PerkinElmer, Inc.
PERKINELMER INC (Form: 10-K, Received: 02/28/2017 18:43:06)
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________________________
Form 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended January 1, 2017
or
o
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)
(Registrant’s telephone number, including area code): (781) 663-6900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $1 Par Value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ        No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 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 þ         No o
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 þ         No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.         þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No þ
The aggregate market value of the common stock, $1 par value per share, held by non-affiliates of the registrant on July 1, 2016 , was $5,650,129,129 based upon the last reported sale of $52.66 per share of common stock on July 1, 2016 .
As of February 24, 2017 , there were outstanding 109,787,006 shares of common stock, $1 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of PerkinElmer, Inc.’s Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 25, 2017 are incorporated by reference into Part III of this Form 10-K.
 

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TABLE OF CONTENTS
 
 
 
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
PART IV
Item 15.

 

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PART I

Item 1.
Business

Overview
We are a leading provider of products, services and solutions for the diagnostics, food, environmental, industrial, life sciences research and laboratory services markets. Through our advanced technologies and differentiated solutions, we address critical issues that help to improve lives and the world around us.
We realigned our businesses at the beginning of the fourth quarter of fiscal year 2016 to better organize around customer requirements, positioning us to grow in attractive end markets and expand share with our core product offerings. We created two new reporting segments, Discovery & Analytical Solutions and Diagnostics, which will enable us to deliver improved customer focus, more value-add collaboration and breakthrough innovations. Our Diagnostics business became a standalone reporting segment targeted towards better meeting the needs of clinically-oriented customers, especially within the growing areas of reproductive health, emerging market diagnostics and applied genomics. Microfluidics and automation products within our former research business were moved to a new applied genomics group within the Diagnostics segment. Our former environmental health business and the remaining products within the legacy research business were combined to form our new Discovery & Analytical Solutions reporting segment, focused on better serving and innovating for applications-oriented customers. Discovery & Analytical Solutions customers span the environmental, food, industrial, life sciences research and laboratory services markets.
We are a Massachusetts corporation, founded in 1947. Our headquarters are in Waltham, Massachusetts, and we market our products and services in more than 150 countries. As of January 1, 2017 , we employed approximately 8,000 employees in our continuing operations. Our common stock is listed on the New York Stock Exchange under the symbol “PKI” and we are a component of the S&P 500 Index.
We maintain a website with the address http://www.perkinelmer.com . We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form 10-K. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission.

Our Strategy
Our strategy is to develop and deliver innovative products, services and solutions in high-growth markets that utilize our knowledge and expertise to address customers’ critical needs and drive scientific breakthroughs. To execute on our strategy and accelerate revenue growth, we focus on broadening our offerings through both the acquisition of innovative technology and investment in research and development. Our strategy includes:
Achieving significant growth in both of our new core business segments, Discovery & Analytical Solutions and Diagnostics, through strategic acquisitions and licensing;
Accelerating innovation through both internal research and development and third-party collaborations and alliances;
Strengthening our position within key markets, by expanding our product and service offerings and maintaining superior product quality;
Utilizing our share repurchase programs to help drive shareholder value; and
Attracting, retaining and developing talented and engaged employees.

Recent Developments
As part of our strategy to grow our core businesses, we have recently taken the following actions:

Strategic Business Realignment:
We realigned our businesses at the beginning of the fourth quarter of fiscal year 2016 to better organize around customer requirements, positioning us to grow in attractive end markets and expand share with our core product offerings. We created two new operating segments, Discovery & Analytical Solutions and Diagnostics, which will enable us to deliver improved customer focus, more value-add collaboration and breakthrough innovations. The results reported for fiscal year 2016 reflect this new alignment of our operating segments. Financial information in this report relating to fiscal years 2015 and 2014 has been retrospectively adjusted to reflect this change to our operating segments.

Acquisitions in Fiscal Year 2016:

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We completed the acquisition of two businesses in fiscal year 2016 for a total consideration of  $72.2 million in cash. The acquired businesses were Bioo Scientific Corporation, which was acquired for total consideration of $63.5 million in cash and one other business acquired for a total consideration of $8.8 million in cash. We reported the operations for these acquisitions within the results of our Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates.

Restructuring:
During fiscal year 2016 , we recorded pre-tax restructuring charges of $0.6 million in our Diagnostics segment and $5.9 million in our Discovery & Analytical Solutions segment related to a workforce reduction from restructuring activities. Our management approved these plans principally to focus resources on higher growth product lines and end markets. We also recorded pre-tax restructuring reversals of $0.3 million in our Diagnostics segment and $1.2 million in our Discovery & Analytical Solutions segment related to lower than expected costs associated with workforce reductions. This pre-tax restructuring activity has been reported as restructuring and contract termination charges and is included as a component of income from continuing operations. We expect no significant impact on future operating results or cash flows from the restructuring activities executed in fiscal year 2016 .

As part of our ongoing business strategy, we also took the following actions:

Share Repurchase Program:
On October 23, 2014, our Board of Directors (our "Board") authorized us to repurchase up to 8.0 million shares of common stock under a stock repurchase program (the "Repurchase Program"). On July 27, 2016, our Board authorized us to immediately terminate the Repurchase Program and further authorized us to repurchase up to 8.0 million shares of common stock under a new stock repurchase program (the "New Repurchase Program"). The New Repurchase Program will expire on July 26, 2018 unless terminated earlier by our Board, and may be suspended or discontinued at any time. During the fiscal year 2016 , we repurchased 3.2 million shares of common stock in the open market at an aggregate cost of $148.2 million , including commissions, under the Repurchase Program. No shares remain available for repurchase under the Repurchase Program due to its cancellation. As of January 1, 2017 , 8.0 million shares remained available for repurchase under the New Repurchase Program. From January 2, 2017 through February 24, 2017 , there were no stock repurchases under the New Repurchase Program.

Business Segments and Products
We report our business in two segments: Discovery & Analytical Solutions and Diagnostics. We realigned our businesses at the beginning of the fourth quarter of the fiscal year 2016 to better position us to grow in attractive end markets and expand share with our core product offerings through an improved customer focus, more value-add collaboration and breakthrough innovations. The results reported for fiscal year 2016 reflect this new alignment of our operating segments. Financial information in this report relating to fiscal years 2015 and 2014 has been retrospectively adjusted to reflect the changes in our operating segments.

Discovery & Analytical Solutions Segment
Our comprehensive portfolio of technologies helps life sciences researchers better understand diseases and develop treatments. In addition, we help accelerate scientists' ability to detect, monitor and manage contaminants and toxic chemicals impacting our environment and food supply. Our new Discovery & Analytical Solutions segment serves the environmental, food, industrial, life sciences research and laboratory services markets, and generated revenue of $1,513.0 million in fiscal year 2016 .

Environmental Market:

For the environmental market, we develop and provide analytical technologies, solutions and services that enable our customers to understand the characterization and health of many aspects of our environment, including air, water and soil.

Our technologies are used to detect and help reduce the impact products and industrial processes may have on our environment. For example, we have solutions to help ensure compliance with regulatory standards that protect the purity of the world's water supply by detecting harmful substances, including trace metals such as lead, and organic pollutants such as pesticides and benzene. We provide the tools needed to test functionality, meet quality specifications and safety standards, and innovate for next generation products.

Food Market:
We provide a variety of solutions that help farmers and food producers provide a growing population with food that is safe, nutritious and appealing. Our instruments confirm food quality, including the level of moisture in grain or the level of fat

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in butter. Our instruments are also used to detect the presence of potentially dangerous contaminants, such as lead and mercury in milk. Our solutions can also be used to identify the origin of food products such as olive oil, which helps prevent counterfeiting. Our methods and analyses are transferable throughout the supply chain so our customers are able to keep pace with industry standards as well as governmental regulations and certifications.

Industrial Market:
We provide analytical instrumentation for the industrial market which includes the chemical, electronics, energy, lubricant, petrochemical and polymer industries. Our industrial instrumentation is primarily used by customers focusing on quality assurance standards.

Life Sciences Research Market:
In the life science research market, we provide a broad suite of solutions including reagents, informatics, and detection and imaging technologies that enable scientists to improve life science research and facilitate the drug discovery processes. These products, solutions and services support pharmaceutical and biotech companies, and academic institutions globally in creating better therapeutics by helping to bring products to market faster and more efficiently. Our research portfolio includes a wide range of systems consisting of imaging, detection and extraction instrumentation for use on in vitro, ex vivo, and in vivo models, analysis hardware and software, plus a wide range of consumable products including drug discovery and research reagents.

Laboratory Services Market:
We provide services designed to enable our customers in the laboratory services market throughout the world to increase efficiencies and production time while reducing maintenance costs of their labs. Our OneSource laboratory service business is aligned with customers' needs to accelerate science by enabling efficiency gains within their labs.


Principal Products:
Our principal products and services for Discovery & Analytical Solutions applications include the following:

Environmental, Food & Industrial:
The Clarus® series of gas chromatographs, gas chromatographs/mass spectrometers and the TurboMatrix™ family of sample-handling equipment are used to identify and quantify compounds in the environmental, forensics, food and beverage, hydrocarbon processing/biofuels, materials testing, pharmaceutical and semiconductor industries.
The Altus® UPLC® and HPLC advanced liquid chromatography systems providing high throughput and resolution chromatographic separations.
AxION® 2 TOF MS is designed to simplify and streamline virtually any analytical workflow and provides mass accuracy, full spectrum capability, speed, sensitivity, and dynamic range.
AxION® Direct Sample Analysis (DSA®) is a sample introduction system that enables direct sample analysis with minimal sample preparation and no chromatography.
The Torion® T-9 portable GC/MS, a fast person-portable GC/MS system, enabling rapid detection and actionable results to potentially hazardous and emergency environmental conditions.
Our atomic spectroscopy family of instruments, including the AAnalyst™/PinAAcle® series of atomic absorption spectrometers, the Avio™/Optima® family of inductively coupled plasma (“ICP”) optical emission spectrometers and the NexION® family of ICP mass spectrometers are used in the environmental and chemical industries, among others, to determine the elemental content of a sample.
Our infrared spectroscopy family, including the Spectrum Two™ spectrometer, a compact and portable instrument, used for high-speed infrared analysis for unknown substance identification, material qualification or concentration determination in fuel and lubricant analysis, polymer analysis and pharmaceutical and environmental applications. This includes the Frontier™ IR and NIR spectrometers designed to provide high sensitivity and flexibility to address a range of sample types. Spotlight™ IR systems, designed for scientists whose samples demand higher sensitivity and simpler analysis and workflows.
The LAMBDA™ UV/Vis, a series of spectrophotometers that provide sampling flexibility to enable measuring of a wide range of sample types, including liquids, powders and solid materials, both in regulated industries as well as QC/QA and research applications.
The 2400 Series II CHNS/O Elemental Analyzer is one of the leading organic elemental analyzers. It is ideal for the rapid determination of carbon, hydrogen, nitrogen, sulfur, and oxygen content in organic and other types of materials.
Our thermal analysis family includes DSC series that offers exclusive HyperDSC capability for unparalleled sensitivity and new insights into material processes.

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Our Thermogravimetric (TG) and Simultaneous Thermal Analysis (STA) instruments, which can be coupled to Fourier Transform Infrared (FT-IR), Mass Spectrometry (MS), or Gas Chromatography/Mass Spectrometry (GC/MS) to provide greater analysis power and knowledge.
Perten's Falling Number and Glutomatic instruments determine the bread baking quality of wheat and flour.

Life Sciences Research and Laboratory Services:
Phenoptics quantitative pathology research solutions provide oncologists and cancer immunologists a new way to visualize and measure tumor cells and multiple immune-cell phenotypes simultaneously in FFPE tissue by combining the power of Opal ®™ multiplexed immunohistochemistry reagents with the Mantra or Vectra ® 3 Multispectral Imaging System, enabling visualization and analysis of complex cell interactions in ways that are difficult to achieve with other methods.
Radiometric detection solutions, including over 1,100 radiochemicals NEN and the Tri-carb ® , Quantulus GCT families of liquid scintillation analyzers, Wizard Gamma counters and MicroBeta plate based LSA, are used for beta, gamma and luminescence counting in microplate and vial formats utilized in research, environmental and drug discovery applications.
The Opera ® Phenix high content screening system is used for sensitive and high speed phenotypic drug screening of complex cellular models.
The Operetta ® CLS high content analysis system enables scientists to reveal fine sub-cellular details from everyday assays as well as more complex studies, for example using live cells, 3D and stem cells.
The Columbus image data storage and analysis system provides a single solution to the storage and analysis of high content data from any major high content screening system, helping to visualize and analyze high content images via the Internet.
The EnSight multimode plate reader benchtop system offers well plate imaging alongside label-free and labeled detection technologies for target-based and phenotypic assays.
The EnVision ® multilabel plate reader is targeted towards a wide range of high-throughput screening applications, including those using AlphaScreen ® , AlphaLISA ® and/or AlphaPlex ® technologies.
A wide range of homogeneous biochemical and cell based assay reagents, including LANCE ® Ultra and Alpha Technology assay platforms used for the detection of drug discovery targets such as G-protein coupled receptors (“GPCR”), kinases, biomarkers and the modification of epigenetic enzymes.
A broad portfolio of recombinant GPCR and Ion Channel cell lines, including over 300 products and 120 ready-to-use frozen cell lines for a wide range of disease areas.
AlphaScreen ® , AlphaLISA ® and AlphaPlex ® research assays, including over 500 no-wash biomarker detection kits for both biotherapeutics and small molecule drug discovery and development in a variety of therapeutic areas including cancer, inflammation, metabolic disorders, neurodegeneration and virology.
TSA ® Plus biotin kits can increase sensitivity of histochemistry and cytochemistry as much as 10 to 20 times.
In vivo imaging technologies and reagents for preclinical research, including the IVIS ® Spectrum series and the FMT ® series for 3D imaging, including the Spectrum BL for 2D and 3D optical imaging, and the IVIS ® Lumina series for 2D imaging, along with a suite of bioluminescent and fluorescent imaging agents, cell lines and dyes. These technologies are designed to provide for non-invasive longitudinal monitoring of disease progression, cell trafficking and gene expression patterns in living animals and are complemented by a broad portfolio of fluorescent and bioluminescent in vivo imaging reagents that can be useful for identifying, characterizing and quantifying a range of disease biomarkers and therapeutic efficacy in living animal models.
The G4 PET/X-ray and G8 PET/CT preclinical imaging systems deliver PET imaging with an intuitive user interface and efficient workflows, ensuring subject monitoring throughout preparation and imaging.
Quantum GX microCT platform is an in vivo microCT scanner that offers industry leading microCT resolution for pre-clinical imaging applications or eight second scan times for higher throughput with lower doses of radiation. With Quantum GX , 3D data from the IVIS ® and FMT ® imaging platforms can be coregistered with microCT.
Opal ® 4, 5, 6, and 7 color multiplexed staining kits for amplified detection of immunohistochemistry utilized for multiple biomarker assessment in a single FFPE tumor cross section.
Vectra ® 3 and inForm ® software providing the power of multiplexed biomarker imaging in tissue and quantitative analysis, all within a familiar digital workflow to accelerate cancer immunology research.
AlphaPlex reagent technology, a homogeneous, all-in-one-well multiplexing reagent system for performing ultra-sensitive immunoassay analyses.
High Content Profiler powered by TIBCO ® Spotfire ® technology provides automated workflows for quality control and hit classification for truly multi-parametric cellular drug screens.
Lead Discovery powered by TIBCO ® Spotfire ® adds chemical intelligence to the TIBCO ® Spotfire ® business intelligence platform, enabling scientific professionals to derive new information from chemical structures relevant to experimental data.

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Informatics platforms including E-Notebook for Chemistry and Biology, Elements ® , iLab , ChemDraw ® and ChemOffice ® , integrated suites that focus on the complex and varied needs of understanding and managing data for productivity and collaboration.
ChemDraw ® and Chem3D ® mobile apps for the iPad ® device, chemical structure drawing and visualization apps, available in multiple languages and feature our Flick-to-Share ® technology.
Licensing for the exclusive, worldwide rights to the TIBCO ® Spotfire ® software platform in certain scientific research and development markets, and certain clinical markets through an exclusive strategic relationship with TIBCO Software, Inc.
OneSource ® Laboratory Services, a comprehensive portfolio of multivendor instrument management, QA/QC, lab relocation and regulatory compliance services. OneSource ® programs are tailored to the specific needs and goals of individual customers and offer a series of informatics-based consulting, planning and management offerings to assist in laboratory productivity and the optimization of complex Information Technology platforms.
OneSource ® Mobile Application provides instant mobile access to service activity and equipment data including the ability to open a service call, check service history and view future scheduled events.
OneSource ® Dashboard, a TIBCO ® Spotfire ® technology driven interactive graphical platform provides visibility to a customer’s global asset population, service event and downtime distribution, as well as key performance indicators to assist in asset operation.

 
New Products:
New products introduced or acquired for Discovery & Analytical Solutions applications in fiscal year 2016 include the following:

 Environmental, Food & Industrial:
The Avio™ 200 is the smallest ICP-OES on the market, offering the lowest argon consumption of any ICP, the fastest ICP startup and the widest linear range with dual viewing technology for use in a variety of labs.
QSight Triple Quad LC/MS/MS is a flow-based mass spectrometry system that provides high sensitivity and enables high levels of efficiency and productivity to meet both standard and regulatory requirements.
The Delta range of milk quality analyzers help ensure the quality of dairy products and are used at Central Milk Testing labs as well as dairy processing facilities around the world.
The Bioo Scientific test kits for detection of toxins, veterinary drug residues and contaminants enable rapid and easy testing at different steps in the food value chain.

Life Sciences Research:
The Operetta® CLS™ high content analysis system enables scientists to reveal fine sub-cellular details from everyday assays as well as more complex studies, for example using live cells, 3D and stem cells.
Alpha SureFire ® Ultra Multiplex Assays are used for the rapid, sensitive and quantitative detection of phosphoproteins in cells, combined with the measurement of the total amount of the same protein in a single well.
CellCarrier ® Ultra 384-well microplates used in high content imaging applications such as phenotypic screening and three-dimensional disease model studies.
PerkinElmer Signals for Translational, a cloud-based data management, aggregation and analysis platform, integrates experimental and clinical research data from many sources and relates the data to scientifically meaningful concepts. The platform also enables support for the complete precision medicine workflow, from data acquisition to biomarker discovery and validation.
Clinical Data Review analytical solution provides medical monitors, safety review teams, biostatisticians, data managers, pharmacologists, and others who analyze clinical data, a powerful advanced analytics solution for overcoming data review challenges. The solution enhances clinical data management and medical review workflows, allowing organizations to make informed decisions on the safety and efficacy of therapeutics earlier in their development.

Brand Names:
Our Discovery & Analytical Solutions segment offers additional products under various brand names, including:

 Environmental and Food:
AAnalyst , Altus ® , Aquamatic , Avio™, AxION ® , Clarus ® , DairyGuard , Falling Number ®, Frontier , Glutomatic , Honigs Regression , HyperDSC ® , Inframatic ™, LAMBDA , NexION ® , OilExpress , OilPrep , Optima , Perten ® , Perten

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Instruments ® , PinAAcle ® , QSight , Spectrum , Spectrum Two , Spotlight , Supra-clean ® , Supra-d , Supra-poly ® , Syngistix™, Torion ® , TurboMatrix and Ultraspray ® .

Life Sciences Research:
AlphaLISA ® , AlphaPlex , AlphaScreen ® , Alpha™ SureFire ® , Cell carrier , cell::explorer ®™ , Chem3D ® , ChemDraw ® , ChemOffice ® , Columbus Elements ® , EnLite , EnSight , EnSpire ® , EnVision ® , EZ-Reader , FMT ® , Geospiza ® , High Content Profiler , inForm ® , IVIS ® , LANCE ® , Living Image ® , Mantra , MicroBeta , NEN ® , Nuance ® , OneSource ® , Opal ® , Opera Phenix™, Operetta CLS™, PerkinElmer Signals for Translational, Phenoptics , Quantulus GCT, Quantum , Tri-Carb ® , Vectra ® , VICTOR ®™ , ViewLux™, VivoTag ® and Wizard .
 
Diagnostics Segment
We offer instruments, reagents, assay platforms, and software to hospitals, medical labs, clinicians, and medical research professionals to help improve the health of families. Our new Diagnostics segment is especially focused on reproductive health, emerging market diagnostics, and applied genomics. Our Diagnostics business generated revenue of $602.5 million in fiscal year 2016 .

Diagnostics Market:
We provide early detection for genetic disorders from pregnancy to early childhood, as well as flat panel X-ray detectors and infectious disease testing for the diagnostics market. Our screening products are designed to provide early and accurate insights into the health of expectant mothers during pregnancy and into the health of their babies. Our instruments, reagents and software test and screen for genetic abnormalities, disorders and diseases, including Down syndrome, hypothyroidism, infertility and various metabolic conditions. We also develop the technologies that enable and support sample-to-sequencer workflow using next-generation DNA sequencing for applications in oncology, genetic testing and drug discovery.
Our flat panel X-ray detectors are used within X-ray imaging systems to allow physicians to make fast and accurate diagnoses of conditions ranging from broken bones to breast cancer. In addition, our flat panel X-ray detectors are used within oncology radiation therapy systems to support more accurate tumor treatment.

Principal Products:
Our principal products and services for Diagnostics applications include the following:

Diagnostics:
The DELFIA ® Xpress screening platform, a complete solution for prenatal and maternal health screening, which includes a fast continuous loading system. It is supported by kits for both first and second trimester analyses for prenatal screening and clinically validated LifeCycle software.
The NeoGram MS/MS AAAC in vitro diagnostic kit is used to support detection of metabolic disorders in newborns through tandem mass spectrometry.
The NeoBase Non-derivatized MS/MS kit analyzes newborn blood samples for measurement of amino acids and other metabolic analytes for specific diseases.
The GSP ® Neonatal hTSH, T4 17α-OHP, GALT IRT, BTD, PKU, Total Galactose and G6PD kits are used for screening congenital neonatal conditions from a drop of blood.
The Specimen Gate ® informatics data management solution is designed specifically for newborn screening laboratories.
The XRpad ® family of amorphous silicon (a-Si) flat panel cassette X-ray detectors enables X-ray system manufacturers to upgrade their systems from film to digital and to produce exceptional image resolution and diagnostic capability for radiography especially when imaging small anatomical features such as bone fractures and lung nodules.
ViaCord ® umbilical cord blood banking services for the banking of stem cells harvested from umbilical cord blood and cord tissue, for potential therapeutic application in transplant and regenerative medicine.
The XRD family of a-Si flat panel X-ray detectors provides imaging for medical applications such as radiation therapy and veterinary imaging as well as industrial imaging applications including pipeline inspection, manufacturing inspection and 3D Cone Beam CT.
The Dexela ® family of CMOS flat panel X-ray detectors provides imaging for orthopedic surgery, mammography, dental, and industrial imaging applications such as PCB inspection and 3D Cone Beam CT.
An expanded portfolio of molecular-based infectious disease screening technologies for blood bank and clinical laboratory settings in China. The tools include a qualitative 3-in-1 assay for the detection of hepatitis B, hepatitis C and HIV, as well as assays for other communicable diseases.
The EnLite Neonatal TREC System, a screening test for Severe Combined Immunodeficiency, consisting of EnLite Neonatal TREC reagent kits, the Victor EnLite instrument and EnLite Workstation software.

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Applied Genomics
Automated liquid handling platforms (JANUS ® , Sciclone ® and Zephyr ® ) that offer a choice of robotic solutions in genomics, biotherapeutics, high throughput screening and high content analysis to assist life science research from bench to clinic.
Next-generation sequencing automation and nucleic acid quantitation, including LabChip ® GX Touch electrophoresis, as well as Sciclone ® , Zephyr ® and JANUS ® automated liquid handling workstations for library preparation.
JANUS ® BioTx Workstation for automated small scale purification offers column, tip and plate based chromatography on a single platform.
The LabChip GXII ® Touch provides a means of characterizing multiple protein product attributes for research labs through QC.
The cell::explorer ®™ automated workstation allows integration of multiple laboratory instrumentation using a centralized robotic interface, allowing high throughput and turnkey-application focused solutions.

New Products:
Significant new products introduced or acquired for Diagnostics applications in fiscal year 2016 include the following:

Diagnostics:
A comprehensive portfolio of Next-Generation Sequencing ("NGS") Library Prep and multiplexing kits designed to increase sensitivity, flexibility and speed for speed for sequencing platforms, offered through our acquisition of Bioo Scientific.
Automated, precise, cost-effective Non-Invasive Prenatal Testing ("NIPT") utilizing molecular technology not requiring sequencing technology, offered through our acquisition of Vanadis Diagnostics.
The XRD 4343RF, which supports a full 43 × 43 cm2 (17 × 17 in2) field of view providing superior imaging for fluoroscopy, radiography and cone beam CT applications. The detector offers frame rates up to 85 fps and has a direct deposited Cesium Iodide scintillator for superior image quality.
The Dexela 2315NDT, a fast, high resolution X-ray detector for use in realtime, 2D and 3D industrial imaging.

Brand Names:
Our Diagnostics segment offers additional products under various brand names, including AutoDELFIA ® , BACS-on-Beads ® , Bioo Scientific, BoBs ® , Datalytix , Dexela ® , Dexela ® CMOS FPDs , Evolution , FragilEase , Genoglyphix ® , GSP ® , iLab , JANUS ® , LabChip ® , LifeCycle , LimsLink , MultiPROBE ® , Pannoramic , Sciclone ® , Specimen Gate ® , TRIO , Twister ® , Vanadis, VariSpec , ViaCord ® , XRD , XRpad ® and Zephyr ® .


Marketing
All of our businesses market their products and services primarily through their own specialized sales forces. As of January 1, 2017 , we employed approximately 3,700 sales and service representatives operating in approximately 35 countries and marketing products and services in more than 150 countries. In geographic regions where we do not have a sales and service presence, we utilize distributors to sell our products.

 
Raw Materials, Key Components and Supplies
Each of our businesses uses a wide variety of raw materials, key components and supplies that are generally available from alternate sources of supply and in adequate quantities from domestic and foreign sources. We generally have multi-year contracts, with no minimum purchase requirements, with our suppliers. For certain critical raw materials, key components and supplies required for the production of some of our principal products, we have qualified only a limited or a single source of supply. We periodically purchase quantities of some of these critical raw materials in excess of current requirements, in anticipation of future manufacturing needs. With sufficient lead times, we believe we would be able to qualify alternative suppliers for each of these raw materials and key components. See the applicable risk factor in “Item 1A. Risk Factors” for an additional description of this risk.
 

Intellectual Property
We own numerous United States and foreign patents and have patent applications pending in the United States and abroad. We also license intellectual property rights to and from third parties, some of which bear royalties and are terminable in specified circumstances. In addition to our patent portfolio, we possess a wide array of unpatented proprietary technology and know-how. We also own numerous United States and foreign trademarks and trade names for a variety of our product names,

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and have applications for the registration of trademarks and trade names pending in the United States and abroad. We believe that patents and other proprietary rights are important to the development of both of our reporting segments, but we also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain the competitive position of both of our reporting segments. We do not believe that the loss of any one patent or other proprietary right would have a material adverse effect on our overall business or on any of our reporting segments.
 
In some cases, we may participate in litigation or other proceedings to defend against or assert claims of infringement, to enforce our patents or our licensors’ patents, to protect our trade secrets, know-how or other intellectual property rights, or to determine the scope and validity of our or third parties’ intellectual property rights. Litigation of this type could result in substantial cost to us and diversion of our resources. An adverse outcome in any litigation or proceeding could subject us to significant liabilities or expenses, require us to cease using disputed intellectual property or cease the sale of a product, or require us to license the disputed intellectual property from third parties.
 

Backlog
We believe that backlog is not a meaningful indicator of future business prospects for either of our business segments due to the short lead time required for a majority of our sales. Therefore, we believe that backlog information is not material to an understanding of our business.
 

Competition
Due to the range and diversity of our products and services, we face many different types of competition and competitors. Our competitors range from foreign and domestic organizations, which produce a comprehensive array of goods and services and that may have greater financial and other resources than we do, to more narrowly focused firms producing a limited number of goods or services for specialized market segments.
 
We compete on the basis of service level, price, technological innovation, operational efficiency, product differentiation, product availability, quality and reliability. Competitors range from multinational organizations with a wide range of products to specialized firms that in some cases have well-established market positions. We expect the proportion of large competitors to increase through the continued consolidation of competitors.
 

Research and Development
Research and development expenditures were $124.3 million during fiscal year 2016 , $112.5 million during fiscal year 2015 , and $108.1 million during fiscal year 2014 .
 
We have a broad product base, and we do not expect any single research and development project to have significant costs. To accelerate our growth initiatives, we directed our research and development efforts in fiscal years 2016, 2015 and 2014 primarily toward our Diagnostics segment, and the environmental, food, life sciences research and laboratory services markets within our Discovery & Analytical Solutions segment. We expect to continue our strong investments in research and development to drive growth during fiscal year 2017 , and to continue to emphasize the Diagnostics segment, and the environmental, food, life sciences research and laboratory services markets within our Discovery & Analytical Solutions segment.


Environmental Matters
Our operations are subject to various foreign, federal, state and local environmental and safety laws and regulations. These requirements include those governing uses, emissions and discharges of hazardous substances, the remediation of contaminated soil and groundwater, the regulation of radioactive materials, and the health and safety of our employees.
 
We may have liability under the Comprehensive Environmental Response Compensation and Liability Act and comparable state statutes that impose liability for investigation and remediation of contamination without regard to fault, in connection with materials that we or our former businesses sent to various third-party sites. We have incurred, and expect to incur, costs pursuant to these statutes.
 
We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party (“PRP”) for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. We have accrued $9.9 million and $11.8 million as of January 1, 2017 and January 3, 2016 , respectively, which represents our management’s estimate of the cost of the remediation of known environmental matters, and does not

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include any potential liability for related personal injury or property damage claims. During fiscal year 2014, we recorded a benefit of $2.3 million for cost reimbursements related to a particular site, of which $1.2 million was for future monitoring and mitigation activities. Our environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on our consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
 
We may become subject to new or unforeseen environmental costs or liabilities. Compliance with new or more stringent laws or regulations, stricter interpretations of existing laws, or the discovery of new contamination could cause us to incur additional costs.
 

Employees
As of January 1, 2017 , we employed approximately 8,000 employees in our continuing operations. Several of our subsidiaries are parties to contracts with labor unions and workers’ councils. As of January 1, 2017 , we estimate that we employed an aggregate of approximately 1,700 union and workers’ council employees. We consider our relations with our employees to be satisfactory.


Financial Information About Business Segments
The results reported for fiscal year 2016 reflect the new alignment of our operating segments and the placement of our Medical Imaging business into discontinued operations due to its pending sale. Financial information in the table below relating to fiscal years 2015 and 2014 has been retrospectively adjusted to reflect both our new segment structure and the exclusion of our Medical Imaging business from continuing operations.
We have included the expenses for our 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. We have 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 our 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 our operating segments.
 

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The table below sets forth revenue and operating income (loss) from continuing operations by operating segment for the fiscal years ended:
 
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
(In thousands)
Discovery & Analytical Solutions
 
 
 
 
 
Product revenue
$
934,098

 
$
968,034

 
$
944,446

Service revenue
578,886

 
560,385

 
539,694

Total revenue
1,512,984

 
1,528,419

 
1,484,140

Operating income from continuing operations (1)
207,487

 
173,668

 
162,074

Diagnostics
 
 
 
 
 
Product revenue
462,798

 
427,068

 
428,290

Service revenue
139,735

 
149,336

 
157,450

Total revenue
602,533

 
576,404

 
585,740

Operating income from continuing operations
138,909

 
135,572

 
124,610

Corporate
 
 
 
 
 
Operating loss from continuing operations (2)(3)
(63,330
)
 
(58,314
)
 
(121,677
)
Continuing Operations
 
 
 
 
 
Product revenue
$
1,396,896

 
$
1,395,102

 
$
1,372,736

Service revenue
718,621

 
709,721

 
697,144

Total revenue
2,115,517

 
2,104,823

 
2,069,880

Operating income from continuing operations
283,066

 
250,926

 
165,007

Interest and other expense, net
38,998

 
42,119

 
41,139

Income from continuing operations before income taxes
$
244,068

 
$
208,807

 
$
123,868

____________________________
(1)  
Legal costs for a particular case in our Discovery & Analytical Solutions segment were $0.8 million for fiscal year 2015 .
(2)  
Activity related to the mark-to-market adjustment on postretirement benefit plans has been included in the Corporate operating loss from continuing operations, and in the aggregate constituted a pre-tax loss of $15.3 million in fiscal year 2016 , a pre-tax loss of $12.4 million in fiscal year 2015 , and pre-tax loss of $75.4 million in fiscal year 2014 .
(3)  
Includes expenses related to litigation with Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”). Enzo filed a complaint in 2002 that alleged that we separately and together with other defendants breached distributorship and settlement agreements with Enzo, infringed Enzo's patents, engaged in unfair competition and fraud, and committed torts against Enzo by, among other things, engaging in commercial development and exploitation of Enzo's patented products and technology. We entered into a settlement agreement with Enzo dated June 20, 2014 and during fiscal year 2014 paid $7.0 million into a designated escrow account to resolve this matter, of which $3.7 million had been accrued in previous years and $3.3 million was recorded during fiscal year 2014. In addition, $3.4 million of expenses were incurred and recorded in preparation for the trial during fiscal year 2014.

Discontinued operations have not been included in the preceding table.


Additional information relating to our reporting segments is as follows for the fiscal years ended:
 
 
Depreciation and Amortization
Expense
 
Capital Expenditures
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
(In thousands)
 
(In thousands)
Discovery & Analytical Solutions
$
72,484

 
$
74,177

 
$
72,288

 
$
21,486

 
$
18,175

 
$
18,234

Diagnostics
25,339

 
29,728

 
36,146

 
8,556

 
6,854

 
7,196

Corporate
2,149

 
1,459

 
2,031

 
1,660

 
3,189

 
1,722

Continuing operations
$
99,972

 
$
105,364

 
$
110,465

 
$
31,702

 
$
28,218

 
$
27,152

Discontinued operations
$
6,266

 
$
6,643

 
$
6,610

 
$
1,302

 
$
1,414

 
$
2,133

 

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Total Assets
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
(In thousands)
Discovery & Analytical Solutions
$
2,612,757

 
$
2,546,583

 
$
2,614,911

Diagnostics
1,505,381

 
1,459,854

 
1,343,110

Corporate
31,171

 
28,497

 
28,482

Current and long-term assets of discontinued operations
127,374

 
131,361

 
141,073

Total assets
$
4,276,683

 
$
4,166,295

 
$
4,127,576



Financial Information About Geographic Areas
Both of our reporting segments conduct business in, and derive substantial revenue from, various countries outside the United States. During fiscal year 2016 , we had $1,273.2 million in sales from our international operations, representing approximately 60% of our total sales. During fiscal year 2016 , we derived approximately 75% of our international sales from our Discovery & Analytical Solutions segment and approximately 25% of our international sales from our Diagnostics segment. We anticipate that sales from international operations will continue to represent a substantial portion of our total sales in the future.
 
We are exposed to the risks associated with international operations, including exchange rate fluctuations, regional and country-specific political and economic conditions, foreign receivables collection concerns, trade protection measures and import or export licensing requirements, tax risks, staffing and labor law concerns, intellectual property protection risks, and differing regulatory requirements. Additional geographic information is discussed in Note 23 to our consolidated financial statements included in this annual report on Form 10-K.
 
Item 1A.
Risk Factors
The following important factors affect our business and operations generally or affect multiple segments of our business and operations:
If the markets into which we sell our products decline or do not grow as anticipated due to a decline in general economic conditions, or there are uncertainties surrounding the approval of government or industrial funding proposals, or there are unfavorable changes in government regulations, we may see an adverse effect on the results of our business operations.
Our customers include pharmaceutical and biotechnology companies, laboratories, academic and research institutions, public health authorities, private healthcare organizations, doctors and government agencies. Our quarterly revenue and results of operations are highly dependent on the volume and timing of orders received during the quarter. In addition, our revenues and earnings forecasts for future quarters are often based on the expected trends in our markets. However, the markets we serve do not always experience the trends that we may expect. Negative fluctuations in our customers’ markets, the inability of our customers to secure credit or funding, restrictions in capital expenditures, general economic conditions, cuts in government funding or unfavorable changes in government regulations would likely result in a reduction in demand for our products and services. In addition, government funding is subject to economic conditions and the political process, which is inherently fluid and unpredictable. Our revenues may be adversely affected if our customers delay or reduce purchases as a result of uncertainties surrounding the approval of government or industrial funding proposals. Such declines could harm our consolidated financial position, results of operations, cash flows and trading price of our common stock, and could limit our ability to sustain profitability.
Our growth is subject to global economic and political conditions, and operational disruptions at our facilities.
Our business is affected by global economic and political conditions as well as the state of the financial markets, particularly as the United States and other countries balance concerns around debt, inflation, growth and budget allocations in their policy initiatives. There can be no assurance that global economic conditions and financial markets will not worsen and that we will not experience any adverse effects that may be material to our consolidated cash flows, results of operations, financial position or our ability to access capital, such as the adverse effects resulting from a prolonged shutdown in government operations both in the United States and internationally. Our business is also affected by local economic environments, including inflation, recession, financial liquidity and currency volatility or devaluation. Political changes, some of which may be disruptive, could interfere with our supply chain, our customers and all of our activities in a particular location.

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While we take precautions to prevent production or service interruptions at our global facilities, a major earthquake, fire, flood, power loss or other catastrophic event that results in the destruction or delay of any of our critical business operations could result in our incurring significant liability to customers or other third parties, cause significant reputational damage or have a material adverse effect on our business, operating results or financial condition.
Certain of these risks can be hedged to a limited degree using financial instruments, or other measures, and some of these risks are insurable, but any such mitigation efforts are costly and may not always be fully successful. Our ability to engage in such mitigation efforts has decreased or become even more costly as a result of recent market developments.
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions, and evolving customer needs and industry standards. Many of the businesses competing with us in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities, and established distribution channels to deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technology that does not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend upon several factors, including our ability to:
accurately anticipate customer needs,
innovate and develop new reliable technologies and applications,
successfully commercialize new technologies in a timely manner,
price our products competitively, and manufacture and deliver our products in sufficient volumes and on time, and
differentiate our offerings from our competitors’ offerings.
Many of our products are used by our customers to develop, test and manufacture their products. We must anticipate industry trends and consistently develop new products to meet our customers’ expectations. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenue. We may also suffer a loss in market share and potential revenue if we are unable to commercialize our technology in a timely and efficient manner.
In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications.
We may not be able to successfully execute acquisitions or divestitures, license technologies, integrate acquired businesses or licensed technologies into our existing businesses, or make acquired businesses or licensed technologies profitable.
We have in the past supplemented, and may in the future supplement, our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our acquisition of Bioo Scientific in the third quarter of fiscal year 2016. However, we may be unable to identify or complete promising acquisitions or license transactions for many reasons, such as:
competition among buyers and licensees,
the high valuations of businesses and technologies,
the need for regulatory and other approval, and
our inability to raise capital to fund these acquisitions.
Some of the businesses we acquire may be unprofitable or marginally profitable, or may increase the variability of our revenue recognition. If, for example, we are unable to successfully commercialize products and services related to significant in-process research and development that we have capitalized, we may have to impair the value of such assets. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we would have to improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations, such as incompatible management, information or other systems, cultural differences, loss of key personnel, unforeseen

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regulatory requirements, previously undisclosed liabilities or difficulties in predicting financial results. Additionally, if we are not successful in selling businesses we seek to divest, the activity of such businesses may dilute our earnings and we may not be able to achieve the expected benefits of such divestitures. As a result, our financial results may differ from our forecasts or the expectations of the investment community in a given quarter or over the long term.
To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us. We may also incur expenses related to completing acquisitions or licensing technologies, or in evaluating potential acquisitions or technologies, which may adversely impact our profitability.
We may not be successful in adequately protecting our intellectual property.
Patent and trade secret protection is important to us because developing new products, processes and technologies gives us a competitive advantage, although it is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents. Patent applications we file, however, may not result in issued patents or, if they do, the claims allowed in the patents may be narrower than what is needed to protect fully our products, processes and technologies. The expiration of our previously issued patents may cause us to lose a competitive advantage in certain of the products and services we provide. Similarly, applications to register our trademarks may not be granted in all countries in which they are filed. For our intellectual property that is protected by keeping it secret, such as trade secrets and know-how, we may not use adequate measures to protect this intellectual property.
Third parties may also challenge the validity of our issued patents, may circumvent or “design around” our patents and patent applications, or may claim that our products, processes or technologies infringe their patents. In addition, third parties may assert that our product names infringe their trademarks. We may incur significant expense in legal proceedings to protect our intellectual property against infringement by third parties or to defend against claims of infringement by third parties. Claims by third parties in pending or future lawsuits could result in awards of substantial damages against us or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or other countries.
If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage.
We may not be able to renew our existing licenses, or licenses we may obtain in the future, on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.
Our licenses typically subject us to various economic and commercialization obligations. If we fail to comply with these obligations, we could lose important rights under a license, such as the right to exclusivity in a market. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out of our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third-party could obtain a patent that curtails our freedom to operate under one or more licenses.
If we do not compete effectively, our business will be harmed.
We encounter aggressive competition from numerous competitors in many areas of our business. We may not be able to compete effectively with all of these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjust the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.
Our quarterly operating results could be subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate, which could increase the volatility of our stock price and potentially cause losses to our shareholders.
Given the nature of the markets in which we participate, we cannot reliably predict future revenue and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we may not be able to make those adjustments or make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed, due in part to our research and development and manufacturing costs. As a result, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:
demand for and market acceptance of our products,

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competitive pressures resulting in lower selling prices,
changes in the level of economic activity in regions in which we do business,
changes in general economic conditions or government funding,
settlements of income tax audits,
expenses incurred in connection with claims related to environmental conditions at locations where we conduct or formerly conducted operations,
differing tax laws and changes in those laws, or changes in the countries in which we are subject to taxation,
changes in our effective tax rate,
changes in industries, such as pharmaceutical and biomedical,
changes in the portions of our revenue represented by our various products and customers,
our ability to introduce new products,
our competitors’ announcement or introduction of new products, services or technological innovations,
costs of raw materials, energy or supplies,
changes in healthcare or other reimbursement rates paid by government agencies and other third parties for certain of our products and services,
our ability to realize the benefit of ongoing productivity initiatives,
changes in the volume or timing of product orders,
fluctuation in the expense related to the mark-to-market adjustment on postretirement benefit plans,
changes in our assumptions underlying future funding of pension obligations,
changes in assumptions used to determine contingent consideration in acquisitions, and
changes in foreign currency exchange rates.
A significant disruption in third-party package delivery and import/export services, or significant increases in prices for those services, could interfere with our ability to ship products, increase our costs and lower our profitability.
We ship a significant portion of our products to our customers through independent package delivery and import/export companies, including UPS and Federal Express in the United States; TNT, UPS and DHL in Europe; and UPS in Asia. We also ship our products through other carriers, including national trucking firms, overnight carrier services and the United States Postal Service. If one or more of the package delivery or import/export providers experiences a significant disruption in services or institutes a significant price increase, we may have to seek alternative providers and the delivery of our products could be prevented or delayed. Such events could cause us to incur increased shipping costs that could not be passed on to our customers, negatively impacting our profitability and our relationships with certain of our customers.
Disruptions in the supply of raw materials, certain key components and other goods from our limited or single source suppliers could have an adverse effect on the results of our business operations, and could damage our relationships with customers.
The production of our products requires a wide variety of raw materials, key components and other goods that are generally available from alternate sources of supply. However, certain critical raw materials, key components and other goods required for the production and sale of some of our principal products are available from limited or single sources of supply. We generally have multi-year contracts with no minimum purchase requirements with these suppliers, but those contracts may not fully protect us from a failure by certain suppliers to supply critical materials or from the delays inherent in being required to change suppliers and, in some cases, validate new raw materials. Such raw materials, key components and other goods can usually be obtained from alternative sources with the potential for an increase in price, decline in quality or delay in delivery. A prolonged inability to obtain certain raw materials, key components or other goods is possible and could have an adverse effect on our business operations, and could damage our relationships with customers.
We are subject to the rules of the Securities and Exchange Commission requiring disclosure as to whether certain materials known as conflict minerals (tantalum, tin, gold, tungsten and their derivatives), which may be contained in our products are mined from the Democratic Republic of the Congo and adjoining countries. As a result of these rules, we may incur additional costs in complying with the disclosure requirements and in satisfying those customers who require that the

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components used in our products be certified as conflict-free, and the potential lack of availability of these materials at competitive prices could increase our production costs.
The manufacture and sale of products and services may expose us to product liability claims for which we could have substantial liability.
We face an inherent business risk of exposure to product liability claims if our products, services or product candidates are alleged or found to have caused injury, damage or loss. We may in the future be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms of any insurance policy that we can obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies in the United States and abroad, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil, criminal or monetary penalties.
Our operations are subject to regulation by different state and federal government agencies in the United States and other countries, as well as to the standards established by international standards bodies. If we fail to comply with those regulations or standards, we could be subject to fines, penalties, criminal prosecution or other sanctions. Some of our products are subject to regulation by the United States Food and Drug Administration and similar foreign and domestic agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with those regulations or standards, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution.
We are also subject to a variety of laws, regulations and standards that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of toxic or hazardous substances, and our business practices in the United States and abroad such as anti-bribery, anti-corruption and competition laws. This requires that we devote substantial resources to maintaining our compliance with those laws, regulations and standards. A failure to do so could result in the imposition of civil, criminal or monetary penalties having a material adverse effect on our operations.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The healthcare industry is highly regulated and if we fail to comply with its extensive system of laws and regulations, we could suffer fines and penalties or be required to make significant changes to our operations which could have a significant adverse effect on the results of our business operations.
The healthcare industry, including the genetic screening market, is subject to extensive and frequently changing international and United States federal, state and local laws and regulations. In addition, legislative provisions relating to healthcare fraud and abuse, patient privacy violations and misconduct involving government insurance programs provide federal enforcement personnel with substantial powers and remedies to pursue suspected violations. We believe that our business will continue to be subject to increasing regulation as the federal government continues to strengthen its position on healthcare matters, the scope and effect of which we cannot predict. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal damages, fines and penalties, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur liabilities from third-party claims, all of which could have a significant adverse effect on our business.
Economic, political and other risks associated with foreign operations could adversely affect our international sales and profitability.
Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented the majority of our total revenue in fiscal year 2016 . We anticipate that sales from international operations will continue to represent a substantial portion of our total revenue. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results of operations could be harmed by a variety of factors, including:
changes in actual, or from projected, foreign currency exchange rates,

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changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets,
longer payment cycles of foreign customers and timing of collections in foreign jurisdictions,
embargoes, trade protection measures and import or export licensing requirements,
policies in foreign countries benefiting domestic manufacturers or other policies detrimental to companies headquartered in the United States,
differing tax laws and changes in those laws, or changes in the countries in which we are subject to tax,
adverse income tax audit settlements or loss of previously negotiated tax incentives,
differing business practices associated with foreign operations,
difficulty in transferring cash between international operations and the United States,
difficulty in staffing and managing widespread operations,
differing labor laws and changes in those laws,
differing protection of intellectual property and changes in that protection,
increasing global enforcement of anti-bribery and anti-corruption laws, and
differing regulatory requirements and changes in those requirements.
If we do not retain our key personnel, our ability to execute our business strategy will be limited.
Our success depends to a significant extent upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers and scientists, and on our ability to continue to attract, retain, and motivate qualified personnel. The competition for these employees is intense. The loss of the services of key personnel could have a material adverse effect on our operating results. In addition, there could be a material adverse effect on us should the turnover rates for key personnel increase significantly or if we are unable to continue to attract qualified personnel. We do not maintain any key person life insurance policies on any of our officers or employees.
Our success also depends on our ability to execute leadership succession plans. The inability to successfully transition key management roles could have a material adverse effect on our operating results.
If we experience a significant disruption in, or breach in security of, our information technology systems, or inadvertent transfer of information, or if we fail to implement new systems, software and technologies successfully, our business could be adversely affected.
We rely on several centralized information technology systems throughout our company to develop, manufacture and provide products and services, keep financial records, process orders, manage inventory, process shipments to customers and operate other critical functions. Our information technology systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophes or other unforeseen events. If we were to experience a prolonged system disruption in the information technology systems that involve our interactions with customers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. In addition, security breaches of our information technology systems or inadvertent transfer of information could result in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in our suffering significant financial or reputational damage.
We have a substantial amount of outstanding debt, which could impact our ability to obtain future financing and limit our ability to make other expenditures in the conduct of our business.
    
We have a substantial amount of debt and other financial obligations. Our debt level and related debt service obligations could have negative consequences, including:
requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes, such as acquisitions and stock repurchases;
reducing our flexibility in planning for or reacting to changes in our business and market conditions; and
exposing us to interest rate risk since a portion of our debt obligations are at variable rates.

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In addition, we may incur additional indebtedness in the future to meet future financing needs. If we add new debt, the risks described above could increase.
Restrictions in our senior unsecured revolving credit facility and other debt instruments may limit our activities.
Our senior unsecured revolving credit facility, senior unsecured notes due in 2021 ("2021 Notes") and senior unsecured notes due in 2026 ("2026 Notes") include restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company. These include restrictions on our ability and the ability of our subsidiaries to:
pay dividends on, redeem or repurchase our capital stock,
sell assets,
incur obligations that restrict our subsidiaries’ ability to make dividend or other payments to us,
guarantee or secure indebtedness,
enter into transactions with affiliates, and
consolidate, merge or transfer all, or substantially all, of our assets and the assets of our subsidiaries on a consolidated basis.
We are also required to meet specified financial ratios under the terms of certain of our existing debt instruments. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control, such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition. In addition, if we are unable to maintain our investment grade credit rating, our borrowing costs would increase and we would be subject to different and potentially more restrictive financial covenants under some of our existing debt instruments.
Any future indebtedness that we incur may include similar or more restrictive covenants. Our failure to comply with any of the restrictions in our senior unsecured revolving credit facility, the 2021 Notes, the 2026 Notes or any future indebtedness may result in an event of default under those debt instruments, which could permit acceleration of the debt under those debt instruments, and require us to prepay that debt before its scheduled due date under certain circumstances.
The approval of the Brexit Referendum in the U.K. may have an adverse impact on our results of operations.
In a referendum vote held on June 23, 2016, the United Kingdom voted to leave the European Union. Nearly 3% of our net sales from continuing operations in 2016 came from the U.K. At this time, we are not able to predict the impact that this vote will have on the economy in Europe, including in the U.K., or on the Great Britain Pound (the “GBP”) or other European exchange rates. Weakening of economic conditions or economic uncertainties tend to harm our business, and if such conditions emerge in the U.K. or in the rest of Europe, it may have a material adverse effect on our sales. In addition, any significant weakening of the GBP to the U.S. dollar will have an adverse impact on our European revenues due to the importance of U.K. sales.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.
As of January 1, 2017 , our total assets included $2.7 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights, customer relationships, core technology and technology licenses and in-process research and development, net of accumulated amortization. We test certain of these items—specifically all of those that are considered “non-amortizing”—at least annually for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned. All of our amortizing intangible assets are also evaluated for impairment should events occur that call into question the value of the intangible assets.
Adverse changes in our business, adverse changes in the assumptions used to determine the fair value of our reporting units, or the failure to grow our Discovery & Analytical Solutions and Diagnostics segments may result in impairment of our intangible assets, which could adversely affect our results of operations.

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Our share price will fluctuate.
Over the last several years, stock markets in general and our common stock in particular have experienced significant price and volume volatility. Both the market price and the daily trading volume of our common stock may continue to be subject to significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our common stock may be affected by:
operating results that vary from our financial guidance or the expectations of securities analysts and investors,
the financial performance of the major end markets that we target,
the operating and securities price performance of companies that investors consider to be comparable to us,
announcements of strategic developments, acquisitions and other material events by us or our competitors, and
changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, commodity and equity prices and the value of financial assets.
Dividends on our common stock could be reduced or eliminated in the future.
On October 26, 2016 , we announced that our Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2016 that was paid in February 2017 . On January 27, 2017 , we announced that our Board had declared a quarterly dividend of $0.07 per share for the first quarter of fiscal year 2017 that will be payable in May 2017 . In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
 
Item 1B.
Unresolved Staff Comments
 
Not applicable.
 
Item 2.
Properties
 
As of January 1, 2017 , our continuing operations occupied 2,566,797 square feet in over 121 locations. We own 317,809 square feet of this space, and lease the balance. We conduct our operations in manufacturing and assembly plants, research laboratories, administrative offices and other facilities located in 16 states and 31 foreign countries.
 
Facilities outside of the United States account for approximately 1,438,823 square feet of our owned and leased property, or approximately 56% of our total occupied space.
 
Our real property leases are both short-term and long-term. We believe that our properties are well-maintained and are adequate for our present requirements.
 
The following table indicates, as of January 1, 2017 , the approximate square footage of real property owned and leased attributable to the continuing operations of our reporting segments:
 
 
Owned
 
Leased
 
Total
 
(In square feet)
Discovery & Analytical Solutions
105,020

 
1,561,535

 
1,666,555

Diagnostics
212,789

 
632,111

 
844,900

Corporate offices

 
55,342

 
55,342

Continuing operations
317,809

 
2,248,988

 
2,566,797

 
Item 3.
Legal Proceedings
 
We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in the opinion of our management, based on its review of the information available at this time, the total cost of resolving these contingencies at January 1, 2017 should not have a material adverse effect on our consolidated financial statements included in this annual report on Form 10-K. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us.

Item 4.
Mine Safety Disclosures
 
Not applicable.
 

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EXECUTIVE OFFICERS OF THE REGISTRANT
 
Listed below are our executive officers as of February 28, 2017 . No family relationship exists between any one of these executive officers and any of the other executive officers or directors.
 
Name
 
Position
 
Age
Robert F. Friel
 
Chairman, Chief Executive Officer and President
 
61
Frank A. Wilson
 
Senior Vice President and Chief Financial Officer
 
58
Joel S. Goldberg
 
Senior Vice President, Administration, General Counsel and Secretary
 
48
James Corbett
 
Executive Vice President and President, Discovery & Analytical Solutions
 
54
Prahlad Singh
 
Senior Vice President and President, Diagnostics
 
52
Daniel R. Tereau
 
Senior Vice President, Strategy and Business Development
 
50
Deborah Butters
 
Senior Vice President, Chief Human Resources Officer
 
47
Andrew Okun
 
Vice President and Chief Accounting Officer
 
47
 
Robert F. Friel, 61.  Mr. Friel currently serves as our Chairman, Chief Executive Officer and President. Prior to being appointed President and Chief Executive Officer in February 2008 and Chairman in April 2009, Mr. Friel had served as President and Chief Operating Officer since August 2007, and as Vice Chairman and President of our Life and Analytical Sciences unit since January 2006. Mr. Friel was our Executive Vice President and Chief Financial Officer, with responsibility for business development and information technology in addition to his oversight of the finance functions, from October 2004 until January 2006. Mr. Friel joined PerkinElmer in February 1999 as our Senior Vice President and Chief Financial Officer. Prior to joining PerkinElmer, he held several senior management positions with AlliedSignal, Inc., now Honeywell International. He received a Bachelor of Arts degree in economics from Lafayette College and a Master of Science degree in taxation from Fairleigh Dickinson University. Mr. Friel is currently a director of NuVasive, Inc. and Xylem Inc., and previously served as a director of CareFusion Corporation until its acquisition by Becton, Dickinson and Company in March 2015. He also previously served on the national board of trustees for the March of Dimes Foundation.
 
Frank A. Wilson, 58. Mr. Wilson joined us in May 2009 as our Senior Vice President and Chief Financial Officer. Prior to joining us, Mr. Wilson held key financial and business management roles over 12 years at the Danaher Corporation, including Corporate Vice President of Investor Relations; Group Vice President of Business Development; Group Vice President of Finance for Danaher Motion Group; President of Gems Sensors; and Group Vice President of Finance for the Industrial Controls Group. Mr. Wilson is currently a director of Sparton Corporation. Previously, Mr. Wilson worked for several years at AlliedSignal Inc., now Honeywell International, where he last served as Vice President of Finance and Chief Financial Officer for Commercial Aviation Systems. His earlier experience includes PepsiCo Inc. in financial and controllership positions of increasing responsibility, E.F. Hutton and Company, and KPMG Peat Marwick. Mr. Wilson received a Bachelor’s degree in business administration from Baylor University and is also a Certified Public Accountant.
 
Joel S. Goldberg , 48 . Mr. Goldberg joined us as our Senior Vice President, General Counsel and Secretary in July 2008. Prior to joining us, Mr. Goldberg spent seven years at Millennium Pharmaceuticals, Inc., where he most recently served as Vice President, Chief Compliance Officer and Secretary. During his seven years with Millennium, he focused in the areas of mergers and acquisitions, strategic alliances, investment and financing transactions, securities and healthcare related compliance, and employment law. Previously, he was an associate of the law firm Edwards & Angell, LLP. Mr. Goldberg graduated from the Northeastern University School of Law and also holds a Master of Business Administration from Northeastern University. He completed his undergraduate degree at the University of Wisconsin-Madison.
 
James Corbett, 54. Mr. Corbett was appointed President of our Discovery & Analytical Solutions business and Executive Vice President of PerkinElmer in October 2016. Mr. Corbett was appointed President of our Human Health business in March 2014 and has been a Senior Vice President and officer of PerkinElmer since February 2012. Mr. Corbett was appointed President of the Diagnostics business in May 2010 and was appointed President of the Life Sciences and Technology business in May 2013. Mr. Corbett joined the Company in October of 2007 through our acquisition of ViaCord, where he served as President. Prior to joining ViaCord, he co-founded CADx Systems, a company focused on the oncology market, where he held the position of Executive Vice President and Director with responsibility for worldwide sales and marketing, technical support and business development. Following the 2004 acquisition of CADx by iCAD, Inc., he was named Chief Commercial Officer. In addition, Mr. Corbett worked for Abbott Laboratories for 14 years in a variety of sales and marketing positions including Worldwide Marketing Manager for Abbott Diagnostics Immunoassay Systems and Region Manager for Abbott Diagnostics. Mr. Corbett holds a Bachelor of Science degree in business from the University of Massachusetts. Mr. Corbett also serves on the national board of trustees for the March of Dimes Foundation and on the board of directors for the Analytical, Life Science & Diagnostics Association.

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Prahlad Singh, 52. Mr. Singh joined PerkinElmer as the President of our Diagnostics business in May 2014. He has been a Senior Vice President and officer of PerkinElmer since September 2016. Prior to joining PerkinElmer, Mr. Singh was General Manager of GE Healthcare’s Women’s Health Business from 2012 to 2014. In this role, he had worldwide responsibility for GE Healthcare’s Mammography and Bone Densitometry businesses. Before that, Mr. Singh held senior executive level roles in Strategy, Business Development and Mergers & Acquisitions at both GE Healthcare from 2011 to 2012 and Philips Healthcare from 2007 to 2011. From 1995 to 2007, he held leadership roles of increasing responsibility at DuPont Pharmaceuticals and subsequently Bristol Myers Squibb Medical Imaging which included managing the Asia Pacific and Middle East region. Mr. Singh holds a doctoral degree in chemistry from the University of Missouri-Columbia and a Master of Business Administration from Northeastern University. His research work has resulted in several issued patents and publications in peer reviewed journals.

Daniel R. Tereau, 50. Mr. Tereau was appointed Senior Vice President, Strategy and Business Development in January 2016 and had joined the Company in April 2014 as a Vice President, Strategy and Business Development. He is responsible for leading PerkinElmer’s overall strategic planning, business development, and corporate marketing activities. Prior to joining PerkinElmer, Mr. Tereau served on Novartis’ leadership team as Senior Vice President and Global Head of Strategy, Business Development and Licensing from 2011 to 2014, where he was responsible for global strategy and business development for the Consumer Health division. Prior to 2011, Mr. Tereau held similar roles at Thermo Fisher Scientific and GE Healthcare. Mr. Tereau holds a Bachelor of Science degree in finance from Ferris State University, a Juris Doctorate from Wayne State University, and earned his Master of Business Administration from Yale University.  He also serves on the board of directors for SeraCare Life Sciences, Inc.

Deborah Butters, 47. Ms. Butters joined PerkinElmer in July 2016 as Senior Vice President, Chief Human Resources Officer. Prior to joining us, she served as Head of North America Human Resources at IBM, where she led all aspects of the Human Resource function for IBM’s largest geography, which included 35,000 employees and was responsible for over $30B of IBM’s revenue. During her 17 year career there, she significantly helped shape IBM’s HR programs and practices, including leading its enterprise-wide, people transformation strategy to optimize employee engagement and business performance. Ms. Butters was with Lotus Development for eight years prior to its acquisition by IBM. Ms. Butters’ experiences working in the United Kingdom and Germany for Lotus Development, and in Switzerland and the United States for IBM, ranged from leading functional roles across workforce planning and talent management, to serving in five HR business partner roles in both software and consulting within IBM and Lotus Development, with the largest being IBM’s North America Consulting business. Ms. Butters holds a Bachelor of Science degree from the University of Bath and a diploma in Human Resources from London University.

Andrew Okun, 47. Mr. Okun serves as our Vice President and Chief Accounting Officer, a position in which he has served since April 2011. Mr. Okun joined us in 2001 and has served in financial and controllership positions of increasing responsibility, including Director of Finance for the Optoelectronics business from 2001 through 2005, Vice President of Finance from 2005 through 2009 and Vice President and Corporate Controller from 2009 through 2011. Prior to joining us, Mr. Okun most recently worked for Honeywell International as a Site Controller as well as for Coopers & Lybrand. Mr. Okun is a Certified Public Accountant and earned his Master of Business Administration from the University of Virginia. He completed his undergraduate degree at the University of Santa Barbara .


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PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of Common Stock
Our common stock is listed and traded on the New York Stock Exchange. The following table sets forth the high and low per share closing sale prices for our common stock on that exchange for each quarter in fiscal years 2016 and 2015 .
 
 
2016 Fiscal Quarters
 
First
 
Second
 
Third
 
Fourth
High

$53.01

 

$55.56

 

$56.92

 

$56.43

Low
41.45

 
48.58

 
51.94

 
49.95

 
 
 
 
 
 
 
 
 
2015 Fiscal Quarters
 
First
 
Second
 
Third
 
Fourth
High

$51.09

 

$54.29

 

$53.00

 

$54.36

Low
42.66

 
50.30

 
44.45

 
46.74

 
As of February 24, 2017 , we had approximately 4,079 holders of record of our common stock.
 
Stock Repurchase Program
We did not repurchase any of our common stock under our share repurchase program during the fourth quarter of fiscal year 2016 .
 
Dividends
During fiscal years 2016 and 2015 , we declared regular quarterly cash dividends on our common stock. The table below sets forth the cash dividends per share that we declared on our common stock during each of those fiscal years, by quarter.
 
 
2016 Fiscal Quarters
 
2016 Total
First
 
Second
 
Third
 
Fourth
 
 
Cash dividends declared per common share
$
0.07

 
$
0.07

 
$
0.07

 
$
0.07

 
$
0.28

 
 
 
 
 
 
 
 
 
 
 
2015 Fiscal Quarters
 
2015 Total
 
First
 
Second
 
Third
 
Fourth
 
 
Cash dividends declared per common share
$
0.07

 
$
0.07

 
$
0.07

 
$
0.07

 
$
0.28

 
While it is our current intention to pay regular quarterly cash dividends, any decision to pay future cash dividends will be made by our Board and will depend on our earnings, financial condition and other factors. Our Board may reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources. For further information related to our stockholders’ equity, see Note 19 to our consolidated financial statements included in this annual report on Form 10-K.


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Stock Performance Graph
Set forth below is a line graph comparing the cumulative total shareholder return on our common stock against the cumulative total return of the S&P Composite-500 Index and a Peer Group Index for the five fiscal years from January 1, 2012 to January 1, 2017 . Our Peer Group Index consists of Agilent Technologies Inc., Thermo Fisher Scientific Inc. ("Thermo Fisher"), and Waters Corporation. The peer group is the same as the peer group used in the stock performance graph in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, except that it does not include Affymetrix, Inc., which has been excluded due to its acquisition by Thermo Fisher during fiscal year 2016.

Comparison of Five-Year Cumulative Total Return
PerkinElmer, Inc. Common Stock, S&P Composite-500 and
Peer Group Index

TOTAL RETURN TO SHAREHOLDERS
(Includes reinvestment of dividends)

PKISTOCKPERFCHART2016A01.JPG
 
01-Jan-12
 
30-Dec-12
 
29-Dec-13
 
28-Dec-14
 
3-Jan-16
 
1-Jan-17
PerkinElmer, Inc.
$
100.00

 
$
156.82

 
$
209.82

 
$
226.00

 
$
276.32

 
$
270.47

S&P 500 Index
$
100.00

 
$
116.00

 
$
153.58

 
$
174.60

 
$
177.01

 
$
198.18

Peer Group
$
100.00

 
$
127.78

 
$
199.93

 
$
223.68

 
$
247.56

 
$
251.59




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Item 6.
Selected Financial Data
 
The following table sets forth selected historical financial information as of and for each of the fiscal years in the five-year period ended January 1, 2017 . We derived the selected historical financial information for the balance sheets for the fiscal years ended January 1, 2017 and January 3, 2016 and the statement of operations for each of the fiscal years in the three-year period ended January 1, 2017 from our audited consolidated financial statements which are included elsewhere in this annual report on Form 10-K. We derived the selected historical financial information for the statements of operations for the fiscal years ended December 29, 2013 and December 30, 2012 from our audited consolidated financial statements which are not included in this annual report on Form 10-K. We derived the selected historical financial information for the balance sheets as of December 28, 2014 , December 29, 2013 and December 30, 2012 from our audited consolidated financial statements which are not included in this annual report on Form 10-K. We adjusted the information in the consolidated financial statements, where appropriate, for discontinued operations.
 
Our historical financial information may not be indicative of our future results of operations or financial position.
 
The following selected historical financial information should be read together with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the related notes, included elsewhere in this annual report on Form 10-K.
 
 
Fiscal Years Ended
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
December 29,
2013
 
December 30,
2012
 
(In thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue
$
2,115,517

 
$
2,104,823

 
$
2,069,880

 
$
1,996,959

 
$
1,940,202

Operating income from continuing
operations (1)(2)(3)
283,066

 
250,926

 
165,007

 
180,791

 
51,494

Interest and other expense, net (4)
38,998

 
42,119

 
41,139

 
64,110

 
47,956

Income from continuing operations before income taxes
244,068

 
208,807

 
123,868

 
116,681

 
3,538

Income from continuing operations, net of income taxes (5)
215,706

 
188,785

 
130,139

 
142,206

 
36,354

Income from discontinued operations and dispositions, net of income taxes (6)(7)
18,593

 
23,640

 
27,639

 
25,006

 
33,586

Net income
$
234,299

 
$
212,425

 
$
157,778

 
$
167,212

 
$
69,940

Basic earnings per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
1.97

 
$
1.68

 
$
1.16

 
$
1.27

 
$
0.32

Discontinued operations
0.17

 
0.21

 
0.25

 
0.22

 
0.30

Net income
$
2.14

 
$
1.89

 
$
1.40

 
$
1.49

 
$
0.61

Diluted earnings per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
1.96

 
$
1.67

 
$
1.14

 
$
1.25

 
$
0.32

Discontinued operations
0.17

 
0.21

 
0.24

 
0.22

 
0.29

Net income
$
2.12

 
$
1.87

 
$
1.39

 
$
1.47

 
$
0.61

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic:
109,478

 
112,507

 
112,593

 
112,254

 
113,728

Diluted:
110,313

 
113,315

 
113,739

 
113,503

 
114,860

Cash dividends declared per common share
$
0.28

 
$
0.28

 
$
0.28

 
$
0.28

 
$
0.28



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As of
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
December 29,
2013
 
December 30,
2012
 
(In thousands)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets (6)
$
4,276,683

 
$
4,166,295

 
$
4,127,576

 
$
3,940,882

 
$
3,894,451

Short-term debt
1,172

 
1,123

 
1,075

 
2,624

 
1,772

Long-term debt (4)(8)
1,045,254

 
1,011,762

 
1,045,393

 
926,274

 
931,513

Stockholders’ equity (1)(9)
2,153,570

 
2,110,441

 
2,042,102

 
1,994,487

 
1,939,812

Common shares outstanding (9)
109,617

 
112,034

 
112,481

 
112,626

 
115,036

____________________________
(1)  
Activity related to the mark-to-market adjustment on postretirement benefit plans was a pre-tax loss of $15.3 million in fiscal year 2016 , a pre-tax loss of $12.4 million in fiscal year 2015 , a pre-tax loss of $75.4 million in fiscal year 2014 , a pre-tax income of $17.6 million in fiscal year 2013 and a pre-tax loss of $31.3 million in fiscal year 2012 .
(2)  
We recorded pre-tax restructuring and contract termination charges, net, of $5.1 million in fiscal year 2016 , $13.5 million in fiscal year 2015 , $13.3 million in fiscal year 2014 , $33.5 million in fiscal year 2013 and $25.0 million in fiscal year 2012 .
(3)  
In fiscal year 2013, we recorded pre-tax impairment charges of $0.2 million as the carrying amounts of certain long-lived assets were not recoverable and exceeded their fair value. In fiscal year 2012, we recorded pre-tax impairment charges of $74.2 million as a result of a review of certain of our trade names within our portfolio as part of a realignment of our marketing strategy.
(4)  
In fiscal years 2016 , 2015 , 2014 , 2013 and 2012 , interest expense was $41.5 million , $38.0 million , $36.3 million , $49.9 million and $45.8 million , respectively. In fiscal year 2013, we redeemed all of our 6% senior unsecured notes due in 2015 (the “2015 Notes”) that included a prepayment premium of $11.1 million , which is included in other expense, net, the write-off of $2.8 million for the remaining unamortized derivative losses for previously settled cash flow hedges, which is included in interest expense, and the write-off of $0.2 million for the remaining deferred debt issuance costs, which is included in interest expense.
(5)  
In fiscal years 2016 and 2015 , provision for income tax on continuing operations was $28.4 million and $20.0 million , respectively. The higher provision for income taxes in fiscal year 2016 was primarily due to higher income in higher tax rate jurisdictions, partially offset by an increase in tax benefit of $3.2 million related to discrete items from $6.4 million in fiscal year 2015 to $9.6 million in fiscal year 2016. In fiscal years 2014, 2013 and 2012 , tax benefit on continuing operations was $6.3 million , $25.5 million and $32.8 million , respectively. The benefit from income taxes in fiscal year 2014 was primarily due to losses in higher tax rate jurisdictions and a tax benefit of $7.1 million related to discrete items, partially offset by a provision for income taxes related to profits in lower tax rate jurisdictions. The benefit from income taxes in fiscal year 2013 was primarily due to a tax benefit of $24.0 million related to discrete items and losses in higher tax rate jurisdictions, partially offset by a provision for income taxes related to profits in lower tax rate jurisdictions. The benefit from income taxes in fiscal year 2012 was primarily due to a tax benefit of $7.0 million related to discrete items and losses in higher tax rate jurisdictions, which included pre-tax impairment charges of $74.2 million , partially offset by provision for income taxes related to profits in lower tax rate jurisdictions.
(6)  
In May 2014, we approved the shutdown of our microarray-based diagnostic testing laboratory in the United States. The shutdown resulted in a $0.1 million net pre-tax gain primarily related to the disposal of fixed assets, which was partially offset by the sale of a building in fiscal year 2014.
(7)  
In December 2016, we entered into a Master Purchase and Sale Agreement for the sale of our Medical Imaging business. We accounted for this business as discontinued operations beginning in 2016 and the financial information relating to fiscal years 2015 , 2014 , 2013 and 2012 has been retrospectively adjusted to reflect the inclusion of this business in discontinued operations.
(8)  
In July 2016, we issued and sold ten-year senior notes at a rate of 1.875% with a face value of €500.0 million and received €492.3 million of net proceeds from the issuance. The debt, which matures in July 2026, is unsecured.
(9)  
In fiscal year 2016 , we repurchased in the open market 3.2 million shares of our common stock at an aggregate cost of $148.2 million , including commissions under a stock repurchase program authorized by our Board on October 23, 2014 ("the Repurchase Program"). In fiscal year 2015 , we repurchased in the open market 1.5 million shares of our common stock at an aggregate cost of $72.0 million , including commissions under the Repurchase Program. In fiscal year 2014 , we repurchased in the open market 1.4 million shares of our common stock at an aggregate cost of $61.3 million , including commissions, under both the Repurchase Program and a stock repurchase program originally announced in October 2012 that expired in October 2014 (the "Former Repurchase Program"). In fiscal year 2013 , we repurchased in the open market 3.6 million shares of our common stock at an aggregate cost of $123.0 million , including commissions, under the Former Repurchase Program. In fiscal year 2012 , we did not repurchase any shares

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of our common stock. 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.

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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This annual report on Form 10-K, including the following management’s discussion and analysis, contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this annual report on Form 10-K. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “plans,” “anticipates,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors above under the heading “Risk Factors” in Item 1A above that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
 
Accounting Period
Our fiscal year ends on the Sunday nearest December 31. We report fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. Each of the fiscal years ended January 1, 2017 ("fiscal year 2016") and  December 28, 2014 ("fiscal year 2014") included 52 weeks. The fiscal year ended January 3, 2016 ("fiscal year 2015") included 53 weeks. The additional week in fiscal year 2015 has been reflected in our third quarter. The fiscal year ending December 31, 2017 will include 52 weeks.
 
Overview of Fiscal Year 2016
We realigned our businesses at the beginning of the fourth quarter of fiscal year 2016 to better organize around customer requirements, positioning us to grow in attractive end markets and expand share with our core product offerings. We created two new reporting segments, Discovery & Analytical Solutions and Diagnostics, which will enable us to deliver improved customer focus, more value-add collaboration and breakthrough innovations. Microfluidics and automation products within our former research business were moved to a new applied genomics group within the Diagnostics segment. In addition, we also moved our Medical Imaging business into discontinued operations due to its pending sale. The results reported for fiscal year 2016 reflect our new segment structure and the exclusion of our Medical Imaging business from continuing operations. Financial information in this report relating to fiscal years 2015 and 2014 has been retrospectively adjusted to reflect these changes.
During fiscal year 2016 , we continued to see good performance from acquisitions, investments in our ongoing technology and sales and marketing initiatives. Our overall revenue in fiscal year 2016 increase d $10.7 million , or 1% , as compared to fiscal year 2015 , reflecting an increase of $26.1 million , or 5% , in our Diagnostics segment revenue, which was partially offset by a decrease of $15.4 million , or 1% , in our Discovery & Analytical Solutions segment revenue. The decrease in our Discovery & Analytical Solutions segment was primarily driven by decreases in revenue in our academic and government product offerings within our life sciences research market and a decrease in our environmental and food businesses due to weak harvest conditions, which were partially offset by increased demand in our laboratory services business. The increase in our Diagnostics segment revenue during fiscal year 2016 was primarily due to strong performance of our newborn and infectious disease screening solutions in emerging markets such as China, as well as in Europe.
In our Discovery & Analytical Solutions segment, excluding the unfavorable impact of foreign currency exchange, we experienced flat growth during fiscal year 2016 in several of our products within our life science research end market, as compared to fiscal year 2015 . During fiscal year 2016, we experienced increased demand for our OneSource laboratory service and informatics businesses. Our OneSource laboratory service business offers services designed to enable our customers to increase efficiencies and production time while reducing maintenance costs, all of which continue to be critical for them. This was offset by decreases in revenue in our environmental and food business due to weak harvest conditions as well as in our academic and government product offerings due to reduced government funding. We anticipate that the continued development of contaminant regulations and corresponding testing protocols will result in increased demand for efficient, analytically sensitive and information rich testing solutions.
In our Diagnostics segment, we experienced growth from continued expansion in our newborn screening, blood banking and screening businesses. Birth rates in the United States continue to stabilize and demand for greater access to newborn screening in rural areas outside the United States is also increasing, as evidenced by prenatal trends we saw during fiscal year 2016 . The growth in our Diagnostics segment was partially offset by unfavorable impacts from foreign currency as the U.S. dollar strengthened. As the rising cost of healthcare continues to be one of the critical issues facing our customers, we anticipate that the benefits of providing earlier detection of disease, which can result in a reduction of long-term health care costs as well as create better outcomes for patients, are increasingly valued and we expect to see continued growth in these markets.

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Table of Contents


Our consolidated gross margins increase d 209 basis points in fiscal year 2016 , as compared to fiscal year 2015 , primarily due to favorable changes in product mix, with an increase in sales of higher gross margin product offerings, and benefits from our initiatives to improve our supply chain. Our consolidated operating margin increase d 146 basis points in fiscal year 2016 , as compared to fiscal year 2015 primarily due to higher gross margins and lower costs as a result of cost containment and productivity initiatives, which were partially offset by increased costs related to investments in new product development.
We continue to believe that we are well positioned to take advantage of the spending trends in our end markets and to promote efficiencies in markets where current conditions may increase demand for certain services. Overall, we believe that our strategic focus on diagnostics and discovery and analytical solutions markets, coupled with our deep portfolio of technologies and applications, leading market positions, global scale and financial strength will provide us with a foundation for growth.
 
Consolidated Results of Continuing Operations
 
Revenue
2016 Compared to 2015 .  Revenue for fiscal year 2016 was $2,115.5 million , as compared to $2,104.8 million for fiscal year 2015 , an increase of $10.7 million , or 1% , which includes an approximate 1% decrease in revenue attributable to changes in foreign exchange rates with minimal impact from acquisitions and divestitures. In addition, our fiscal year 2015 had an additional week, which consisted of 53 weeks, as compared to fiscal year 2016, which consisted of 52 weeks. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2016 as compared to fiscal year 2015 and includes the effect of foreign exchange rate fluctuations and acquisitions and divestitures. The total increase in revenue reflects an increase in our Diagnostics segment revenue of $26.1 million , or 5% , due to continued expansion in our newborn screening, blood banking and screening businesses. Our Discovery & Analytical Solutions segment revenue decrease d by $15.4 million , or 1% , due to a decrease in environmental, food and industrial markets revenue of $20.8 million and life sciences research market revenue of $0.6 million , which was partially offset by an increase in laboratory services market revenue of $6.0 million . As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.7 million of revenue primarily related to our Diagnostics segment for fiscal year 2016 and $0.8 million for fiscal year 2015 that otherwise would have been recorded by the acquired businesses during each of the respective periods.

2015 Compared to 2014 .  Revenue for fiscal year 2015 was $2,104.8 million , as compared to $2,069.9 million for fiscal year 2014 , an increase of $34.9 million , or 2% , which includes an approximate 3% increase in revenue attributable to acquisitions and divestitures and an approximate 6% decrease in revenue attributable to changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2015 as compared to fiscal year 2014 and includes the effect of foreign exchange rate fluctuations and acquisitions and divestitures. The total increase in revenue reflects a $44.3 million , or 3% , increase in our Discovery & Analytical Solutions segment revenue, due to an increase in environmental, food and industrial markets revenue of $44.9 million and life sciences research market revenue of $11.6 million partially offset by a decrease in laboratory services market revenue of $12.2 million . Our Diagnostics segment revenue decrease d by $9.3 million , or 2% . As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.8 million of revenue primarily related to our informatics business in our Diagnostics segment for fiscal year 2015 and $2.9 million for fiscal year 2014 that otherwise would have been recorded by the acquired businesses during each of the respective periods.

Cost of Revenue
2016 Compared to 2015 .  Cost of revenue for fiscal year 2016 was $1,102.2 million , as compared to $1,140.6 million for fiscal year 2015 , a decrease of approximately $38.4 million , or 3% . As a percentage of revenue, cost of revenue decrease d to 52.1% in fiscal year 2016 from 54.2% in fiscal year 2015 , resulting in an increase in gross margin of approximately 209 basis points to 47.9% in fiscal year 2016 from 45.8% in fiscal year 2015 . Amortization of intangible assets decrease d and was $30.3 million for fiscal year 2016 , as compared to $42.4 million for fiscal year 2015 . The mark-to-market adjustment for postretirement benefit plans was a loss of $0.4 million for fiscal year 2016 , as compared to a loss of $1.2 million for fiscal year 2015 . Stock-based compensation expense was $1.0 million for fiscal year 2016 , as compared to $1.3 million for fiscal year 2015 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $0.4 million for fiscal year 2016 , as compared to $7.3 million for fiscal year 2015 . Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $0.1 million for each of fiscal years 2016 and 2015 . In addition to the factors noted above, the increase in gross margin was primarily the result of favorable changes in product mix, with an increase in sales of higher gross margin product offerings and benefits from our initiatives to improve our supply chain.

2015 Compared to 2014 .  Cost of revenue for fiscal year 2015 was $1,140.6 million , as compared to $1,135.3 million for fiscal year 2014 , an increase of approximately $5.3 million , or 0.5% . As a percentage of revenue, cost of revenue decrease d to

29



54.2% in fiscal year 2015 from 54.8% in fiscal year 2014 , resulting in an increase in gross margin of approximately 66 basis points to 45.8% in fiscal year 2015 from 45.2% in fiscal year 2014 . Amortization of intangible assets decrease d and was $42.4 million for fiscal year 2015 , as compared to $48.7 million for fiscal year 2014 . The mark-to-market adjustment for postretirement benefit plans was a loss of $1.2 million for fiscal year 2015 , as compared to a loss of $8.2 million for fiscal year 2014 . Stock-based compensation expense was $1.3 million for fiscal year 2015 , as compared to $1.4 million for fiscal year 2014 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $7.3 million for fiscal year 2015 , as compared to $2.4 million for fiscal year 2014 . Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $0.1 million for each of fiscal years 2015 and 2014 . In addition to the factors noted above, the increase in gross margin was primarily the result of benefits from our initiatives to improve our supply chain, which was partially offset by unfavorable changes in product mix, with an increase in sales of lower gross margin product offerings and negative impacts from foreign exchange rates.

Selling, General and Administrative Expenses
2016 Compared to 2015 .  Selling, general and administrative expenses for fiscal year 2016 were $600.9 million , as compared to $587.2 million for fiscal year 2015 , an increase of approximately $13.7 million , or 2% . As a percentage of revenue, selling, general and administrative expenses increase d to 28.4% in fiscal year 2016 from 27.9% in fiscal year 2015 . Amortization of intangible assets increase d and was $40.7 million for fiscal year 2016 , as compared to $33.8 million for fiscal year 2015 . The mark-to-market adjustment for postretirement benefit plans was a loss of $14.9 million for fiscal year 2016 , as compared to a loss of $11.1 million for fiscal year 2015 . Stock-based compensation expense decrease d and was $15.2 million for fiscal year 2016 , as compared to $15.5 million for fiscal year 2015 . During fiscal year 2015 , we recorded $0.8 million in legal costs for a particular case. Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $17.5 million for fiscal year 2016 as compared to $0.7 million for fiscal year 2015 . In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to growth investments, which was partially offset by the result of lower costs as a result of cost containment and productivity initiatives.

2015 Compared to 2014 .  Selling, general and administrative expenses for fiscal year 2015 were $587.2 million , as compared to $648.2 million for fiscal year 2014 , a decrease of approximately $61.0 million , or 9% . As a percentage of revenue, selling, general and administrative expenses decrease d to 27.9% in fiscal year 2015 , compared to 31.3% in fiscal year 2014 . Amortization of intangible assets increase d and was $33.8 million for fiscal year 2015 , as compared to $32.2 million for fiscal year 2014 . The mark-to-market adjustment for postretirement benefit plans was a loss of $11.1 million for fiscal year 2015 , as compared to loss of $67.0 million for fiscal year 2014 . Stock-based compensation expense increase d and was $15.5 million for fiscal year 2015 , as compared to $12.2 million for fiscal year 2014 . During fiscal year 2015 , we recorded $0.8 million in legal costs for a particular case compared to $6.6 million for fiscal year 2014 . During fiscal year 2014 , we recorded a benefit of $2.3 million for cost reimbursements related to a particular site, of which $1.2 million was for future monitoring and mitigation activities. Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $0.7 million for fiscal year 2015 and $3.1 million for fiscal year 2014 . In addition to the above items, the decrease in selling, general and administrative expenses was primarily the result of lower costs as a result of cost containment and productivity initiatives, which was partially offset by the impact from foreign currency exchange rates, and the impact of an additional week during fiscal year 2015.
 
Research and Development Expenses
2016 Compared to 2015 .  Research and development expenses for fiscal year 2016 were $124.3 million , as compared to $112.5 million for fiscal year 2015 , an increase of $11.7 million , or 10% . As a percentage of revenue, research and development expenses increase d to 5.9% in fiscal year 2016 , as compared to 5.3% in fiscal year 2015 . Amortization of intangible assets was $0.5 million for each of fiscal years 2016 and 2015 . The mark-to-market adjustment for postretirement benefit plans was a loss of $0.1 million for fiscal year 2015 . Stock-based compensation expense increase d and was $0.9 million for fiscal year 2016 , as compared to $0.5 million for fiscal year 2015 . In addition to the above items, the increase in research and development expenses was primarily the result of investments in new product development, primarily the results of our investments in Vanadis focused on non-invasive prenatal screening and ionics mass spectrometry focused on food and environmental safety applications. This was partially offset by lower costs as a result of cost containment and productivity initiatives. We directed research and development efforts similarly during fiscal years 2016 and 2015 , primarily towards the diagnostics, environmental, food, life sciences research and laboratory services markets in order to help accelerate our growth initiatives. We have a broad product base, and we do not expect any single research and development project to have significant costs.

2015 Compared to 2014 .  Research and development expenses for fiscal year 2015 were $112.5 million , as compared to $108.1 million for fiscal year 2014 , an increase of $4.5 million , or 4% . As a percentage of revenue, research and development expenses increase d to 5.3% in fiscal year 2015 , as compared to 5.2% in fiscal year 2014 . Amortization of intangible assets decrease d and was $0.5 million for fiscal year 2015 , as compared to $0.6 million for fiscal year 2014 . The mark-to-market

30



adjustment for postretirement benefit plans was a loss of $0.1 million for fiscal year 2015 , as compared to a loss of $0.2 million for fiscal year 2014 . Stock-based compensation expense was $0.5 million for each of fiscal years 2015 and 2014 . In addition to the above items, the  increase  in research and development expenses was primarily due to investments in new product development, the impact from foreign currency exchange rates and the impact of an additional week in fiscal year 2015.

Restructuring and Contract Termination Charges, Net
We have undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, the alignment of our operations with our growth strategy, the integration of our business units and productivity initiatives. Restructuring and contract termination charges for fiscal year 2016 were $5.1 million , as compared to $13.5 million for fiscal year 2015 and $13.3 million for fiscal year 2014 .

We 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"). We 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"). We implemented restructuring plans in the fourth quarter of fiscal year 2015, and the second and first quarters of fiscal year 2014 consisting of workforce reductions and the closure of excess facility space principally intended to focus resources on higher growth end markets (the "Q4 2015 Plan", "Q2 2014 Plan", and "Q1 2014 Plan", respectively). We implemented restructuring plans in the second quarter of fiscal year 2015 and the third quarter of fiscal year 2014 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q2 2015 Plan" and "Q3 2014 Plan", respectively). All other previous restructuring plans were workforce reductions or the closure of excess facility space principally intended to integrate our businesses in order to realign operations, reduce costs, achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with our growth strategy (the "Previous Plans").

The following table summarizes the number of employees reduced, the initial restructuring or contract termination charges by operating segment, and the dates by which payments were substantially completed, or the expected dates by which payments will be substantially completed, for restructuring actions implemented during fiscal years 2016, 2015 and 2014 in continuing operations:


 
Workforce Reductions
 
Closure of Excess Facility
 
Total
 
(Expected) Date Payments Substantially Completed by
 
Headcount Reduction
 
Diagnostics
 
Discovery & Analytical Solutions
 
Diagnostics
 
Discovery & Analytical Solutions
 
 
Severance
 
Excess Facility
 
(In thousands, except headcount data)
 
 
 
 
Q3 2016 Plan

22

 
$
41

 
$
1,779

 
$

 
$

 
$
1,820

 
Q4 FY2017
 
Q2 2016 Plan

72

 
561

 
4,106

 

 

 
4,667

 
Q3 FY2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q4 2015 Plan
174

 
1,315

 
9,980

 

 
285

 
11,580

 
Q1 FY2017
 
Q4 FY2017
Q2 2015 Plan
95

 
673

 
5,290

 

 

 
5,963

 
Q2 FY2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2014 Plan
152

 
2,885

 
10,166

 

 

 
13,051

 
Q4 FY2015
 
Q2 2014 Plan
21

 
235

 
435

 

 

 
670

 
Q2 FY2015
 
Q1 2014 Plan
17

 
281

 
286

 

 

 
567

 
Q4 FY2014
 

We expect to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022 .

We also have terminated various contractual commitments in connection with certain disposal activities and have recorded charges, to the extent applicable, for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us. We recorded additional pre-tax charges of $0.1 million , $0.1 million and $1.5 million in the Discovery & Analytical Solutions segment during fiscal years 2016, 2015 and 2014 , respectively, as a result of these contract terminations.


31



At January 1, 2017 , we had $10.5 million recorded for accrued restructuring and contract termination charges, of which $7.5 million was recorded in short-term accrued restructuring and $3.1 million was recorded in long-term liabilities. At January 3, 2016 , we had $22.2 million recorded for accrued restructuring and contract termination charges, of which $17.0 million was recorded in short-term accrued restructuring and $5.1 million was recorded in long-term liabilities. The following table summarizes our restructuring accrual balances and related activity by restructuring plan, as well as contract termination accrual balances and related activity, during fiscal years 2016, 2015 and 2014 in continuing operations:

 
Balance at December 29, 2013
 
2014 Charges and Changes in Estimates, Net
 
2014 Amounts Paid
 
Balance at December 28, 2014
 
2015 Charges and Changes in Estimates, Net
 
2015 Amounts Paid
 
Balance at January 3, 2016
 
2016 Charges and Changes in Estimates, Net
 
2016 Amounts Paid
 
Balance at January 1, 2017
 
(In thousands)
 
 
 
 
 
 
Severance:
 
 
 
 
 
 
Q3 2016 Plan

 
$

 
$

 
$

 
$

 
$

 
$

 
$
1,820

 
$
(612
)
 
$
1,208

Q2 2016 Plan

 

 

 

 

 

 

 
4,667

 
(3,231
)
 
1,436

Q4 2015 Plan (1)

 

 

 

 
11,295

 
(925
)
 
10,370

 
(953
)
 
(8,198
)
 
1,219

Q2 2015 Plan (2)

 

 

 

 
5,423

 
(4,322
)
 
1,101

 
(533
)
 
(370
)
 
198

Q3 2014 Plan

 
13,051

 
(2,992
)
 
10,059

 
(3,064
)
 
(5,460
)
 
1,535

 

 
(672
)
 
863

Q2 2014 Plan

 
670

 
(419
)
 
251

 
(179
)
 
(13
)
 
59

 

 

 
59

Q1 2014 Plan

 
567

 
(475
)
 
92

 
(92
)
 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Facility:
 
 
 
 
 
 
Q4 2015 Plan

 

 

 

 
285

 
(26
)
 
259

 

 
(248
)
 
11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Previous Plans including 2013 plans
35,200

 
(2,508
)
 
(19,572
)
 
13,120

 
(204
)
 
(4,222
)
 
8,694

 
35

 
(3,299
)
 
5,430

Restructuring
35,200

 
11,780

 
(23,458
)
 
23,522

 
13,464

 
(14,968
)
 
22,018

 
5,036

 
(16,630
)
 
10,424

Contract Termination
300

 
1,545

 
(1,541
)
 
304

 
83

 
(255
)
 
132

 
88

 
(103
)
 
117

Total Restructuring and Contract Termination
$
35,500

 
$
13,325

 
$
(24,999
)
 
$
23,826

 
$
13,547

 
$
(15,223
)
 
$
22,150

 
$
5,124

 
$
(16,733
)
 
$
10,541

____________________________
(1)  
During fiscal year 2016 , we recognized pre-tax restructuring reversals of $1.0 million in the Discovery & Analytical Solutions segment related to lower than expected costs associated with workforce reductions for the Q4 2015 Plan.
(2)  
During fiscal year 2016 , we recognized pre-tax restructuring reversals of $0.1 million in the Diagnostics segments and $0.5 million in the Discovery & Analytical Solutions segments related to lower than expected costs associated with workforce reductions for the Q2 2015 Plan.

Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:

 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
(In thousands)
Interest income
$
(702
)
 
$
(673
)
 
$
(667
)
Interest expense
41,528

 
37,997

 
36,270

Gain on disposition of businesses and assets, net

(5,562
)
 

 

Other expense, net
3,734

 
4,795

 
5,536

Total interest and other expense, net
$
38,998

 
$
42,119

 
$
41,139


2016 Compared to 2015 .  Interest and other expense, net, for fiscal year 2016 was an expense of $39.0 million , as compared to an expense of $42.1 million for fiscal year 2015 , a decrease of $3.1 million . The decrease in interest and other

32



expense, net, in fiscal year 2016 as compared to fiscal year 2015 was primarily due to a gain on disposition of businesses and assets, net recognized in fiscal year 2016 which was partially offset by an increase in interest expense of $3.5 million for fiscal year 2016 as compared to fiscal year 2015 due to the issuance of the new higher interest rate 2026 Notes, which replaced our lower cost debt outstanding on our previous senior unsecured revolving credit facility. Other expenses for fiscal year 2016 decrease d by $1.1 million as compared to fiscal year 2015 , primarily due to expenses related to foreign currency transactions and translation of non-functional currency assets and liabilities. A more complete discussion of our liquidity is set forth below under the heading “Liquidity and Capital Resources.”
 
2015 Compared to 2014 .  Interest and other expense, net, for fiscal year 2015 was an expense of $42.1 million , as compared to an expense of $41.1 million for fiscal year 2014 , an increase of $1.0 million . The increase in interest and other expense, net, in fiscal year 2015 as compared to fiscal year 2014 was primarily due to an increase in interest expense. Interest expense increase d by $1.7 million in fiscal year 2015 as compared to fiscal year 2014 , primarily due to increased debt outstanding on our previous senior unsecured revolving credit facility and higher variable interest rates, as well as an additional week during fiscal year 2015. Other expenses for fiscal year 2015 decrease d by $0.7 million as compared to fiscal year 2014 , primarily due to expenses related to foreign currency transactions and translation of non-functional currency assets and liabilities.

Provision for (Benefit from) Income Taxes
The effective tax rates on continuing operations were 11.6% , 9.6% and (5.1)% for fiscal years 2016, 2015 and 2014 , respectively. Certain of our subsidiaries have, at various times, been granted tax relief in their respective countries, resulting in lower income taxes than would otherwise be the case under ordinary tax rates. A reconciliation of income tax expense at the U.S. federal statutory income tax rate to the recorded tax provision is as follows for the fiscal years ended:
 
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
(In thousands)
Tax at statutory rate
$
85,424

 
$
73,082

 
$
43,354

Non-U.S. rate differential, net
(52,648
)
 
(47,994
)
 
(34,845
)
U.S. taxation of multinational operations
6,941

 
1,732

 
2,367

State income taxes, net
1,509

 
80

 
1,352

Prior year tax matters
(9,621
)
 
(6,387
)
 
(7,146
)
Federal tax credits
(7,189
)
 
(2,096
)
 
(3,399
)
Change in valuation allowance
(2,755
)
 
2,593

 
(7,679
)
Non-deductible acquisition expense
5,701

 

 

Other, net
1,000

 
(988
)
 
(275
)
Total
$
28,362

 
$
20,022

 
$
(6,271
)
 
The variation in our effective tax rate for each year is primarily a result of the recognition of earnings in foreign jurisdictions, predominantly Singapore, Finland, and China, which are taxed at rates lower than the U.S. federal statutory rate, resulting in a benefit from income taxes of $45.8 million in fiscal year 2016 , $34.2 million in fiscal year 2015 and $29.1 million in fiscal year 2014 . These amounts include $11.4 million in fiscal year 2016 , $8.3 million in fiscal year 2015 and $7.1 million in fiscal year 2014 of benefits derived from tax holidays in China and Singapore. The effect of these benefits derived from tax holidays on basic and diluted earnings per share for fiscal year 2016 was $0.10 and $0.10 , respectively, for fiscal year 2015 was $0.07 and $0.07 , respectively, and for fiscal year 2014 was $0.06 and $0.06 , respectively. The tax holiday in China is scheduled to expire in fiscal year 2017 and the tax holiday in Singapore is scheduled to expire in fiscal year 2018 .


Discontinued Operations
As part of our continuing efforts to focus on higher growth opportunities, we have discontinued certain businesses. When the discontinued operations represented a strategic shift that will have a major effect on our operations and financial statements, we accounted for these businesses as discontinued operations and accordingly, have 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 Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of An Entity ("ASU 2014-08") , continues to be reported as a discontinued operation, and the results of operations and related cash flows are presented as discontinued operations for all periods presented. Any remaining assets and liabilities of these businesses have been presented separately, and are reflected within assets and liabilities from discontinued operations in the accompanying condensed consolidated balance sheets as of January 1, 2017 and January 3, 2016 .

33




In May 2014, our management approved the shutdown of our microarray-based diagnostic testing laboratory in the United States, which had been reported within our Diagnostics segment. We determined that, with the lack of adequate reimbursement from health care payers, the microarray-based diagnostic testing laboratory in the United States would need significant investment in its operations to reduce costs in order to effectively compete in the market. The shutdown of the microarray-based diagnostic testing laboratory in the United States resulted in a $0.1 million net pre-tax gain primarily related to the disposal of fixed assets, which was partially offset by the sale of a building in fiscal year 2014.

In August 1999, we sold the assets of our Technical Service business. We recorded pre-tax losses of $1.8 million in fiscal year 2016 , $0.03 million in fiscal year 2015 and $0.2 million in fiscal year 2014 for a contingency related to this business. These losses were recognized as a loss on disposition of discontinued operations before income taxes.

During fiscal year 2016 , we settled various commitments related to the divestiture of other discontinued operations and recognized a pre-tax loss of $1.1 million . This loss was recognized as a loss on disposition of discontinued operations before income taxes.
During fiscal year 2016 , we sold PerkinElmer Labs, Inc. for cash consideration of $20.0 million , recognizing a pre-tax gain of $7.1 million . The sale generated a capital loss for tax purposes of $7.3 million , which resulted in an income tax benefit of $2.5 million that was recognized as a discrete benefit during the second quarter of 2016. PerkinElmer Labs, Inc. was a component of our Diagnostics segment. The pre-tax gain recognized in fiscal year 2016 is included in interest and other expense, net in the condensed consolidated statement of operations. The divestiture of PerkinElmer Labs, Inc. has not been classified as a discontinued operation in this Form 10-K because the disposition does not represent a strategic shift that will have a major effect on our operations and financial statements.
During fiscal year 2016 , we entered into a letter of intent to contribute certain assets to an academic institution in the United Kingdom. We recognized a pre-tax loss of $1.6 million related to the write-off of assets in the second quarter of 2016 which is included in interest and other expense, net in the condensed consolidated statement of operations.
In December 2016, we entered into a Master Purchase and Sale Agreement (the “Agreement”) with Varian Medical Systems, Inc. (the “Purchaser”), under which we agreed to sell to the Purchaser all of the outstanding equity interests in our wholly owned indirect subsidiaries PerkinElmer Medical Holdings, Inc. and Dexela Limited, together with certain assets relating to the business of designing, manufacturing and marketing flat panel x-ray detectors, and related software, accessories and ancillary products, to x-ray system manufacturers (the “Medical Imaging Business”), for cash consideration of approximately $276.0 million and the Purchaser’s assumption of specified liabilities relating to the Medical Imaging Business (collectively, the “Transaction”). The Medical Imaging Business has been reported in the Diagnostics segment. The Agreement contemplates that the Purchaser will finance the Transaction through a debt financing and that, except as determined otherwise by the Purchaser, the closing will occur no earlier than April 2017. However, the closing of the Transaction is not conditioned upon the receipt of any such financing. The Transaction is subject to customary closing conditions, including the expiration of specified antitrust waiting periods. The Agreement contains certain termination rights and provides that under specified circumstances, upon termination of the Agreement, the Purchaser will be required to pay us a termination fee of up to $22.1 million . The sale of the Medical Imaging Business represents a strategic shift that will have a major effect on our operations and financial statements. Accordingly, we classified the assets and liabilities related to the Medical Imaging Business as assets and liabilities of discontinued operations in our consolidated balance sheets and its results of operations are classified as income from discontinued operations in our consolidated statements of operations.
The summary pre-tax operating results of the discontinued operations, which include the periods prior to disposition and a $1.0 million pre-tax restructuring charge related to workforce reductions in the microarray-based diagnostic testing laboratory in the United States during fiscal year 2014, were as follows during the three fiscal years ended:

 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
(In thousands)
Revenue
$
146,217

 
$
158,128

 
$
168,124

Cost of revenue
95,395

 
97,777

 
100,512

Selling, general and administrative expenses
13,657

 
11,712

 
12,503

Research and development expenses
14,368

 
13,391

 
13,222

Restructuring and contract termination charges, net
568

 
43

 
1,111

Income from discontinued operations before income taxes
$
22,229

 
$
35,205

 
$
40,776



34



We recorded a tax provision of $4.3 million , $11.5 million and $12.9 million on discontinued operations and dispositions in fiscal years 2016, 2015 and 2014 .

Business Combinations
Acquisitions in fiscal year 2016
During the fiscal year 2016 , we completed the acquisition of two businesses for a total consideration of  $72.2 million in cash. The acquired businesses were Bioo Scientific Corporation, which was acquired for total consideration of $63.5 million in cash and one other business acquired for a total consideration of $8.8 million in cash. The excess of the purchase prices over the fair values of each of the acquired businesses' net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforce acquired. As a result of the acquisitions, we recorded goodwill of $45.6 million , which is not tax deductible, and intangible assets of $19.9 million . We reported the operations for these acquisitions within the results of our Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 9.5 years.

Acquisitions in fiscal year 2015
During fiscal year 2015, we completed the acquisition of five businesses for a total consideration of $77.1 million in cash. The acquired businesses included Vanadis Diagnostics AB ("Vanadis"), which was acquired for total consideration of $35.1 million in cash, as further described in Note 21 to our consolidated financial statements included in this annual report on Form 10-K, and other acquisitions for an aggregate consideration of $42.0 million in cash. We have a potential obligation to pay the shareholders of Vanadis additional contingent consideration of up to $93.0 million , which at closing had an estimated fair value of $56.9 million . The excess of the purchase prices over the fair values of each of the acquired businesses' net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, of which $9.2 million is tax deductible. We reported the operations for all of these acquisitions within the results of our Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates.

Acquisitions in fiscal year 2014
Acquisition of Perten Instruments Group AB. In December 2014, we acquired all of the outstanding stock of Perten Instruments Group AB ("Perten"). Perten is a provider of analytical instruments and services for quality control of food, grain, flour and feed. We expect this acquisition to enhance our industrial, environmental and safety business by expanding our product offerings to the academic and industrial end markets. We paid the shareholders of Perten $269.9 million in cash for the stock of Perten. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. We have reported the operations for this acquisition within the results of our Discovery & Analytical Solutions segment from the acquisition date.

Other acquisitions in fiscal year 2014. In addition to the Perten acquisition, we completed the acquisition of two businesses in fiscal year 2014 for total consideration of $17.6 million in cash and $4.3 million of assumed debt. The excess of the purchase price over the fair value of each of the acquired businesses' net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. We reported the operations for these acquisitions within the results of our Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates.

We do not consider the acquisitions completed during fiscal years 2016, 2015 and 2014 , to be material to our consolidated results of operations; therefore, we are not presenting pro forma financial information of operations. During fiscal years 2016 and 2015 , we recognized $80.7 million and $65.7 million , respectively, of revenue for Perten. We have determined that the presentation of the results of operations for each of the other acquisitions, from the date of acquisition, is impracticable due to the integration of the operations upon acquisition.

As of January 1, 2017 , the allocations of purchase prices for acquisitions completed in fiscal years 2015 and 2014 were final. The preliminary allocations of the purchase prices for acquisitions completed in fiscal year 2016 were based upon initial valuations. Our estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete our 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. We expect 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, we will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates

35



that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. With our adoption of Accounting Standards Update No. 2015-16,  Simplifying the Accounting for Measurement-Period Adjustments ("ASU No. 2015-16") during 2015, these adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.

During fiscal year 2016 , we obtained information to assist in determining the fair values of certain tangible and intangible assets acquired and liabilities assumed as part of our acquisitions and adjusted our purchase price allocations. Based on this information, for acquisitions completed during fiscal year 2015, we recognized an increase in deferred taxes of $1.8 million , with a corresponding increase in goodwill.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds or product development milestones during the earnout period.

As of January 1, 2017 , we may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to $84.6 million . As of January 1, 2017 , we have recorded contingent consideration obligations of $63.2 million , of which $15.4 million was recorded in accrued expenses and other current liabilities, and $47.8 million was recorded in long-term liabilities. As of January 3, 2016 , we have recorded contingent consideration obligations of $57.4 million , of which $9.4 million was recorded in accrued expenses and other current liabilities, and $48.0 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 3 years from the respective acquisition dates, and the remaining weighted average expected earnout period at January 1, 2017 was 1.75 years. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.

In connection with the purchase price allocations for acquisitions, we estimate the fair value of deferred revenue assumed with our acquisitions. The estimated fair value of deferred revenue is determined by the legal performance obligation at the date of acquisition, and is generally based on the nature of the activities to be performed and the related costs to be incurred after the acquisition date. The fair value of an assumed liability related to deferred revenue is estimated based on the current market cost of fulfilling the obligation, plus a normal profit margin thereon. The estimated costs to fulfill the deferred revenue are based on the historical direct costs related to providing the services. We do not include any costs associated with selling effort, research and development, or the related fulfillment margins on these costs. In most acquisitions, profit associated with selling effort is excluded because the acquired businesses would have concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition. The sum of the costs and operating income approximates, in theory, the amount that we would be required to pay a third-party to assume the obligation.

Contingencies, Including Tax Matters
We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party (“PRP”) for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. We have accrued $9.9 million and $11.8 million as of January 1, 2017 and January 3, 2016 , respectively, in accrued expenses and other current liabilities, which represents our management’s estimate of the cost of the remediation of known environmental matters, and does not include any potential liability for related personal injury or property damage claims. During fiscal year 2014, we recorded a benefit of $2.3 million for cost reimbursements related to a particular site, of which $1.2 million was for future monitoring and mitigation activities. Our environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation

36



may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on our consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.

Various tax years after 2010 remain open to examination by certain jurisdictions in which we have 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. We regularly review our tax positions in each significant taxing jurisdiction in the process of evaluating our unrecognized tax benefits. We make adjustments to our unrecognized tax benefits when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority; and/or (iii) the statute of limitations expires regarding a tax position.

We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in our opinion, based on our review of the information available at this time, the total cost of resolving these contingencies at January 1, 2017 should not have a material adverse effect on our consolidated financial statements included in this annual report on Form 10-K. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us.

Reporting Segment Results of Continuing Operations
Beginning in the fourth quarter of fiscal year 2016, we realigned our businesses to better position us to grow in attractive end markets and expand share with our core product offerings. Diagnostics became a standalone operating segment and we formed a new operating segment, Discovery & Analytical Solutions. In addition, we moved our Medical Imaging Business into discontinued operations due to its pending sale. The results reported for fiscal year 2016 reflect our new segment structure and the exclusion of our Medical Imaging Business from continuing operations. Financial information in this report relating to fiscal years 2015 and 2014 has been retrospectively adjusted to reflect these changes.

Discovery & Analytical Solutions
2016 Compared to 2015 .  Revenue for fiscal year 2016 was $1,513.0 million , as compared to $1,528.4 million for fiscal year 2015 , a decrease of $15.4 million , or 1% , which includes an approximate 1.0% decrease in revenue attributable to unfavorable changes in foreign exchange rates with minimal impact from acquisitions and divestitures. In addition, the fiscal year 2016 consisted of 52 weeks as compared to fiscal year 2015 which consisted of 53 weeks. The analysis in the remainder of this paragraph compares selected revenue by product type for fiscal year 2016 , as compared to fiscal year 2015 , and includes the effect of foreign exchange fluctuations and acquisitions and divestitures. The decrease in revenue in our Discovery & Analytical Solutions segment was a result of a decrease in environmental, food and industrial revenue of $20.8 million and a decrease in life sciences market revenue of $0.6 million , which was partially offset by an increase in laboratory services market revenue of $6.0 million . As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $27 thousand of revenue in our Discovery & Analytical Solutions segment for fiscal year 2015 that otherwise would have been recorded by the acquired businesses during each of the respective periods. In our environmental, food and industrial markets, revenue decreased due to weak harvest conditions. In our life sciences research market, we experienced decreases in revenue from our academic and government product offerings due to reduced government funding. In our laboratory services market, we had increased demand for our OneSource service offerings. Our OneSource laboratory service business offers services designed to enable our customers to increase efficiencies and production time while reducing maintenance costs, all of which continue to be critical for our customers.

Operating income from continuing operations for fiscal year 2016 was $207.5 million , as compared to $173.7 million for fiscal year 2015 , an increase of $33.8 million , or 19% . Amortization of intangible assets decrease d and was $53.3 million for fiscal year 2016 as compared to $54.6 million for fiscal year 2015 . Restructuring and contract termination charges, net decrease d and were $4.7 million for fiscal year 2016 as compared to $11.4 million for fiscal year 2015 . Acquisition and divestiture-related costs, contingent consideration and other costs added an incremental expense of $0.6 million for fiscal year 2016 , as compared to $0.4 million for fiscal year 2015 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $0.4 million in fiscal year 2016 as compared to $7.3 million in fiscal year 2015 . In addition to the factors noted above, increase d operating income for fiscal year 2016 , was primarily due to favorable changes in product mix, with an increase in sales in higher gross margin product offerings, early

37



benefits from our initiatives to improve our supply chain, and lower costs related to cost containment initiatives partially offset by increased costs related to investments in new product development and unfavorable impacts from foreign currency.
 
2015 Compared to 2014 .  Revenue for fiscal year 2015 was $1,528.4 million , as compared to $1,484.1 million for fiscal year 2014 , an increase of $44.3 million , or 3% , which includes an approximate 5.0% increase in revenue attributable to the impact of acquisitions and divestitures and an approximate 7.0% decrease in revenue attributable to changes in foreign exchange rates. In addition, fiscal year 2015 consisted of 53 weeks as compared to fiscal year 2014 which consisted of 52 weeks. The analysis in the remainder of this paragraph compares selected revenue by product type for fiscal year 2015 , as compared to fiscal year 2014 , and includes the effect of foreign exchange fluctuations and acquisitions and divestitures. The increase in revenue in our Discovery & Analytical Solutions segment was a result of an increase in environmental, food and industrial markets revenue of $44.9 million and an increase in life sciences research market revenue of $11.6 million , which was partially offset by a decrease in revenue of $12.2 million from the laboratory services market. The increase in revenue was primarily due to revenue from our acquisition of Perten in December 2014, as well as growth in our materials characterization product family within our environmental and industrial markets. In our life sciences research market, we experienced increased demand for our informatics business, as well as an increase in revenue from new product introductions, such as the Opera Phenix. In our laboratory services market, we had increased demand for our OneSource service offerings. The growth in our Discovery & Analytical Solutions segment was more than offset by unfavorable impacts from foreign currency as the U.S. dollar strengthened, particularly versus the Euro.

Operating income from continuing operations for fiscal year 2015 was $173.7 million , as compared to $162.1 million for fiscal year 2014 , an increase of $11.6 million , or 7% . Amortization of intangible assets increase d and was $54.6 million for fiscal year 2015 as compared to $52.9 million for fiscal year 2014 . Restructuring and contract termination charges, net increase d and were $11.4 million for fiscal year 2015 as compared to $10.9 million for fiscal year 2014 . Legal costs for a particular case were $0.8 million in fiscal year 2015 . Acquisition and divestiture-related expenses, contingent consideration and other costs increased expenses by $0.4 million for fiscal year 2015 , as compared to $4.2 million for fiscal year 2014 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $7.3 million in fiscal year 2015 as compared to $2.4 million in fiscal year 2014 . In addition to the factors noted above, the increase in operating income for fiscal year 2015 was primarily due to increased sales volume in the environmental, food, industrial and life sciences research markets and lower costs as a result of cost containment and productivity initiatives, which was partially offset by unfavorable impacts from foreign currency.

Diagnostics
2016 Compared to 2015 .  Revenue for fiscal year 2016 was $602.5 million , as compared to $576.4 million for fiscal year 2015 , an increase of $26.1 million , or 5% , which includes an approximate 1% decrease in revenue attributable to changes in foreign exchange rates, and an approximate 2.0% decrease in revenue attributable to the impact of prior year acquisitions and divestitures. In addition, the fiscal year 2016 consisted of 52 weeks as compared to fiscal year 2015 which consisted of 53 weeks. As a result of adjustments to deferred revenue related to certain acquisitions as required by business combination rules, we did not recognize $0.7 million of revenue for fiscal year 2016 and $0.8 million for fiscal year 2015 that otherwise would have been recorded by the acquired businesses during each of the respective periods. In our diagnostics market, we experienc