PerkinElmer, Inc.
PERKINELMER INC (Form: 10-Q, Received: 11/07/2017 14:10:50)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 001-5075
_______________________________________ 
PerkinElmer, Inc.
(Exact name of Registrant as specified in its Charter)
_______________________________________   
Massachusetts
 
04-2052042
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
940 Winter Street
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip code)
(781) 663-6900
(Registrant’s telephone number, including area code)
_______________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.  
Large accelerated filer
 
ý
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
Emerging growth company
 
¨  
 
 
 
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
As of November 2, 2017 , there were outstanding 110,225,251 shares of common stock, $1 par value per share.


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
Item 1.
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 



2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.
Unaudited Financial Statements

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)  
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands, except per share data)
Product revenue
$
354,819

 
$
334,894

 
$
1,043,534

 
$
1,016,221

Service revenue
199,456

 
179,595

 
571,818

 
532,526

Total revenue
554,275

 
514,489

 
1,615,352

 
1,548,747

Cost of product revenue
165,160

 
155,668

 
501,468

 
483,202

Cost of service revenue
120,293

 
110,271

 
347,948

 
328,355

Total cost of revenue
285,453

 
265,939

 
849,416

 
811,557

Selling, general and administrative expenses
150,859

 
142,600

 
443,896

 
438,090

Research and development expenses
34,887

 
29,513

 
101,737

 
91,352

Restructuring and contract termination charges, net
3,269

 
656

 
12,920

 
5,124

Operating income from continuing operations
79,807

 
75,781

 
207,383

 
202,624

Interest and other (income) expense, net
(25,247
)
 
11,263

 
(8,446
)
 
27,742

Income from continuing operations before income taxes
105,054

 
64,518

 
215,829

 
174,882

Provision for income taxes
8,508

 
10,601

 
20,495

 
21,465

Income from continuing operations
96,546

 
53,917

 
195,334

 
153,417

Income from discontinued operations before income taxes

 
5,447

 
650

 
18,564

(Loss) gain on disposition of discontinued operations before income taxes
(206
)
 
630

 
180,171

 
619

Provision for income taxes on discontinued operations and dispositions
5,262

 
1,867

 
42,405

 
3,150

(Loss) income from discontinued operations and dispositions
(5,468
)
 
4,210

 
138,416

 
16,033

Net income
$
91,078

 
$
58,127

 
$
333,750

 
$
169,450

Basic earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.88

 
$
0.49

 
$
1.78

 
$
1.40

(Loss) income from discontinued operations and dispositions
(0.05
)
 
0.04

 
1.26

 
0.15

Net income
$
0.83

 
$
0.53

 
$
3.04

 
$
1.55

Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.87

 
$
0.49

 
$
1.77

 
$
1.39

(Loss) income from discontinued operations and dispositions
(0.05
)
 
0.04

 
1.25

 
0.15

Net income
$
0.82

 
$
0.53

 
$
3.02

 
$
1.54

Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
Basic
110,003

 
109,192

 
109,788

 
109,524

Diluted
110,993

 
110,078

 
110,653

 
110,372

Cash dividends declared per common share
$
0.07

 
$
0.07

 
$
0.21

 
$
0.21

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Net income
$
91,078

 
$
58,127

 
$
333,750

 
$
169,450

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
9,805

 
(9,441
)
 
47,205

 
(8,868
)
Unrealized gains on securities, net of tax
47

 
9

 
81

 
39

Other comprehensive income (loss)
9,852

 
(9,432
)
 
47,286

 
(8,829
)
Comprehensive income
$
100,930

 
$
48,695

 
$
381,036

 
$
160,621











The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
October 1,
2017
 
January 1,
2017
 
(In thousands, except share and per share data)
Current assets:
 
 
 
Cash and cash equivalents
$
709,488

 
$
359,265

Accounts receivable, net
440,649

 
425,588

Inventories
295,176

 
246,847

Other current assets
100,347

 
99,246

Current assets of discontinued operations

 
58,985

Total current assets
1,545,660

 
1,189,931

Property, plant and equipment:
 
 
 
At cost
475,106

 
427,903

Accumulated depreciation
(317,441
)
 
(282,409
)
Property, plant and equipment, net
157,665

 
145,494

Intangible assets, net
441,425

 
420,224

Goodwill
2,373,009

 
2,247,966

Other assets, net
221,196

 
204,679

Long-term assets of discontinued operations

 
68,389

Total assets
$
4,738,955

 
$
4,276,683

Current liabilities:
 
 
 
Current portion of long-term debt
$
1,294

 
$
1,172

Accounts payable
163,735

 
168,033

Accrued restructuring and contract termination charges
10,066

 
7,479

Accrued expenses and other current liabilities
420,263

 
399,700

Current liabilities of discontinued operations
2,154

 
26,971

Total current liabilities
597,512

 
603,355

Long-term debt
1,109,269

 
1,045,254

Long-term liabilities
496,145

 
459,544

Long-term liabilities of discontinued operations

 
14,960

Total liabilities
2,202,926

 
2,123,113

Commitments and contingencies (see Note 18)

 

Stockholders’ equity:
 
 
 
Preferred stock—$1 par value per share, authorized 1,000,000 shares; none issued or outstanding

 

Common stock—$1 par value per share, authorized 300,000,000 shares; issued and outstanding 110,207,000 shares and 109,617,000 shares at October 1, 2017 and at January 1, 2017, respectively
110,207

 
109,617

Capital in excess of par value
50,036

 
26,130

Retained earnings
2,429,361

 
2,118,684

Accumulated other comprehensive loss
(53,575
)
 
(100,861
)
Total stockholders’ equity
2,536,029

 
2,153,570

Total liabilities and stockholders’ equity
$
4,738,955

 
$
4,276,683

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Operating activities:
 
 
 
Net income
$
333,750

 
$
169,450

Income from discontinued operations and dispositions, net of income taxes
(138,416
)
 
(16,033
)
Income from continuing operations
195,334

 
153,417

Adjustments to reconcile income from continuing operations to net cash provided by continuing operations:
 
 
 
Restructuring and contract termination charges, net
12,920

 
5,124

Depreciation and amortization
75,507

 
74,507

Loss (gain) on disposition of businesses and assets, net
301

 
(5,562
)
Stock-based compensation
16,179

 
13,449

Change in fair value of contingent consideration
1,560

 
9,678

Amortization of deferred debt financing costs and accretion of discount
1,936

 
1,507

Amortization of acquired inventory revaluation
4,240

 
396

Changes in assets and liabilities which provided (used) cash, excluding effects from companies acquired:
 
 
 
Accounts receivable, net
10,971

 
5,081

Inventories
(25,208
)
 
(14,022
)
Accounts payable
(12,459
)
 
5,863

Accrued expenses and other
(116,118
)
 
(68,248
)
Net cash provided by operating activities of continuing operations
165,163

 
181,190

Net cash (used in) provided by operating activities of discontinued operations
(4,806
)
 
20,702

Net cash provided by operating activities
160,357

 
201,892

Investing activities:
 
 
 
Capital expenditures
(22,362
)
 
(24,411
)
Settlement of cash flow hedges

60,420

 

Proceeds from disposition of businesses

 
21,000

Proceeds from surrender of life insurance policies
45

 
44

Changes in restricted cash balances
17,218

 
(2,000
)
Activity related to acquisitions, net of cash and cash equivalents acquired
(123,578
)
 
(71,924
)
Net cash used in investing activities of continuing operations
(68,257
)
 
(77,291
)
Net cash provided by (used in) investing activities of discontinued operations
272,779

 
(900
)
Net cash provided by (used in) investing activities
204,522

 
(78,191
)
Financing activities:
 
 
 
Payments on borrowings
(146,965
)
 
(804,507
)
Proceeds from borrowings
146,952

 
375,507

Proceeds from sale of senior debt

 
546,190

Payments of debt financing costs

 
(7,868
)
Settlement of cash flow hedges
(11,539
)
 
1,674

Net payments on other credit facilities
(872
)
 
(835
)
Payments for acquisition-related contingent consideration
(8,940
)
 
(113
)
Proceeds from issuance of common stock under stock plans
14,004

 
12,081

Purchases of common stock
(3,480
)
 
(151,447
)
Dividends paid
(23,077
)
 
(23,131
)
Net cash used in financing activities of continuing operations
(33,917
)
 
(52,449
)
Net cash used in financing activities of discontinued operations
(533
)
 
(193
)
Net cash used in financing activities
(34,450
)
 
(52,642
)
Effect of exchange rate changes on cash and cash equivalents
19,794

 
2,672

Net increase in cash and cash equivalents
350,223

 
73,731

Cash and cash equivalents at beginning of period
359,265

 
237,932

Cash and cash equivalents at end of period
$
709,488

 
$
311,663

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1: Basis of Presentation
 
The condensed consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), in accordance with accounting principles generally accepted in the United States of America (the “U.S.” or the "United States") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information in the footnote disclosures of the financial statements has been condensed or omitted where it substantially duplicates information provided in the Company’s latest audited consolidated financial statements, in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended January 1, 2017 , filed with the SEC (the “ 2016 Form 10-K”). The balance sheet amounts at January 1, 2017 in this report were derived from the Company’s audited 2016 consolidated financial statements included in the 2016 Form 10-K. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three and nine months ended October 1, 2017 and October 2, 2016 , respectively, are not necessarily indicative of the results for the entire fiscal year or any future period.

The Company’s fiscal year ends on the Sunday nearest December 31. The Company reports fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. The fiscal year ending December 31, 2017 (" fiscal year 2017 ") will include 52 weeks, and the fiscal year ended January 1, 2017 (" fiscal year 2016 ") included 52 weeks.

Recently Adopted and Issued Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB") and are adopted by the Company as of the specified effective dates. Unless otherwise discussed, such pronouncements did not have or will not have a significant impact on the Company’s consolidated financial position, results of operations and cash flows or do not apply to the Company’s operations.

In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12") , which amends the hedge accounting recognition and presentation requirements in Topic 815. ASU 2017-12 makes targeted changes to the existing hedge accounting model to better align the entity’s financial reporting for hedging relationships with the entity’s risk management activities, and to reduce the complexity of, and simplify the application of, the hedge accounting model. Specifically, ASU 2017-12 expands the types of transactions eligible for hedge accounting, eliminates the requirement to separately measure and present hedge ineffectiveness, simplifies the way assessments of hedge ineffectiveness may be performed, relaxes the documentation requirements for entering into hedging positions, provides targeted improvements to fair value hedges of interest rate risk, and permits an entity to exclude the change in the fair value of cross-currency basis spreads in currency swaps from the assessment of hedge effectiveness. The standard also requires entities to provide new disclosures about the impact fair value and cash flow hedges have on the income statement and about cumulative basis adjustments arising from fair value hedges. The provisions of this guidance are to be applied using a modified retrospective approach to existing hedging relationships as of the adoption date. However, the transition provisions allow for certain elections at the date of adoption and entities may choose to apply any of the provided elections. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, including adoption in any interim period. 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 May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting ("ASU 2017-09") , which amends the scope of modification accounting for share-based payment arrangements. ASU 2017-09 provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. If an entity modifies its awards and concludes that it is not required to apply modification accounting under the standard, it must still consider whether the modification affects its application of other guidance. Additionally, if a significant modification does not result in incremental compensation cost, entities are required to disclose the “lack of” incremental compensation cost resulting from such significant modification. The standard also removes

7


the guidance in Topic 718 stating that modification accounting is not required when an entity adds an antidilution provision as long as that modification is not made in contemplation of an equity restructuring. The provisions of this guidance are to be applied on a prospective basis to awards modified on or after the effective date. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted, including adoption in any interim period. 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 March 2017, the FASB issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07") , which amends the requirements in Topic 715 related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. ASU 2017-07 requires entities to (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current employee compensation costs in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations, and disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. Additionally, the standard requires that only the service-cost component of net benefit cost is eligible for capitalization (e.g., as part of inventory or property, plant, and equipment). The change in income statement presentation requires retrospective application, while the change in capitalized benefit cost is to be applied prospectively. ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The standard provides a practical expedient that permits entities to use the components of cost disclosed in prior years as a basis for the retrospective application of the new income statement presentation. Entities need to disclose the use of the practical expedient. 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 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 early adopted ASU 2017-04 and will apply the provisions of this standard in its interim or annual goodwill impairment tests subsequent to January 2, 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, Revenue from Contracts with Customers . 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.

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

8


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 and has not yet determined the impact of its adoption 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 February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases . The new guidance requires lessees to recognize a lease liability and right-of-use asset on the balance sheet for financing and operating leases. The provisions of this guidance are to be applied using a modified retrospective approach and are effective for annual reporting periods beginning after December 15, 2018, 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. The Company does not intend to early adopt the provisions of this standard.

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 reporting periods beginning after December 15, 2016, with early adoption permitted. The Company adopted ASU 2015-11 at the beginning of the first quarter of fiscal year 2017. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations and cash flows.


9


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 and the presentation of sales and other similar taxes. 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 license renewals and restrictions and apply the exception for sales- and usage-based royalties received in exchange for licenses of IP. ASU 2016-12, ASU 2016-10 and ASU 2014-09 may be adopted either using a full retrospective approach or a modified retrospective approach. The Company is in the process of completing its evaluation of the impact of these standards upon adoption, but does not currently anticipate a material impact 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.

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 or sales of licenses and maintenance for which the Company does not have vendor-specific objective evidence ("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 will be required to recognize the license revenue upon transfer of control of the applicable 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 2017
During the first nine months of fiscal year 2017 , the Company completed the acquisition of Tulip Diagnostics Private Limited (“Tulip”), a company based in Goa, India, for a total consideration of $127.3 million . The Company has a potential obligation to pay the shareholders of Tulip up to INR 1.6 billion , currently equivalent to $24.6 million , which will be accounted for as compensation expense in the Company's financial statements over a two year period and is excluded from the purchase price allocation shown below. The excess of the purchase price over the fair value of the acquired business' 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, which is not tax deductible. The Company has reported the operations for this acquisition within the results of the Company's Diagnostics segment from the acquisition date. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of this acquisition had a weighted average amortization period of 11.4 years .


10


The total purchase price for the acquisition in fiscal year 2017 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
 
2017 Acquisition
 
(In thousands)
Fair value of business combination:
 
Cash payments
$
126,007

Other liability
1,273

Less: cash acquired
(2,429
)
Total
$
124,851

Identifiable assets acquired and liabilities assumed:
 
Current assets
$
15,825

Property, plant and equipment
9,643

Other assets
1,084

Identifiable intangible assets:
 
Core technology
3,500

Trade names
3,000

Customer relationships
43,000

Goodwill
74,238

Deferred taxes
(15,414
)
Liabilities assumed
(10,025
)
Total
$
124,851

During the second quarter of fiscal year 2017 , the Company entered into a Share Sale and Transfer Agreement with Prof. Dr. Winfried Stöcker (the “Controlling Shareholder”) and his affiliated investment holding company Stöcker Vermögensverwaltungsgesellschaft mbH & Co. KG (“Stöcker KG”), which together hold a majority equity interest in EUROIMMUN Medizinische Labordiagnostika AG (“EUROIMMUN”), pursuant to which the Company or a wholly owned subsidiary of the Company (the “Purchaser”) will acquire up to 100% of the outstanding securities of EUROIMMUN, and EUROIMMUN will become a subsidiary of the Purchaser (the “Acquisition”). In addition to the majority equity interest in EUROIMMUN that the Controlling Shareholder and Stöcker KG will exchange for cash at the closing of the Acquisition, the Controlling Shareholder has undertaken to seek to enter into option agreements with all other shareholders in EUROIMMUN, which would, upon exercise by the Controlling Shareholder at the closing of the Acquisition result in such shareholders receiving the same per share price for their shares as will be received by the Controlling Shareholder and Stöcker KG. If the Acquisition is completed with 100% equity participation, EUROIMMUN’s shareholders will receive an aggregate consideration of €1.2 billion in cash, without interest thereon and subject to any tax withholding. The transaction is subject to customary closing conditions and is currently anticipated to close following the receipt of required standard regulatory approvals. EUROIMMUN is based in Lübeck, Germany, has approximately 2,400 employees, and is widely recognized as a global leader in autoimmune testing and an emerging force in infectious disease and allergy testing.
Acquisitions in fiscal year 2016
During fiscal year 2016 , the Company completed the acquisition of two businesses for a total consideration of  $72.3 million in cash. The acquired businesses were Bioo Scientific Corporation ("Bioo"), 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 $42.8 million , which is not tax deductible, and intangible assets of $22.1 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 9.4 years .


11


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
$
7,153

Property, plant and equipment
7,542

Identifiable intangible assets:
 
Core technology
6,600

Trade names
570

Customer relationships
14,900

Goodwill
42,843

Deferred taxes
(7,539
)
Liabilities assumed
(1,985
)
Total
$
70,084


The preliminary allocations of the purchase prices for acquisitions are based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.
Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds, changes in discount rates or product development milestones during the earnout period.
During the third quarter of fiscal year 2017 , the Company obtained information relevant to determining the fair values of certain tangible and intangible assets acquired, and liabilities assumed, related to recent acquisitions and adjusted its purchase price allocation. Based on this information, for the Bioo acquisition, the Company recognized a decrease in deferred tax liabilities, with a corresponding decrease in goodwill, of $0.7 million , and for the Tulip acquisition, the Company recognized an increase in liabilities assumed, with a corresponding increase in goodwill, of $1.8 million .

12


As of October 1, 2017 , the Company may have to pay contingent consideration related to an acquisition with an open contingency period of up to $83.0 million . As of October 1, 2017 , the Company has recorded contingent consideration obligations with an estimated fair value of $64.7 million , of which $15.4 million was recorded in accrued expenses and other current liabilities, and $49.3 million was recorded in long-term liabilities. As of January 1, 2017 , the Company had recorded contingent consideration obligations with an estimated fair value 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. The expected maximum earnout period for the acquisition with an open contingency period does not exceed 2.0 years from the acquisition date, and the remaining weighted average expected earnout period at October 1, 2017 was 1.4 years . If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.
Total acquisition and divestiture-related costs (income) for the three and nine months ended October 1, 2017 were $(30.8) million and $(30.1) million , respectively. These amounts include $36.3 million and $42.0 million of net foreign exchange gain related to the foreign currency forward contracts associated with the planned acquisition of EUROIMMUN for the three and nine months ended October 1, 2017 , respectively. Total acquisition and divestiture-related costs for the three and nine months ended October 2, 2016 were $0.1 million and $0.6 million , respectively. These acquisition and divestiture-related costs were expensed as incurred and recorded in selling, general and administrative expenses and interest and other (income) expense, net in the Company's condensed 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 represent 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 of discontinued operations in the accompanying condensed consolidated balance sheets as of October 1, 2017 and January 1, 2017 .
On May 1, 2017 (the "Closing Date"), the Company completed the sale of its Medical Imaging business to Varex Imaging Corporation ("Varex") pursuant to the terms of the Master Purchase and Sale Agreement, dated December 21, 2016 (the “Agreement”), by and between the Company and Varian Medical Systems, Inc. ("Varian") and the subsequent Assignment and Assumption Agreement, dated January 27, 2017, between Varian and Varex, pursuant to which Varian assigned its rights under the Agreement to Varex. On the Closing Date, the Company received consideration of approximately $277.4 million for the sale of the Medical Imaging business. During the third quarter of fiscal year 2017, the Company paid Varex $4.2 million to settle the post-closing working capital adjustment. During the nine months ended October 1, 2017 , the Company recorded a pre-tax gain of $180.4 million and income tax expense of $42.2 million related to the sale of the Medical Imaging business in discontinued operations and dispositions. The corresponding tax liability was recorded within the other tax liabilities in the condensed consolidated balance sheet, and the Company expects to utilize tax attributes to minimize the tax liability.
Following the closing, the Company is providing certain customary transitional services during a period of up to  12 months . Commercial transactions between the parties following the closing of the transaction are not expected to be significant.
Beginning in the fourth quarter of fiscal year 2016, the Company presented its Medical Imaging business as discontinued operations in the Company's consolidated financial statements. Financial information in this report relating to the three and nine months ended October 2, 2016 has been retrospectively adjusted to reflect this discontinued operation. The results of discontinued operations during the three and nine months ended October 1, 2017 include the results of the Medical Imaging business through April 30, 2017.

13


The summary pre-tax operating results of the discontinued operations were as follows for the three and nine months ended:
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Revenue
$

 
$
33,635

 
$
44,343

 
$
110,859

Cost of revenue

 
21,386

 
32,933

 
71,870

Selling, general and administrative expenses

 
3,193

 
5,869

 
9,242

Research and development expenses

 
3,662

 
4,891

 
10,615

Restructuring and contract termination charges, net

 
(53
)
 

 
568

Income from discontinued operations before income taxes
$

 
$
5,447

 
$
650

 
$
18,564


The table below provides a reconciliation of the carrying amounts of the major classes of assets and liabilities of the discontinued operations to the amounts presented separately in the consolidated balance sheets at October 1, 2017 and January 1, 2017 .
 
October 1,
2017
 
January 1,
2017
 
(In thousands)
Current assets of discontinued operations:
 
 
 
Accounts receivable
$

 
$
28,400

Inventories

 
26,977

Prepaid income taxes


 
425

Other current assets

 
3,183

Total current assets of discontinued operations

 
58,985

Property, plant and equipment, net

 
25,219

Intangible assets

 
3,292

Goodwill

 
38,794

Other assets, net

 
1,084

Long-term assets of discontinued operations

 
68,389

Total assets of discontinued operations
$

 
$
127,374

 
 
 
 
Current liabilities of discontinued operations:
 
 
 
Accounts payable
$

 
$
16,770

Accrued restructuring and contract termination charges

 
209

Accrued expenses and other current liabilities
2,154

 
9,992

Total current liabilities of discontinued operations

2,154

 
26,971

Deferred income taxes

 
7,851

Long-term liabilities

 
7,109

Total long-term liabilities

 
14,960

Total liabilities of discontinued operations
$
2,154

 
$
41,931


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-

14


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 each of the first and third quarters of fiscal year 2017 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q1 2017 Plan" and "Q3 2017 Plan", respectively). 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"). Details of the plans initiated in previous years (the “Previous Plans”) are discussed more fully in Note 4 to the audited consolidated financial statements in the 2016 Form 10-K.

The following table summarizes the reductions in headcount, the initial restructuring or contract termination charges by operating segment, and the dates by which payments were substantially completed, or the dates by which payments are expected to be substantially completed, for restructuring actions implemented during fiscal years 2017 and 2016 in continuing operations:
 
Workforce Reductions
 
Closure of Excess Facility
 
Total
 
(Expected) Date Payments Substantially Completed by
 
Headcount Reduction
 
Discovery & Analytical Solutions
 
Diagnostics
 
Discovery & Analytical Solutions
 
Diagnostics
 
 
Severance
 
Excess Facility
 
 
 
 
 
 
 
 
(In thousands, except headcount data)
 
 
 
 
Q3 2017 Plan
27
 
$
1,321

 
$
1,021

 
$

 
$

 
$
2,342

 
Q4 FY2018

Q1 2017 Plan
90
 
5,000

 
1,631

 
33

 
33

 
6,697

 
Q2 FY2018
 
Q2 FY2018
Q3 2016 Plan
22
 
1,779

 
41

 

 

 
1,820

 
Q4 FY2017
 
Q2 2016 Plan
72
 
4,106

 
561

 

 

 
4,667

 
Q3 FY2017
 
The Company does not currently expect to incur any future charges for these plans. The Company expects to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022 .

In connection with the termination of various contractual commitments, the Company recorded additional pre-tax charges of $0.4 million and $3.3 million during the three and nine months ended October 1, 2017 , respectively, in the Discovery & Analytical Solutions segment and $0.5 million during each of the three and nine months ended October 1, 2017 , in the Diagnostics segment.

At October 1, 2017 , the Company had $15.7 million recorded for accrued restructuring and contract termination charges, of which $10.1 million was recorded in short-term accrued restructuring and contract termination charges, $2.7 million was recorded in long-term liabilities, and $2.9 million was recorded in other reserves. 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 contract termination charges and $3.0 million was recorded in long-term liabilities. The following table summarizes the Company's restructuring and contract termination accrual balances and related activity by restructuring plan, as well as contract termination accrual balances and related activity, during the nine months ended October 1, 2017 :

15


 
Balance at January 1, 2017
 
2017 Charges
 
2017 Changes in Estimates, Net
 
2017 Amounts Paid
 
Balance at October 1, 2017
 
(In thousands)
Severance:
 
 
 
 
 
 
 
 
 
Q3 2017 Plan
$

 
$
2,342

 
$

 
$
(34
)
 
$
2,308

Q1 2017 Plan

 
6,631

 

 
(3,834
)
 
2,797

Q3 2016 Plan
1,208

 

 

 
(990
)
 
218

Q2 2016 Plan
1,436

 

 

 
(446
)
 
990

 
 
 
 
 
 
 
 
 
 
Facility:
 
 
 
 
 
 
 
 
 
Q1 2017 Plan

 
66

 

 
(9
)
 
57

 
 
 
 
 
 
 
 
 
 
Previous Plans
7,780

 
927

 

 
(2,408
)
 
6,299

Restructuring
10,424

 
9,966

 

 
(7,721
)
 
12,669

Contract Termination
117

 
2,909

 
45

 
(25
)
 
3,046

Total Restructuring and Contract Termination
$
10,541

 
$
12,875

 
$
45

 
$
(7,746
)
 
$
15,715


Note 5: Interest and Other (Income) Expense, Net

Interest and other (income) expense, net, consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Interest income
$
(802
)
 
$
(124
)
 
$
(1,512
)
 
$
(361
)
Interest expense
10,974

 
10,998

 
32,510

 
30,778

Loss (gain) on disposition of businesses and assets, net

 

 
301

 
(5,562
)
Other (income) expense, net
(35,419
)
 
389

 
(39,745
)
 
2,887

Total interest and other (income) expense, net
$
(25,247
)
 
$
11,263

 
$
(8,446
)
 
$
27,742

Foreign currency transaction gains were  $2.7 million and $5.4 million for the three and nine months ended October 1, 2017 , respectively. Foreign currency transaction (gains) losses were  $(1.6) million and $2.0 million for the three and nine months ended October 2, 2016 , respectively. Net gains from forward currency hedge contracts were  $32.7 million and $34.4 million for the three and nine months ended October 1, 2017 , respectively. Net losses from forward currency hedge contracts were  $2.1 million and $1.1 million for the three and nine months ended October 2, 2016 , respectively. These amounts were included in other (income) expense, net.

Note 6: Inventories

Inventories as of October 1, 2017 and January 1, 2017 consisted of the following:
 
October 1,
2017
 
January 1,
2017
 
(In thousands)
Raw materials
$
105,247

 
$
79,189

Work in progress
9,935

 
6,561

Finished goods
179,994

 
161,097

Total inventories
$
295,176

 
$
246,847


Note 7: Income Taxes

The Company regularly reviews its tax positions in each significant taxing jurisdiction in the process of evaluating its unrecognized tax benefits. The Company makes adjustments to its unrecognized tax benefits when: (i) facts and circumstances

16


regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority at a differing amount; and/or (iii) the statute of limitations expires regarding a tax position.
The total provision for income taxes included in the consolidated financial statements consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Continuing operations
$
8,508

 
$
10,601

 
$
20,495

 
$
21,465

Discontinued operations and dispositions
5,262

 
1,867

 
42,405

 
3,150

Total
$
13,770

 
$
12,468

 
$
62,900

 
$
24,615


At October 1, 2017 , the Company had gross tax effected unrecognized tax benefits of $29.0 million , of which $27.3 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 $3.8 million of its uncertain tax positions at October 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.
During the first nine months of fiscal years 2017 and 2016 , the Company recorded net discrete income tax benefit s of $7.0 million and $7.1 million , respectively. The discrete tax benefits in the first nine months of fiscal year 2017 and 2016 included the recognition of excess tax benefits on stock compensation of $3.6 million and $4.0 million , respectively.
As a result of the sale of the Medical Imaging business, the Company sold assets and liabilities of certain foreign operations, liquidated a related foreign entity and repatriated approximately $60.4 million of previously unremitted earnings. The Company has provided for the estimated taxes on the repatriation of these earnings and recorded a tax benefit of $0.1 million and a tax expense of $3.4 million in discontinued operations and dispositions for the three and nine months ended October 1, 2017 , respectively. The Company expects to utilize tax attributes to minimize the cash taxes paid on the repatriation.
Taxes have not been provided for unremitted earnings that the Company continues to consider indefinitely reinvested, the determination of which is based on its future operational and capital requirements. The Company continues to maintain its indefinite reinvestment assertion with regards to the remaining unremitted earnings of its foreign subsidiaries, and therefore does not accrue U.S. tax for the repatriation of its remaining unremitted foreign earnings. As of October 1, 2017 , the amount of foreign earnings that the Company has the intent and ability to keep invested outside the United States indefinitely and for which no U.S. tax cost has been provided was approximately $1.3 billion . It is not practical to calculate the unrecognized deferred tax liability on those earnings.

Note 8: Debt

Senior Unsecured Revolving Credit Facility.   The Company's senior unsecured revolving credit facility provides for $1.0 billion of revolving loans and has an initial maturity of August 11, 2021 . As of October 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 senior unsecured revolving credit facility. As of October 1, 2017 , the Company had $988.6 million available for additional borrowing under the facility. The Company uses the senior unsecured revolving credit facility for general corporate purposes, which may include working capital, refinancing existing indebtedness, capital expenditures, share repurchases, acquisitions and strategic alliances. The interest rates 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 October 1, 2017 , the senior unsecured revolving credit facility had no outstanding borrowings, and $3.6 million of unamortized debt issuance costs. As of January 1, 2017 , the senior unsecured revolving credit facility had no outstanding borrowings, and $4.3 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.

17


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.

Senior Unsecured Term Loan Credit Facility . The Company entered into a senior unsecured term loan credit facility on August 11, 2017 that provides for $200.0 million of term loans and has an initial maturity of twelve months from the date of the initial draw. The Company plans to use the senior unsecured term loan facility for general corporate purposes, which may include financing for the planned acquisition of EUROIMMUN. The interest rates under the senior unsecured term loan credit facility are based on the Eurocurrency rate or the base rate at the time of the 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 October 1, 2017 , the senior unsecured term loan credit facility had no outstanding borrowings. The credit agreement for the facility contains affirmative, negative and financial covenants and events of defaults which are substantially similar to those contained in the senior unsecured revolving credit facility.
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 October 1, 2017 , the 2021 Notes had an aggregate carrying value of $496.4 million , net of $1.5 million of unamortized original issue discount and $2.1 million of unamortized debt issuance costs. 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. 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 October 1, 2017 , the 2026 Notes had an aggregate carrying value of $581.5 million , net of $4.7 million of unamortized original issue discount and $4.4 million of unamortized debt issuance costs. 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 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

18


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 October 1, 2017 , the Company had $36.2 million recorded for these financing lease obligations, of which $1.3 million was recorded as short-term debt and $34.9 million was recorded as long-term 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. 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.

Note 9: Earnings Per Share

Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period less restricted unvested shares. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method. The following table reconciles the number of shares utilized in the earnings per share calculations:
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Number of common shares—basic
110,003

 
109,192

 
109,788

 
109,524

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
735

 
663

 
669

 
670

Restricted stock awards
255

 
223

 
196

 
178

Number of common shares—diluted
110,993

 
110,078

 
110,653

 
110,372

Number of potentially dilutive securities excluded from calculation due to antidilutive impact
14

 
220

 
377

 
523

Antidilutive securities include outstanding stock options with exercise prices and average unrecognized compensation cost in excess of the average fair market value of common stock for the related period. Antidilutive options were excluded from the calculation of diluted net income per share and could become dilutive in the future.

Note 10: Industry Segment Information

The Company discloses information about its operating segments based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. The Company evaluates the performance of its operating segments based on revenue and operating income. Intersegment revenue and transfers are not significant. The accounting policies of the operating segments are the same as those described in Note 1 to the audited consolidated financial statements in the 2016 Form 10-K.

Effective October 3, 2016, the Company realigned its businesses to better organize around customer requirements, positioning 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 the three and nine months ended October 1, 2017 reflect this new alignment of the Company's operating segments. Financial information in this report relating to the three and nine months ended October 2, 2016 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.

19


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. During the first quarter of fiscal year 2017, the Company changed the manner in which certain shared functional costs are allocated to the operating segments. Segment financial information relating to the three and nine months ended October 2, 2016 has been retrospectively adjusted to reflect this change to the cost allocation methodology. Accordingly, for the three and nine months ended October 2, 2016 , operating income from continuing operations from the Discovery & Analytical Solutions segment decreased by $2.1 million and $8.4 million , respectively, with a corresponding increase in operating income from continuing operations of the Diagnostics segment.
Revenue and operating income (loss) from continuing operations by operating segment are shown in the table below:  
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Discovery & Analytical Solutions
 
 
 
 
 
 
 
Product revenue
$
222,618

 
$
219,865

 
$
665,068

 
$
675,783

Service revenue
162,764

 
145,224

 
465,202

 
427,257

Total revenue
385,382

 
365,089

 
1,130,270

 
1,103,040

Operating income from continuing operations
47,615

 
46,051

 
129,675

 
127,137

Diagnostics
 
 
 
 
 
 
 
Product revenue
132,201

 
115,029

 
378,466

 
340,438

Service revenue
36,692

 
34,371

 
106,616

 
105,269

Total revenue
168,893

 
149,400

 
485,082

 
445,707

Operating income from continuing operations
44,054

 
41,618

 
115,105

 
113,232

Corporate
 
 
 
 
 
 
 
Operating loss from continuing operations
(11,862
)
 
(11,888
)
 
(37,397
)
 
(37,745
)
Continuing Operations
 
 
 
 
 
 
 
Product revenue
354,819

 
334,894

 
1,043,534

 
1,016,221

Service revenue
199,456

 
179,595

 
571,818

 
532,526

Total revenue
554,275

 
514,489

 
1,615,352

 
1,548,747

Operating income from continuing operations
79,807

 
75,781

 
207,383

 
202,624

Interest and other (income) expense, net (see Note 5)
(25,247
)
 
11,263

 
(8,446
)
 
27,742

Income from continuing operations before income taxes
$
105,054

 
$
64,518

 
$
215,829

 
$
174,882


Note 11: Stockholders’ Equity
Comprehensive Income:
The components of accumulated other comprehensive loss consisted of the following:
 
October 1,
2017
 
January 1,
2017
 
(In thousands)
Foreign currency translation adjustments
$
(53,718
)
 
$
(100,923
)
Unrecognized prior service costs, net of income taxes
399

 
399

Unrealized net losses on securities, net of income taxes
(256
)
 
(337
)
Accumulated other comprehensive loss
$
(53,575
)
 
$
(100,861
)


20


Stock Repurchases:
On July 27, 2016, 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"). The 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 nine months ended October 1, 2017 , the Company had no stock repurchases under the Repurchase Program. As of October 1, 2017 , 8.0 million shares remained available for repurchase under the Repurchase Program.
In addition, the Board has authorized the Company to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to the Company’s equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to the Company's equity incentive plans. During the three months ended October 1, 2017 , the Company repurchased 3,132 shares of common stock for this purpose at an aggregate cost of $0.2 million . During the nine months ended October 1, 2017 , the Company repurchased 73,672 shares of common stock for this purpose at an aggregate cost of $4.0 million . The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value.

Dividends:
The Board declared a regular quarterly cash dividend of $0.07 per share for the first three quarters of fiscal year 2017 and in each quarter of fiscal year 2016 . At October 1, 2017 , the Company had accrued $7.7 million for dividends declared on July 24, 2017 for the third quarter of fiscal year 2017 that will be payable on November 10, 2017 . On October 27, 2017 , the Company announced that the Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2017 that will be payable on February 9, 2018 . In the future, the Board may determine to reduce or eliminate the Company’s common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.

Note 12: Stock Plans

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.
The following table summarizes total pre-tax compensation expense recognized related to the Company’s stock options, restricted stock, performance restricted stock units, performance units and stock awards, included in the Company’s condensed consolidated statements of operations for the three and nine months ended October 1, 2017 and October 2, 2016 :
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Cost of revenue
$
357

 
$
284

 
$
898

 
$
778

Research and development expenses
373

 
202

 
1,077

 
602

Selling, general and administrative expenses
3,682

 
3,288

 
14,204

 
12,069

Total stock-based compensation expense
$
4,412

 
$
3,774

 
$
16,179

 
$
13,449

The total income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation was $1.9 million and $9.9 million for the three and nine months ended October 1, 2017 , respectively. The total income tax benefit recognized in the condensed consolidated statements of operations for stock-based compensation was $2.3 million and $9.2 million for the three and nine months ended October 2, 2016 , respectively. Stock-based compensation costs capitalized as part of inventory were $0.4 million and $0.3 million as of October 1, 2017 and October 2, 2016 , respectively.

21


Stock Options : The fair value of each option grant is estimated using the Black-Scholes option pricing model. The Company’s weighted-average assumptions used in the Black-Scholes option pricing model were as follows:
 
Three and Nine Months Ended
 
October 1,
2017
 
October 2,
2016
Risk-free interest rate
1.5
%
 
1.2
%
Expected dividend yield
0.4
%
 
0.6
%
Expected term
5 years

 
5 years

Expected stock volatility
22.4
%
 
25.2
%
The following table summarizes stock option activity for the nine months ended October 1, 2017 :
 
Number
of
Shares
 
Weighted-
Average Exercise
Price
 
Weighted-Average
Remaining
Contractual Term
 
Total
Intrinsic
Value
 
(In thousands)
 
 
 
(In years)
 
(In millions)
Outstanding at January 1, 2017
2,287

 
$
37.64

 
 
 
 
Granted
460

 
53.77

 
 
 
 
Exercised
(454
)
 
30.88

 
 
 
 
Forfeited
(11
)
 
49.34

 
 
 
 
Outstanding at October 1, 2017
2,282

 
$
42.18

 
4.1
 
$
61.1

Exercisable at October 1, 2017
1,344

 
$
37.19

 
3.0
 
$
42.7

The weighted-average per-share grant-date fair value of options granted during the three and nine months ended October 1, 2017 was $14.32 and $11.79 , respectively. The weighted-average per-share grant-date fair value of options granted during the three and nine months ended October 2, 2016 was $12.24 and $10.16 , respectively. The total intrinsic value of options exercised during the three and nine months ended October 1, 2017 was $0.7 million and $12.8 million , respectively. The total intrinsic value of options exercised during the three and nine months ended October 2, 2016 was $3.6 million and $15.6 million , respectively. Cash received from option exercises for the nine months ended October 1, 2017 and October 2, 2016 was $14.0 million and $12.1 million , respectively.
The total compensation expense recognized related to the Company’s outstanding options was $1.1 million and $3.5 million for the three and nine months ended October 1, 2017 , respectively, and $1.0 million and $3.4 million for the three and nine months ended October 2, 2016 , respectively.
There was $7.3 million of total unrecognized compensation cost related to nonvested stock options granted as of October 1, 2017 . This cost is expected to be recognized over a weighted-average period of 2.0 years.
Restricted Stock Awards :  The following table summarizes restricted stock award activity for the nine months ended October 1, 2017 :
 
Number of
Shares
 
Weighted-
Average
Grant-
Date Fair
Value
 
(In thousands)
 
 
Nonvested at January 1, 2017
521

 
$
46.48

Granted
227

 
54.44

Vested
(214
)
 
45.89

Forfeited
(21
)
 
49.64

Nonvested at October 1, 2017
513

 
$
50.11

The fair value of restricted stock awards vested during the three and nine months ended October 1, 2017 was $0.5 million and $9.8 million , respectively. The fair value of restricted stock awards vested during the three and nine months ended October 2, 2016 was $0.2 million and $8.0 million , respectively. The total compensation expense recognized related to the Company’s outstanding restricted stock awards was $2.3 million and $7.8 million for the three and nine months ended

22


October 1, 2017 , respectively, and $2.0 million and $6.9 million for the three and nine months ended October 2, 2016 , respectively.
As of October 1, 2017 , there was $15.9 million of total unrecognized compensation cost related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 1.7 years.
Performance Restricted Stock Units: As part of the Company's executive compensation program, the Company granted 54,337 performance restricted stock units during the nine months ended October 1, 2017 that will vest based on performance of the Company. The weighted-average per-share grant date fair value of performance restricted stock units granted during the nine months ended October 1, 2017 was $52.78 . During the nine months ended October 1, 2017 , no performance restricted stock units were forfeited. The total compensation expense recognized related to the performance restricted stock units was $0.2 million and $0.6 million for the three and nine months ended October 1, 2017 , respectively. As of October 1, 2017 , there were 54,337 performance restricted stock units outstanding.
Performance Units :  As part of the Company's executive compensation program, the Company granted 49,845 and 72,164 performance units during the nine months ended October 1, 2017 and October 2, 2016 , respectively. The weighted-average per-share grant-date fair value of performance units granted during the nine months ended October 1, 2017 and October 2, 2016 was $52.69 and $42.79 , respectively. During the nine months ended October 1, 2017 and October 2, 2016 , 15,139 and 19,584 performance units were forfeited, respectively. The total compensation expense recognized related to performance units was $0.8 million and $3.6 million for the three and nine months ended October 1, 2017 , respectively, and $0.7 million and $2.4 million for the three and nine months ended October 2, 2016 , respectively. As of October 1, 2017 , there were 164,481 performance units outstanding and subject to forfeiture, with a corresponding liability of $6.5 million recorded in accrued expenses and other current liabilities.
Stock Awards :  The Company’s stock award program provides an annual equity award to non-employee directors. The Company granted 1,598 and 1,821 shares to each non-employee member of the Board during the nine months ended October 1, 2017 and October 2, 2016 , respectively. The weighted-average per-share grant-date fair value of the stock awards granted during the nine months ended October 1, 2017 and October 2, 2016 was $62.56 and $54.88 , respectively. The total compensation expense recognized related to these stock awards was $0.7 million and $0.8 million for the nine months ended October 1, 2017 and October 2, 2016 , respectively.
Employee Stock Purchase Plan : During the nine months ended October 1, 2017 , the Company issued 18,483 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $64.73 per share. During the nine months ended October 2, 2016 , the Company issued 23,898 shares of common stock under the Company's Employee Stock Purchase Plan at a weighted-average price of $49.80 per share. At October 1, 2017 , an aggregate of 0.9 million shares of the Company’s common stock remained available for sale to employees out of the 5.0 million shares authorized by shareholders for issuance under this plan.

Note 13: Goodwill and Intangible Assets, Net
 
The Company tests goodwill and non-amortizing intangible assets at least annually for possible impairment. Accordingly, the Company completes the annual testing of impairment for goodwill and non-amortizing intangible assets on the later of January 1 or the first day of each fiscal year. In addition to its annual test, the Company regularly evaluates whether events or circumstances have occurred that may indicate a potential impairment of goodwill or non-amortizing intangible assets.
The process of testing goodwill for impairment involves the determination of the fair value of the applicable reporting units. The test consists of 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 2, 2017 , its annual impairment date for fiscal year 2017 . The Company concluded based on the first step of the process that there was no goodwill impairment, and that the fair value exceeded the carrying value by more than 20.0% for each reporting unit, except for the Company's Informatics reporting unit which had a fair value that was less than 20% but greater than 10% more than its carrying value. The range of the long-term terminal growth rates for the Company’s reporting units was 0.0% to 3.00% for the fiscal year 2017 impairment analysis. The range for the discount rates for the reporting units was 9.0% to 13.5% . Keeping all other variables constant, a 10.0% change in any one of these input assumptions for the various reporting units, except for the Informatics reporting unit, would still allow the Company to conclude, based on the first step of the process, that there was no impairment of goodwill. As of January 2, 2017, the Company's Informatics reporting unit, which had a goodwill balance of $211.0 million , was at increased risk of an impairment charge given its ongoing weakness due to a highly competitive industry. Despite the increased risk associated with this

23


reporting unit, the Company does not currently expect a significant change in the key estimates or assumptions driving the fair value of this reporting unit that would lead to a material impairment charge.
The Company has consistently employed the income approach to estimate the current fair value when testing for impairment of goodwill. A number of significant assumptions and estimates are involved in the application of the income approach to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce, tax rates, capital spending, discount rates and working capital changes. Cash flow forecasts are based on approved business unit operating plans for the early years’ cash flows and historical relationships in later years. The income approach is sensitive to changes in long-term terminal growth rates and the discount rates. The long-term terminal growth rates are consistent with the Company’s historical long-term terminal growth rates, as the current economic trends are not expected to affect the long-term terminal growth rates of the Company. The Company corroborates the income approach with a market approach.
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 2, 2017 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 first nine months of fiscal year 2017 .
The changes in the carrying amount of goodwill for the nine months ended October 1, 2017 were as follows:
 
Discovery & Analytical Solutions

 
Diagnostics
 
Consolidated
 
(In thousands)
Balance at January 1, 2017
$
1,303,936

 
$
944,030

 
$
2,247,966

        Foreign currency translation
30,356

 
23,394

 
53,750

        Acquisitions and other
(2,173
)
 
73,466

 
71,293

Balance at October 1, 2017
$
1,332,119

 
$
1,040,890

 
$
2,373,009


24


Identifiable intangible asset balances at October 1, 2017 and January 1, 2017 by category were as follows:
 
October 1,
2017
 
January 1,
2017
 
(In thousands)
Patents
$
39,952

 
$
39,901

Less: Accumulated amortization
(34,421
)
 
(32,408
)
Net patents
5,531

 
7,493

Trade names and trademarks
44,188

 
40,086

Less: Accumulated amortization
(27,229
)
 
(24,017
)
Net trade names and trademarks
16,959

 
16,069

Licenses
51,637

 
57,767

Less: Accumulated amortization
(41,978
)
 
(46,507
)
Net licenses
9,659

 
11,260

Core technology
298,511

 
304,187

Less: Accumulated amortization
(237,142
)
 
(233,720
)
Net core technology
61,369

 
70,467

Customer relationships
425,472

 
383,303

Less: Accumulated amortization
(229,944
)
 
(213,062
)
Net customer relationships
195,528

 
170,241

IPR&D
86,992

 
78,515

Less: Accumulated amortization
(5,197
)
 
(4,405
)
Net IPR&D
81,795

 
74,110

Net amortizable intangible assets
370,841

 
349,640

Non-amortizing intangible assets:
 
 
 
Trade name
70,584

 
70,584

Total
$
441,425

 
$
420,224

Total amortization expense related to definite-lived intangible assets was $17.7 million and $52.3 million for the three and nine months ended October 1, 2017 , respectively, and $16.9 million and $53.9 million for the three and nine months ended October 2, 2016 , respectively. Estimated amortization expense related to definite-lived intangible assets for each of the next five years is $17.5 million for the remainder of fiscal year 2017 , $70.2 million for fiscal year 2018 , $58.5 million for fiscal year 2019 , $50.0 million for fiscal year 2020 , and $37.0 million for fiscal year 2021 .

Note 14: Warranty Reserves

The Company provides warranty protection for certain products usually for a period of one year beyond the date of sale. The majority of costs associated with warranty obligations include the replacement of parts and the time for service personnel to respond to repair and replacement requests. A warranty reserve is recorded based upon historical results, supplemented by management’s expectations of future costs. Warranty reserves are included in “Accrued expenses and other current liabilities” on the condensed consolidated balance sheets.

25


A summary of warranty reserve activity for the three and nine months ended October 1, 2017 and October 2, 2016 is as follows:
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Balance at beginning of period
$
9,088

 
$
9,596

 
$
9,012

 
$
9,843

Provision charged to income
3,326

 
3,585

 
9,706

 
11,037

Payments
(3,488
)
 
(3,677
)
 
(10,625
)
 
(11,291
)
Adjustments to previously provided warranties, net
(730
)
 
(459
)
 
(215
)
 
(708
)
Foreign currency translation and acquisitions
117

 
27

 
435

 
191

Balance at end of period
$
8,313

 
$
9,072

 
$
8,313

 
$
9,072


Note 15: Employee Postretirement Benefit Plans

The following table summarizes the components of net periodic pension credit for the Company’s various defined benefit employee pension and postretirement plans for the three and nine months ended October 1, 2017 and October 2, 2016 :
 
Defined Benefit
Pension Benefits
 
Postretirement
Medical Benefits
 
Three Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Service cost
$
1,231

 
$
1,094

 
$
23

 
$
25

Interest cost
4,160

 
4,701

 
32

 
35

Expected return on plan assets
(6,568
)
 
(6,126
)
 
(279
)
 
(258
)
Amortization of prior service costs
(49
)
 
(54
)
 

 

Net periodic benefit credit
$
(1,226
)
 
$
(385
)
 
$
(224
)
 
$
(198
)
 
 
 
 
 
 
 
 
 
Defined Benefit
Pension Benefits
 
Postretirement
Medical Benefits
 
Nine Months Ended
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
(In thousands)
Service cost
$
3,667

 
$
3,282

 
$
69

 
$
75

Interest cost
12,420

 
14,158

 
94

 
107

Expected return on plan assets
(19,609
)
 
(18,488
)
 
(836
)
 
(776
)
Amortization of prior service costs
(144
)
 
(163
)
 

 

Net periodic benefit credit
$
(3,666
)
 
$
(1,211
)
 
$
(673
)
 
$
(594
)
During the nine months ended October 1, 2017 and October 2, 2016 , the Company contributed $6.2 million and $7.6 million , respectively, in the aggregate, to pension plans outside of the United States.
The Company recognizes actuarial gains and losses, unless an interim remeasurement is required, in operating results in the fourth quarter of the year in which the gains and losses occur, in accordance with the Company's accounting method for defined benefit pension plans and other postretirement benefits as described in Note 1 of the Company's audited consolidated financial statements and notes included in its 2016 Form 10-K. Such adjustments for gains and losses are primarily driven by events and circumstances beyond the Company's control, including changes in interest rates, the performance of the financial markets and mortality assumptions.

Note 16: Derivatives and Hedging Activities

The Company uses derivative instruments as part of its risk management strategy only, and includes derivatives utilized as economic hedges that are not designated as hedging instruments. By nature, all financial instruments involve market and

26


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 condensed consolidated balance sheets. The unrealized gains and losses on the Company’s foreign currency contracts are recognized immediately in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from operating activities within the Company’s condensed consolidated statement of cash flows.

Principal hedged currencies include the British Pound, Euro, Swedish Krona, Japanese Yen and Singapore Dollar. The Company held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling $140.0 million , $137.5 million and $128.5 million at October 1, 2017 , January 1, 2017 and October 2, 2016 , respectively, and the fair value of these foreign currency derivative contracts was insignificant. The gains and losses realized on these foreign currency derivative contracts are not material. The duration of these contracts was generally 30 days or less during each of the nine months ended October 1, 2017 and October 2, 2016 .

In addition, in connection with certain intercompany loan agreements utilized to finance its acquisitions and stock repurchase program, the Company enters into forward foreign exchange contracts intended to hedge movements in foreign exchange rates prior to settlement of such intercompany loans denominated in foreign currencies. The Company records these hedges at fair value on the Company’s condensed consolidated balance sheets. The unrealized gains and losses on these hedges, as well as the gains and losses associated with the remeasurement of the intercompany loans, are recognized immediately in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from financing activities within the Company’s condensed consolidated statement of cash flows.

The outstanding forward exchange contracts designated as economic hedges, which were intended to hedge movements in foreign exchange rates prior to the settlement of certain intercompany loan agreements, included combined Euro notional amounts of €19.0 million and combined U.S. Dollar notional amounts of $12.3 million as of October 1, 2017 ; combined Euro notional amounts of €58.6 million and combined Swedish Krona notional amounts of kr969.5 million as of January 1, 2017 ; and combined Euro notional amounts of €50.7 million and combined U.S. Dollar notional amounts of $9.2 million as of October 2, 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 three and nine months ended October 1, 2017 and October 2, 2016 . The Company paid $11.5 million and $0.1 million during the nine months ended October 1, 2017 and October 2, 2016 , respectively, from the settlement of these hedges.
In connection with the issuance of the 2026 Notes during fiscal year 2016, the Company designated the 2026 Notes 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 translation adjustments on the underlying net assets of foreign subsidiaries. The cumulative translation gains or losses will remain in AOCI until the foreign subsidiaries are liquidated or sold. As of October 1, 2017 , the total notional amount of foreign currency denominated debt designated to hedge investments in foreign subsidiaries was €495.9 million . The unrealized foreign exchange loss recorded in AOCI related to the net investment hedge was $19.5 million and $63.1 million for the three and nine months ended October 1, 2017 , respectively.
On June 27, 2017, in connection with the planned acquisition of EUROIMMUN, the Company entered into several foreign currency forward contracts to purchase Euros to partly mitigate the currency exchange risk associated with the payment of the Euro-denominated purchase price. These currency forward contracts were not designated as hedging instruments and therefore the change in the derivative fair value was marked to market through the condensed consolidated statement of operations. The Company received $60.4 million during the third quarter of fiscal year 2017 from the settlement of these foreign currency forward contracts. The cash flows related to the settlement of these foreign currency forward contracts are included in cash flows from investing activities within the Company’s condensed consolidated statement of cash flows. The outstanding foreign currency forward contracts have an aggregate notional amount totaling $1.18 billion as of October 1, 2017 .

27


The net foreign exchange gain included in other (income) expense, net related to these foreign currency forward contracts was $36.3 million and $42.6 million for the three and nine months ended October 1, 2017 , respectively.

The Company does no t expect any material net pre-tax gains or losses to be reclassified from accumulated other comprehensive loss into interest and other expense, net within the next twelve months.

Note 17: Fair Value Measurements

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, derivatives, marketable securities and accounts receivable. The Company believes it had no significant concentrations of credit risk as of October 1, 2017 .
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the nine months ended October 1, 2017 . The Company’s financial assets and liabilities carried at fair value are primarily comprised of marketable securities, derivative contracts used to hedge the Company’s currency risk, and acquisition-related contingent consideration. The Company has not elected to measure any additional financial instruments or other items at fair value.
Valuation Hierarchy: The following summarizes the three levels of inputs required to measure fair value. For Level 1 inputs, the Company utilizes quoted market prices as these instruments have active markets. For Level 2 inputs, the Company utilizes quoted market prices in markets that are not active, broker or dealer quotations, or utilizes alternative pricing sources with reasonable levels of price transparency. For Level 3 inputs, the Company utilizes unobservable inputs based on the best information available, including estimates by management primarily based on information provided by third-party fund managers, independent brokerage firms and insurance companies. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
The following tables show the assets and liabilities carried at fair value measured on a recurring basis as of October 1, 2017 and January 1, 2017 classified in one of the three classifications described above:
 
 
 
Fair Value Measurements at October 1, 2017 Using:
 
Total Carrying Value at October 1, 2017
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(In thousands)
Marketable securities
$
2,049

 
$
2,049

 
$

 
$

Foreign exchange derivative assets
195

 

 
195

 

Foreign exchange derivative liabilities
(17,578
)
 

 
(17,578
)
 

Contingent consideration
(64,727
)
 

 

 
(64,727
)
 
 
 
 
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
)

28


Level 1 and Level 2 Valuation Techniques:      The Company’s Level 1 and Level 2 assets and liabilities are comprised of investments in equity and fixed-income securities as well as derivative contracts. For financial assets and liabilities that utilize Level 1 and Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including common stock price quotes, foreign exchange forward prices and bank price quotes. Below is a summary of valuation techniques for Level 1 and Level 2 financial assets and liabilities.
Marketable securities:     Include equity and fixed-income securities measured at fair value using the quoted market prices in active markets at the reporting date.
Foreign exchange derivative assets and liabilities:     Include foreign exchange derivative contracts that are valued using quoted forward foreign exchange prices at the reporting date. The Company’s foreign exchange derivative contracts are subject to master netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's condensed consolidated balance sheet on a net basis and are recorded in other assets. As of both October 1, 2017 and January 1, 2017 , 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 Vanadis Diagnostics AB. 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 fair value of the contingent consideration as of the acquisition date was estimated at $56.9 million . During the third quarter of fiscal year 2017 , the Company updated the fair value of the contingent consideration and recorded a liability of $64.7 million as of October 1, 2017 . The key assumptions used to determine the fair value of the contingent consideration as of October 1, 2017 included projected milestone dates of 2018 to 2019 , discount rates ranging from 2.1% to 6.8% , 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 completion of a proof of concept, regulatory approvals and product sales as compared to initial projections, the impact of market competition and market landscape shifts from non-invasive prenatal testing products, with the impact of such adjustments being recorded in the Company's consolidated statements of operations.
As of October 1, 2017 , the Company may have to pay contingent consideration related to an acquisition with open contingency period of up to $83.0 million . The expected maximum earnout period for the acquisition with an open contingency period does not exceed 2.0 years from the acquisition date, and the remaining weighted average earnout period at October 1, 2017 was 1.4 years .

29


A reconciliation of the beginning an