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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 4, 2021
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number 001-5075
_______________________________________
PerkinElmer, Inc.
(Exact name of Registrant as specified in its Charter)
_______________________________________
| | | | | | | | | | | | | | |
Massachusetts | | 04-2052042 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
940 Winter Street, | Waltham, | Massachusetts | | 02451 |
(Address of principal executive offices) | | (Zip Code) |
(781) 663-6900
(Registrant’s telephone number, including area code)
______________________________________
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 |
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 6, 2021, there were outstanding 112,091,175 shares of common stock, $1 par value per share.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. OTHER INFORMATION | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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PART I. FINANCIAL INFORMATION
Item 1.Unaudited Financial Statements
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 4, 2021 | | April 5, 2020 | | | | |
| (In thousands, except per share data) |
Product revenue | $ | 811,552 | | | $ | 425,529 | | | | | |
Service revenue | 496,137 | | | 226,867 | | | | | |
Total revenue | 1,307,689 | | | 652,396 | | | | | |
Cost of product revenue | 339,312 | | | 206,190 | | | | | |
Cost of service revenue | 183,231 | | | 138,183 | | | | | |
Total cost of revenue | 522,543 | | | 344,373 | | | | | |
Selling, general and administrative expenses | 251,410 | | | 208,569 | | | | | |
Research and development expenses | 60,216 | | | 48,914 | | | | | |
Restructuring and other costs, net | 5,744 | | | 5,858 | | | | | |
Operating income from continuing operations | 467,776 | | | 44,682 | | | | | |
Interest and other (income) expense, net | (12,706) | | | 9,993 | | | | | |
Income from continuing operations before income taxes | 480,482 | | | 34,689 | | | | | |
Provision for income taxes | 101,139 | | | 974 | | | | | |
Income from continuing operations | 379,343 | | | 33,715 | | | | | |
| | | | | | | |
Loss on disposition of discontinued operations before income taxes | — | | | — | | | | | |
Provision for income taxes on discontinued operations and dispositions | 38 | | | 50 | | | | | |
Loss from discontinued operations and dispositions | (38) | | | (50) | | | | | |
Net income | $ | 379,305 | | | $ | 33,665 | | | | | |
Basic earnings per share: | | | | | | | |
Income from continuing operations | $ | 3.39 | | | $ | 0.30 | | | | | |
Loss from discontinued operations and dispositions | (0.00) | | | (0.00) | | | | | |
Net income | $ | 3.39 | | | $ | 0.30 | | | | | |
Diluted earnings per share: | | | | | | | |
Income from continuing operations | $ | 3.37 | | | $ | 0.30 | | | | | |
Loss from discontinued operations and dispositions | (0.00) | | | (0.00) | | | | | |
Net income | $ | 3.37 | | | $ | 0.30 | | | | | |
Weighted average shares of common stock outstanding: | | | | | | | |
Basic | 112,028 | | | 111,121 | | | | | |
Diluted | 112,495 | | | 111,644 | | | | | |
Cash dividends declared per common share | $ | 0.07 | | | $ | 0.07 | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 4, 2021 | | April 5, 2020 | | | | |
| (In thousands) |
Net income | $ | 379,305 | | | $ | 33,665 | | | | | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments, net of income taxes | (72,305) | | | (78,593) | | | | | |
| | | | | | | |
| | | | | | | |
Unrealized gain (loss) on securities, net of income taxes | 94 | | | (88) | | | | | |
Other comprehensive loss | (72,211) | | | (78,681) | | | | | |
Comprehensive income (loss) | $ | 307,094 | | | $ | (45,016) | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | |
| April 4, 2021 | | January 3, 2021 |
| (In thousands, except share and per share data) |
Current assets: | | | |
Cash and cash equivalents | $ | 988,234 | | | $ | 402,036 | |
Accounts receivable, net | 978,598 | | | 1,155,109 | |
| | | |
Inventories | 529,908 | | | 514,567 | |
Other current assets | 177,831 | | | 167,208 | |
| | | |
Total current assets | 2,674,571 | | | 2,238,920 | |
Property, plant and equipment, net | 371,102 | | | 368,304 | |
Operating lease right-of-use assets | 213,306 | | | 207,236 | |
Intangible assets, net | 1,473,256 | | | 1,365,693 | |
Goodwill | 3,683,790 | | | 3,447,114 | |
Other assets, net | 346,700 | | | 333,048 | |
| | | |
Total assets | $ | 8,762,725 | | | $ | 7,960,315 | |
Current liabilities: | | | |
Current portion of long-term debt | $ | 358,435 | | | $ | 380,948 | |
Accounts payable | 339,326 | | | 327,325 | |
| | | |
Accrued expenses and other current liabilities | 822,749 | | | 943,916 | |
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Total current liabilities | 1,520,510 | | | 1,652,189 | |
Long-term debt | 2,219,670 | | | 1,609,701 | |
Long-term liabilities | 827,636 | | | 774,531 | |
Operating lease liabilities | 192,604 | | | 188,402 | |
| | | |
Total liabilities | 4,760,420 | | | 4,224,823 | |
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 112,066,000 shares and 112,090,000 shares at April 4, 2021 and January 3, 2021, respectively | 112,066 | | | 112,090 | |
Capital in excess of par value | 115,690 | | | 148,101 | |
Retained earnings | 3,878,721 | | | 3,507,262 | |
Accumulated other comprehensive loss | (104,172) | | | (31,961) | |
Total stockholders’ equity | 4,002,305 | | | 3,735,492 | |
Total liabilities and stockholders’ equity | $ | 8,762,725 | | | $ | 7,960,315 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three-Month Period Ended April 4, 2021 |
| Common Stock Amount | | Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity |
| (In thousands) |
Balance, January 3, 2021 | $ | 112,090 | | | $ | 148,101 | | | $ | 3,507,262 | | | $ | (31,961) | | | $ | 3,735,492 | |
Net income | — | | | — | | | 379,305 | | | — | | | 379,305 | |
Other comprehensive loss | — | | | — | | | — | | | (72,211) | | | (72,211) | |
Dividends | — | | | — | | | (7,846) | | | — | | | (7,846) | |
Exercise of employee stock options and related income tax benefits | 95 | | | 4,892 | | | — | | | — | | | 4,987 | |
Issuance of common stock for employee stock purchase plans | — | | | 8 | | | — | | | — | | | 8 | |
Purchases of common stock | (295) | | | (42,484) | | | — | | | — | | | (42,779) | |
Issuance of common stock for long-term incentive program | 176 | | | 4,274 | | | — | | | — | | | 4,450 | |
Stock compensation | — | | | 899 | | | — | | | — | | | 899 | |
Balance, April 4, 2021 | $ | 112,066 | | | $ | 115,690 | | | $ | 3,878,721 | | | $ | (104,172) | | | $ | 4,002,305 | |
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| 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 2016-02 | — | | | — | | | (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 | |
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The accompanying notes are an integral part of these consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended |
| April 4, 2021 | | April 5, 2020 |
| (In thousands) |
Operating activities: | | | |
Net income | $ | 379,305 | | | $ | 33,665 | |
Loss from discontinued operations and dispositions, net of income taxes | 38 | | | 50 | |
Income from continuing operations | 379,343 | | | 33,715 | |
Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: | | | |
Stock-based compensation | 5,157 | | | 3,050 | |
Restructuring and other costs, net | 5,744 | | | 5,858 | |
Depreciation and amortization | 70,186 | | | 60,758 | |
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Change in fair value of contingent consideration | 240 | | | (12,325) | |
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Amortization of deferred debt financing costs and accretion of discounts | 896 | | | 707 | |
Change in fair value of financial securities | (19,298) | | | — | |
Amortization of acquired inventory revaluation | 2,981 | | | 1,088 | |
Changes in assets and liabilities which provided (used) cash, excluding effects from companies acquired: | | | |
Accounts receivable, net | 165,190 | | | 80,600 | |
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Inventories | (15,008) | | | (54,758) | |
Accounts payable | (5,048) | | | 3,164 | |
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Accrued expenses and other | (116,883) | | | (61,807) | |
Net cash provided by operating activities of continuing operations | 473,500 | | | 60,050 | |
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Investing activities: | | | |
Capital expenditures | (14,311) | | | (20,488) | |
Purchases of investments | (4,000) | | | (1,638) | |
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Proceeds from disposition of businesses and assets | — | | | 60 | |
Proceeds from surrender of life insurance policies | — | | | 52 | |
Cash paid for acquisitions, net of cash, cash equivalents and restricted cash acquired | (443,543) | | | — | |
Net cash used in investing activities of continuing operations | (461,854) | | | (22,014) | |
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Financing activities: | | | |
Payments on borrowings | (743,545) | | | (141,000) | |
Proceeds from borrowings | 584,000 | | | 125,000 | |
Proceeds from sale of senior unsecured notes | 799,856 | | | — | |
Payments of debt financing costs | (7,882) | | | — | |
Settlement of cash flow hedges | 6,005 | | | 8,708 | |
Net payments on other credit facilities | (9,799) | | | (4,283) | |
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Proceeds from issuance of common stock under stock plans | 4,987 | | | 1,106 | |
Purchases of common stock | (42,779) | | | (6,342) | |
Dividends paid | (7,852) | | | (7,781) | |
Net cash provided by (used in) financing activities of continuing operations | 582,991 | | | (24,592) | |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash | (6,849) | | | (10,169) | |
Net increase in cash, cash equivalents and restricted cash | 587,788 | | | 3,275 | |
Cash, cash equivalents and restricted cash at beginning of period | 402,613 | | | 191,894 | |
Cash, cash equivalents and restricted cash at end of period | $ | 990,401 | | | $ | 195,169 | |
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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 | $ | 988,234 | | | $ | 195,146 | |
Restricted cash included in other current assets | 2,167 | | | 23 | |
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | 990,401 | | | $ | 195,169 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), in accordance with accounting principles generally accepted in the United States of America (the “U.S.” or the "United States") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information in the footnote disclosures of the financial statements has been condensed or omitted where it substantially duplicates information provided in the Company’s latest audited consolidated financial statements, in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended January 3, 2021, filed with the SEC (the “2020 Form 10-K”). The balance sheet amounts at January 3, 2021 in this report were derived from the Company’s audited 2020 consolidated financial statements included in the 2020 Form 10-K. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended April 4, 2021 and April 5, 2020, respectively, are not necessarily indicative of the results for the entire fiscal year or any future period.
The Company’s fiscal year ends on the Sunday nearest December 31. The Company reports fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. The fiscal year ending January 2, 2022 ("fiscal year 2021") will include 52 weeks, and the fiscal year ended January 3, 2021 ("fiscal year 2020") included 53 weeks.
Recently Adopted and Issued Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB") and are adopted by the Company as of the specified effective dates. Unless otherwise discussed, such pronouncements did not have or will not have a significant impact on the Company’s consolidated financial position, results of operations and cash flows or do not apply to the Company’s operations.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 eliminates certain exceptions and adds guidance to reduce complexity in accounting for income taxes. Specifically, this guidance: (1) removes the intraperiod tax allocation exception to the incremental approach; (2) removes the ownership changes in investments exception in determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting and applies this provision on a modified retrospective basis through a cumulative-effect adjustment to retained earnings at the beginning of the period of adoption; and (3) removes the exception to using the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also simplifies accounting principles by making other changes, including requiring an entity to: (1) evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction; (2) make a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and to apply this provision retrospectively to all periods presented; and (3) recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and apply this provision either retrospectively for all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The provisions of this guidance (except as specifically mentioned above) are to be applied prospectively upon their effective date. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those years. In accordance with ASU 2019-12, the Company adopted the guidance beginning on January 4, 2021. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Note 2: Revenue
Disaggregation of revenue
In the following tables, revenue is disaggregated by primary geographical markets, primary end-markets and timing of revenue recognition. The tables also include a reconciliation of the disaggregated revenue with the reportable segments' revenue.
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| Reportable Segments |
| Three Months Ended |
| April 4, 2021 | | April 5, 2020 |
| Discovery & Analytical Solutions | | Diagnostics | | Total | | Discovery & Analytical Solutions | | Diagnostics | | Total |
| (In thousands) |
Primary geographical markets | | | | | | | | | | | |
Americas | $ | 175,115 | | | $ | 400,927 | | | $ | 576,042 | | | $ | 169,116 | | | $ | 105,157 | | | $ | 274,273 | |
Europe | 135,458 | | | 311,743 | | | 447,201 | | | 118,657 | | | 81,599 | | | 200,256 | |
Asia | 144,036 | | | 140,410 | | | 284,446 | | | 110,622 | | | 67,245 | | | 177,867 | |
| $ | 454,609 | | | $ | 853,080 | | | $ | 1,307,689 | | | $ | 398,395 | | | $ | 254,001 | | | $ | 652,396 | |
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Primary end-markets | | | | | | | | | | | |
Diagnostics | $ | — | | | $ | 853,080 | | | $ | 853,080 | | | $ | — | | | $ | 254,001 | | | $ | 254,001 | |
Life sciences | 277,201 | | | — | | | 277,201 | | | 245,733 | | | — | | | 245,733 | |
Applied markets | 177,408 | | | — | | | 177,408 | | | 152,662 | | | — | | | 152,662 | |
| $ | 454,609 | | | $ | 853,080 | | | $ | 1,307,689 | | | $ | 398,395 | | | $ | 254,001 | | | $ | 652,396 | |
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Timing of revenue recognition | | | | | | | | | | | |
Products and services transferred at a point in time | $ | 326,662 | | | $ | 615,106 | | | $ | 941,768 | | | $ | 267,907 | | | $ | 231,653 | | | $ | 499,560 | |
Services transferred over time | 127,947 | | | 237,974 | | | 365,921 | | | 130,488 | | | 22,348 | | | 152,836 | |
| $ | 454,609 | | | $ | 853,080 | | | $ | 1,307,689 | | | $ | 398,395 | | | $ | 254,001 | | | $ | 652,396 | |
Major Customer Concentration
Revenues from one customer in the Company's Diagnostics segment represent approximately $205.6 million of the Company's total revenue for the three months ended April 4, 2021.
Contract Balances
Contract assets: The unbilled receivables (contract assets) primarily relate to the Company's right to consideration for work completed but not billed at the reporting date. The unbilled receivables are transferred to trade receivables when billed to customers. Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the consolidated balance sheets. The balance of contract assets as of April 4, 2021 and January 3, 2021 were $50.2 million and $59.5 million, respectively. The amount of unbilled receivables recognized at the beginning of the period that were transferred to trade receivables during the three months ended April 4, 2021 was $37.8 million. The increase in unbilled receivables during the three months ended April 4, 2021 as a result of recognition of revenue before billing to customers, excluding amounts transferred to trade receivables during the period, amounted to $28.5 million.
Contract liabilities: The contract liabilities primarily relate to the advance consideration received from customers for products and related installation for which transfer of control has not occurred at the balance sheet date. Contract liabilities are classified as either current in "Accounts payable" or "Accrued expenses and other current liabilities" or as long-term in "Long-term liabilities" in the consolidated balance sheets based on the timing of when the Company expects to recognize revenue. The balance of contract liabilities as of April 4, 2021 and January 3, 2021 were $221.0 million and $238.1 million, respectively. The increase in contract liabilities during the three months ended April 4, 2021 due to cash received, excluding amounts recognized as revenue during the period, was $20.9 million. The amount of revenue recognized during the three months ended April 4, 2021 that was included in the contract liability balance at the beginning of the period was $38.0 million.
Contract costs: The Company recognizes the incremental costs of obtaining a contract with a customer as an asset if it expects the benefit of those costs to be longer than one year. The Company determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the period and are included in other current and long-term assets on the consolidated balance sheets. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include the Company's internal sales force compensation program, as the Company determined that annual compensation is commensurate with annual sales activities.
Transaction price allocated to the remaining performance obligations
The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. The estimated revenue expected to be recognized beyond one year in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the period are not material to the Company. The remaining performance obligations primarily include noncancelable purchase orders and noncancelable software subscriptions and cloud service contracts.
Note 3: Business Combinations
Acquisitions in fiscal year 2021
During the first quarter of fiscal year 2021, the Company completed the acquisition of two businesses for aggregate consideration of $593.4 million. The acquired businesses were Oxford Immunotec Global PLC ("Oxford"), a company based in Abingdon, UK with approximately 275 employees, which was acquired on March 8, 2021 for a total consideration of $590.9 million and one other business, which was acquired for a total consideration of $2.5 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery and Analytical Solutions segments, as applicable, from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names, and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 11.1 years.
The total purchase price for the acquisitions in fiscal year 2021 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
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| Preliminary |
| Oxford | | Other |
| (In thousands) |
Fair value of business combination: | | | |
Cash payments | $ | 590,865 | | | $ | 2,250 | |
Other liability | — | | | 250 | |
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Less: cash acquired | (149,586) | | | — | |
Total | $ | 441,279 | | | $ | 2,500 | |
Identifiable assets acquired and liabilities assumed: | | | |
Current assets | $ | 25,815 | | | $ | 25 | |
Property, plant and equipment | 12,404 | | | 65 | |
Other assets | 10,553 | | | — | |
Identifiable intangible assets: | | | |
Core technology | 150,000 | | | 2,410 | |
Trade names | 23,800 | | | — | |
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Customer relationships | 6,800 | | | — | |
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Goodwill | 280,944 | | | — | |
Deferred taxes | (33,072) | | | — | |
Deferred revenue | (102) | | | — | |
Debt assumed | (331) | | | — | |
Liabilities assumed | (35,532) | | | — | |
Total | $ | 441,279 | | | $ | 2,500 | |
Acquisitions in fiscal year 2020
During the fiscal year 2020, the Company completed the acquisition of four businesses for aggregate consideration of $438.7 million. The acquired businesses were Horizon Discovery Group plc (“Horizon”), a company based in Cambridge, UK with approximately 400 employees, which was acquired on December 23, 2020 for a total consideration of $399.4 million (£296.0 million), and three other businesses, which were acquired for a total consideration of $39.3 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. The Company has reported the operations for these acquisitions within the results of the Company's Diagnostics and Discovery & Analytical Solutions segments, as applicable, from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names, customer relationships and in-process research and development, acquired as part of these acquisitions had a weighted average amortization period of 11.0 years.
The total purchase price for the acquisitions in fiscal year 2020 has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
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| Preliminary |
| Horizon | | Other |
| (In thousands) |
Fair value of business combination: | | | |
Cash payments | $ | 399,005 | | | $ | 38,243 | |
Other liability | 396 | | | 1,263 | |
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Working capital and other adjustments | — | | | (384) | |
Less: cash acquired | (25,539) | | | (1,300) | |
Total | $ | 373,862 | | | $ | 37,822 | |
Identifiable assets acquired and liabilities assumed: | | | |
Current assets | $ | 29,762 | | | $ | 5,770 | |
Property, plant and equipment | 17,729 | | | 2,673 | |
Other assets | 17,743 | | | 371 | |
Identifiable intangible assets: | | | |
Core technology | 60,000 | | | 5,730 | |
Trade names | 4,900 | | | 680 | |
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Customer relationships | 97,600 | | | 10,923 | |
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Goodwill | 202,071 | | | 16,016 | |
Deferred taxes | (22,651) | | | (1,132) | |
Deferred revenue | (2,031) | | | — | |
Debt assumed | — | | | (29) | |
Liabilities assumed | (41,961) | | | (3,180) | |
Total | $ | 373,862 | | | $ | 37,822 | |
The preliminary allocations of the purchase prices for acquisitions are based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.
Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed.
As of April 4, 2021, the Company may have to pay contingent consideration related to acquisitions with open contingency periods of up to $7.3 million. As of April 4, 2021, the Company has recorded contingent consideration obligations of $3.1 million, of which $3.0 million was recorded in accrued expenses and other current liabilities, and $0.1 million was recorded in long-term liabilities. As of January 3, 2021, the Company had recorded contingent consideration obligations with an estimated fair value of $3.0 million, of which $2.9 million was recorded in accrued expenses and other current liabilities, and $0.1 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 1.8 years from April 4, 2021, and the remaining weighted average expected earnout period at April 4, 2021 was 1.1 years. If the actual results differ from the estimates and judgments used in these fair values, the
amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.
Total acquisition and divestiture-related costs for the three months ended April 4, 2021 and April 5, 2020 were $4.4 million and $12.4 million, respectively. These amounts included $5.4 million and $12.3 million of incentive award associated with the Company's acquisition of Meizheng Group for the three months ended April 4, 2021 and April 5, 2020, respectively. Net foreign exchange gain and interest expense related to the Company's acquisition of Oxford for the three months ended April 4, 2021 amounted to $5.4 million and $0.2 million, respectively. These acquisition and divestiture-related costs were expensed as incurred and recorded in selling, general and administrative expenses and interest and other expense, net in the Company's consolidated statements of operations.
Note 4: Restructuring and Other Costs, Net
The Company implemented a restructuring plan in the first quarter of fiscal year 2021 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives and integrate new acquisitions (the "Q1 2021 Plan"). The Company implemented a restructuring plan in the third quarter of fiscal year 2020 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q3 2020 Plan"). The Company implemented a restructuring plan in the first quarter of fiscal year 2020 consisting of workforce reductions and closure of excess facilities principally intended to realign resources to emphasize growth initiatives (the "Q1 2020 Plan"). Details of the plans initiated in previous years (the “Previous Plans”) are discussed more fully in Note 5 to the audited consolidated financial statements in the 2020 Form 10-K.
The following table summarizes the reductions in headcount, the initial restructuring or contract termination charges by reporting segment, and the dates by which payments were substantially completed, or the dates by which payments are expected to be substantially completed, for restructuring actions implemented during fiscal years 2021 and 2020 in continuing operations:
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| Workforce Reductions | | Closure of Excess Facility | | Total | | (Expected) Date Payments Substantially Completed by |
| Headcount Reduction | | Discovery & Analytical Solutions | | Diagnostics | | Discovery & Analytical Solutions | | Diagnostics | | | Severance | | Excess Facility |
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| (In thousands, except headcount data) | | | | |
Q1 2021 Plan | 77 | | $ | 3,941 | | | $ | 1,615 | | | $ | — | | | $ | — | | | $ | 5,556 | | | Q4 FY2021 | | — |
Q3 2020 Plan | 23 | | 2,080 | | | 901 | | | — | | | — | | | 2,981 | | | Q2 FY2021 | | — |
Q1 2020 Plan | 32 | | 2,312 | | | 1,134 | | | 92 | | | 682 | | | 4,220 | | | Q4 FY2020 | | Q1 FY2022 |
The Company recorded pre-tax charges of $0.2 million and $1.4 million associated with relocating facilities during the three months ended April 4, 2021 and April 5, 2020, respectively, in the Discovery & Analytical Solutions segment. The Company expects to make payments on these relocation activities through end of fiscal year 2021.
At April 4, 2021, the Company had $10.1 million recorded for accrued restructuring and other costs, of which $8.6 million was recorded in short-term accrued restructuring and other costs, $0.2 million was recorded in operating lease right-of-use assets, and $1.2 million was recorded in operating lease liabilities. At January 3, 2021, the Company had $8.3 million recorded for accrued restructuring and other costs, of which $4.7 million was recorded in short-term accrued restructuring and other costs, $0.3 million was recorded in operating lease right-of-use assets, $2.0 million was recorded in accrued expenses and other current liabilities, and $1.3 million was recorded in operating lease liabilities. The following table summarizes the Company's restructuring accrual balances and related activity by restructuring plan, as well as other accrual balances and related activity, during the three months ended April 4, 2021:
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| Balance at January 3, 2021 | | 2021 Charges | | 2021 Changes in Estimates, Net | | 2021 Amounts Paid | | Balance at April 4, 2021 |
| (In thousands) |
Severance: | | | | | | | | | |
Q1 2021 Plan | $ | — | | | $ | 5,556 | | | $ | — | | | $ | (917) | | | $ | 4,639 | |
Q3 2020 Plan | 1,167 | | | — | | | — | | | (443) | | | 724 | |
Q1 2020 Plan | 872 | | | — | | | — | | | (268) | | | 604 | |
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Facility: | | | | | | | | | |
| | | | | | | | | |
Q1 2020 Plan | 394 | | | — | | | — | | | (85) | | | 309 | |
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Previous Plans | 3,550 | | | — | | | — | | | (106) | | | 3,444 | |
Restructuring | 5,983 | | | 5,556 | | | — | | | (1,819) | | | 9,720 | |
Contract Termination | 318 | | | — | | | 35 | | | (15) | | | 338 | |
Other Costs | 1,998 | | | 188 | | | — | | | (2,186) | | | — | |
Total Restructuring and Other Liabilities | $ | 8,299 | | | $ | 5,744 | | | $ | 35 | | | $ | (4,020) | | | $ | 10,058 | |
Note 5: Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 4, 2021 | | April 5, 2020 | | | | |
| (In thousands) |
Interest income | $ | (411) | | | $ | (265) | | | | | |
Interest expense | 14,126 | | | 13,665 | | | | | |
| | | | | | | |
| | | | | | | |
Change in fair value of financial securities | (19,298) | | | — | | | | | |
Other income, net | (7,123) | | | (3,407) | | | | | |
Total interest and other (income) expense, net | $ | (12,706) | | | $ | 9,993 | | | | | |
Foreign currency transaction losses were $1.3 million and $7.9 million for the three months ended April 4, 2021 and April 5, 2020, respectively. Net gains from forward currency hedge contracts were $4.7 million and $9.6 million for the three months ended April 4, 2021 and April 5, 2020, respectively.
Note 6: Inventories
Inventories as of April 4, 2021 and January 3, 2021 consisted of the following:
| | | | | | | | | | | |
| April 4, 2021 | | January 3, 2021 |
| (In thousands) |
Raw materials | $ | 196,712 | | | $ | 205,022 | |
Work in progress | 44,676 | | | 35,160 | |
Finished goods | 288,520 | | | 274,385 | |
Total inventories | $ | 529,908 | | | $ | 514,567 | |
Note 7: Income Taxes
During the first three months of fiscal years 2021 and 2020, the Company recorded a net discrete income tax expense of $2.0 million and a net discrete income tax benefit of $4.9 million, respectively. The primary components of the discrete tax expense in the first three months of fiscal year 2021 included various tax return to provision adjustments totaling $1.8 million and a $1.5 million accrual for foreign earnings, which were partially offset by excess tax benefits on stock compensation of $3.1 million. The most significant discrete tax benefits in the first three months of fiscal year 2020 included excess tax benefits on stock compensation of $1.6 million and $3.8 million associated with a valuation allowance reversal.
Note 8: Debt
Senior Unsecured Revolving Credit Facility. The Company's senior unsecured revolving credit facility provides for $1.0 billion of revolving loans that may be either US Dollar Base Rate loans or Eurocurrency Rate loans, as those terms are defined in the credit agreement, and has an initial maturity of September 17, 2024. As of April 4, 2021, the senior unsecured revolving credit facility had no outstanding borrowings, and $2.4 million of unamortized debt issuance costs. As of January 3, 2021, the senior unsecured revolving credit facility had outstanding borrowings of $158.6 million, and $2.6 million of unamortized debt issuance costs.
1.875% Senior Unsecured Notes due 2026. On July 19, 2016, the Company issued €500.0 million aggregate principal amount of senior unsecured notes due in 2026 (the “2026 Notes”) in a registered public offering and received approximately €492.3 million of net proceeds from the issuance. The 2026 Notes were issued at 99.118% of the principal amount, which resulted in a discount of €4.4 million. The 2026 Notes mature in July 2026 and bear interest at an annual rate of 1.875%. Interest on the 2026 Notes is payable annually on July 19th each year. The proceeds from the 2026 Notes were used to pay in full the outstanding balance of the Company's previous senior unsecured revolving credit facility. As of April 4, 2021, the 2026 Notes had an aggregate carrying value of $582.4 million, net of $3.0 million of unamortized original issue discount and $2.7 million of unamortized debt issuance costs. As of January 3, 2021, the 2026 Notes had an aggregate carrying value of $604.7 million, net of $3.3 million of unamortized original issue discount and $2.8 million of unamortized debt issuance costs.
0.6% Senior Unsecured Notes due in 2021. On April 11, 2018, the Company issued €300.0 million aggregate principal amount of senior unsecured notes due in 2021 (the “2021 Notes”) in a registered public offering and received approximately €298.7 million of net proceeds from the issuance. The 2021 Notes were issued at 99.95% of the principal amount, which resulted in a discount of €0.2 million. As of April 4, 2021, the 2021 Notes had an aggregate carrying value of $352.8 million, net of $656 of unamortized original issue discount and $9,631 of unamortized debt issuance costs. As of January 3, 2021, the 2021 Notes had an aggregate carrying value of $366.2 million, net of $16,200 of unamortized original issue discount and $0.2 million of unamortized debt issuance costs. The 2021 Notes matured in April 2021 and bore interest at an annual rate of 0.6%. Interest on the 2021 Notes was payable annually on April 9th each year.
On April 9, 2021, the Company redeemed all of its outstanding 2021 Notes and paid an aggregate principal amount of $337.1 million.
3.3% Senior Unsecured Notes due in 2029. On September 12, 2019, the Company issued $850.0 million aggregate principal amount of senior unsecured notes due in 2029 (the "2029 Notes”) in a registered public offering and received $847.2 million of net proceeds from the issuance. The 2029 Notes were issued at 99.67% of the principal amount, which resulted in a discount of $2.8 million. As of April 4, 2021, the 2029 Notes had an aggregate carrying value of $840.8 million, net of $2.4 million of unamortized original issue discount and $6.8 million of unamortized debt issuance costs. As of January 3, 2021, the 2029 Notes had an aggregate carrying value of $840.6 million, net of $2.5 million of unamortized original issue discount and $6.9 million of unamortized debt issuance costs. The 2029 Notes mature in September 2029 and bear interest at an annual rate of 3.3%. Interest on the 2029 Notes is payable semi-annually on March 15th and September 15th each year.
2.55% Senior Unsecured Notes due in 2031. On March 8, 2021, the Company issued $400.0 million aggregate principal amount of senior unsecured notes due in 2031 (the "2031 Notes”) in a registered public offering and received $399.9 million of net proceeds from the issuance. The 2031 Notes were issued at 99.965% of the principal amount, which resulted in a discount of $0.1 million. As of April 4, 2021, the 2031 Notes had an aggregate carrying value of $396.1 million, net of $0.1 million of unamortized original issue discount and $3.8 million of unamortized debt issuance costs. The 2031 Notes mature in March 2031 and bear interest at an annual rate of 2.55%. Interest on the 2031 Notes is payable semi-annually on March 15th and September 15th each year. Prior to December 15, 2030 (three months prior to their maturity date), the Company may redeem the 2031 Notes in whole at any time or in part from time to time, at its option, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2031 Notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued but unpaid as of the date of redemption) assuming that the 2031 Notes matured on December 15, 2030, discounted to the date of redemption on a semi-annual basis (assuming a 360-day year of twelve 30-day months), at the Treasury Rate (as defined in the indenture governing the 2031 Notes) plus 15 basis points, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. At any time on or after December 15, 2030, the Company may redeem the 2031 Notes, in whole or in part, at the Company’s option, at a redemption price equal to 100% of the principal amount of the 2031 Notes due to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. Upon a change of control repurchase event (as defined in the indenture governing the 2031 Notes) of the Company, the Company will, in certain circumstances, make an offer to repurchase the 2031 Notes at a price equal to 101% of their principal amount plus any accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
3.625% Senior Unsecured Notes due in 2051. On March 8, 2021, the Company issued $400.0 million aggregate principal amount of senior unsecured notes due in 2051 (the "2051 Notes”) in a registered public offering and received $400.00 million of net proceeds from the issuance. The 2051 Notes were issued at 99.999% of the principal amount, which resulted in a discount of $4,000. As of April 4, 2021, the 2051 Notes had an aggregate carrying value of $395.3 million, net of $4,000 of unamortized original issue discount and $4.7 million of unamortized debt issuance costs. The 2051 Notes mature in March 2051 and bear interest at an annual rate of 3.625%. Interest on the 2051 Notes is payable semi-annually on March 15th and September 15th each year. Prior to September 15, 2050 (six months prior to their maturity date), the Company may redeem the 2051 Notes in whole at any time or in part from time to time, at its option, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2051 Notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued but unpaid as of the date of redemption) assuming that the 2051 Notes matured on September 15, 2050, discounted to the date of redemption on a semi-annual basis (assuming a 360-day year of twelve 30-day months), at the Treasury Rate (as defined in the indenture governing the 2051 Notes) plus 20 basis points, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. At any time on or after September 15, 2050, the Company may redeem the 2051 Notes, in whole or in part, at the Company’s option, at a redemption price equal to 100% of the principal amount of the 2051 Notes due to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. Upon a change of control repurchase event (as defined in the indenture governing the 2051 Notes) of the Company, the Company will, in certain circumstances, make an offer to repurchase the 2051 Notes at a price equal to 101% of their principal amount plus any accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
Other Debt Facilities. The Company's other debt facilities include Euro-denominated bank loans with an aggregate carrying value of $11.9 million (or €10.1 million) and $17.0 million (or €13.9 million) as of April 4, 2021 and January 3, 2021, respectively. These bank loans are primarily utilized for financing fixed assets and are required to be repaid in monthly or quarterly installments with maturity dates extending to 2028.
In addition, the Company had secured bank loans in the aggregate amount of $0.8 million and $6.1 million as of April 4, 2021 and January 3, 2021, respectively. The secured bank loans are required to be repaid in monthly installments until 2022.
Note 9: Earnings Per Share
Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period less restricted unvested shares. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method. The following table reconciles the number of shares utilized in the earnings per share calculations:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 4, 2021 | | April 5, 2020 | | | | |
| (In thousands) |
Number of common shares—basic | 112,028 | | | 111,121 | | | | | |
Effect of dilutive securities: | | | | | | | |
Stock options | 359 | | | 480 | | | | | |
Restricted stock awards | 108 | | | 43 | | | | | |
Number of common shares—diluted | 112,495 | | | 111,644 | | | | | |
Number of potentially dilutive securities excluded from calculation due to antidilutive impact | 162 | | | 491 | | | | | |
Antidilutive securities include outstanding stock options with exercise prices and average unrecognized compensation cost in excess of the average fair market value of common stock for the related period. Antidilutive options were excluded from the calculation of diluted net income per share and could become dilutive in the future.
Note 10: Industry Segment Information
The Company discloses information about its operating segments based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. The Company evaluates the performance of its operating segments based on revenue and operating income. Intersegment revenue and transfers are not significant. The accounting policies of the operating segments are the same as those described in Note 1 to the audited consolidated financial statements in the 2020 Form 10-K.