Document
false--01-03Q120200000031791PERKINELMER INCContingent 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.0.070.070.070.07113000000003000000001111400001113060001111400001113060000.01050.00500.00150.00350.0025 The weighted average Eurocurrency interest rate as of April 5, 2020 was 0.85%, resulting in a weighted average effective Eurocurrency Rate, including the margin, of 1.86%, which was the interest applicable to the borrowings outstanding as of April 5, 2020.Interest on the 2021 Notes is payable annually on April 9th each year.Interest on the 2029 Notes is payable semi-annually on March 15th and September 15th each yearThe interest rates on the Eurocurrency Rate loans are based on the Eurocurrency Rate at the time of borrowing, plus a percentage spread based on the credit rating of the Company's debt. The interest rates on the US Dollar Base Rate loans are based on the US Dollar Base Rate at the time of borrowing, plus a percentage spread based on the credit rating of the Company's debt. The base rate is the higher of (i) the Federal Funds Rate (as defined in the credit agreement) plus 50 basis points (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate," or (iii) the Eurocurrency Rate plus 1.00%. The Eurocurrency margin as of April 5, 2020 was 101.5 basis points.Of these bank loans, loans in the aggregate amount of $19.6 million bear fixed interest rates between 1.1% and 4.3% and a loan in the amount of $0.1 million bears a variable interest rate based on the Euribor rate plus a margin of 1.5%. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 5, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 001-5075
_______________________________________ 
PerkinElmer, Inc.
(Exact name of Registrant as specified in its Charter)
_______________________________________  
Massachusetts
 
04-2052042
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
940 Winter Street,
Waltham,
Massachusetts
 
02451
(Address of principal executive offices)
 
(Zip Code)
(781663-6900
(Registrant’s telephone number, including area code)
______________________________________ 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol (s)
Name of each exchange on which registered
Common stock, $1 par value per share
PKI
The New York Stock Exchange
1.875% Notes due 2026
PKI 21A
The New York Stock Exchange
0.60% Notes due 2021
PKI 21B
The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. 



Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
 
 


Emerging growth company

 
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of May 7, 2020, there were outstanding 111,386,181 shares of common stock, $1 par value per share.



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



3


PART I. FINANCIAL INFORMATION

Item 1.
Unaudited Financial Statements

PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
 
Three Months Ended
 
April 5,
2020
 
March 31,
2019
 
(In thousands, except per share data)
Product revenue
$
425,529

 
$
438,722

Service revenue
226,867

 
210,015

Total revenue
652,396

 
648,737

Cost of product revenue
206,190

 
206,276

Cost of service revenue
138,183

 
134,655

Total cost of revenue
344,373

 
340,931

Selling, general and administrative expenses
208,569

 
198,857

Research and development expenses
48,914

 
47,980

Restructuring and other costs, net
5,858

 
7,639

Operating income from continuing operations
44,682

 
53,330

Interest and other expense, net
9,993

 
16,565

Income from continuing operations before income taxes
34,689

 
36,765

Provision for income taxes
974

 
1,312

Income from continuing operations
33,715

 
35,453

Loss on disposition of discontinued operations before income taxes

 

Provision for income taxes on discontinued operations and dispositions
50

 
41

Loss from discontinued operations and dispositions
(50
)
 
(41
)
Net income
$
33,665

 
$
35,412

Basic earnings per share:
 
 
 
Income from continuing operations
$
0.30

 
$
0.32

Loss from discontinued operations and dispositions
(0.00
)
 
(0.00
)
Net income
$
0.30

 
$
0.32

Diluted earnings per share:
 
 
 
Income from continuing operations
$
0.30

 
$
0.32

Loss from discontinued operations and dispositions
(0.00
)
 
(0.00
)
Net income
$
0.30

 
$
0.32

Weighted average shares of common stock outstanding:
 
 
 
Basic
111,121

 
110,543

Diluted
111,644

 
111,293

Cash dividends declared per common share
$
0.07

 
$
0.07

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

4


PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended
 
April 5,
2020
 
March 31,
2019
 
(In thousands)
Net income
$
33,665

 
$
35,412

Other comprehensive loss:
 
 
 
Foreign currency translation adjustments
(78,593
)
 
3,066

Unrealized loss on securities, net of tax
(88
)
 
(120
)
Other comprehensive (loss) income
(78,681
)
 
2,946

Comprehensive (loss) income
$
(45,016
)
 
$
38,358











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

5


PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
April 5,
2020
 
December 29,
2019
 
(In thousands, except share and per share data)
Current assets:
 
 
 
Cash and cash equivalents
$
195,146

 
$
191,877

Accounts receivable, net
626,150

 
725,184

Inventories
393,164

 
356,937

Other current assets
127,366

 
100,381

Total current assets
1,341,826

 
1,374,379

Property, plant and equipment:
 
 
 
At cost
703,266

 
701,580

Accumulated depreciation
(389,409
)
 
(383,357
)
Property, plant and equipment, net
313,857

 
318,223

Operating lease right-of-use assets

196,319

 
167,276

Intangible assets, net
1,200,288

 
1,283,286

Goodwill
3,051,694

 
3,111,227

Other assets, net
280,412

 
284,173

Total assets
$
6,384,396

 
$
6,538,564

Current liabilities:
 
 
 
Current portion of long-term debt
$
9,654

 
$
9,974

Accounts payable
233,227

 
235,855

Short-term accrued restructuring and other costs
11,298

 
11,559

Accrued expenses and other current liabilities
473,853

 
503,332

Current liabilities of discontinued operations
2,112

 
2,112

Total current liabilities
730,144

 
762,832

Long-term debt
2,010,525

 
2,064,041

Long-term liabilities
704,154

 
751,468

Operating lease liabilities

179,827

 
146,399

Total liabilities
3,624,650

 
3,724,740

Commitments and contingencies (see Note 18)

 

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

 

Common stock—$1 par value per share, authorized 300,000,000 shares; issued and outstanding 111,306,000 shares and 111,140,000 shares at April 5, 2020 and December 29, 2019, respectively
111,306

 
111,140

Capital in excess of par value
90,236

 
90,357

Retained earnings
2,836,531

 
2,811,973

Accumulated other comprehensive loss
(278,327
)
 
(199,646
)
Total stockholders’ equity
2,759,746

 
2,813,824

Total liabilities and stockholders’ equity
$
6,384,396

 
$
6,538,564

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

6


PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

 
 
For the Three-Month Period Ended April 5, 2020
 
Common
Stock
Amount
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
(In thousands)
Balance, December 29, 2019
$
111,140

 
$
90,357

 
$
2,811,973

 
$
(199,646
)
 
$
2,813,824

Impact of adopting ASU 2016-13 (see Note 1)


 

 
(1,328
)
 

 
(1,328
)
Net income

 

 
33,665

 

 
33,665

Other comprehensive loss

 

 

 
(78,681
)
 
(78,681
)
Dividends

 

 
(7,779
)
 

 
(7,779
)
Exercise of employee stock options and related income tax benefits
21

 
1,085

 

 

 
1,106

Issuance of common stock for employee stock purchase plans
14

 
1,242

 

 

 
1,256

Purchases of common stock
(66
)
 
(6,276
)
 

 

 
(6,342
)
Issuance of common stock for long-term incentive program
197

 
2,831

 

 

 
3,028

Stock compensation

 
997

 

 

 
997

Balance, April 5, 2020
$
111,306

 
$
90,236

 
$
2,836,531

 
$
(278,327
)
 
$
2,759,746



 
For the Three-Month Period Ended March 31, 2019
 
Common
Stock
Amount
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
(In thousands)
Balance, December 30, 2018
$
110,597

 
$
48,772

 
$
2,602,067

 
$
(176,481
)
 
$
2,584,955

Impact of adopting ASU 2016-02


 

 
13,289

 

 
13,289

Net income

 

 
35,412

 

 
35,412

Other comprehensive income

 

 

 
2,946

 
2,946

Dividends

 

 
(7,742
)
 

 
(7,742
)
Exercise of employee stock options and related income tax benefits
186

 
8,424

 

 

 
8,610

Issuance of common stock for employee stock purchase plans
19

 
1,367

 

 

 
1,386

Purchases of common stock
(57
)
 
(5,236
)
 

 

 
(5,293
)
Issuance of common stock for long-term incentive program
146

 
3,392

 

 

 
3,538

Stock compensation

 
1,371

 

 

 
1,371

Balance, March 31, 2019
$
110,891

 
$
58,090

 
$
2,643,026

 
$
(173,535
)
 
$
2,638,472



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


7


PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
April 5,
2020
 
March 31,
2019
 
(In thousands)
Operating activities:
 
 
 
Net income
$
33,665

 
$
35,412

Loss from discontinued operations and dispositions, net of income taxes
50

 
41

Income from continuing operations
33,715

 
35,453

Adjustments to reconcile income from continuing operations to net cash provided by (used in) continuing operations:
 
 
 
Stock-based compensation
3,050

 
6,097

Restructuring and other costs, net
5,858

 
7,639

Depreciation and amortization
60,758

 
50,469

Loss on disposition of businesses and assets, net

 
2,133

Change in fair value of contingent consideration
(12,325
)
 
3,102

Amortization of deferred debt financing costs and accretion of discounts
707

 
861

Amortization of acquired inventory revaluation
1,088

 
283

Changes in assets and liabilities which provided (used) cash, excluding effects from companies acquired:
 
 
 
Accounts receivable, net
80,600

 
7,864

Inventories
(54,758
)
 
(38,441
)
Accounts payable
3,164

 
(1,451
)
Accrued expenses and other
(61,807
)
 
(79,325
)
Net cash provided by (used in) operating activities of continuing operations
60,050

 
(5,316
)
Net cash used in operating activities of discontinued operations

 

Net cash provided by (used in) operating activities
60,050

 
(5,316
)
Investing activities:
 
 
 
Capital expenditures
(20,488
)
 
(19,875
)
Purchases of investments
(1,638
)
 
(519
)
Purchases of licenses

 
(5,000
)
Proceeds from disposition of businesses and assets
60

 
550

Proceeds from surrender of life insurance policies
52

 

Activity related to acquisitions, net of cash and cash equivalents acquired

 
(4,384
)
Net cash used in investing activities of continuing operations
(22,014
)
 
(29,228
)
Net cash provided by investing activities of discontinued operations

 

Net cash used in investing activities
(22,014
)
 
(29,228
)
Financing activities:
 
 
 
Payments on borrowings
(141,000
)
 
(152,000
)
Proceeds from borrowings
125,000

 
179,000

Payments of debt financing costs

 
(88
)
Settlement of cash flow hedges
8,708

 
(1,675
)
Net payments on other credit facilities
(4,283
)
 
(3,476
)
Payments for acquisition-related contingent consideration

 
(12,100
)
Proceeds from issuance of common stock under stock plans
1,106

 
8,610

Purchases of common stock
(6,342
)
 
(5,293
)
Dividends paid
(7,781
)
 
(7,743
)
Net cash (used in) provided by financing activities of continuing operations
(24,592
)
 
5,235

Net cash provided by financing activities of discontinued operations

 

Net cash (used in) provided by financing activities
(24,592
)
 
5,235

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(10,169
)
 
450

Net increase (decrease) in cash, cash equivalents and restricted cash
3,275

 
(28,859
)
Cash, cash equivalents and restricted cash at beginning of period
191,894

 
166,315

Cash, cash equivalents and restricted cash at end of period
$
195,169

 
$
137,456

 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
Reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total shown in the condensed consolidated statements of cash flows:

 
 
 
Cash and cash equivalents
$
195,146

 
$
134,252

Restricted cash included in other current assets
23

 
3,204

Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows
$
195,169

 
$
137,456

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

8


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

Note 1: Basis of Presentation
 
The condensed consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), in accordance with accounting principles generally accepted in the United States of America (the “U.S.” or the "United States") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information in the footnote disclosures of the financial statements has been condensed or omitted where it substantially duplicates information provided in the Company’s latest audited consolidated financial statements, in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 29, 2019, filed with the SEC (the “2019 Form 10-K”). The balance sheet amounts at December 29, 2019 in this report were derived from the Company’s audited 2019 consolidated financial statements included in the 2019 Form 10-K. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended April 5, 2020 and March 31, 2019, respectively, are not necessarily indicative of the results for the entire fiscal year or any future period.
The Company’s fiscal year ends on the Sunday nearest December 31. The Company reports fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. The fiscal year ending January 3, 2021 ("fiscal year 2020") will include 53 weeks, and the fiscal year ended December 29, 2019 ("fiscal year 2019") included 52 weeks.
Recently Adopted and Issued Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB") and are adopted by the Company as of the specified effective dates. Unless otherwise discussed, such pronouncements did not have or will not have a significant impact on the Company’s consolidated financial position, results of operations and cash flows or do not apply to the Company’s operations.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 eliminates certain exceptions and adds guidance to reduce complexity in accounting for income taxes. Specifically, this guidance: (1) removes the intraperiod tax allocation exception to the incremental approach; (2) removes the ownership changes in investments exception in determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting and applies this provision on a modified retrospective basis through a cumulative-effect adjustment to retained earnings at the beginning of the period of adoption; and (3) removes the exception to using the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also simplifies accounting principles by making other changes, including requiring an entity to: (1) evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction; (2) make a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and to apply this provision retrospectively to all periods presented; and (3) recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and apply this provision either retrospectively for all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The provisions of this guidance (except as specifically mentioned above) are to be applied prospectively upon their effective date. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those years. Early adoption is permitted but requires simultaneous adoption of all provisions of this guidance. The Company is currently evaluating the requirements of this guidance and has not yet determined the impact of its adoption on the Company's consolidated financial position, results of operations and cash flows.
In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ("ASU 2019-04"). ASU 2019-04 clarifies certain aspects of previously issued accounting standards related to: (1) ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements ("ASU 2016-13"), in areas of accrued interest receivable, transfers of loans and debt securities between classifications, recoveries and prepayments, (2) ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"), in areas of partial-term fair value hedges, fair value hedge basis adjustments, certain disclosures and transition

9


requirements and (3) ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), in areas of remeasurement of equity securities under ASC 820, Fair Value Measurement, when using the measurement alternative and remeasurement of equity securities at historical exchange rates. The amendments related to ASU 2016-13 are required to be adopted in conjunction with that accounting standards update, as further described below. Since the Company has already adopted ASU 2017-12 and ASU 2016-01, the related amendments in ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted in any interim period. The amendments to ASU 2017-12 can either be adopted retrospectively as of the date of adoption of ASU 2017-12 or they can be adopted prospectively. The amendments to ASU 2016-01 are required to be applied using a modified-retrospective adoption approach with a cumulative-effect adjustment to retained earnings as of the date of adoption of ASU 2016-01, except for those related to equity securities without readily determinable fair values that are measured using the measurement alternative, which are required to be applied prospectively. The standard was effective for the Company beginning on December 30, 2019, the first day of the Company's fiscal year 2020. The Company applied the provisions of this guidance prospectively. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract ("ASU 2018-15"). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software (and hosting arrangements that include an internal-use software license). The provisions of this guidance are to be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The standard was effective for the Company beginning on December 30, 2019, the first day of the Company's fiscal year 2020. The Company applied the provisions of this guidance prospectively. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14"). ASU 2018-14 adds, removes, and clarifies disclosure requirements related to defined benefit pension and other postretirement plans. ASU 2018-14 adds requirements for an entity to disclose the weighted-average interest crediting rates used in the entity’s cash balance pension plans and other similar plans; and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. Further, ASU 2018-14 removes guidance that currently requires the following disclosures: the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year; the amount and timing of plan assets expected to be returned to the employer; information about (1) benefits covered by related-party insurance and annuity contracts and (2) significant transactions between the plan and related parties; and the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost, and the benefit obligation for postretirement health care benefits. ASU 2018-14 also clarifies the guidance in Compensation-Retirement Benefits (Topic 715-20-50-3) on defined benefit plans to require disclosure of (1) the projected benefit obligation ("PBO") and fair value of plan assets for pension plans with PBOs in excess of plan assets (the same disclosure with reference to the accumulated postretirement benefit obligation rather than the PBO is required for other postretirement benefit plans) and (2) the accumulated benefit obligation ("ABO") and fair value of plan assets for pension plans with ABOs in excess of plan assets. The provisions of this guidance are to be applied retrospectively to all periods presented upon their effective date. ASU 2018-14 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those years with early adoption permitted. The Company is currently evaluating the requirements of this guidance and has not yet determined the impact of its adoption on the Company's consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 adds, removes, and modifies certain disclosures related to fair value measurements. ASU 2018-13 adds requirements for an entity to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, ASU 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also modifies existing disclosure requirements related to measurement uncertainty. The amendments regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are to be applied retrospectively to all periods presented upon their effective date. The standard was effective for the Company beginning on

10


December 30, 2019, the first day of the Company's fiscal year 2020. The adoption did not have a material impact on the Company's disclosures related to fair value measurements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard requires entities to use the expected loss impairment model and will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. Entities are required to estimate the lifetime “expected credit loss” for each applicable financial asset and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The standard also amends the impairment model for available-for-sale (“AFS”) debt securities and requires entities to determine whether all or a portion of the unrealized loss on an AFS debt security is a credit loss. An entity will recognize an allowance for credit losses on an AFS debt security as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment. The provisions of this guidance are to be applied using a modified-retrospective approach. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Subsequent to the issuance of ASU 2016-13, in November 2018, the FASB issued Accounting Standards Update No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses ("ASU 2018-19"), in April 2019, the FASB issued ASU 2019-04, and in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments - Credit Losses (Topic 326), Targeted Transition Relief ("ASU 2019-05"). The amendments in ASU 2018-19 clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The amendments in ASU 2019-04 clarify the measurement of allowance for credit losses on accrued interest receivable; the inclusion of expected recoveries in the allowance for credit losses; the permission of a prepayment-adjusted effective interest rate when determining the allowance for credit losses; and the steps entities should take when recording the transfer of loans or debt securities between measurement classifications. The amendments in ASU 2019-05 provide an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments-Overall, on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost basis upon adoption of ASU 2016-13, but this fair value option election does not apply to held-to-maturity debt securities. The effective date and transition requirements for the amendments in ASU 2018-19, ASU 2019-04 and ASU 2019-05 are the same as the effective date and transition requirements of ASU 2016-13, which is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those years. The standards were effective for the Company beginning on December 30, 2019, the first day of the Company's fiscal year 2020. The Company adopted these standards using the modified-retrospective approach. The adoption of the standards resulted in a decrease in retained earnings at December 30, 2019 of approximately $1.3 million from the cumulative effect of initially applying the standards as of that date. In addition, the adoption of the standard resulted in an increase in reserve for doubtful accounts of $1.7 million and an increase in deferred tax assets of $0.4 million from the tax impact of the cumulative adjustments. The adoption did not have an impact on cash from or used in operating, investing or financing activities in the Company's consolidated statement of cash flows at December 30, 2019.

Note 2: Revenue

Disaggregation of revenue
In the following tables, revenue is disaggregated by primary geographical markets, primary end-markets and timing of revenue recognition. The tables also include a reconciliation of the disaggregated revenue with the reportable segments' revenue.


11


 
Reportable Segments
 
Three Months Ended
 
April 5, 2020
 
March 31, 2019
 
Discovery & Analytical Solutions
 
Diagnostics
 
Total
 
Discovery & Analytical Solutions
 
Diagnostics
 
Total
 
(In thousands)
Primary geographical markets
 
 
 
 
 
 
 
 
 
 
 
Americas
$
169,116

 
$
105,157

 
$
274,273

 
$
162,417

 
$
98,008

 
$
260,425

Europe
118,657

 
81,599

 
200,256

 
107,606

 
65,858

 
173,464

Asia
110,622

 
67,245

 
177,867

 
118,810

 
96,038

 
214,848

 
$
398,395

 
$
254,001

 
$
652,396

 
$
388,833

 
$
259,904

 
$
648,737

 
 
 
 
 
 
 
 
 
 
 
 
Primary end-markets
 
 
 
 
 
 
 
 
 
 
 
Diagnostics
$

 
$
254,001

 
$
254,001

 
$

 
$
259,904

 
$
259,904

Life sciences
245,733

 

 
245,733

 
217,377

 

 
217,377

Applied markets
152,662

 

 
152,662

 
171,456

 

 
171,456

 
$
398,395

 
$
254,001

 
$
652,396

 
$
388,833

 
$
259,904

 
$
648,737

 
 
 
 
 
 
 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
 
 
 
 
 
 
Products and services transferred at a point in time
$
267,907

 
$
231,653

 
$
499,560

 
$
275,438

 
$
239,247

 
$
514,685

Services transferred over time
130,488

 
22,348

 
152,836

 
113,395

 
20,657

 
134,052

 
$
398,395

 
$
254,001

 
$
652,396

 
$
388,833

 
$
259,904

 
$
648,737



Contract Balances
Contract assets: The unbilled receivables (contract assets) primarily relate to the Company's right to consideration for work completed but not billed at the reporting date. The unbilled receivables are transferred to trade receivables when billed to customers. Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the consolidated balance sheets. The balance of contract assets as of April 5, 2020 and December 29, 2019 were $33.7 million and $37.0 million, respectively. The amount of unbilled receivables recognized at the beginning of the period that were transferred to trade receivables during the three months ended April 5, 2020 was $14.9 million. The increase in unbilled receivables during the three months ended April 5, 2020 as a result of recognition of revenue before billing to customers, excluding amounts transferred to trade receivables during the period, amounted to $11.6 million.
Contract liabilities: The contract liabilities primarily relate to the advance consideration received from customers for products and related installation for which transfer of control has not occurred at the balance sheet date. Contract liabilities are classified as either current in "Accounts payable" or long-term in "Long-term liabilities" in the consolidated balance sheets based on the timing of when the Company expects to recognize revenue. The balance of contract liabilities as of April 5, 2020 and December 29, 2019 were $32.1 million and $29.9 million, respectively. The increase in contract liabilities during the three months ended April 5, 2020 due to cash received, excluding amounts recognized as revenue during the period, was $14.8 million. The amount of revenue recognized during the three months ended April 5, 2020 that was included in the contract liability balance at the beginning of the period was $12.6 million.
Contract costs: The Company recognizes the incremental costs of obtaining a contract with a customer as an asset if it expects the benefit of those costs to be longer than one year. The Company determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the period and are included in other current and long-term assets on the consolidated balance sheets. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include the Company's internal sales force compensation program, as the Company determined that annual compensation is commensurate with annual sales activities.
Transaction price allocated to the remaining performance obligations

12


The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. The estimated revenue expected to be recognized beyond one year in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the period are not material to the Company. The remaining performance obligations primarily include noncancelable purchase orders and noncancelable software subscriptions and cloud service contracts.

Note 3: Business Combinations
Acquisitions in fiscal year 2019
During the fiscal year 2019, the Company completed the acquisition of five businesses for aggregate consideration of $433.1 million in cash. The acquired businesses include Cisbio Bioassays SAS (“Cisbio”), a company based in Codolet, France, which was acquired for a total consideration of $219.9 million in cash, Shandong Meizheng Bio-Tech Co., Ltd. ("Meizheng Group"), a company headquartered in Beijing, China, for a total consideration of $166.5 million in cash, and three other businesses which were acquired for a total consideration of $46.6 million in cash. The Company has a potential obligation to pay the former shareholders of certain of these acquired businesses additional contingent consideration of up to $31.8 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments, as applicable, from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 11.0 years.

The total purchase price for the acquisitions in fiscal year 2019 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
 
Cisbio
 
Meizheng
 
Other
 
(In thousands)
Fair value of business combination:
 
 
 
 
 
Cash payments
$
219,795

 
$
145,000

 
$
45,042

Other liability

 
6,446

 
638

Contingent consideration

 
12,100

 
634

Working capital and other adjustments
138

 
2,961

 
302

Less: cash acquired
(12,542
)
 
(2,108
)
 
(1,334
)
Total
$
207,391

 
$
164,399

 
$
45,282

Identifiable assets acquired and liabilities assumed:
 
 
 
 
 
Current assets
$
43,554

 
$
15,160

 
$
4,042

Property, plant and equipment
4,835

 
6,278

 
727

Other assets
100

 
32

 
481

Identifiable intangible assets:
 
 
 
 
 
Core technology
89,000

 
36,600

 
27,667

Trade names
5,000

 
4,900

 
1,310

Customer relationships
39,000

 
55,800

 
6,700

Goodwill
73,061

 
79,175

 
17,005

Deferred taxes
(34,606
)
 
(21,849
)
 
(6,657
)
Debt assumed

 
(706
)
 
(2,698
)
Liabilities assumed
(12,553
)
 
(10,991
)
 
(3,295
)
Total
$
207,391

 
$
164,399

 
$
45,282



The preliminary allocations of the purchase prices for acquisitions are based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas

13


of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.
During fiscal year 2020, the Company obtained information relevant to determining the fair values of certain tangible and intangible assets acquired, and liabilities assumed, related to recent acquisitions and adjusted its purchase price allocations. Based on this information, the Company recognized an increase in intangible assets of $1.9 million, a decrease in goodwill of $1.6 million and a decrease in deferred tax liabilities of $0.3 million during the three months ended April 5, 2020.
Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds, changes in discount rates or product development milestones during the earnout period.
As of April 5, 2020, the Company may have to pay contingent consideration related to acquisitions with open contingency periods of up to $57.1 million. As of April 5, 2020, the Company has recorded contingent consideration obligations with an estimated fair value of $22.8 million, of which $20.5 million was recorded in accrued expenses and other current liabilities, and $2.3 million was recorded in long-term liabilities. As of December 29, 2019, the Company had recorded contingent consideration obligations with an estimated fair value of $35.5 million, of which $20.8 million was recorded in accrued expenses and other current liabilities, and $14.7 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 2.8 years from April 5, 2020, and the remaining weighted average expected earnout period at April 5, 2020 was 1 year. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.
Total acquisition and divestiture-related costs for the three months ended April 5, 2020 and March 31, 2019 were $12.4 million and $1.8 million, respectively. These amounts included $12.3 million of incentive award associated with the Company's acquisition of Meizheng Group for the three months ended April 5, 2020 and $0.5 million of stay bonus associated with the Company's acquisition of Tulip Diagnostics Private Limited for the three months ended March 31, 2019. These acquisition and divestiture-related costs were expensed as incurred and recorded in selling, general and administrative expenses and interest and other expense, net in the Company's consolidated statements of operations.

Note 4: Restructuring and Other Costs, Net
The Company has undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, the alignment of the Company's operations with its growth strategy, the integration of its business units and its productivity initiatives. The activities associated with these plans have been reported as restructuring and other costs, net, as applicable, and are included as a component of income from continuing operations. The current portion of restructuring and other costs is recorded in short-term accrued restructuring and other costs and accrued expense and other current liabilities. The long-term portion of restructuring and other costs is recorded in long-term liabilities and operating lease liabilities.
The Company implemented a restructuring plan in the first quarter of fiscal year 2020 consisting of workforce reductions and closure of excess facilities principally intended to realign resources to emphasize growth initiatives (the "Q1 2020 Plan"). The Company implemented a restructuring plan in each quarter of fiscal year 2019 consisting of workforce reductions

14


principally intended to realign resources to emphasize growth initiatives (the "Q1 2019 Plan", "Q2 2019 Plan", "Q3 2019 Plan" and "Q4 2019 Plan", respectively). Details of the plans initiated in previous years (the “Previous Plans”) are discussed more fully in Note 5 to the audited consolidated financial statements in the 2019 Form 10-K.
The following table summarizes the reductions in headcount, the initial restructuring or contract termination charges by reporting segment, and the dates by which payments were substantially completed, or the dates by which payments are expected to be substantially completed, for restructuring actions implemented during fiscal years 2020 and 2019 in continuing operations:
 
Workforce Reductions
 
Closure of Excess Facility
 
Total
 
(Expected) Date Payments Substantially Completed by
 
Headcount Reduction
 
Discovery & Analytical Solutions
 
Diagnostics
 
Discovery & Analytical Solutions
 
Diagnostics
 
 
Severance
 
Excess Facility
 
 
 
 
 
 
 
 
(In thousands, except headcount data)
 
 
 
 
Q1 2020 Plan

32
 
$
2,312

 
$
1,134

 
$
92

 
$
682

 
$
4,220

 
Q4 FY2020
 
Q1 FY2022
Q4 2019 Plan

22
 
$
177

 
2,404

 

 

 
2,581

 
Q3 FY2020
 
Q3 2019 Plan

259
 
$
11,156

 
2,641

 

 

 
13,797

 
Q2 FY2020
 
Q2 2019 Plan

44
 
4,461

 
1,129

 

 

 
5,590

 
Q1 FY2020
 
Q1 2019 Plan

105
 
6,001

 
1,459

 

 

 
7,460

 
Q4 FY2019
 

The Company does not currently expect to incur any future charges for these plans. The Company expects to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022.
In connection with the termination of various contractual commitments, the Company recorded additional pre-tax charges of $0.1 million and $0.2 million during the three months ended April 5, 2020, in the Diagnostics and Discovery & Analytical Solutions segments, respectively.
The Company recorded pre-tax charges of $0.1 million and $1.3 million associated with relocating facilities during the three months ended April 5, 2020 in the Diagnostics and Discovery & Analytical Solutions segments, respectively. The Company expects to make payments on these relocation activities through fiscal year 2021.

15


At April 5, 2020, the Company had $15.1 million recorded for accrued restructuring and other costs, of which $11.3 million was recorded in short-term accrued restructuring and other costs, $1.7 million was recorded in long-term liabilities, and $2.1 million was recorded in operating lease liabilities. At December 29, 2019, the Company had $13.9 million recorded for accrued restructuring and other costs, of which $11.6 million was recorded in short-term accrued restructuring and other costs, $0.4 million was recorded in accrued expenses and other current liabilities, $0.8 million was recorded in long-term liabilities, and $1.1 million was recorded in operating lease liabilities. The following table summarizes the Company's restructuring accrual balances and related activity by restructuring plan, as well as other accrual balances and related activity, during the three months ended April 5, 2020:
 
Balance at December 29, 2019
 
2020 Charges
 
2020 Changes in Estimates, Net
 
2020 Amounts Paid
 
Balance at April 5, 2020
 
(In thousands)
Severance:
 
 
 
 
 
 
 
 
 
Q1 2020 Plan

$

 
$
3,446

 
$

 
$
(791
)
 
$
2,655

Q4 2019 Plan

889

 

 

 
(40
)
 
849

Q3 2019 Plan

6,311

 

 

 
(1,456
)
 
4,855

Q2 2019 Plan

1,889

 

 

 
(857
)
 
1,032

Q1 2019 Plan

2,129

 

 

 
(669
)
 
1,460

 
 
 
 
 
 
 
 
 
 
Facility:
 
 
 
 
 
 
 
 
 
Q1 2020 Plan


 
774

 

 
(92
)
 
682

 
 
 
 
 
 
 
 
 
 
Previous Plans
1,647

 

 

 
(112
)
 
1,535

Restructuring
12,865

 
4,220



 
(4,017
)
 
13,068

Contract Termination
188

 

 
212

 

 
400

Other Costs
827

 
1,426

 

 
(598
)
 
1,655

Total Restructuring and Other Liabilities
$
13,880

 
$
5,646

 
$
212

 
$
(4,615
)
 
$
15,123



Note 5: Interest and Other Expense, Net

Interest and other expense, net, consisted of the following:
 
Three Months Ended
 
April 5,
2020
 
March 31,
2019
 
(In thousands)
Interest income
$
(265
)
 
$
(283
)
Interest expense
13,665

 
15,850

Loss on disposition of businesses and assets, net

 
2,133

Other income, net
(3,407
)
 
(1,135
)
Total interest and other expense, net
$
9,993

 
$
16,565


Foreign currency transaction losses were $7.9 million and $0.1 million for the three months ended April 5, 2020 and March 31, 2019, respectively. Net (gains) losses from forward currency hedge contracts were $(9.6) million and $0.3 million for the three months ended April 5, 2020 and March 31, 2019, respectively. The other components of net periodic pension credit were $1.7 million and $1.5 million for the three months ended April 5, 2020 and March 31, 2019, respectively. These amounts were included in other income, net.


16


Note 6: Inventories

Inventories as of April 5, 2020 and December 29, 2019 consisted of the following:
 
April 5,
2020
 
December 29,
2019
 
(In thousands)
Raw materials
$
140,480

 
$
130,673

Work in progress
26,712

 
26,409