,389
|
|
|
77,223
|
|
|
250,926
|
|
|
Income from continuing operations before income taxes
|
37,350
|
|
|
48,700
|
|
|
55,445
|
|
|
67,312
|
|
|
208,807
|
|
|
Income from continuing operations
|
33,108
|
|
|
43,166
|
|
|
49,119
|
|
|
63,392
|
|
|
188,785
|
|
|
Income from discontinued operations and dispositions
|
7,226
|
|
|
5,808
|
|
|
5,744
|
|
|
4,862
|
|
|
23,640
|
|
|
Net income
|
40,334
|
|
|
48,974
|
|
|
54,863
|
|
|
68,254
|
|
|
212,425
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.29
|
|
|
$
|
0.38
|
|
|
$
|
0.44
|
|
|
$
|
0.57
|
|
|
$
|
1.68
|
|
|
Income from discontinued operations and dispositions
|
0.06
|
|
|
0.05
|
|
|
0.05
|
|
|
0.04
|
|
|
0.21
|
|
|
Net income
|
0.36
|
|
|
0.43
|
|
|
0.49
|
|
|
0.61
|
|
|
1.89
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Income continuing operations
|
$
|
0.29
|
|
|
$
|
0.38
|
|
|
$
|
0.43
|
|
|
$
|
0.56
|
|
|
$
|
1.67
|
|
|
Income from discontinued operations and dispositions
|
0.06
|
|
|
0.05
|
|
|
0.05
|
|
|
0.04
|
|
|
0.21
|
|
|
Net income
|
0.36
|
|
|
0.43
|
|
|
0.48
|
|
|
0.61
|
|
|
1.87
|
|
|
Cash dividends declared per common share
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
0.28
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
____________________________
|
|
|
|
(1)
|
The fourth quarter of
fiscal year 2016
includes a pre-tax
loss
of
$15.3 million
as a result of the mark-to-market adjustment on postretirement benefit plans. The fourth quarter of
fiscal year 2015
includes a pre-tax
loss
of
$12.4 million
as a result of the mark-to-market adjustment on postretirement benefit plans. See Note 1 for a discussion of this accounting policy.
|