UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
|☑||ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the fiscal year ended January 2, 2022|
|☐||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
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of|
incorporation or organization)
|940 Winter Street,|| Waltham,||Massachusetts||02451|
|(Address of Principal Executive Offices)||(Zip Code)|
(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||PKI||The New York Stock Exchange|
|1.875% Notes due 2026||PKI 21A||The New York Stock Exchange|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically 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 and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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|
|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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The aggregate market value of the common stock, $1 par value per share, held by non-affiliates of the registrant on July 2, 2021, was $17,332,583,779 based upon the last reported sale of $155.57 per share of common stock on July 2, 2021.
As of February 25, 2022, there were outstanding 126,183,492 shares of common stock, $1 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of PerkinElmer, Inc.’s Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 26, 2022 are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
Item 1. Business
We are a leading provider of products, services and solutions for the diagnostics, life sciences and applied markets. Through our advanced technologies and differentiated solutions, we address critical issues that help to improve lives and the world around us.
Our headquarters are in Waltham, Massachusetts, and we market our products and services in more than 190 countries. As of January 2, 2022, we employed approximately 16,700 employees. Our common stock is listed on the New York Stock Exchange under the symbol “PKI” and we are a component of the S&P 500 Index.
We maintain a website with the address http://www.perkinelmer.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form 10-K. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission.
Our strategy is to develop and deliver innovative products, services and solutions in high-growth markets that utilize our knowledge and expertise to address customers’ critical needs and drive scientific breakthroughs. To execute on our strategy and accelerate revenue growth, we focus on broadening our offerings through both the investment in research and development and the acquisition of innovative technology. Our strategy includes:
•Strengthening our position within key markets by expanding our global product and service offerings, maintaining superior product quality and driving an enhanced customer experience;
•Attracting, retaining and developing talented and engaged employees;
•Accelerating transformational innovation through both internal research and development and third-party collaborations and alliances;
•Augmenting growth in both of our core business segments, Discovery & Analytical Solutions and Diagnostics, through strategic acquisitions and licensing;
•Engraining focused operational excellence to improve organizational efficiency and agility; and
•Opportunistically utilizing our share repurchase programs to help drive shareholder value.
As part of our strategy to grow our core businesses, we have recently taken the following actions:
Acquisitions in Fiscal Year 2021:
In fiscal year 2021, we completed the acquisition of BioLegend, Inc. ("BioLegend") and paid an aggregate purchase price of $5.7 billion, net of cash acquired of $292.4 million, reflecting working capital and other adjustments (the "Aggregate Consideration"). The Aggregate Consideration was paid in a combination of $3.3 billion in cash and shares of our common stock having a value of approximately $2.6 billion based on the $187.56 per share closing price of our common stock on the New York Stock Exchange on September 17, 2021 (the "Stock Consideration"). The Stock Consideration consisted of 14,066,799 shares of our common stock and was issued on September 17, 2021 in a private placement pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), provided by Section 4(a)(2) of the Securities Act. BioLegend is recognized as a leading, global provider of life science antibodies and reagents headquartered in San Diego, California, with approximately 700 employees.
In fiscal year 2021, we also completed the acquisition of seven other businesses for aggregate consideration of $1.2 billion. The acquired businesses include Oxford Immunotec Global PLC ("Oxford"), a company based in Abingdon, UK with approximately 275 employees, for total consideration of $590.9 million, Nexcelom Bioscience Holdings, LLC ("Nexcelom"), a company based in Lawrence, Massachusetts with approximately 130 employees, for total consideration of $267.3 million, and five other businesses, which were acquired for total consideration of $331.0 million.
Business Segments and Products
We report our business in two segments: Discovery & Analytical Solutions and Diagnostics.
Discovery & Analytical Solutions Segment
Our comprehensive portfolio of technologies helps life sciences researchers better understand diseases and develop treatments. In addition, we enable scientists to detect, monitor and manage contaminants and toxic chemicals that impact our environment and food supply. Our Discovery & Analytical Solutions segment serves the life sciences and applied markets.
Life Sciences consists of the life sciences research market and laboratory services market. In the life sciences research market, we provide a broad suite of solutions including reagents, informatics, contract research services, and detection and imaging technologies that enable scientists to work smarter, make research breakthroughs and transform those breakthroughs to real-world outcomes. These products, solutions and services support pharmaceutical, biotech, and contract research organizations, as well as academic institutions globally in discovering and developing better treatments and therapeutics to fight disease, faster and more efficiently. BioLegend’s acquisition provides us with access to new markets as well, notably the flow cytometry and multiomic cell analysis markets.
We also provide services designed to help customers in the laboratory services market increase efficiencies and production time while reducing laboratory maintenance costs. Our OneSource® laboratory service business is aligned with customers' needs, enabling them to accelerate scientific progress and commercial opportunities.
The applied markets consist of environmental, food and industrial markets. For the environmental market, we develop and provide analytical technologies, solutions and services that enable our customers to understand and characterize the health and quality of our environment, including air, water and soil. Our solutions are used to detect and help reduce the impact commercial products and industrial processes have on our environment. For example, our solutions help ensure compliance with regulatory standards that protect the purity of the world's water supply by detecting harmful substances, including trace metals such as lead, and organic pollutants such as pesticides and benzene. We provide the tools needed to meet rigorous regulatory requirements for environmental testing, meet quality specifications and safety standards, and innovate for next generation analytical products.
We also offer a variety of solutions that help farmers and food producers provide a growing population with food that is safe, nutritious and appealing, and assist manufacturers with ensuring product consistency and maximizing production yield. Our solutions confirm food quality, including the level of moisture in grain or the level of fat in butter and nutritional elements, as well as detect the presence of potentially dangerous contaminants, such as veterinary drug residues in milk. Our workflows can also be used to identify the origin of food products such as olive oil, which helps prevent counterfeiting. Our methods and analyses are transferable throughout the supply chain to enable customers to keep pace with industry standards as well as governmental regulations and certifications.
We also provide analytical instrumentation for the industrial market which includes the chemical, semiconductor and electronics, energy, lubricant, petrochemical and polymer industries. Our technologies for this market are primarily used by customers focusing on quality assurance standards. They are also used to drive advancement or innovation of new products, with a recent focus on increasing the recyclability and biodegradability of materials and improving electric vehicle battery performance.
Our principal products and services for Discovery & Analytical Solutions applications include the following:
Life Sciences Market:
•Radiometric detection solutions, including over 1,100 radiochemicals and instrumentation such as the Tri-Carb® and Quantulus™ GCT families of liquid scintillation analyzers, Wizard2® Gamma counters and MicroBeta2® plate based LSA, which are used for beta, gamma and luminescence counting in microplate and vial formats utilized in research, environmental and drug discovery applications.
•The Opera Phenix® Plus high-content screening system, which is used for sensitive and high-speed phenotypic drug screening of complex cellular models.
•The Operetta® CLS™ high-content analysis system, which enables scientists to reveal fine sub-cellular details from everyday assays as well as more complex studies, for example using live cells, 3D and stem cells.
•Reagents and solutions for microscopy and imaging applications. These include fluorophore-conjugated and enzyme-conjugated antibodies, as well as buffers and solutions such as our Ce3D™ collection of buffers for 3D tissue imaging.
•The MuviCyte™ live-cell imaging system, designed to operate inside a cell-culture incubator, enabling researchers to study cellular behaviors and pathways in living cells to gain a deeper understanding of functions, disease mechanisms and responses to treatments.
•The VICTOR Nivo® multimode plate reader benchtop system, which is designed for assay development and academic labs including those using HTRF® and AlphaLISA® technologies.
•The EnSight® multimode plate reader benchtop system, which offers well plate imaging alongside labeled detection technologies for target-based and phenotypic assays.
•The EnVision® multimode plate reader, which is designed for high-throughput screening laboratories, including those using HTRF®, AlphaScreen® and AlphaLISA® technologies.
•A wide range of homogeneous biochemical and cell-based reagents using HTRF®, LANCE® Ultra™, DELFIA®, AlphaLISA®, AlphaLISA ® SureFire® Ultra, AlphaScreen®, AlphaPlex® and luminescence assay technologies.
•A broad portfolio of recombinant GPCR and ion channel cell lines, including over 300 products and 120 ready-to-use frozen cell lines for a wide range of disease areas.
•ELISA MAX™ Standard Sets, ELISA MAX™ Deluxe Sets, LEGEND MAX™ ELISA Kits and RAPID MAX™ ELISA Kits, as well as complementary solutions and buffers for immunoassays to cover more than 200 targets for human, mouse, and rat samples, many of which are designed to assess the immune environment and its inflammatory state for vaccine, infectious disease and autoimmune disease research.
•LEGENDplex™ bead-based reagents, which, in contrast to single analyte assays such as ELISAs, can quantitate up to 14 targets, from one small sample volume in a flow cytometry assay.
•In vivo imaging technologies and reagents for preclinical research, comprised of the IVIS® Spectrum™ series for 2D and 3D optical imaging and optionally integrated low-dose CT imaging and the IVIS® Lumina™ series for benchtop 2D imaging, along with IVISbrite™ bioluminescent and IVISense™ fluorescent imaging agents, cell lines and dyes.
•GoInVivo™ as well as Ultra-LEAF™ and LEAF™ functional antibodies, which provide an affordable solution for researchers performing in vivo and ex vivo studies.
•The QuantumTM GX2 system, which enables low-dose in vivo CT imaging of multiple species and areas of anatomical interest across multiple disease areas by way of high resolution, tomographic imaging.
•Nexcelom BioScience automated cell counters, image cytometers, reagents and consumables for cell analysis used in life science research, drug discovery and drug development.
•Horizon Discovery offerings that enable critical elements of the drug development and therapeutic value chain, particularly in the area of precision medicine with a portfolio of cell engineering tools and services, featuring gene editing technologies such as CRISPR, and base editing and gene modulation technologies such as RNAi.
•Sirion Biotech consultancy services and technologies to design and manufacture viral vectors for cell and gene therapy research and preclinical development.
•BioLegend® best-in-class antibodies and reagents, which are used by life science researchers across biologics, cell and gene therapy, proteogenomics, and recombinant proteins.
•Fluorophore-conjugated antibodies, which are used in flow cytometers to characterize protein expression on the surface and in internal compartments of cells. The large collection of dyes and antibodies allows for an increasing number of conjugate options, facilitating the use of bigger and better flow cytometry panels. Notable products are Brilliant Violet™ and Spark™ dyes, among others.
•TotalSeq™ reagents, which are oligonucleotide-barcoded antibodies that enable protein detection by sequencing and combining traditional RNA or DNA sequencing experiments with high-parameter protein detection.
•Cell culture and biofunctional assay reagents, including bioactive recombinant proteins, as well as other specialized reagents such as Cell-Vive™ T-NK Xeno-Free Serum Substitute (GMP), and other GMP-produced recombinant proteins and reagents. These products serve several markets, notably cell and gene therapy applications.
•MojoSort™ and Lymphopure™ reagents that cover the main spectrum of cell separation technologies, which together with our fluorophore-antibody conjugates, can be used for FACS (Fluorescence-activated Cell Sorting).
•Flex-T™ reagents that utilize major histocompatibility complex tetramers to present peptides for the identification of antigen-specific T cells. Our Flex-T products can be used to screen the efficacy of antigen peptides for vaccine and drug trials, as well as characterizing the dominance of cancer-specific self-peptides, and more recently, SARS-CoV2 peptides for COVID-19 research.
•Antibodies and solutions for Western blotting. A large collection of validated antibodies, as well as supporting buffers and substrates, which provide a convenient set of tools to characterize protein size and relative expression levels in cell or tissue lysates.
•OneSource® laboratory services, a comprehensive portfolio of multivendor instrument management, QA/QC, lab relocation, scientific, laboratory IT and regulatory compliance services. OneSource® services programs are tailored to the specific needs and goals of individual customers and offer a series of informatics-based consulting, planning and management offerings to assist in laboratory productivity and the optimization of complex Information Technology platforms.
•OneSource® Dashboard software, a TIBCO® Spotfire® technology-driven interactive graphical platform, which provides visibility to a customer’s global asset population, service event and downtime distribution, as well as key performance indicators to assist in asset operation.
•OneSource® Insights as a ServiceTM offerings, which leverages comprehensive OneSource® analytics and industry data to develop and deliver customer-need driven recommendations to optimize, integrate and accelerate lab operations.
•PerkinElmer Signals Medical ReviewTM software, which empowers medical monitors to detect safety signals faster and reduce overall time to submission by combining innovative medical review workflow with advanced analytics.
•PerkinElmer Signals Lead DiscoveryTM software, which enables researchers to quickly gain new insights into chemical and biomolecular research data, featuring guided search and analysis workflows and dynamic data visualizations for on-the-fly exploration.
•PerkinElmer SignalsTM electronic notebook, a scientific research data management solution, which allows researchers to record research data and experiments in digital notebooks, drag and drop, store, organize, share, find and filter data easily.
•PerkinElmer Signals TranslationalTM data management, aggregation and analysis platform, which offers out-of-the-box support for the complete precision medicine workflow from data acquisition to biomarker discovery and validation.
•ChemDraw® 18 platform, a chemical structure drawing and visualization application for scientists and researchers.
•Lead DiscoveryTM Premium software, which allows scientists to import, filter by, analyze and interpret chemical structures and biosequences alongside other related data in a highly visual and interactive environment for faster insights and better decisions.
•OneSource® Asset Genius™ monitoring solution, part of the Asset Genius family, which offers a 360o view of laboratory instruments regardless of the manufacturer, correlating instrument usage, age and service data, allowing customers to visually pinpoint under-performing, ideally-performing and over-burdened assets, and to make informed decisions.
•The series of Clarus® gas chromatographs and gas chromatographs/mass spectrometers, and the family of TurboMatrix™ sample-handling equipment, which are used to identify and quantify compounds in the environmental, forensics, food and beverage, hydrocarbon processing/biofuels, materials testing, pharmaceutical and semiconductor industries.
•The LC 300™ ultra-high performance liquid chromatography (UHPLC) and LC 300 high performance liquid chromatography (HPLC) systems, which provide high throughput along with superior performance and sensitivity.
•The SimplicityChrom™ CDS software which offers liquid chromatography workflows and intuitive functions for full 21CFR 11 compliance for laboratories working in regulated environments.
•A comprehensive Liquid Chromatography (LC) Column portfolio of innovative and highly efficient HPLC/ UHPLC and supercritical fluid chromatography (SFC) chemistries.
•The NexSAR™ HPLC, which is a speciation analysis ready system engineered with a completely inert and metal-free fluid path, enabling laboratories to meet low chromatographic background requirements on the most challenging speciation applications in food, water or consumer products such as children's toys.
•The Flexar™ ultra-high performance liquid chromatography (UHPLC) and Flexar advanced liquid chromatography systems, which provide high throughput and resolution chromatographic separations.
•The QSight® Triple Quad LC/MS/MS, a flow-based mass spectrometry system that provides high sensitivity and enables high levels of efficiency and productivity to meet both standard and regulatory requirements for food, cannabis and environmental testing laboratories.
•The Torion® T-9 portable GC/MS, a fast person-portable GC/MS system, enabling rapid detection and actionable results to potentially hazardous and emergency environmental conditions.
•Atomic spectroscopy families of instruments, including the families of PinAAcle® atomic absorption spectrometers, Avio® Max inductively coupled plasma (“ICP”) optical emission spectrometers and NexION® ICP mass spectrometers, all of which are used in the environmental, food, pharmaceutical, and chemical industries, among others, to determine the elemental content of a sample.
•The LPC 500™ liquid particle counter featuring single particle optical sizing technology. Coupled with the Avio® 550 Max ICP-OES oils system, particle counting and sizing as well as wear metals analysis of in-service oils and lubricants are performed in one run with results delivered in less than a minute.
•Our infrared spectroscopy (IR) family of instruments, the Spectrum Two™ IR & NIR spectrometers, which are compact and portable and used for advanced infrared analysis for unknown substance identification, material qualification or concentration determination in fuel and lubricant analysis, polymer analysis and pharmaceutical and environmental applications.
•The Polymer ID analyzer, which provides accurate verification of identity, quality, and composition of polymers and their blends used in industries such as food packaging, construction and automotive.
•The series of LAMBDA® UV/Vis spectrophotometers that provide sampling flexibility to enable measurement of a wide range of sample types, including liquids, powders and solid materials, both in regulated industries as well as QC/QA and research applications.
•The FL 6500TM and FL 8500TM fluorescence spectrophotometers, which address the challenges of bioscience, industrial, chemical, environmental, pharmaceutical, agricultural and academic application.
•The 2400 Series II CHNS/O elemental analyzer, one of the leading organic elemental analyzers, which is ideal for the rapid determination of carbon, hydrogen, nitrogen, sulfur and oxygen content in organic and other types of materials.
•Our thermal analysis family, which includes our series of Differential Scanning Calorimetry (DSC) instruments that offer exclusive HyperDSC™ capability for unparalleled sensitivity and new insights into material processes, our Thermogravimetric (TGA) and Simultaneous Thermal Analysis (STA) instruments that can be coupled with Fourier Transform Infrared (FT-IR), Mass Spectrometry (MS), or Gas Chromatography/Mass Spectrometry (GC/MS) technologies to provide a complete and advanced line of Evolved Gas Analysis (EGA) platforms for greater analysis power and knowledge with materials characterization in polymers, pharmaceuticals, chemicals, petroleum, rubber, food and other areas.
•Perten® Falling Number®, which is the world standard method for measuring sprout damage. This is an important factor affecting the price of wheat and, ultimately, bread, baked goods, and pasta/noodle quality.
•RVA™ performance analyzer, which provides a screening tool for both producers and users of food ingredients.
•The Bioo Scientific® test kits for detection of toxins, veterinary drug residues and contaminants, which enable rapid and easy testing at different steps in the food value chain.
•The PerkinElmer FT 9700™ compact, high-performance and full-wavelength-range Fourier Transform Near Infrared (FT-NIR) spectrometer, which helps food and feed laboratories perform quick analyses for quality assurance of food and feed materials and reduces variations in production.
•The DA 7250 diode-array based NIR lab and at-line system, which simultaneously measures multiple constituents (moisture, protein, fat fiber, etc.) in 10 seconds.
•The IM 9500 Whole Grain NIR, which measures moisture, protein, oil, and more in less than 40 seconds.
•The AM 5200 grain moisture meter, which is based on the latest moisture meter technology, including the use of the Unified Grain Moisture Algorithm (UGMA) and 149MHz.
•The QSight® SP50 online solid phase extraction (SPE) system, which facilitates sample clean-up, enrichment and concentration, obviating the need for elaborate and time-consuming sample preparation procedures.
•MaxSignal HTS™ mycotoxin kits featuring automated and easy-to-use testing workflows for the six most commonly tested mycotoxins.
•PerkinElmer Solus One™ Listeria monocytogenes ELISA Assay. This new offering is designed to help high throughput food processors and contract labs focus on L. mono testing for food and environmental surface samples.
•DA 7350™ and DA 7440™ in-line and on-line NIR instruments – combined with Process Plus™ cloud-based software – provide continuous quality control of food and food ingredient manufacturing processes.
•Perten® Glutomatic® 2000 system for gluten quantity and quality testing of wheat, durum, semolina and flour.
•LactoScope™ FT-A instrument, which delivers quick and accurate full spectrum component testing and adulterant screening for liquid dairy products such as whey, raw and skim milk, shelf stable milk and cream with under 40% fat content.
•MaxSignalHTS™ Nitrofurans and Chloramphenicol ELISA kits, which will help food safety, quality and aquaculture labs simultaneously and accurately perform same-day testing for targeted antibiotic residues.
New products introduced or acquired for Discovery & Analytical Solutions applications in fiscal year 2021 include the following:
Life Sciences Market:
•PhenoVue™ cellular imaging reagents, including cell painting kits, fluorescent probes and dyes and fluorescent secondary antibodies, which are part of an expanded suite of high-content imaging consumables that includes PhenoPlate™ (formerly CellCarrier Ultra™) cellular imaging microplates and GrowDex® hydrogels.
•A range of new AlphaLISA® and HTRF® reagents and assay kits serving key research and therapeutic areas, including GPCRs, targeted protein degradation, inflammation, oncology and neuroscience.
•The Signals Image Artist™ next-generation image analysis and management platform for drug discovery research, to help scientists process and analyze their high-content screening (HCS) and cellular imaging data in a matter of hours vs. days or weeks, so they can make more informed decisions faster.
•Horizon CHOSOURCE™ platform expanded to include CHO-K1 ADCC+ expression cell line for development of therapeutic antibodies in oncology, infectious disease and autoimmune conditions.
•A catalog of more than 20,000 SKUs from the recent acquisition of BioLegend, incorporating antibodies as well as a large collection of antibody conjugates and modifications. Other products include recombinant proteins, immunoassays and other supportive reagents and solutions for cell and molecular analysis.
•The T-SPOT® Discovery SARS-CoV-2 research use only assay to investigate cell-mediated immunity related to COVID-19.
•AuroFlow® AQ Mycotoxin platform that includes strip test versions for total Aflatoxin, Deoxynivalenol (DON), Fumonisin, Ochratoxin A, Zearalenone and T-2/HT-2.
•MappIR™ accessory for Spectrum™ 3 FT-IR, which helps ensure quality of incoming raw materials and final product quality for better outcomes in semiconductor wafer manufacturing.
•The Tablet Analyzer™ and portable Silica Analyzer™ platform, which are dedicated analyzers launched to address customer needs for quick and accurate characterization of pharmaceutical tablet testing and respirable crystalline silica in mining environments, respectively.
•PureView™ Certified and PureView MS Certified vials, manufactured from Type 1 borosilicate glass which meets all USP, JP and EP requirements. The low-expansion, coefficient glass exhibits excellent thermal conductivity and provides an inert surface with a low free ion content, giving accurate and repeatable results every time.
Our Discovery & Analytical Solutions segment offers additional products under various brand names:
Life Sciences Market:
Accell™, AdenoBOOST™, AlphaLISA®, AlphaPlex™, AlphaScreen®, Alpha™ SureFire®, Brilliant Violet™, Ce3D™, CellCarrier®, Cellaca™, Celigo™, Cellometer™, cell::explorer™, Cell-Vive™, Chalice™, Chem3D®, ChemDraw®, ChemOffice®, CHOSOURCE™, Dharmacon™, DharmaFECT™, Edit-R™, ELISA MAX™, EnSight®, EnVision®, Flex-T™, FMT®, FolateRSense™, GoInVivo™, HTRF®, IVIS®, IVISbrite™, IVISense™, LANCE®, LANCE ® Ultra ™, LEAF™, LEGEND MAX™, LEGENDplex™, LentiBOOST™, Lincode™, Living Image®, Lumina™, Lymphopure™, MicroBeta2®, [Mini ELISA Plate Reader™,] miRIDIAN™, MojoSort™, MuviCyte™, OneSource®, ON-TARGET™, ON-TARGETplus™, Opera Phenix® Plus, Operetta® CLS™, PerkinElmer Signals for Translational™, PhenoPlate™, PhenoVue™, PIN-POINT™, Quantulus™ GCT, RAPID MAX™, RediJect™, RNAiONE™, Signals Image Artist™, SMARTpools™, SMARTvector™, Spark™, Spectrum™, Tri-Carb®, T-SPOT®, Ultra-LEAF™, ViaStain™, VICTOR Nivo™ and Wizard2®.
Aquamatic™, Avio®, Clarity™, Clarus®, DairyGuard™, DoughLab™, Falling Number®, FL 6500TM, FL 8500TM, FlexarTM, Frontier™, Glutomatic®, Honigs Regression™, HyperDSC®, Inframatic™, LAMBDA®, LPC 500™, NexION®, NexSAR™, OilExpress™, OilPrep™, Optima®, Perten®, Perten Instruments®, PinAAcle®, PureViewTM, QSight®, SimplicityChrom™, Spectrum™, Spectrum Two™, Spotlight™, Supra-clean®, Supra-d™, Supra-poly®, Syngistix™, Torion®, TruQ™, TurboMatrix™ and Ultraspray®.
We offer instruments, reagents, assay platforms, and software to hospitals, medical labs, clinicians and medical research professionals to help improve the health of families. Our Diagnostics segment is especially focused on reproductive health, immunodiagnostics, emerging market diagnostics and applied genomics.
We provide early detection for genetic disorders from pregnancy to early childhood, and infectious disease testing for the diagnostics market. Our screening products are designed to provide early and accurate insights into the health of expectant mothers during pregnancy and into the health of their babies. Diagnostic labs use our instruments, reagents and software for testing and screening genetic abnormalities and certain disorders and diseases, including Down syndrome, hypothyroidism, muscular dystrophy, infertility and various metabolic conditions. We also develop technologies that enable and support genomic workflows using PCR and next-generation DNA sequencing for applications in oncology, immunodiagnostics and drug discovery.
With the acquisition of BioLegend, we added a collection of Analyte Specific Reagents (ASR) used in flow cytometry to develop diagnostic assays. We also provide a limited set of Immunohistochemistry in vitro diagnostic (IVD) products used for diagnostics in pathology labs, contract research organizations and other qualified institutions. A selection of our flow cytometry conjugates are registered in China as Class I diagnostic products.
We also developed a number of products and services in response to the COVID-19 pandemic, with a special emphasis on supporting public health authorities both in the United States and abroad, including through the operation of COVID-19 testing facilities. Further information is provided below under "New Products".
Our principal products and services for Diagnostics applications include the following:
•The DELFIA® Xpress screening platform, a complete solution for prenatal and maternal health screening, which includes a fast continuous loading system. It is supported by kits for first, second and third trimester analyses for prenatal screening and clinically validated LifeCycle™ software.
•The NeoBase™ non-derivatized MS/MS AAAC kits, which are used to support detection of metabolic disorders in newborns through tandem mass spectrometry. The kits analyze newborn dry blood spot samples for measurement of amino acids and other metabolic analytes for specific diseases.
•The GSP® Neonatal hTSH, T4 17á-OHP, GALT IRT, BTD, PKU, Total Galactose, CK-MM and G6PD kits, used for screening congenital neonatal conditions from a drop of blood.
•The Specimen Gate® informatics data management solution, designed specifically for newborn screening laboratories.
•ViaCord® umbilical cord blood banking services for the banking of stem cells harvested from umbilical cord blood and cord tissue, for potential therapeutic application in transplant and regenerative medicine.
•An expanded portfolio of molecular-based infectious disease screening technologies for blood bank and clinical laboratory settings in China. The tools include a qualitative 3-in-1 assay for the detection of hepatitis B, hepatitis C and HIV, as well as assays for other communicable diseases.
•The EnLite™ Neonatal TREC™ system, a screening test for Severe Combined Immunodeficiency (SCID), consisting of EnLite™ Neonatal TREC™ reagent kits, the Victor EnLite™ instrument and EnLite™ workstation software.
•NeoLSDTM MSMS kit, the first commercial IVD kit for screening of Pompe, MPS-I, Fabry, Gaucher, Niemann-Pick A/B and Krabbe disorders from a single dried blood spot sample.
•QSight® Triple Quad MSMS instrument, which is used for newborn screening.
•TRF-based Anti HBs/HCV/TP kits for infectious disease testing.
•Chitas® instrument and HBV/HCV/HIV 3-in-1 PCR reagents for blood screening, and Hi Sensitivity HBV DNA and HCV RNA assays for clinical infectious disease testing.
•The chemagic™ Prime™ instrument, a fully automated, LIMS-compatible solution for primary sample transfer, DNA and RNA isolation, optional normalization and the setup of PCR and NGS applications.
•Immune fluorescence testing (IFT), enzyme-linked immunosorbent assay (ELISA), chemiluminescence-based immunotesting, immunoblots, molecular microarrays, PCR, liquid handlers and software solutions.
•Autoimmune testing covering rheumatology, hepatology, gastroenterology, endocrinology, neurology, nephrology, dermatology and infertility.
•Infectious disease testing covering bacteria, viruses and parasites.
•IFT, ELISA and EUROLINETM assays for veterinary medical diagnostics.
•Automated liquid handling platforms (JANUS®, Sciclone® and Zephyr®) that offer a choice of robotic solutions in genomics, biotherapeutics, high throughput screening and high content analysis to assist life science research from bench to clinic.
•JANUS® BioTx™ and PreNAT IITM workstations for automated small-scale purification, offering column, tip and plate-based chromatography on a single platform.
•The LabChip GXII® TouchTM platform, which provides a means of characterizing multiple protein product attributes for research labs through QC.
•The explorer™ automated workstation, which allows integration of multiple laboratory instrumentation using a centralized robotic interface, allowing high throughput and turnkey-application focused solutions.
•Allergy testing covering allergen-specific immunoglobin e (IgE), measuring the level of different IgE antibodies in blood using ELISA and EUROLINETM assays.
•Vanadis® NIPT, a breakthrough cfDNA technology for use in genetic and biochemistry laboratories for screening common trisomies in the pregnant population as a leading NIPT solution.
•PG-Seq™ Rapid Non-Invasive Preimplantation Genetic Testing kit, an alternative to IVF embryo biopsies.
•PerkinElmer Genomics is a global laboratory network offering services for testing in cytogenetics, biochemical genetics (prenatal and postnatal), molecular genetics and immunodiagnostics. The laboratory network includes testing laboratories in the United States, Sweden, India, Malaysia and China.
•The EONISTM assay, a CE marked system utilizing real-time PCR technology, which allows for simultaneous screening of SMA, SCID and XLA in newborns from a single DBS punch.
•EUROIMMUN SARS-CoV-2 Antigen ELISA for specific determination of the SARS-CoV-2 protein.
•EURORealTime SARS-CoV-2/Influenza A/B real-time PCR test for direct detection of SARS-CoV-2, influenza virus type A and influenza virus type B.
•Anti-SARS-CoV-2 QuantiVacTM ELISA (IgG) to quantify IgG antibodies against the SARS-CoV-2 S1 antigen liquid chromatography (UHPLC) capabilities with intuitive instrument control and data analysis.
•PKamp™ Respiratory SARS-CoV-2 RT-PCR assay panel designed to conserve resources by testing a single nasopharyngeal, oropharyngeal or nasal swab sample collected from an individual suspected of respiratory viral infection consistent with COVID-19, the flu and RSV.
•explorer™ workstations for SARS-CoV-2 testing capable of preparing and running up to 10,000 COVID-19 tests per day. These modular and scalable workstations enable laboratories to ramp up SARS-CoV-2 testing capacity quickly to generate results.
•The DELFIA® Xpress sFlt-1 kit, which enables short term prediction of pre-eclampsia and aids in diagnosis in the second and third trimesters of pregnancy together with the previously launched DELFIA® Xpress PlGF 1-2-3™ assay.
•Laboratory facilities for COVID-19 testing developed with public health authorities in the State of California and the United Kingdom.
New products or services introduced or acquired for Diagnostics applications in fiscal year 2021 include the following:
•Prenatal testing utilizing PerkinElmer Genomics Next Generation Sequencing products.
•PerkinElmer Genomics Whole Genome Sequencing products, including sequencing for Spinal Muscular Atrophy and Repeat disorders.
•PerkinElmer Genomics Digital Genome sequencing test for Facioscapularhumeral dystrophy (FSHD).
•Oxford Immunotec™ T-SPOT® Technology platform, a modified ELISPOT used to detect a T cell immune response to infection. Tests available using the platform include:
◦The T-SPOT®.TB test, an FDA approved and CE marked test to aid the diagnosis of Tuberculosis infection.
◦The T-SPOT®.COVID test, a CE marked test to detect a T cell immune response to SARS-CoV-2 infection and vaccination.
◦The T-SPOT®.CMV test, a CE marked test to assess anti-CMV T cell mediated immunity.
Our Diagnostics segment offers additional products under various brand names, including AutoDELFIA®, BACS-on-Beads®, BIOCHIPs, Bioo Scientific®, BoBs®, chemagic™, Chitas®, Datalytix™, DELFIA®, DELFIA® Xpress, DOPlify®, EONISTM, EUROArrayTM, EUROIMMUN®, EUROLabWorkstationTM, EUROlineTM, EUROPatternTM, Evolution™, Evoya®, explorer™, FragilEase®, Genoglyphix®, GSP®, HaoyuanTM, iLab™, JANUS®, LabChip®, LifeCycle™, LimsLink™, MultiPROBE®, NEXTFLEX®, NextPrep™, Pannoramic™, PG-SeqTM, PG-FindTM, PKampTM, PreNAT®, Protein ClearTM, ProteinEXactTM, QSight®, QuantiVacTM, Sciclone®, SimplicityChrom™, Specimen Gate®, SuperflexTM, SymbioTM, T-SPOT®, Twister®, Vanadis®, VariSpec™, ViaCord® and Zephyr®.
All of our businesses market their products and services primarily through their own specialized sales forces. As of January 2, 2022, we employed approximately 6,500 sales and service representatives operating in approximately 40 countries and marketing products and services in more than 190 countries. In geographic regions where we do not have a sales and service presence, we utilize distributors to sell our products.
Raw Materials, Key Components and Supplies
Each of our businesses uses a wide variety of raw materials, key components and supplies that are generally available from alternate sources of supply and in adequate quantities from domestic and foreign sources. We generally have multi-year contracts, with no minimum purchase requirements, with our suppliers. For certain critical raw materials, key components and supplies required for the production of some of our principal products, we have qualified only a limited or a single source of supply. We periodically purchase quantities of some of these critical raw materials in excess of current requirements, in anticipation of future manufacturing needs. With sufficient lead times, we believe we would be able to qualify alternative suppliers for each of these raw materials and key components. See the applicable risk factor in “Item 1A. Risk Factors” for an additional description of this risk.
We own numerous United States and foreign patents and have patent applications pending in the United States and abroad. We also license intellectual property rights to and from third parties, some of which bear royalties and are terminable in specified circumstances. In addition to our patent portfolio, we possess a wide array of unpatented proprietary technology and know-how. We also own numerous United States and foreign trademarks and trade names for a variety of our product names, and have applications for the registration of trademarks and trade names pending in the United States and abroad. We believe that patents and other proprietary rights are important to the development of both of our reporting segments, but we also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain the competitive position of both of our reporting segments. We do not believe that the loss of any one patent or other proprietary right would have a material adverse effect on our overall business or on any of our reporting segments.
In some cases, we may participate in litigation or other proceedings to defend against or assert claims of infringement, to enforce our patents or our licensors’ patents, to protect our trade secrets, know-how or other intellectual property rights, or to determine the scope and validity of our or third parties’ intellectual property rights. Litigation of this type could result in substantial cost to us and diversion of our resources. An adverse outcome in any litigation or proceeding could subject us to significant liabilities or expenses, require us to cease using disputed intellectual property or cease the sale of a product, or require us to license the disputed intellectual property from third parties.
Due to the range and diversity of our products and services, we face many different types of competition and competitors. Our competitors range from foreign and domestic organizations, which produce a comprehensive array of goods and services and that may have greater financial and other resources than we do, to more narrowly focused firms producing a limited number of goods or services for specialized market segments.
We compete on the basis of service level, price, technological innovation, operational efficiency, product differentiation, product availability, quality and reliability. Competitors range from multinational organizations with a wide range of products to specialized firms that in some cases have well-established market positions. We expect the proportion of large competitors to increase through the continued consolidation of competitors.
Our operations are subject to regulation by different state and federal government agencies in the United States and other countries, as well as to the standards established by international standards bodies. Some of our products are subject to regulation by the United States Food and Drug Administration and similar foreign agencies. These regulations govern a wide variety of our product activities, and if we fail to comply with those regulations or standards, we may face, among other things, warning letters; adverse publicity; investigations or notices of non-compliance, fines, injunctions, and civil penalties; import or export restrictions; partial suspensions or total shutdown of production facilities or the imposition of operating restrictions;
increased difficulty in obtaining required FDA clearances or approvals or foreign equivalents; seizures or recalls of our products or those of our customers; or the inability to sell our products.
We have agreements relating to the sale of our products and services to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. We are also subject to investigation for compliance with the regulations governing government contracts. A failure to comply with these regulations could result in suspension of these contracts, as well as other penalties.
We are also subject to a variety of laws, regulations and standards that govern, among other things, the importation and exportation of products, and our business practices in the United States and abroad such as anti-bribery, anti-corruption and competition laws. In addition, changes in governmental regulations may reduce demand for our products or increase our expenses. The healthcare industry, including the genetic screening market, is subject to extensive and frequently changing international and United States federal, state and local laws and regulations. This requires that we devote substantial resources to maintaining our compliance with those laws, regulations and standards.
If we fail to comply with applicable laws and regulations, we could suffer civil and criminal damages, fines and penalties, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur liabilities from third-party claims, all of which could have a significant adverse effect on our business.
Our operations are subject to various foreign, federal, state and local environmental and safety laws and regulations. These requirements include the handling, transportation, manufacture and disposal of toxic or hazardous substances, the remediation of contaminated soil and groundwater, the regulation of radioactive materials, and the health and safety of our employees.
We may have liability under the Comprehensive Environmental Response Compensation and Liability Act and comparable state statutes that impose liability for investigation and remediation of contamination without regard to fault, in connection with materials that we or our former businesses sent to various third-party sites. We have incurred, and expect to incur, costs pursuant to these statutes.
We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party (“PRP”) for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. We have accrued $11.9 million and $12.9 million as of January 2, 2022 and January 3, 2021, respectively, which represents our management’s estimate of the cost of the remediation of known environmental matters, and does not include any potential liability for related personal injury or property damage claims. Our environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on our consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
We may become subject to new or unforeseen environmental costs or liabilities. Compliance with new or more stringent laws or regulations, stricter interpretations of existing laws, or the discovery of new contamination could cause us to incur additional costs.
Human Capital Management
As of January 2, 2022, we employed approximately 16,700 employees on a worldwide basis. Roughly 75% of our workforce is based outside of the United States. Employees at several of our subsidiaries outside the United States belong to labor unions and/or workers' councils in those jurisdictions. During fiscal year 2021, our voluntary turnover rate was roughly 10%. We believe that management of our human capital resources is vital to the continued growth and success of the Company,
and we endeavor to create an environment that encourages productivity, rewards performance and values diversity. There are several ways in which we attempt to attract, develop and retain highly qualified employees, as set forth below.
Our human capital objectives include, as applicable, identifying, recruiting, developing, retaining, incentivizing, and integrating our existing and new employees. We strive to meet this objective by offering competitive compensation and benefits, in a diverse, inclusive and safe workplace, with opportunities for our employees to grow and develop in their careers. We hold our employees to high performance standards and our compensation plans are designed to deliver competitive base pay and attractive incentive opportunities. Our benefits programs are specifically tailored to the various countries in which we operate and maintain a significant workforce. We benchmark for market practices and adjust our compensation and benefits programs to ensure they remain both equitable and competitive.
Diversity and Inclusion
We believe in an inclusive workforce, where employees from a number of cultures and countries are engaged and encouraged to leverage their collective talents. We have employees in more than 40 countries around the world. As of the date of filing of this annual report on Form 10-K, women comprised roughly 30% of our leadership positions on a global basis, which we define as director level and above. We provided further information regarding our diversity demographics in our Corporate Social Responsibility (CSR) Report and elsewhere on our website at www.perkinelmer.com, including from our consolidated EEO-1 report. An EEO-1 report is filed with the United States Equal Employment Opportunity Commission and describes the racial, ethnic and gender composition of our U.S.-based workforce. Information on our website, including the CSR Report and the consolidated EEO-1 report, shall not be deemed incorporated by reference into this annual report.
We understand that our ability to operate in a multicultural world is critical to our long-term value creation. By maintaining a culture of diversity and inclusion, we believe we can innovate more effectively. To that end, we seek to promote diverse perspectives throughout our organization and are an equal opportunity employer committed to making employment decisions without regard to race, religion, national or ethnic origin, sex, sexual orientation, gender identity or expression, age, disability, protected veteran status or other characteristics protected by law.
Our commitment to diversity is evidenced by the establishment in 2020 of our internal Inclusion and Diversity Committee, which is comprised of a wide cross-section of leaders from all regions and backgrounds. The Committee focuses on driving increased diversity within our workforce, as well as creating a safe and engaging platform for dialogue on these issues for all our employees. Our commitment to creating a diverse and inclusive work environment is further validated by our employees, as reflected in the results of our recent employee engagement survey, where we received high scores in the areas of Diversity & Inclusion, Inclusiveness, and Non-Discrimination. Among other comments, employees shared that they are proud of the emphasis PerkinElmer places on diversity and inclusion, and on making PerkinElmer a place where everyone is valued and respected.
Training and Development
We are committed to the continued development and training of our employees. We seek to provide our employees with meaningful learning opportunities to help grow their capabilities and careers. We provide learning through a variety of channels and formats, including formal (classroom-based, blended learning solutions, digital learning) and informal, on-the-job learning. We are also dedicated to our employees’ professional development, with a pivotal component of our annual performance review and goal-setting process focused on providing employees with constructive and actionable feedback, as well as management support and engagement in the creation and completion of development goals. Our training opportunities are designed to promote learning across all levels of our organization. We seek to provide opportunities for our employees to grow their careers and regularly fill open vacancies with internal candidates. In addition, management periodically assesses succession planning for certain key positions and reviews our workforce to identify high potential employees for future growth and development. We also provide formal and informal training opportunities for our employees covering a variety of professional, technical and leadership topics.
Health and Safety
Our success depends on the well-being of our employees, and one of our top priorities is to protect the health and safety of our employees. We maintain a culture focused on safety and strive to identify, eliminate, and control risk in the workplace to prevent injury and illness. Our employees have access to a global safety management system and are encouraged to report incidents, near misses, or other observations in the system. The system has been widely adopted in our manufacturing locations across the globe, and management uses the information generated by it to set safety-related policies and establish goals for future performance. Further, we provide our employees with a comprehensive benefits package that includes health insurance and other resources that support their physical and mental well-being. In response to the COVID-19 pandemic, we have taken, and we continue to take, proactive, aggressive actions to protect the health and safety of our employees, customers, partners,
and suppliers. We enacted rigorous safety measures, including social distancing protocols, encouraging employees who do not need to be physically present on the manufacturing floor or in a lab to perform their work from home, suspending non-essential travel, implementing temperature checks and other access controls at the entrances to our facilities, extensively and frequently disinfecting our workspaces, and providing appropriate personal protective equipment to employees who are physically present at our facilities. We expect to continue to implement these measures until the COVID-19 pandemic is adequately contained, and we may take further actions as government authorities require or recommend, or as we determine to be in the best interests of our employees, customers, partners, and suppliers.
At PerkinElmer, we have long held the view that responsible global citizenship along with good governance principles and ethical business practices, are essential tenets for sustainability and success. We encourage our employees to support the communities in which they live and where we operate, and to assist in that effort, we fund a long-term charitable matching program for our employees. In addition, we have established a group comprised of management and subject matter experts at our company, to focus on developing and delivering on measurable advancements in the areas of reducing waste, reducing carbon emissions, and improving employee engagement and diversity.
Item 1A. Risk Factors
The following important factors affect our business and operations generally or affect multiple segments of our business and operations:
Risks Related to our Business Operations and Industry
If the markets into which we sell our products decline or do not grow as anticipated due to a decline in general economic conditions, or there are uncertainties surrounding the approval of government or industrial funding proposals, or there are unfavorable changes in government regulations, we may see an adverse effect on the results of our business operations.
Our customers include pharmaceutical and biotechnology companies, laboratories, academic and research institutions, public health authorities, private healthcare organizations, doctors and government agencies. Our quarterly revenue and results of operations are highly dependent on the volume and timing of orders received during the quarter. In addition, our revenues and earnings forecasts for future quarters are often based on the expected trends in our markets. However, the markets we serve do not always experience the trends that we may expect. Negative fluctuations in our customers’ markets, the inability of our customers to secure credit or funding, restrictions in capital expenditures, general economic conditions, cuts in government funding or unfavorable changes in government regulations would likely result in a reduction in demand for our products and services. In addition, government funding is subject to economic conditions and the political process, which is inherently fluid and unpredictable. Our revenues may be adversely affected if our customers delay or reduce purchases as a result of uncertainties surrounding the approval of government or industrial funding proposals. Such declines could harm our consolidated financial position, results of operations, cash flows and trading price of our common stock, and could limit our ability to sustain profitability.
The pandemic caused by coronavirus disease 2019 (“COVID-19”) is having, and may continue to have, a negative effect on the demand for certain of our products and our global operations including our manufacturing capabilities, logistics and supply chain that may materially and adversely impact our business, financial conditions, results of operations and cash flows.
We face risks related to public health crises and pandemics, including the COVID-19 pandemic. The global impact of COVID-19 has resulted in an adverse impact on our operations, supply chains and distribution systems, as significant global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, travel restrictions and/or bans, have been implemented, and in some areas relaxed, and then implemented again. Continued uncertainty with respect to the severity and duration of the COVID-19 pandemic has contributed to the volatility of financial markets. The COVID-19 pandemic has caused extended global economic disruption, and a global recession is possible.
We have experienced significant reductions in demand for certain of our products due to the COVID-19 pandemic and although the severity and duration of the COVID-19 pandemic cannot be reasonably estimated at this time, additional impacts that we may experience include, but are not limited to: fluctuations in our stock price due to market volatility; further decreases in demand for certain of our products; reduced profitability; large-scale supply chain disruptions impeding our ability to ship and/or receive product; potential interruptions of, or limitations on manufacturing operations imposed by local, state or federal governments; shortages of key raw materials or components; workforce absenteeism and distraction; labor shortages including those resulting from unwillingness to comply with vaccination or other requirements; customer credit concerns; cybersecurity
risks and data accessibility disruptions due to remote working arrangements; reduced sources of liquidity; increased borrowing costs; fluctuations in foreign currency markets; potential impairment in the carrying value of goodwill; other asset impairment charges; increased obligations related to our pension and other postretirement benefit plans; and deferred tax valuation allowances.
The rapid and continually evolving development of the COVID-19 pandemic, and the extent to which mitigation measures will be effective, preclude any prediction as to its ultimate impact. However, we currently anticipate that business disruptions and market volatility resulting from the COVID-19 pandemic will continue to have a material adverse impact on the growth rate of certain of our businesses, and may also have a material adverse impact on our overall financial condition, results of operations and cash flows.
Our Diagnostics segment has experienced an increase in revenue resulting from increased demand for our immunodiagnostics and applied genomics COVID-19 product offerings as well as from the COVID-19 testing laboratory facilities we have developed with the State of California and the United Kingdom. We expect demand for these products and services to decline during 2022, with revenue and valuation of our inventory largely contingent upon consumer demand for COVID-19 testing as well as our ability to develop and produce COVID-19 products and successfully staff and manage the laboratories.
Our growth is subject to global economic and political conditions, and operational disruptions at our facilities.
Our business is affected by global economic and political conditions as well as the state of the financial markets, particularly as the United States and other countries balance concerns around debt, inflation, growth and budget allocations in their policy initiatives. There can be no assurance that global economic conditions and financial markets will not worsen and that we will not experience any adverse effects that may be material to our consolidated cash flows, results of operations, financial position or our ability to access capital, such as the adverse effects resulting from a prolonged shutdown in government operations both in the United States and internationally. Our business is also affected by local economic environments, including inflation, recession, financial liquidity and currency volatility or devaluation. Political changes, including war or other conflicts, some of which may be disruptive, could interfere with our supply chain, our customers and all of our activities in a particular location.
While we take precautions to prevent production or service interruptions at our global facilities, a major earthquake, fire, flood, power loss or other catastrophic event that results in the destruction or delay of any of our critical business operations could result in our incurring significant liability to customers or other third parties, cause significant reputational damage or have a material adverse effect on our business, operating results or financial condition.
Certain of these risks can be hedged to a limited degree using financial instruments, or other measures, and some of these risks are insurable, but any such mitigation efforts are costly and may not always be fully successful. Our ability to engage in such mitigation efforts has decreased or become even more costly as a result of recent market developments.
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions, and evolving customer needs and industry standards. Many of the businesses competing with us in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities, and established distribution channels to deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technology that does not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend upon several factors, including our ability to:
•accurately anticipate customer needs,
•innovate and develop new reliable technologies and applications,
•receive regulatory approvals in a timely manner,
•successfully commercialize new technologies in a timely manner,
•price our products competitively, and manufacture and deliver our products in sufficient volumes and on time, and
•differentiate our offerings from our competitors’ offerings.
Many of our products are used by our customers to develop, test and manufacture their products. We must anticipate industry trends and consistently develop new products to meet our customers’ expectations. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenue. We may also suffer a loss in market share and potential revenue if we are unable to commercialize our technology in a timely and efficient manner.
In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications.
We may not be able to successfully execute acquisitions or divestitures, license technologies, integrate acquired businesses or licensed technologies into our existing businesses, or make acquired businesses or licensed technologies profitable.
We have in the past supplemented, and may in the future supplement, our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our recent acquisition of BioLegend, Inc. However, we may be unable to identify or complete promising acquisitions or license transactions for many reasons, such as:
•competition among buyers and licensees,
•the high valuations of businesses and technologies,
•the need for regulatory and other approval, and
•our inability to raise capital to fund these acquisitions.
Some of the businesses we acquire may be unprofitable or marginally profitable, or may increase the variability of our revenue recognition. If, for example, we are unable to successfully commercialize products and services related to significant in-process research and development that we have capitalized, we may have to impair the value of such assets. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we would have to improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations, such as incompatible management, information or other systems, cultural differences, loss of key personnel, unforeseen regulatory requirements, previously undisclosed liabilities or difficulties in predicting financial results. Additionally, if we are not successful in selling businesses we seek to divest, the activity of such businesses may dilute our earnings and we may not be able to achieve the expected benefits of such divestitures. As a result, our financial results may differ from our forecasts or the expectations of the investment community in a given quarter or over the long term.
To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us. We may also incur expenses related to completing acquisitions or licensing technologies, or in evaluating potential acquisitions or technologies, which may adversely impact our profitability.
If we do not compete effectively, our business will be harmed.
We encounter aggressive competition from numerous competitors in many areas of our business. We may not be able to compete effectively with all of these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjust the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.
Our quarterly operating results could be subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate, which could increase the volatility of our stock price and potentially cause losses to our shareholders.
Given the nature of the markets in which we participate, we cannot reliably predict future revenue and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we may not be able to make those adjustments or make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed in the short term, due in part to our research and development and manufacturing costs. As a result, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:
•demand for and market acceptance of our products,
•competitive pressures resulting in lower selling prices,
•changes in the level of economic activity in regions in which we do business, including as a result of COVID-19 and other global health crises or pandemics,
•changes in general economic conditions or government funding,
•settlements of income tax audits,
•expenses incurred in connection with claims related to environmental conditions at locations where we conduct or formerly conducted operations,
•contract termination and litigation costs,
•differing tax laws and changes in those laws, or changes in the countries in which we are subject to taxation,
•changes in our effective tax rate,
•changes in industries, such as pharmaceutical and biomedical,
•changes in the portions of our revenue represented by our various products and customers,
•our ability to introduce new products,
•our competitors’ announcement or introduction of new products, services or technological innovations,
•costs of raw materials, labor, energy or supplies,
•changes in healthcare or other reimbursement rates paid by government agencies and other third parties for certain of our products and services,
•our ability to realize the benefit of ongoing productivity initiatives,
•changes in the volume or timing of product orders,
•fluctuation in the expense related to the mark-to-market adjustment on postretirement benefit plans,
•changes in our assumptions underlying future funding of pension obligations,
•changes in assumptions used to determine contingent consideration in acquisitions, and
•changes in foreign currency exchange rates.
A significant disruption in third-party package delivery and import/export services, or significant increases in prices for those services, could interfere with our ability to ship products, increase our costs and lower our profitability.
We ship a significant portion of our products to our customers through independent package delivery and import/export companies, including UPS and Federal Express in the United States; TNT, UPS and DHL in Europe; and UPS in Asia. We also ship our products through other carriers, including commercial airlines, freight carriers, national trucking firms, overnight carrier services and the United States Postal Service. If one or more of the package delivery or import/export providers experiences a significant disruption in services or institutes a significant price increase, including a service disruption as a result of the COVID-19 pandemic, we may have to seek alternative providers and the delivery of our products could be prevented or delayed. Such events could cause us to incur increased shipping costs that could not be passed on to our customers, negatively impacting our profitability and our relationships with certain of our customers.
Disruptions in the supply of raw materials, certain key components and other goods from our limited or single source suppliers could have an adverse effect on the results of our business operations, and could damage our relationships with customers.
The production of our products requires a wide variety of raw materials, key components and other goods that are generally available from alternate sources of supply. However, certain critical raw materials, key components and other goods required for the production and sale of some of our principal products are available from limited or single sources of supply. We generally have multi-year contracts with no minimum purchase requirements with these suppliers, but those contracts may not fully protect us from a failure by certain suppliers to supply critical materials or from the delays inherent in being required to change suppliers and, in some cases, validate new raw materials. Such raw materials, key components and other goods can usually be obtained from alternative sources with the potential for an increase in price, decline in quality or delay in delivery. A prolonged inability to obtain certain raw materials, key components or other goods is possible and could have an adverse effect on our business operations, and could damage our relationships with customers. In addition, a global health crisis or pandemic such as the COVID-19 pandemic could have a significant adverse effect on our supply chain.
We are subject to the rules of the Securities and Exchange Commission requiring disclosure as to whether certain materials known as conflict minerals (tantalum, tin, gold, tungsten and their derivatives) that may be contained in our products are mined from the Democratic Republic of the Congo and adjoining countries. As a result of these rules, we may incur additional costs in complying with the disclosure requirements and in satisfying those customers who require that the components used in our products be certified as conflict-free, and the potential lack of availability of these materials at competitive prices could increase our production costs.
If we do not retain our key personnel, our ability to execute our business strategy will be limited.
Our success depends to a significant extent upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers and scientists, and on our ability to continue to attract, retain, and motivate qualified personnel. The competition for these employees is intense. The loss of the services of key personnel could have a material adverse effect on our operating results. In addition, there could be a material adverse effect on us should the turnover rates for key personnel increase significantly or if we are unable to continue to attract qualified personnel. We do not maintain any key person life insurance policies on any of our officers or employees.
Our success also depends on our ability to execute leadership succession plans. The inability to successfully transition key management roles could have a material adverse effect on our operating results.
If we experience a significant disruption in, or breach in security of, our information technology systems or those of our customers, suppliers or other third parties, or cybercrime, resulting in inappropriate access to or inadvertent transfer of information or assets, or if we fail to implement new systems, software and technologies successfully, our business could be adversely affected.
We rely on several centralized information technology systems throughout our company to develop, manufacture and provide products and services, keep financial records, process orders, manage inventory, process shipments to customers and operate other critical functions. Our and our third-party service providers' information technology systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophes or other unforeseen events. If we were to experience a prolonged system disruption in the information technology systems that involve our interactions with customers, suppliers or other third parties, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. In addition, security breaches of our information technology systems or cybercrime, resulting in inappropriate access to or inadvertent transfer of information or assets, could result in losses or misappropriation of assets or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in our suffering significant financial or reputational damage.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.
As of January 2, 2022, our total assets included $11.5 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights, customer relationships, core technology and technology licenses and in-process research and development, net of accumulated amortization. We test certain of these items—specifically all of those that are considered “indefinite-lived”—at least annually for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned. All of our amortizing intangible assets are also evaluated for impairment should events occur that call into question the value of the intangible assets.
Adverse changes in our business, adverse changes in the assumptions used to determine the fair value of our reporting units, or the failure to grow our Discovery & Analytical Solutions and Diagnostics segments may result in impairment of our intangible assets, which could adversely affect our results of operations.
Risks Related to our Intellectual Property
We may not be successful in adequately protecting our intellectual property.
Patent and trade secret protection is important to us because developing new products, processes and technologies gives us a competitive advantage, although it is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents. Patent applications we file, however, may not result in issued patents or, if they do, the claims allowed in the patents may be narrower than what is needed to protect fully our products, processes and technologies. The expiration of our previously issued patents may cause us to lose a competitive advantage in certain of the products and services we provide. Similarly, applications to register our trademarks may not be granted in all countries in which they are
filed. For our intellectual property that is protected by keeping it secret, such as trade secrets and know-how, we may not use adequate measures to protect this intellectual property.
Third parties have in the past and may in the future also challenge the validity of our issued patents, may circumvent or “design around” our patents and patent applications, or claim that our products, processes or technologies infringe their patents. In addition, third parties may assert that our product names infringe their trademarks. We may incur significant expense in legal proceedings to protect our intellectual property against infringement by third parties or to defend against claims of infringement by third parties. Claims by third parties in pending or future lawsuits could result in awards of substantial damages against us or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or other countries.
If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage.
We may not be able to renew our existing licenses, or licenses we may obtain in the future, on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.
Our licenses typically subject us to various economic and commercialization obligations. If we fail to comply with these obligations, we could lose important rights under a license, such as the right to exclusivity in a market, or incur losses for failing to comply with our contractual obligations. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out of our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third-party could obtain a patent that curtails our freedom to operate under one or more licenses.
Risks Related to Legal, Government and Regulatory Matters
The manufacture and sale of products and services may expose us to product and other liability claims for which we could have substantial liability.
We face an inherent business risk of exposure to product and other liability claims if our products, services or product candidates are alleged or found to have caused injury, damage or loss. We may be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms of any insurance policy that we obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies in the United States and abroad, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil, criminal or monetary penalties.
Our operations are subject to regulation by different state and federal government agencies in the United States and other countries, as well as to the standards established by international standards bodies. If we fail to comply with those regulations or standards, we could be subject to fines, penalties, criminal prosecution or other sanctions. Some of our products are subject to regulation by the United States Food and Drug Administration and similar foreign and domestic agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with those regulations or standards, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution.
We are also subject to a variety of laws, regulations and standards that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of toxic or hazardous substances, the collection, storage, transfer, use, disclosure, retention and other processing of personal data, and our business practices in the United States and abroad such as anti-bribery, anti-corruption and competition laws. This requires that we devote substantial resources to maintaining our compliance with those laws, regulations and standards. A failure to do so could result in the imposition of civil, criminal or monetary penalties having a material adverse effect on our operations.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, data privacy and food and drug regulations. We develop, configure and market our
products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The healthcare industry is highly regulated and if we fail to comply with its extensive system of laws and regulations, we could suffer fines and penalties or be required to make significant changes to our operations which could have a significant adverse effect on the results of our business operations.
The healthcare industry, including the genetic screening market, is subject to extensive and frequently changing international and United States federal, state and local laws and regulations. In addition, legislative provisions relating to healthcare fraud and abuse, patient privacy violations and misconduct involving government insurance programs provide federal enforcement personnel with substantial powers and remedies to pursue suspected violations. We believe that our business will continue to be subject to increasing regulation as the federal government continues to strengthen its position on healthcare matters, the scope and effect of which we cannot predict. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal damages, fines and penalties, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur liabilities from third-party claims, all of which could have a significant adverse effect on our business.
Risks Related to our Foreign Operations
Economic, political and other risks associated with foreign operations could adversely affect our international sales and profitability.
Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented the majority of our total revenue in fiscal year 2021. We anticipate that sales from international operations will continue to represent a substantial portion of our total revenue. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results of operations could be harmed by a variety of factors, including:
•changes in actual, or from projected, foreign currency exchange rates,
•a global health crisis of unknown duration, such as the COVID-19 pandemic,
•wars, conflicts, or other changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets,
•longer payment cycles of foreign customers and timing of collections in foreign jurisdictions,
•trade protection measures including embargoes, sanctions and tariffs, such as the sanctions recently implemented by the U.S. and other governments on the Russian Federation and related parties, the extent and impact of which have yet to be fully determined,
•import or export licensing requirements and the associated potential for delays or restrictions in the shipment of our products or the receipt of products from our suppliers,
•policies in foreign countries benefiting domestic manufacturers or other policies detrimental to companies headquartered in the United States,
•differing tax laws and changes in those laws, or changes in the countries in which we are subject to tax,
•adverse income tax audit settlements or loss of previously negotiated tax incentives,
•differing business practices associated with foreign operations,
•difficulty in transferring cash between international operations and the United States,
•difficulty in staffing and managing widespread operations,
•differing labor laws and changes in those laws,
•differing protection of intellectual property and changes in that protection,
•expanded enforcement of laws related to data protection and personal privacy,
•increasing global enforcement of anti-bribery and anti-corruption laws, and
•differing regulatory requirements and changes in those requirements.
The United Kingdom's withdrawal from the European Union could adversely impact our results of operations.
Nearly 10% of our net sales from continuing operations in fiscal year 2021 came from the United Kingdom. Following the referendum vote in the United Kingdom in June 2016 in favor of leaving the European Union, on January 31, 2020, the country formally withdrew from the European Union (commonly referred to as “Brexit”) and, on December 24, 2020, the United Kingdom and the European Union entered into a Trade and Cooperation Agreement to govern the relationship between the United Kingdom and the European Union following Brexit. The potential effects of Brexit remain uncertain. Brexit has caused, and may continue to create, volatility in global stock markets and regional and global economic uncertainty particularly in the United Kingdom financial and banking markets. Weakening of economic conditions or economic uncertainties tend to harm our business, and if such conditions worsen in the United Kingdom or in the rest of Europe, it may have a material adverse effect on our operations and sales.
Any significant weakening of the Great Britain Pound to the U.S. dollar will have an adverse impact on our European revenues due to the importance of our sales in the United Kingdom. Currency exchange rates in the pound sterling and the euro with respect to each other and the U.S. dollar have already been adversely affected by Brexit and that may continue to be the case.
Risks Related to our Debt
We have a substantial amount of outstanding debt, which could impact our ability to obtain future financing and limit our ability to make other expenditures in the conduct of our business.
We have a substantial amount of debt and other financial obligations. Our debt level and related debt service obligations could have negative consequences, including:
•requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes, such as acquisitions and stock repurchases;
•reducing our flexibility in planning for or reacting to changes in our business and market conditions;
•exposing us to interest rate risk as a portion of our debt obligations are at variable rates;
•increasing our foreign currency risk as a portion of our debt obligations are in denominations other than the US dollar; and
•increasing the chances of a downgrade of our debt ratings due to the amount or intended purpose of our debt obligations.
We may incur additional indebtedness in the future to meet future financing needs. If we add new debt, the risks described above could increase. In addition, the market for both public and private debt offerings could experience liquidity concerns and increased volatility as a result of the COVID-19 pandemic, which could ultimately increase our borrowing costs and limit our ability to obtain future financing.
Restrictions in our senior unsecured revolving credit facility and other debt instruments may limit our activities.
Our senior unsecured revolving credit facility, unsecured term loan credit facility, senior unsecured notes due in 2023 ("2023 Notes"), senior unsecured notes due in 2024 ("2024 Notes"), senior unsecured notes due in 2026 ("2026 Notes"), senior unsecured notes due in 2028 ("2028 Notes"), senior unsecured notes due in 2029 ("2029 Notes"), senior unsecured notes due in 2031 ("March 2031 Notes"), senior unsecured notes due in 2031 ("September 2031 Notes") and senior unsecured notes due in 2051 ("2051 Notes") include restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company. These include restrictions on our ability and the ability of our subsidiaries to:
•pay dividends on, redeem or repurchase our capital stock,
•incur obligations that restrict our subsidiaries’ ability to make dividend or other payments to us,
•guarantee or secure indebtedness,
•enter into transactions with affiliates, and
•consolidate, merge or transfer all, or substantially all, of our assets and the assets of our subsidiaries on a consolidated basis.
We are also required to meet specified financial ratios under the terms of certain of our existing debt instruments. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control, such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition. In addition, if we are unable to maintain our investment grade credit rating, our borrowing costs would increase and we would be subject to different and potentially more restrictive financial covenants under some of our existing debt instruments.
Any future indebtedness that we incur may include similar or more restrictive covenants. Our failure to comply with any of the restrictions in our senior unsecured revolving credit facility, unsecured term loan credit facility, the 2023 Notes, the 2024 Notes, the 2026 Notes, the 2028 Notes, the 2029 Notes, the March 2031 Notes, the September 2031 Notes, the 2051 Notes or any future indebtedness may result in an event of default under those debt instruments, which could permit acceleration of the debt under those debt instruments, and require us to prepay that debt before its scheduled due date under certain circumstances.
Discontinuation, reform, or replacement of LIBOR may adversely affect our variable rate debt.
Our indebtedness under our senior unsecured revolving credit facility and unsecured term loan credit facility bear interest at fluctuating interest rates, primarily based on the London Interbank Offered Rate (“LIBOR”) for deposits of U.S. dollars. In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The discontinuation date for submission and publication of rates for certain tenors of U.S. dollar LIBOR (1-month, 3-month, 6-month, and 12-month) was subsequently extended by the ICE Benchmark Administration (the administrator of LIBOR) until June 30, 2023. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2023. The Alternative Reference Rates Committee in the United States has proposed that the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by U.S. Treasury securities, is the rate that represents best practice as the alternative to U.S. dollar LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. If LIBOR is discontinued, reformed or replaced, we expect that our indebtedness under our senior unsecured revolving credit facility and unsecured term loan credit facility will be indexed to a replacement benchmark based on SOFR. Any such change could cause the effective interest rate under our senior unsecured revolving credit facility and unsecured term loan credit facility and our overall interest expense to increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected.
Risks Related to Ownership of our Common Stock
Our share price will fluctuate.
Over the last several years, stock markets in general and our common stock in particular have experienced significant price and volume volatility. Both the market price and the daily trading volume of our common stock may continue to be subject to significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our common stock may be affected by:
•operating results that vary from our financial guidance or the expectations of securities analysts and investors,
•the financial performance of the major end markets that we target,
•the operating and securities price performance of companies that investors consider to be comparable to us,
•announcements of strategic developments, acquisitions and other material events by us or our competitors,
•changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, inflation, commodity and equity prices and the value of financial assets, and
•changes to economic conditions arising from global health crises such as the COVID-19 pandemic.
Dividends on our common stock could be reduced or eliminated in the future.
On October 27, 2021, we announced that our Board of Directors (our "Board") had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2021 that was paid in February 2022. On January 27, 2022, we announced that our Board had declared a quarterly dividend of $0.07 per share for the first quarter of fiscal year 2022 that will be payable in May 2022. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
Item 1B. Unresolved Staff Comments
Item 2. Properties
We conduct operations for both our Discovery & Analytical Solutions and Diagnostics segments in manufacturing and assembly plants, research laboratories, administrative offices and other facilities. A majority of all such facilities utilized are leased from third parties. Our real property leases are both short-term and long-term. See Note 21, Leases, in the Notes to Consolidated Financial Statements for further discussion of our leases.
Item 3. Legal Proceedings
We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in the opinion of our management, based on its review of the information available at this time, the total cost of resolving these contingencies at January 2, 2022 should not have a material adverse effect on our consolidated financial statements included in this annual report on Form 10-K. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us.
Item 4. Mine Safety Disclosures
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Listed below are our executive officers as of March 3, 2022. No family relationship exists between any one of these executive officers and any of the other executive officers or directors.
|Prahlad Singh||President and Chief Executive Officer||57|
|James M. Mock||Senior Vice President and Chief Financial Officer||45|
|Joel S. Goldberg||Senior Vice President, Administration, General Counsel and Secretary||53|
|Daniel R. Tereau||Senior Vice President, Strategy and Business Development||55|
|Miriame Victor||Senior Vice President, Chief Commercial Officer||41|
|Tajinder Vohra||Senior Vice President, Global Operations||56|
|Andrew Okun||Vice President, Chief Accounting Officer and Treasurer||52|
Prahlad Singh, 57. Dr. Singh currently serves as President and Chief Executive Officer of PerkinElmer, having previously served as President and Chief Operating Officer of PerkinElmer from January 2019 through December 2019. Dr. Singh joined PerkinElmer as the President of our Diagnostics business in May 2014. He was elected Senior Vice President in September 2016 and Executive Vice President in March 2018. Prior to joining PerkinElmer, Dr. Singh was General Manager of GE Healthcare’s Women’s Health business from 2012 to 2014, with responsibility for its mammography and bone densitometry businesses. Before that, Dr. Singh held senior executive level roles in strategy, business development and mergers & acquisitions at both GE Healthcare and Philips Healthcare. Earlier in his career, he held leadership roles of increasing responsibility at DuPont Pharmaceuticals and subsequently Bristol-Myers Squibb Medical Imaging, which included managing the Asia Pacific and Middle East region. Dr. Singh holds a doctoral degree in chemistry from the University of Missouri-Columbia and a Master of Business Administration from Northeastern University. His research work has resulted in several issued patents and publications in peer reviewed journals.
James M. Mock, 45. Mr. Mock joined PerkinElmer in May 2018 as our Senior Vice President and Chief Financial Officer. Prior to joining us, Mr. Mock served for nearly 20 years in a wide range of financial oversight capacities within General Electric Company (GE). Mr. Mock was most recently Vice President, Corporate Audit Staff, a position in which he served from October 2015 to April 2018, where he worked globally across GE’s businesses on controllership reviews and operational excellence projects. Mr. Mock previously served in a number of progressively responsible leadership positions with GE both in the United States and overseas, including as Vice President and Chief Financial Officer for GE Oil & Gas, Subsea Systems, from 2014 to 2015. Mr. Mock received a Bachelor’s degree in Economics from St. Lawrence University.
Joel S. Goldberg, 53. Mr. Goldberg currently serves as our Senior Vice President, Administration, General Counsel and Secretary, having joined as our Senior Vice President, General Counsel and Secretary in July 2008. Prior to joining us, Mr. Goldberg spent seven years at Millennium Pharmaceuticals, Inc., where he most recently served as Vice President, Chief Compliance Officer and Secretary. During his seven years with Millennium, he focused in the areas of mergers and acquisitions, strategic alliances, investment and financing transactions, securities and healthcare related compliance, and employment law. Previously, he was an associate of the law firm Edwards & Angell, LLP. Mr. Goldberg graduated from the Northeastern University School of Law and also holds a Master of Business Administration from Northeastern University. He completed his undergraduate degree at the University of Wisconsin-Madison.
Daniel R. Tereau, 55. Mr. Tereau was appointed Senior Vice President, Strategy and Business Development in January 2016, having joined PerkinElmer in April 2014 as Vice President, Strategy and Business Development. He is responsible for leading PerkinElmer’s overall strategic planning and business development activities. Prior to joining PerkinElmer, Mr. Tereau served on Novartis’ leadership team as Senior Vice President and Global Head of Strategy, Business Development and Licensing from 2011 to 2014, where he was responsible for global strategy and business development for the Consumer Health division. Prior to 2011, Mr. Tereau held similar roles at Thermo Fisher Scientific and GE Healthcare. Mr. Tereau holds a Bachelor of Science degree in finance from Ferris State University, a Juris Doctorate from Wayne State University, and earned his Master of Business Administration from Yale University.
Miriame Victor, 41. Ms. Victor joined PerkinElmer in October 2014 as Sales Leader for the Diagnostics business in Europe and most recently served as Vice President and General Manager for EMEAI, prior to being appointed Senior Vice President and Chief Commercial Officer in January 2021. In that role, she oversees PerkinElmer’s product commercialization efforts across all businesses, having previously completed the successful consolidation of the Diagnostics and Discovery & Analytical Solutions businesses into one unified commercial organization. Prior to joining PerkinElmer, Ms. Victor held various commercial leadership positions in the pharmaceutical industry with MSD and Novartis, and in the medical device
industry with GE Healthcare. Ms. Victor holds a Bachelor of Science degree in pharmacy and pharmaceutical sciences from Cairo University and earned her Master of Business Administration from Arab Academy for Science, Technology and Maritime Transport.
Tajinder Vohra, 56. Mr. Vohra joined PerkinElmer in October 2015 as Vice President of Global Operations and was appointed Senior Vice President Global Operations in January 2018. He oversees all of PerkinElmer’s global operations, including manufacturing, supply chain, customer care and distribution. Prior to joining PerkinElmer, Mr. Vohra served at ABB as a Country Operations Leader from 2011 to 2015, where he was responsible for India-wide operations and Supply Chains for India, Middle East and Africa. Prior to 2011, Mr. Vohra was a Senior Vice President with Genpact, managing Supply Chain and IT businesses, and held a number of global management operational positions with GE Healthcare. Mr. Vohra received his Bachelor’s degree in Mechanical Engineering from the University of Delhi, Master’s degree in Industrial Engineering from the University of Alabama and Master’s degree in Manufacturing Engineering from Lehigh University. Mr. Vohra is a certified Six Sigma Black Belt, and was trained in lean manufacturing at the Shingijitsu Training Institute in Japan.
Andrew Okun, 52. Mr. Okun serves as our Vice President, Chief Accounting Officer and Treasurer. Mr. Okun has served as Vice President and Chief Accounting Officer since April 2011 and was appointed Treasurer in February 2021. Mr. Okun joined us in 2001 and has served in financial and controllership positions of increasing responsibility, including Director of Finance for the Optoelectronics business from 2001 through 2005, Vice President of Finance from 2005 through 2009 and Vice President and Corporate Controller from 2009 through 2011. Prior to joining us, Mr. Okun most recently worked for Honeywell International as a Site Controller as well as for Coopers & Lybrand. Mr. Okun is a Certified Public Accountant and earned his Master of Business Administration from the University of Virginia. He completed his undergraduate degree at the University of California, Santa Barbara.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
We only have one class of common stock. Our common stock is listed on the New York Stock Exchange under the symbol “PKI”. As of February 25, 2022, we had approximately 3,200 holders of record of our common stock.
The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated.
| ||Issuer Repurchases of Equity Securities|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
|Maximum Aggregate Number (or Approximate Dollar Value) of Shares that May Yet|
Under the Plans or
|October 4, 2021 - October 31, 2021||26 ||$||169.68 ||— ||$||187,415,787 |
|November 1, 2021 - November 28, 2021||165 ||183.55 ||— ||187,415,787 |
|November 29, 2021 - January 2, 2022||132 ||188.30 ||— ||187,415,787 |
|Activity for quarter ended January 2, 2022||323 ||$||184.37 ||— ||$||187,415,787 |
(1)Our Board of Directors (our "Board") has authorized us to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans. During the fourth quarter of fiscal year 2021, we repurchased 323 shares of common stock for this purpose at an aggregate cost of $0.1 million. During fiscal year 2021, we repurchased 71,248 shares of common stock for this purpose at an aggregate cost of $10.5 million. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value.
(2)On July 31, 2020, our Board authorized us to repurchase shares of common stock for an aggregate amount up to $250.0 million under a stock repurchase program (the "Repurchase Program"). The Repurchase Program will expire on July 27, 2022 unless terminated earlier by our Board and may be suspended or discontinued at any time. During fiscal year 2021, we repurchased 433,000 shares of common stock under the Repurchase Program for an aggregate cost of $62.6 million. As of January 2, 2022, $187.4 million remained available for aggregate repurchases of shares under the Repurchase Program.
Stock Performance Graph
Set forth below is a line graph comparing the cumulative total shareholder return on our common stock against the cumulative total return of the S&P Composite-500 Index and a Peer Group Index for the five fiscal years from January 1, 2017 to January 2, 2022. Our Peer Group Index consists of Agilent Technologies Inc., Thermo Fisher Scientific Inc., and Waters Corporation. The peer group is the same as the peer group used in the stock performance graph in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021.
Comparison of Five-Year Cumulative Total Return
Among PerkinElmer, Inc. Common Stock, S&P Composite-500 and
Peer Group Index
TOTAL RETURN TO SHAREHOLDERS
(Includes reinvestment of dividends)
|PerkinElmer, Inc.||$||100.00 ||$||140.85 ||$||149.40 ||$||188.19 ||$||279.04 ||$||391.68 |
|S&P 500 Index||$||100.00 ||$||121.83 ||$||116.49 ||$||153.17 ||$||181.35 ||$||233.41 |
|Peer Group||$||100.00 ||$||138.59 ||$||153.94 ||$||218.62 ||$||304.44 ||$||434.63 |
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This annual report on Form 10-K, including the following management’s discussion and analysis, contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this annual report on Form 10-K. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “plans,” “anticipates,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors above under the heading “Risk Factors” in Item 1A above that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Our fiscal year ends on the Sunday nearest December 31. We report fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. Each of the fiscal years ended January 2, 2022 ("fiscal year 2021") and December 29, 2019 ("fiscal year 2019") included 52 weeks. The fiscal year ended January 3, 2021 ("fiscal year 2020") included 53 weeks. The fiscal year ending January 1, 2023 ("fiscal year 2022") will include 52 weeks.
Overview of Fiscal Year 2021
During fiscal year 2021, we continued to see strong returns from our acquisitions as well as our organic investments across technology, marketing and people. Our overall revenue in fiscal year 2021 increased $1,284.4 million, or 34%, as compared to fiscal year 2020, reflecting an increase of $865.0 million, or 42%, in our Diagnostics segment revenue and an increase of $419.4 million, or 24%, in our Discovery & Analytical Solutions segment revenue. Revenue from our 2021 acquisitions contributed $219.7 million to the increase in our overall revenue during fiscal year 2021. The increase in our Diagnostics segment revenue during fiscal year 2021 was primarily driven by increased demand for our COVID-19 product offerings resulting in an increase of $749.0 million in our immunodiagnostics revenue. Our Diagnostics segment revenue also increased during fiscal year 2021 due to growth in our core product offerings resulting in an increase of $61.9 million in our reproductive health revenue and an increase of $54.2 million in our applied genomics revenue. Revenue from our 2021 acquisitions contributed $95.5 million to the increase in our Diagnostics segment revenue during fiscal year 2021. The increase in our Discovery & Analytical Solutions segment revenue during fiscal year 2021 was driven by an increase of $305.1 million in our life sciences market revenue and an increase of $114.3 million in our applied markets revenue. Revenue from our 2021 acquisitions contributed $124.3 million to the increase in our Discovery & Analytical Solutions segment revenue during fiscal year 2021.
In our Diagnostics segment, we experienced tremendous demand for our immunodiagnostics COVID-19 product offerings, particularly in the Americas, partially offset by a decline in demand for these product offerings in the Asia-Pacific region. We also experienced strong growth in our immunodiagnostics and applied genomics core product and service offerings across all regions. In our reproductive health business, an expanded range of product offerings and increased geographic reach more than offset the impact of declining birthrates.
In our Discovery & Analytical Solutions segment, the increase in our life sciences market revenue was the result of an increase in revenue in our pharmaceutical and biotechnology markets, as well as an increase in revenue from our Informatics business. The increase in our applied markets revenue was driven by increased demand from our industrial, environmental and food markets.
Our consolidated gross margins increased 49 basis points in fiscal year 2021, as compared to fiscal year 2020, primarily due to higher sales volume, a favorable shift in product mix and continued productivity initiatives to improve our supply chain, partially offset by increased amortization expense. Our consolidated operating margin increased 42 basis points in fiscal year 2021, as compared to fiscal year 2020, primarily due to higher sales volume leverage and increased sales of our COVID-19 products offerings, which were partially offset by increased amortization of intangible assets, investments in new product development and growth initiatives.
Overall, we believe that our strategic priorities and recent portfolio transformations, coupled with our expanded range of product offerings, leading market positions, global scale and financial strength provides us with a foundation for continued revenue growth, strong margins and cash flows, and long-term earnings per share growth.
Consolidated Results of Operations
Fiscal Year 2021 Compared to Fiscal Year 2020
Revenue for fiscal year 2021 was $5.1 billion, as compared to $3.8 billion for fiscal year 2020, an increase of $1.3 billion, or 34%, which includes an approximate 8% increase in revenue attributable to acquisitions and divestitures, and a 1% increase in revenue attributable to favorable changes in foreign exchange rates. Revenue from our 2021 acquisitions contributed $219.7 million to the increase in our overall revenue during fiscal year 2021. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2021 as compared to fiscal year 2020 and includes the effect of foreign exchange rate fluctuations, and acquisitions and divestitures. The total increase in revenue reflects an increase in our Diagnostics segment revenue of $865.0 million, or 42%, due to increased demand for our COVID-19 product offerings resulting in an increase of $749.0 million in our immunodiagnostics revenue. Our Diagnostics segment revenue also increased during fiscal year 2021 due to growth in our core product offerings resulting in an increase of $61.9 million in our reproductive health revenue and an increase of $54.2 million in our applied genomics revenue. Our Discovery & Analytical Solutions segment revenue increased by $419.4 million, or 24%, due to an increase of $305.1 million from our life sciences market revenue and an increase of $114.3 million from our applied markets revenue. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.8 million of revenue primarily related to our Diagnostics segment for each of fiscal years 2021 and 2020 and $1.8 million and $0.3 million of revenue primarily related to our Discovery & Analytical Solutions segment in fiscal years 2021 and 2020 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
Cost of Revenue
Cost of revenue for fiscal year 2021 was $2.2 billion, as compared to $1.7 billion for fiscal year 2020, an increase of approximately $543.0 million, or 32%. As a percentage of revenue, cost of revenue decreased to 43.7% in fiscal year 2021 from 44.2% in fiscal year 2020, resulting in an increase in gross margin of approximately 49 basis points to 56.3% in fiscal year 2021 from 55.8% in fiscal year 2020. Amortization of intangible assets increased and was $115.1 million for fiscal year 2021, as compared to $65.3 million for fiscal year 2020. Amortization of intangible assets from our 2021 acquisitions amounted to $34.0 million. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $35.2 million for fiscal year 2021, as compared to $2.8 million for fiscal year 2020. Other purchase accounting adjustments added an incremental expense of $1.8 million for fiscal year 2021, of which $1.6 million was acquisition-related stock compensation and $0.2 million was increased depreciation on property, plant and equipment. Asset impairment was $7.9 million for fiscal year 2020. In addition to the factors noted above, the overall increase in gross margin was primarily the result of higher sales volume, a favorable shift in product mix and continued productivity initiatives to improve our supply chain, partially offset by increased amortization expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal year 2021 were $1,227.5 million, as compared to $917.9 million for fiscal year 2020, an increase of approximately $309.6 million, or 33.7%. As a percentage of revenue, selling, general and administrative expenses decreased to 24.2% in fiscal year 2021 from 24.3% in fiscal year 2020. Amortization of intangible assets increased to $175.1 million for fiscal year 2021, as compared to $127.3 million for fiscal year 2020. Amortization of intangible assets from our 2021 acquisitions amounted to $37.2 million. Acquisition and divestiture-related expenses added an incremental expense of $83.4 million for fiscal year 2021, of which $3.9 million was acquisition-related stock compensation, as compared to acquisition and divestiture-related expenses increasing expenses by $8.7 million for fiscal year 2020. Purchase accounting adjustments added an incremental expense of $3.2 million for fiscal year 2021, of which $3.1 million was change in contingent consideration and $0.1 million was increased depreciation on property, plant and equipment, as compared to purchase accounting adjustments decreasing expenses by $8.8 million for fiscal year 2020, which was attributable to change in contingent consideration. Asset impairment costs added an incremental expense of $3.9 million for fiscal year 2021. Legal costs for significant litigation matters and settlements were $0.1 million for fiscal year 2021, as compared to $7.1 million for fiscal year 2020. Costs for significant environmental matters were $5.2 million for fiscal year 2020. In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to investments in people, digital capabilities and innovation, and recent acquisitions amplified by pandemic-related cost controls and disruptions in the prior year.
Research and Development Expenses
Research and development expenses for fiscal year 2021 were $275.0 million, as compared to $205.4 million for fiscal year 2020, an increase of $69.6 million, or 33.9%. Research and development expenses from our 2021 acquisitions were $25.4
million. As a percentage of revenue, research and development expenses were flat at 5.4% in each of fiscal years 2021 and 2020. Stock compensation related to our acquisitions added an incremental expense of $1.4 million in fiscal year 2021. Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of $0.1 million in fiscal year 2021. The increase in research and development expenses was driven by our investments in new product development.
Restructuring and Other Costs, Net
We have undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, the alignment of our operations with our growth strategy and the integration of our business units and productivity initiatives. Restructuring and other costs, net were $16.4 million for fiscal year 2021 as compared to $8.0 million for fiscal year 2020.
We implemented restructuring plans in fiscal years 2021 and 2020, consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives and integrate new acquisitions.
We have also terminated various contractual commitments in connection with certain disposal activities and relocating operations and have recorded charges, to the extent applicable, for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us. The aggregate charges for these actions totaled $0.2 million during fiscal year 2020. See Note 4, Restructuring and Other Costs, Net, in the Notes to Consolidated Financial Statements for further discussion of the restructuring activities.
Interest and Other Expense, Net
Interest and other expense, net, consisted of the following for the fiscal years ended:
|Interest expense including costs of bridge financing||102,128 ||49,712 |
Change in fair value of financial securities
Other components of net periodic pension (credit) cost
|Other expense, net||3,357 ||4,717 |
|Total interest and other expense, net||$||52,492 ||$||72,217 |
The decrease of $19.7 million in interest and other expense, net, in fiscal year 2021 as compared to fiscal year 2020 was largely due to a net pension credit of $39.8 million in fiscal year 2021 as compared to a net pension cost of $18.8 million in fiscal year 2020, a decrease in other expense, net of $1.4 million and a change in fair value of financial securities of $11.0 million, partially offset by an increase of $52.4 million in interest expense in fiscal year 2021. The increase of $52.4 million in interest expense in fiscal year 2021 was the result of $23.4 million of costs of bridge financing and debt pre-issuance hedges that were recognized in fiscal year 2021 and interest expense from new debt in fiscal year 2021. A more complete discussion of our liquidity is set forth below under the heading “Liquidity and Capital Resources.”
Provision for Income Taxes
The effective tax rates on continuing operations were 26.3% and 19.7% for fiscal years 2021 and 2020, respectively. Certain of our subsidiaries have, at various times, been granted tax relief in their respective countries, resulting in lower income taxes than would otherwise be the case under ordinary tax rates. A reconciliation of income tax expense at the U.S. federal statutory income tax rate to the recorded tax provision is as follows for the fiscal years ended:
|Tax at statutory rate||$||268,776 ||$||190,339 |
|Non-U.S. rate differential, net||(34,676)||(40,216)|
|U.S. taxation of multinational operations||9,731 ||9,050 |
|State income taxes, net||37,907 ||13,306 |
|Prior year tax matters||3,068 ||8,262 |
|Effect of stock compensation||(2,961)||(8,818)|
|General business tax credits||(4,277)||(4,136)|
|Change in valuation allowance||3,070 ||10 |
|Rate change on long term intangibles||14,031 ||— |
|Effect of foreign operations||37,147 ||— |
|Foreign consolidations||— ||15,222 |
|Others, net||4,787 ||(4,753)|
|Total||$||336,603 ||$||178,266 |
The variation in our effective tax rate for fiscal year 2021 is primarily affected by the recognition of $37.1 million in U.S. federal, U.S. state and non-U.S. taxes due when we repatriate foreign earnings that we no longer consider indefinitely reinvested. We also recognized $19.0 million in fiscal year 2021 and $21.8 million in fiscal year 2020 of benefits derived from tax holidays in China and Singapore. The effect of these benefits, derived from tax holidays, on basic and diluted earnings per share for fiscal year 2021 was $0.16 and $0.16, respectively, and for fiscal year 2020 was $0.20 and $0.19, respectively. The tax holiday in China is renewed every three years. We expect to renew the tax holiday for two of our subsidiaries in China that expired in fiscal year 2021. The tax holiday for one of our subsidiaries in Singapore is scheduled to expire in fiscal year 2023.
Fiscal Year 2020 Compared to Fiscal Year 2019
For a discussion of our results of operations for fiscal year 2020 as compared to fiscal year 2019, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the fiscal year ended January 3, 2021 filed with the Securities and Exchange Commission on March 2, 2021.
Acquisitions in fiscal year 2021
Acquisition of BioLegend, Inc. In fiscal year 2021, we completed the acquisition of BioLegend, Inc. ("BioLegend") for an aggregate consideration of $5.7 billion. BioLegend's revenue and net loss for the period from the acquisition date to January 2, 2022 were $91.7 million and $25.8 million, respectively.
Other acquisitions in 2021. During fiscal year 2021, we also completed the acquisition of seven other businesses for aggregate consideration of $1.2 billion. The acquired businesses include Oxford Immunotec Global PLC for a total consideration of $590.9 million and Nexcelom Bioscience Holdings, LLC for a total consideration of $267.3 million, and five other businesses, which were acquired for a total consideration of $331.0 million.
Acquisitions in Fiscal Year 2020
During fiscal year 2020, we completed the acquisition of four businesses for aggregate consideration of $438.9 million. The acquired businesses include 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 $399.8 million (£296.0 million), and three other businesses which were acquired for a total consideration of $39.1 million.
See Note 3, Business Combinations, in the Notes to Consolidated Financial Statements for a detailed discussion of our acquisitions.
Reporting Segment Results of Continuing Operations
Discovery & Analytical Solutions
Fiscal Year 2021 Compared to Fiscal Year 2020
Revenue for fiscal year 2021 was $2,135.2 million, as compared to $1,715.8 million for fiscal year 2020, an increase of $419.4 million, or 24%, which includes an approximate 12% increase in revenue attributable to acquisitions and divestitures and a 1% increase in revenue attributable to favorable changes in foreign exchange rates. Revenue from our 2021 acquisitions contributed $124.3 million to the increase in our Discovery & Analytical Solutions segment revenue during fiscal year 2021. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $1.8 million and $0.3 million of revenue primarily related to our Discovery & Analytical Solutions segment for fiscal years 2021 and 2020, respectively, that otherwise would have been recorded by the acquired businesses during the period. The analysis in the remainder of this paragraph compares revenue by end-market for fiscal year 2021, as compared to fiscal year 2020, and includes the effect of foreign exchange fluctuations and acquisitions and divestitures. The increase in revenue in our Discovery & Analytical Solutions segment was a result of an increase of $305.1 million in our life sciences market revenue and an increase of $114.3 million in our applied markets revenue. The increase in our life sciences market revenue was the result of an increase in revenue in our pharmaceutical and biotechnology markets driven by continued growth of our Informatics business. The increase in our applied markets revenue was driven by increased demand from our industrial, environmental and food markets.
Operating income from continuing operations for fiscal year 2021 was $189.8 million, as compared to $183.5 million for fiscal year 2020, an increase of $6.3 million, or 3%. Amortization of intangible assets increased to $113.8 million for fiscal year 2021 as compared to $76.3 million for fiscal year 2020. Amortization of intangible assets from our 2021 acquisitions amounted to $55.1 million. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $23.8 million in fiscal year 2021, as compared to $1.3 million for fiscal year 2020. Acquisition and divestiture-related costs, contingent consideration and other costs added an incremental expense of $76.6 million for fiscal year 2021, as compared to decreasing expenses by $4.0 million for fiscal year 2020. Legal costs for significant litigation matters and settlements were $5.9 million for fiscal year 2020. Restructuring and other costs, net were $11.3 million for fiscal year 2021 as compared to $3.8 million for fiscal year 2020. Excluding the factors noted above, the overall increase in operating income for fiscal year 2021 as compared to fiscal year 2020, was primarily as a result of higher sales volume and favorable product mix, partially offset by increased investments in new product development and growth initiatives.
Fiscal Year 2020 Compared to Fiscal Year 2019
For a discussion of our results of operations for fiscal year 2020 as compared to fiscal year 2019, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the fiscal year ended January 3, 2021 filed with the Securities and Exchange Commission on March 2, 2021.
Fiscal Year 2021 Compared to Fiscal Year 2020
Revenue for fiscal year 2021 was $2,931.9 million, as compared to $2,066.9 million for fiscal year 2020, an increase of $865.0 million, or 42%, which includes an approximate 5% increase in revenue attributable to acquisitions and divestitures and a 2% increase in revenue attributable to favorable changes in foreign exchange rates. Revenue from our 2021 acquisitions contributed $95.5 million to the increase in our Diagnostics segment revenue during fiscal year 2021. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.8 million of revenue for each of fiscal years 2021 and 2020 that otherwise would have been recorded by the acquired businesses during each of the respective periods. The increase in our Diagnostics segment revenue during fiscal year 2021 was primarily driven by increased demand for our COVID-19 product offerings resulting in an increase of $749.0 million in our immunodiagnostics revenue. Our Diagnostics segment revenue also increased during fiscal year 2021 due to growth in our core product offerings resulting in an increase of $61.9 million in our reproductive health revenue and an increase of $54.2 million in our applied genomics revenue.
Operating income from continuing operations for fiscal year 2021 was $1,219.9 million, as compared to $874.2 million for fiscal year 2020, an increase of $345.7 million, or 40%. Amortization of intangible assets increased and was $176.5 million for fiscal year 2021 as compared to $116.3 million for fiscal year 2020. Amortization of intangible assets from our 2021 acquisitions amounted to $16.2 million. Restructuring and other costs, net increased and were $5.1 million for fiscal year 2021 as compared to $4.3 million for fiscal year 2020. Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $15.9 million in fiscal year 2021, as compared to an incremental expense of $5.0 million for fiscal year 2020. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $11.4 million in fiscal year 2021, as compared to $1.5 million for fiscal year 2020. Legal costs for significant litigation matters and settlements were $0.1 million for fiscal year 2021, as compared to $1.2 million for fiscal year 2020. Asset impairment was $3.9 million for fiscal year 2021, as compared to $7.9 million for fiscal year 2020. Excluding the factors noted above, operating income increased during fiscal year 2021, as compared to fiscal year 2020, primarily as a result of higher sales volume and favorable product mix, partially offset by increased investments in new product development and growth initiatives.
Fiscal Year 2020 Compared to Fiscal Year 2019
For a discussion of our results of operations for fiscal year 2020 as compared to fiscal year 2019, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the fiscal year ended January 3, 2021 filed with the Securities and Exchange Commission on March 2, 2021.
Liquidity and Capital Resources
We require cash to pay our operating expenses, make capital expenditures, make strategic acquisitions, service our debt and other long-term liabilities, repurchase shares of our common stock and pay dividends on our common stock. Our principal sources of funds are cash flows from our operations, borrowing capacity available under our senior unsecured credit facility and access to the debt markets. We anticipate that our internal operations will generate sufficient cash to fund our operating expenses, capital expenditures, smaller acquisitions, interest payments on our debt and dividends on our common stock. However, we expect to use external sources to satisfy the balance of our debt when due, any larger acquisitions and other long-term liabilities, such as contributions to our postretirement benefit plans.
We and our subsidiaries and affiliates may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt securities (including any publicly issued debt securities), in privately negotiated or open market transactions, by tender offer or otherwise, or extend or refinance any of our outstanding indebtedness.
Principal factors that could affect the availability of our internally generated funds include:
•changes in sales due to weakness in markets in which we sell our products and services, and
•changes in our working capital requirements.
Principal factors that could affect our ability to obtain cash from external sources include:
•financial covenants contained in the financial instruments controlling our borrowings that limit our total borrowing capacity,
•increases in interest rates applicable to our outstanding variable rate debt,
•a ratings downgrade that could limit the amount we can borrow under our senior unsecured revolving credit facility and our overall access to the corporate debt market,
•increases in interest rates or credit spreads, as well as limitations on the availability of credit, that affect our ability to borrow under future potential facilities on a secured or unsecured basis,
•a decrease in the market price for our common stock, and
•volatility in the public debt and equity markets.
Fiscal Year 2021 Compared to Fiscal Year 2020
Operating Activities. Net cash provided by continuing operations was $1,410.8 million for fiscal year 2021, as compared to $892.2 million for fiscal year 2020, an increase of $518.6 million. The cash provided by operating activities for fiscal year 2021 was principally a result of income from continuing operations of $943.3 million, adjustments for non-cash charges
aggregating to $363.1 million, including depreciation and amortization of $358.0 million, and a net cash increase in working capital of $104.4 million. During fiscal year 2021, $1.7 million of contingent consideration payments were included in operating activities. During fiscal year 2021, we contributed $6.9 million, in the aggregate, to pension plans outside of the United States, and $20.0 million to our defined benefit pension plan in the United States for the plan year 2019.
Investing Activities. Net cash used in the investing activities of our continuing operations was $4,112.8 million for fiscal year 2021, as compared to $504.5 million for fiscal year 2020, an increase of $3,608.3 million. For fiscal year 2021, we used $3,991.3 million of net cash for acquisitions, as compared to $411.5 million used in fiscal year 2020. Capital expenditures for fiscal year 2021 were $99.9 million, primarily for manufacturing equipment and other capital equipment purchases, as compared to $77.5 million for fiscal year 2020. During fiscal year 2021, we purchased investments amounting to $23.1 million as compared to $20.1 million in fiscal year 2020. These items were partially offset by $1.5 million in proceeds from disposition of businesses and assets in fiscal year 2021, as compared to $4.3 million in fiscal year 2020, and by proceeds from surrender of life insurance policies of $0.1 million in fiscal year 2021, as compared to $0.3 million in fiscal year 2020.
Financing Activities. Net cash provided by the financing activities of our continuing operations was $2,941.7 million for fiscal year 2021, as compared to net cash used in the financing activities of our continuing operations of $202.9 million for fiscal year 2020, an increase of $3,144.5 million in net cash used in financing activities. The cash provided by financing activities during fiscal year 2021 was a result of proceeds from the sale of unsecured senior notes, proceeds from borrowings, proceeds from a term loan and proceeds from the issuance of common stock under stock plans. During fiscal year 2021, proceeds from the sale of unsecured senior notes were $3,086.1 million, our proceeds from debt borrowings totaled $1,400.3 million and proceeds from a term loan were $500.0 million. These were partially offset by payments on borrowings of $1,559.1 million, payments of senior unsecured notes of $339.6 million and debt issuance costs of $31.0 million during fiscal year 2021. This compares to debt borrowings of $714.7 million, which were more than offset by debt payments of $897.7 million during fiscal year 2021. Proceeds from the issuance of common stock under our stock plans were $25.1 million during fiscal year 2021, as compared to $37.7 million for fiscal year 2020. This cash provided by financing activities during fiscal year 2021 was partially offset by repurchases of our common stock, payments of dividends, net payments on other credit facilities settlement of swap and settlement of cash flow hedges. During fiscal year 2021, we repurchased 433,000 shares of common stock under the Repurchase Program and 71,248 shares of our common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans, for a total cost of $73.1 million. This compares to repurchases of 72,251 shares of our common stock pursuant to our equity incentive plans in fiscal year 2020, for a total cost of $6.9 million. During fiscal year 2021, we paid $32.4 million in dividends as compared to $31.2 million for fiscal year 2020. During fiscal year 2021, we paid $14.3 million for settlement of a swap. During fiscal year 2021, we had net payments on other credit facilities of $13.7 million as compared to $4.5 million for fiscal year 2020. We paid $4.5 million in settlement of hedges during fiscal year 2021 as compared to $4.6 million for fiscal year 2020. During fiscal year 2021, we paid $2.2 million for acquisition-related contingent consideration as compared to $10.4 million in fiscal year 2020.
Fiscal Year 2020 Compared to Fiscal Year 2019
For a discussion of our results of operations for fiscal year 2020 as compared to fiscal year 2019, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the fiscal year ended January 3, 2021 filed with the Securities and Exchange Commission on March 2, 2021.
See Note 13, Debt, in the Notes to Consolidated Financial Statements for a detailed discussion of our borrowing arrangements.
Our Board of Directors (our "Board") declared a regular quarterly cash dividend of $0.07 per share in each quarter of fiscal years 2021 and 2020, resulting in an annual dividend rate of $0.28 per share. At January 2, 2022, we had accrued $8.8 million for a dividend declared in October 2021 for the fourth quarter of fiscal year 2021 that was paid in February 2022. On January 27, 2022, we announced that our Board had declared a quarterly dividend of $0.07 per share for the first quarter of fiscal year 2022 that will be payable in May 2022. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
During fiscal year 2022, we expect to invest an amount for capital expenditures similar to that in fiscal year 2021, primarily to introduce new products, to improve our operating processes, to shift the production capacity to lower cost locations, and to develop information technology. We expect to use our available cash and internally generated funds to fund these expenditures.
Other Potential Liquidity Considerations
At January 2, 2022, we had cash and cash equivalents of $618.3 million, of which $526.3 million was held by our non-U.S. subsidiaries, and we had $1.5 billion of additional borrowing capacity available under a senior unsecured revolving credit facility. We had no other liquid investments at January 2, 2022.
We utilize a variety of tax planning and financing strategies to ensure that our worldwide cash is available in the locations in which it is needed. We use our non-U.S. cash for needs outside of the U.S. including foreign operations,
capital investments, acquisitions and repayment of debt. In addition, we also transfer cash to the U.S. using nontaxable returns of capital, distributions of previously taxed income, as well as dividends, where the related income tax cost is managed efficiently.
Prior to enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), we did not provide deferred income tax expense on the cumulative undistributed earnings of our international subsidiaries. At December 31, 2017, we accrued for a one-time transition tax expense of $85.0 million on our unremitted foreign earnings in accordance with the Tax Act. The U.S. Treasury subsequently issued regulations on the Tax Act and we recorded tax expense (benefit) of $2.7 million and $(4.6) million during fiscal years 2019 and 2018, respectively. We continue to make our scheduled tax payments associated with this one-time transition tax expense accrual.
As of January 2, 2022, we evaluated our undistributed foreign earnings and identified approximately $1.2 billion in earnings that we no longer considered indefinitely reinvested. We intend to begin repatriating such earnings to the U.S., in whole or in part, during fiscal year 2022. In doing so, we have recorded a provision of approximately $37.1 million for the U.S. federal, U.S. state and non-U.S. taxes that would fall due when such earnings are repatriated. No additional income tax expense has been provided for any remaining undistributed foreign earnings, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested.
On July 31, 2020, our Board authorized us to repurchase shares of common stock for an aggregate amount up to $250.0 million under a stock repurchase program (the "Repurchase Program"). The Repurchase Program will expire on July 27, 2022 unless terminated earlier by our Board and may be suspended or discontinued at any time. During fiscal year 2021, we repurchased 433,000 shares of common stock under the Repurchase Program at an aggregate cost of $62.6 million. As of January 2, 2022, $187.4 million remained available for aggregate repurchases of shares under the Repurchase Program.
In addition, our Board has authorized us to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans. During fiscal year 2021, we repurchased 71,248 shares of common stock for this purpose at an aggregate cost of $10.5 million. During fiscal year 2020, we repurchased 72,251 shares of common stock for this purpose at an aggregate cost of $6.9 million.
The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value. Any repurchased shares will be available for use in connection with corporate programs. If we continue to repurchase shares, the Repurchase Program will be funded using our existing financial resources, including cash and cash equivalents, and our existing senior unsecured revolving credit facility.
As of January 2, 2022, we may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to $108.4 million. As of January 2, 2022, we have recorded contingent consideration obligations of $58.0 million, of which $1.3 million was recorded in accrued expenses and other current liabilities, and $56.7 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 6.9 years from January 2, 2022, and the remaining weighted average expected earnout period at January 2, 2022 was 5.4 years.
Distressed global financial markets could adversely impact general economic conditions by reducing liquidity and credit availability, creating increased volatility in security prices, widening credit spreads and decreasing valuations of certain investments. The widening of credit spreads may create a less favorable environment for certain of our businesses and may affect the fair value of financial instruments that we issue or hold. Increases in credit spreads, as well as limitations on the
availability of credit at rates we consider to be reasonable, could affect our ability to borrow under future potential facilities on a secured or unsecured basis, which may adversely affect our liquidity and results of operations. In difficult global financial markets, we may be forced to fund our operations at a higher cost, or we may be unable to raise as much funding as we need to support our business activities.
Our pension plans have not experienced a material impact on liquidity or counterparty exposure due to the volatility and uncertainty in the credit markets. With respect to plans outside of the United States, we expect to contribute $7.0 million in the aggregate during fiscal year 2022. During fiscal years 2021 and 2020, we contributed $6.9 million and $7.5 million, in the aggregate, to pension plans outside of the United States, respectively. During fiscal year 2021, we contributed $20.0 million to our defined benefit pension plan in the United States for the plan year 2019. We could potentially have to make additional funding payments in future periods for all pension plans. We expect to use existing cash and external sources to satisfy future contributions to our pension plans.
We are conducting a number of environmental investigations and remedial actions at our current and former locations, and are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in our opinion, based on our review of the information available at this time, the total cost of resolving these contingencies at January 2, 2022 should not have a material adverse effect on our consolidated financial statements included in this annual report on Form 10-K. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us. See “Business—Environmental Matters” above and Note 16, Contingencies, in the Notes to Consolidated Financial Statements for a discussion of these matters and proceedings.
Effects of Recently Issued and Adopted Accounting Pronouncements
See Note 1, Nature of Operations and Accounting Policies, in the Notes to Consolidated Financial Statements for a summary of recently adopted and issued accounting pronouncements.
Application of Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to accounting for business combinations, long-lived assets, including goodwill and other intangibles and employee compensation and benefits. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.
Business combinations. Business combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses; restructuring costs associated with a business combination are expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. Measurement period adjustments are made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. All changes that do not qualify as measurement period adjustments are also included in current period earnings. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. For intangible assets, we normally utilize the "income method" which incorporates the forecast of all the expected future net cash flows attributable to the subject intangible asset, adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, (5) customer attrition rates, and (6) discount rates. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of finite-lived intangible assets, or the recognition of additional consideration which would be expensed. The fair value of contingent consideration is remeasured each period based on relevant information and changes to the fair value are included in the operating results for the period.
Value of long-lived assets, including goodwill and other intangibles. We carry a variety of long-lived assets on our consolidated balance sheets including property and equipment, operating lease right of use assets, investments, identifiable intangible assets, and goodwill. We periodically review the carrying value of all of these assets based, in part, upon current estimates of fair values and our projections of anticipated future cash flows. We undertake this review (i) on an annual basis for assets such as goodwill and non-amortizing intangible assets and (ii) on a periodic basis for other long-lived assets when facts and circumstances suggest that cash flows related to those assets may be diminished. Any impairment charge that we record reduces our earnings.
For goodwill, the test consists of the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value. If the carrying value of the reporting unit exceeds its fair value, an impairment loss in an amount equal to that excess is recognized up to the amount of goodwill. We perform the annual impairment assessment on the later of January 1 or the first day of each fiscal year. This same impairment test will be performed at other times during the course of the year should an event occur which suggests that the recoverability of goodwill should be reconsidered. We completed the annual goodwill impairment test using a measurement date of January 4, 2021, and concluded that there was no goodwill impairment. At January 4, 2021, the fair value exceeded the carrying value by more than 20.0% for each reporting unit, except for our Tulip reporting unit, which had a fair value that was between 10% and 20% more than its carrying value. The range of the long-term terminal growth rates for the reporting units was 3.0% to 5.0% for the fiscal year 2021 impairment analysis. The range for the discount rates for the reporting units was 8.0% to 12.5%. Keeping all other variables constant, a 10.0% change in any one of these input assumptions for the various reporting units, except for our Tulip reporting unit, would still allow us to conclude that there was no impairment of goodwill. At January 2, 2022, the operating performance of our Tulip reporting unit exceeded the original forecast and the forecast for this reporting unit no longer indicates any sensitivity that would lead to a material impairment charge.
We consistently employ the income approach to estimate the current fair value when testing for impairment of goodwill. A number of significant assumptions and estimates are involved in the application of the income approach to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce, tax rates, capital spending, discount rates and working capital changes. Cash flow forecasts are based on approved business unit operating plans for the early years’ cash flows and historical relationships in later years. The income approach is sensitive to changes in long-term terminal growth rates and the discount rates. The long-term terminal growth rates are consistent with our historical long-term terminal growth rates, as the current economic trends are not expected to affect our long-term terminal growth rates. We corroborate the income approach with a market approach. While we believe that our estimates of current value are reasonable, if actual results differ from the estimates and judgments used including such items as future cash flows and the volatility inherent in markets which we serve, impairment charges against the carrying value of those assets could be required in the future.
Employee compensation and benefits. We sponsor both funded and unfunded U.S. and non-U.S. defined benefit pension plans and other postretirement benefits. Retirement and postretirement benefit plans are a significant cost of doing business, and represent obligations that will be ultimately settled far in the future, and therefore are subject to estimation. Retirement and postretirement benefit plan expenses are allocated to cost of revenue, research and development, and selling, general and administrative expenses, in our consolidated statements of operations. We immediately recognize actuarial gains and losses in operating results in the year in which the gains and losses occur. Actuarial gains and losses are measured annually as of the calendar month-end that is closest to our fiscal year end and accordingly will be recorded in the fourth quarter, unless we are required to perform an interim remeasurement.
We recognized a gain of $30.9 million in fiscal year 2021 and a loss of $18.0 million in fiscal year 2020, for our retirement and postretirement benefit plans, which include the charge or benefit for the mark-to-market adjustment for the benefit plans, which was recorded in the fourth quarter of each fiscal year. The loss or income related to the mark-to-market adjustment on benefit plans was a pre-tax gain of $24.7 million in fiscal year 2021 and a pre-tax loss of $25.4 million in fiscal year 2020. We expect income of approximately $5.4 million in fiscal year 2022 for our retirement and postretirement benefit plans, excluding the charge for or benefit from the mark-to-market adjustment. It is difficult to reliably calculate and predict whether there will be a mark-to-market adjustment in fiscal year 2022. Mark-to-market adjustments are primarily driven by events and circumstances beyond our control, including changes in interest rates, the performance of the financial markets and mortality assumptions. To the extent the discount rates decrease or the value of our pension and postretirement investments decrease, mark-to market charges to operations will be recorded in fiscal year 2022. Conversely, to the extent the discount rates increase or the value of our pension and postretirement investments increase more than expected, mark-to market income will be recorded in fiscal year 2022. Pension accounting is intended to reflect the recognition of future benefit costs over the employee’s approximate service period based on the terms of the plans and the investment and funding decisions made. We are required to make assumptions regarding such variables as the expected long-term rate of return on assets, the discount rate applied and mortality assumptions, to determine service cost and interest cost, in order to arrive at expected pension income or expense for the year. We use discount rates for each individual plan based upon the expected cash flows using the applicable spot rates derived from a yield curve over the projected cash flow period.
If any of our assumptions were to change as of January 2, 2022, our pension plan expenses would also change as follows:
|Increase (Decrease) at |
January 2, 2022
|Percentage Point Change||Non-U.S.||U.S.|
|Pension plans discount rate||+0.25||$||(12,823)||$||(7,442)|
|-0.25||13,639 ||7,773 |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures about Market Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of temporary cash investments, derivatives, marketable securities and accounts receivable. We believe we had no significant concentrations of credit risk as of January 2, 2022.
We use derivative instruments as part of our risk management strategy only, and includes derivatives utilized as economic hedges that are not designated as hedging instruments. By nature, all financial instruments involve market and credit risks. We enter into derivative instruments with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. We do not enter into derivative contracts for trading or other speculative purposes, nor do we use leveraged financial instruments.
In the ordinary course of business, we enter into foreign exchange contracts for periods consistent with its committed exposures to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies. The intent of these economic hedges is to offset gains and losses that occur on the underlying exposures from these currencies, with gains and losses resulting from the forward currency contracts that hedge these exposures. Transactions covered by hedge contracts include intercompany and third-party receivables and payables. The contracts are primarily in European and Asian currencies, have maturities that do not exceed 12 months, have no cash requirements until maturity, and are recorded at fair value on our consolidated balance sheets. The unrealized gains and losses on these foreign currency contracts are recognized immediately in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from operating activities within our consolidated statements of cash flows.
Principal hedged currencies include the Australian Dollar, British Pound, Euro, Indian Rupee, Singapore Dollar and Swedish Krona. We held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling $371.9 million at January 2, 2022, $808.0 million at January 3, 2021, and $277.6 million at December 29, 2019, and the fair value of these foreign currency derivative contracts was insignificant. The gains and losses realized on these foreign currency derivative contracts are not material. The duration of these contracts was generally 30 days or less during each of fiscal years 2021, 2020 and 2019.
In addition, in connection with certain intercompany loan agreements utilized to finance its acquisitions and stock repurchase program, we enters into forward foreign exchange contracts intended to hedge movements in foreign exchange rates prior to settlement of such intercompany loans denominated in foreign currencies. We record these hedges at fair value on our consolidated balance sheets. The unrealized gains and losses on these hedges, as well as the gains and losses associated with the remeasurement of the intercompany loans, are recognized immediately in interest and other expense, net. The cash flows related to the settlement of these hedges are included in cash flows from financing activities within our consolidated statements of cash flows.
The outstanding forward exchange contracts designated as economic hedges, which were intended to hedge movements in foreign exchange rates prior to the settlement of certain intercompany loan agreements, included combined U.S. Dollar notional amounts of $360.2 million as of January 2, 2022, combined Euro notional amounts of €33.4 million and combined U.S. Dollar notional amounts of $499.0 million as of January 3, 2021, and combined Euro notional amounts of €105.8 million and combined U.S. Dollar notional amounts of $5.6 million as of December 29, 2019. The net gains and losses on these derivatives, combined with the gains and losses on the remeasurement of the hedged intercompany loans were not material.
During fiscal year 2018, we designated a portion of the 2026 Notes to hedge its investments in certain foreign subsidiaries. Unrealized translation adjustments from a portion of the 2026 Notes were included in the foreign currency translation component of AOCI, which offsets translation adjustments on the underlying net assets of foreign subsidiaries. The cumulative translation gains or losses will remain in AOCI until the foreign subsidiaries are liquidated or sold. As of January 2,
2022, the total notional amount of the 2026 Notes that was designated to hedge investments in foreign subsidiaries was €497.2 million. The unrealized foreign exchange (gains) losses recorded in AOCI related to the net investment hedge were $(33.2) million, $49.6 million and $4.9 million during the fiscal years 2021, 2020 and 2019, respectively.
During fiscal year 2019, we entered into a cross-currency swap designated as a net investment hedge to hedge the Euro currency exposure of our net investment in certain foreign subsidiaries. This agreement is a contract to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. Changes in the fair value of this swap are recorded in equity as a component of AOCI in the same manner as foreign currency translation adjustments. In assessing the effectiveness of this hedge, we use a method based on changes in spot rates to measure the impact of the foreign currency exchange rate fluctuations on both its foreign subsidiary net investment and the related swap. Under this method, changes in the fair value of the hedging instrument other than those due to changes in the spot rate are initially recorded in AOCI as a translation adjustment, and then are amortized into other (income) expense, net in the consolidated statement of operations using a systematic and rational method over the instrument’s term. Changes in the fair value associated with the effective portion (i.e. those changes due to the spot rate) are recorded in AOCI as a translation adjustment and are released and recognized in earnings only upon the sale or liquidation of the hedged net investment. The cross-currency swap had an initial notional value of €197.4 million or $220.0 million and matured on November 15, 2021. Interest on the cross-currency swap was payable semi-annually, in Euro, on May 15th and November 15th of each year based on the Euro notional value and a fixed rate of 2.47%. We received interest in U.S. dollars on May 15th and November 15th of each year based on the U.S. dollar equivalent of the Euro notional value and a fixed rate of 5.00%.
During fiscal year 2020, we entered into forward foreign exchange contracts, designated as cash flow hedges, to hedge the 2021 Notes. The effective portion of the gain or loss of the cash flow hedges were reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affected earnings. During the second quarter of fiscal year 2021, we redeemed all of its outstanding 2021 Notes and settled the forward foreign exchange contracts that were designated as cash flow hedges. The foreign exchange losses (gains) recorded in earnings related to the cash flow hedges were $9.5 million and $(29.3) million during the fiscal years 2021 and 2020, respectively.
During fiscal year 2021, we entered into forward foreign exchange contracts, designated as cash flow hedges, to hedge a portion of the 2026 Notes. The effective portion of the gain or loss of the cash flow hedges will be reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. During the fourth quarter of fiscal year 2021, we settled the forward foreign exchange contracts that were designated as cash flow hedges. The foreign exchange loss recorded in earnings related to the cash flow hedges was $8.7 million during fiscal year 2021.
During fiscal year 2021, we entered into two interest rate swaption agreements (together, the “Swaptions”) with expiration dates of September 30, 2021 in anticipation of issuing notes to fund the acquisition of BioLegend. The first Swaption had a term of 2 months and hedged an anticipated 10-year note offering, with a notional value of $500.0 million. The second Swaption had a term of 2 months and hedged an anticipated 7-year note offering, with a notional value of $500.0 million. We designated the Swaptions as qualifying hedging instruments and accounted for these derivatives as cash flow hedges. On September 8, 2021, we sold both Swaptions, and as a result, recognized a loss of $8.2 million in interest and other expense, net during the fiscal year 2021. We also recorded other comprehensive income of $3.8 million, which will be amortized to interest and other expense, net over the 7 and 10 year terms, respectively, of the related permanent financing.
We do not expect any material net pre-tax gains or losses to be reclassified from accumulated other comprehensive (loss) income into interest and other expense, net within the next twelve months.
See Note 19, Derivatives and Hedging Activities, in the Notes to Consolidated Financial Statements for a detailed discussion of our derivative instruments and hedging activities.
Market Risk. We are exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, we enter into various derivative transactions pursuant to our policies to hedge against known or forecasted market exposures.
Foreign Exchange Risk. The potential change in foreign currency exchange rates offers a substantial risk to us, as approximately 60% of our business is conducted outside of the United States, generally in foreign currencies. Our risk management strategy currently uses forward contracts to mitigate certain balance sheet foreign currency transaction exposures. The intent of these economic hedges is to offset gains and losses that occur on the underlying exposures, with gains and losses resulting from the forward contracts that hedge these exposures. Moreover, we are able to partially mitigate the impact that fluctuations in currencies have on our net income as a result of our manufacturing facilities located in countries outside the
United States, material sourcing and other spending which occur in countries outside the United States, resulting in natural hedges.
Although we attempt to manage our foreign currency exchange risk through the above activities, when the U.S. dollar weakens against other currencies in which we transact business, sales and net income will in general be positively but not proportionately impacted. Conversely, when the U.S. dollar strengthens against other currencies in which we transact business, sales and net income will in general be negatively but not proportionately impacted.
Foreign Currency Risk—Value-at-Risk Disclosure. We utilize a Value-at-Risk model to determine the potential earning/fair value exposures presented by our foreign currency related financial instruments. As discussed above, we seek to minimize this exposure through our hedging program. Our Value-at-Risk computation is based on the Monte Carlo simulation, utilizing a 95% confidence interval and a holding period of 30 days. As of January 2, 2022, this computation estimated that there is a 5% chance that the market value of the underlying exposures and the corresponding derivative instruments either increase or decrease due to foreign currency fluctuations by more than $31,500. This Value-At-Risk measure is consistent with our financial statement disclosures relative to our foreign currency hedging program. Specifically, during each of the four quarters ended in fiscal year 2021, the Value-At-Risk ranged between $0.1 million and $0.4 million, with an average of approximately $0.3 million.
Interest Rate Risk. As of January 2, 2022, we had $500.0 million in outstanding borrowings under our senior unsecured revolving credit and term loan facilities. Amounts drawn under our senior unsecured revolving credit and term loan facilities bear interest at variable rates; all of our other debt bear interest at fixed rates. Our cash and cash equivalents, for which we receive interest at variable rates, were $618.3 million at January 2, 2022. Fluctuations in interest rates can therefore have a direct impact on both our short-term cash flows, as they relate to interest, and our earnings. To manage the volatility relating to these exposures, we periodically enter into various derivative transactions pursuant to our policies to hedge against known or forecasted interest rate exposures.
Interest Rate Risk—Sensitivity. Our current earnings exposure for changes in interest rates can be summarized as follows:
(i) Changes in interest rates can cause our cash flows to fluctuate. An increase of 10%, or approximately 12 basis points, in current interest rates would cause our cash outflows to increase by $0.6 million for fiscal year 2022.
(ii) Changes in interest rates can cause our interest income and cash flows to fluctuate.
Item 8. Financial Statements and Supplemental Data
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of PerkinElmer, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PerkinElmer, Inc. and subsidiaries (the “Company”) as of January 2, 2022 and January 3, 2021 and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended January 2, 2022 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2022 and January 3, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over financial reporting as of January 2, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2022 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Business Combinations – Identifiable Intangible Assets– Refer to Note 3 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of BioLegend, Inc. for $5.7 billion in total consideration, net of cash acquired during the third quarter of fiscal year 2021. In addition, the Company completed the acquisition of seven other businesses for aggregate consideration of $1.2 billion during fiscal year 2021. The Company accounted for the acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including identifiable intangible assets totaling $2.5 billion in the BioLegend acquisition and $0.5 billion in the other seven acquisitions. Of the identifiable intangible assets acquired, the most significant included core technology of $1.1 billion and customer relationships of $1.9 billion. Management estimated the fair value of these intangible assets using customary valuation procedures and techniques, including income approach methods. The fair value determination of the intangible assets acquired required management to make significant estimates and assumptions related to revenue forecasts and the selection of the discount rates.
We identified the valuation of the intangible assets as a critical audit matter because of the significant estimates and assumptions management made to measure the fair value of the identifiable intangible assets acquired for purposes of the purchase price allocation. These fair value measurements required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s revenue forecasts and the selection of the discount rates for the identified intangible assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the revenue forecasts and the selection of the discount rates for the identifiable intangible assets included the following, among others:
•We tested the effectiveness of controls over the valuation of the identifiable intangible assets, including management’s controls over revenue forecasts and selection of the discount rates.
•We assessed the reasonableness of management’s revenue forecasts by performing the following, on a sample basis:
–We compared the revenue forecasts to historical results.
–We compared the revenue forecasts to internal communications to management and the Board of Directors and other information obtained while performing the audit.
–We compared the growth rates to similar businesses acquired by the Company, to the Company’s legacy operations that operate in a similar business, and to peer companies.
•With the assistance of our fair value specialists, we also performed the following, on a sample basis:
–We evaluated the reasonableness of the valuation methodologies selected.
–We tested the source information underlying the determination of the discount rates, tested the mathematical accuracy of the calculations and compared those to the amounts selected by management.
/s / DELOITTE & TOUCHE LLP
March 3, 2022
We have served as the Company’s auditor since 2002.
CONSOLIDATED STATEMENTS OF OPERATIONS
|(In thousands, except per share data)|
|Product revenue||$||3,329,102 ||$||2,778,725 ||$||2,017,042 |
|Service revenue||1,738,067 ||1,004,020 ||866,631 |
|Total revenue||5,067,169 ||3,782,745 ||2,883,673 |
|Cost of product revenue||1,503,881 ||1,105,614 ||956,398 |
|Cost of service revenue||711,988 ||567,254 ||531,220 |
|Selling, general and administrative expenses||1,227,521 ||917,894 ||815,318 |
|Research and development expenses||274,969 ||205,389 ||189,336 |
|Restructuring and other costs, net||16,432 ||8,013 ||29,428 |
|Operating income from continuing operations||1,332,378 ||978,581 ||361,973 |
|Interest and other expense, net||52,492 ||72,217 |