filings.toolsItem 1. Business
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Item 1. Business
Overview
We are a leading provider of products, services and solutions to the diagnostics, research, environmental, industrial and laboratory services markets. Through our advanced technologies, solutions, and services, we address critical issues that help to improve the health and safety of people and their environment.
We are a Massachusetts corporation, founded in 1947. Our headquarters are in Waltham, Massachusetts, and we market our products and services in more than 150 countries. As of December 29, 2013, we employed approximately 7,600 employees in our continuing operations. Our common stock is listed on the New York Stock Exchange under the symbol “PKI” and we are a component of the S&P 500 Index.
We maintain a website with the address http://www.perkinelmer.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form 10-K. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission.
Our Strategy
Our strategy is to provide innovative products, services and solutions that drive scientific enhancements and productivity improvements in targeted high growth market segments and to develop value-added applications and solutions to foster further development and expansion of the markets we serve. To execute on our strategy and drive higher revenue growth, we focus on broadening our product and service offerings through the acquisition of innovative technology and expenditures for research and development. Our strategy includes:
| • | Achieving significant growth in both of our core business segments, Human Health and Environmental Health, through strategic acquisitions and licensing; |
| • | Accelerating innovation through both internal research and development and third-party collaborations and alliances; |
| • | Strengthening our position within key markets, by expanding our product and service offerings and maintaining superior product quality; |
| • | Utilizing our share repurchase programs to help drive shareholder value; and |
| • | Attracting, retaining and developing talented and engaged employees. |
Recent Developments
As part of our strategy to grow our core businesses, we have recently taken the following actions:
Strategic Business Re-Alignment:
We realigned our organization at the beginning of fiscal year 2013, to allow us to implement our strategy and propel our vision to improve global health by innovating technologies that help make healthcare more effective, affordable and accessible around the world. Our Informatics business, as well as our field service on products previously sold by our former Bio-discovery business, were moved from our Environmental Health segment into our Human Health segment. The results reported for fiscal year 2013 reflect this new alignment of our operating segments. Financial information relating to fiscal years 2012 and 2011 has been retrospectively adjusted to reflect the changes to the operating segments.
Acquisitions in fiscal year 2013:
We completed the acquisition of four businesses for total consideration of $11.4 million, in cash. As of the closing dates, we potentially had to pay additional contingent consideration for the four acquired businesses of up to $2.2 million, which at closing had an estimated fair value of $1.1 million. The excess of the purchase price over the fair value of each of the acquired businesses' net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. We reported the operations for these acquisitions within the results of our operations from the acquisition dates.
Restructuring:
During fiscal year 2013, we recorded a $23.7 million pre-tax restructuring charge in our Human Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space, and recognized a $12.0 million
pre-tax restructuring charge in our Environmental Health segment related to a workforce reduction from reorganization activities and the closure of excess facility space. Our management approved these plans principally to shift certain of our research and development resources into a newly opened Center for Innovation, to shift certain of our operations into a newly established shared service center, to realign operations, research and development resources and production resources as a result of previous acquisitions and to focus resources on higher growth end markets. We also recorded a pre-tax restructuring reversal of $1.5 million primarily related to lower than expected costs primarily related to workforce reductions within our Human Health segment, as well as a reversal of $1.0 million primarily related to lower than expected costs associated with workforce reductions within our Environmental Health segment. During fiscal year 2013, we recorded a pre-tax charge of $0.7 million primarily as a result of terminating various contractual commitments in connection with certain disposal activities in our Environmental Health segment. The pre-tax restructuring activity associated with these plans has been reported as restructuring and contract termination charges and is included as a component of operating expenses from continuing operations. We expect the impact of future cost savings on operating results and cash flows from restructuring activities executed in fiscal year 2013 will exceed $9.0 million annually beginning in fiscal year 2015, primarily as decreases to cost of revenue, selling, general and administrative expenses, and research and development expenses.
As part of our ongoing business strategy, we also took the following actions:
Redemption of 6% Senior Unsecured Notes Due in 2015:
In December 2013, we redeemed all of our 6% senior unsecured notes due in 2015 (the “2015 Notes”) for a redemption price that included the outstanding principal amount of $150.0 million and a prepayment premium of $11.1 million, which is included in other expense, net. The transaction also resulted in the write-off of $2.8 million for the remaining unamortized derivative losses for previously settled cash flow hedges and the write-off of $0.2 million for the remaining deferred debt issuance costs. Both of these amounts are included in interest expense.
Share Repurchase Program:
On October 24, 2012, our Board of Directors (our "Board") authorized us to repurchase up to 6.0 million shares of common stock under a stock repurchase program (the "Repurchase Program"). The Repurchase Program will expire on October 24, 2014 unless terminated earlier by our Board, and may be suspended or discontinued at any time. During fiscal year 2013, we repurchased approximately 3.6 million shares of common stock in the open market at an aggregate cost of $123.0 million, including commissions, under the Repurchase Program. As of December 29, 2013, approximately 2.4 million shares authorized by our Board under the Repurchase Program remained available for repurchase.
Business Segments and Products
We report our business in two segments: Human Health and Environmental Health. We performed our annual impairment testing on January 1, 2013, the annual impairment date for our reporting units, and based on the first step of the impairment process (the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value), we concluded that there was no goodwill impairment.
We realigned our organization at the beginning of fiscal year 2013, to allow us to implement our strategy and propel our vision to improve global health by innovating technologies that help make healthcare more effective, affordable and accessible around the world. Our Informatics business, as well as our field service on products previously sold by our former Bio-discovery business, were moved from our Environmental Health segment into our Human Health segment. The results reported for fiscal year 2013 reflect this new alignment of our operating segments. Financial information relating to fiscal years 2012 and 2011 has been retrospectively adjusted to reflect the changes to the operating segments.
Human Health Segment
Our Human Health segment concentrates on developing diagnostics, tools and applications to help detect diseases earlier and more accurately and to accelerate the discovery and development of critical new therapies. Within the Human Health segment, we serve both the diagnostics and research markets. Our Human Health segment generated revenue of $1,209.8 million in fiscal year 2013.
Diagnostics Market:
We provide early detection for genetic disorders from pre-conception to early childhood, as well as digital x-ray flat panel detectors and infectious disease testing for the diagnostics market. Our screening products are designed to provide early and accurate insights into the health of expectant mothers during pregnancy and into the health of their newborns. Our instruments, reagents and software test and screen for disorders and diseases, including Down syndrome, infertility and various metabolic conditions. Our digital x-ray flat panel detectors are used within x-ray imaging systems to allow physicians to make fast and accurate diagnoses of conditions ranging from broken bones to reduced blood flow in vascular systems. In addition,
our digital x-ray flat panel detectors are used within oncology radiation therapy systems to support more accurate tumor treatment.
Research Market:
In the research market, we provide a broad suite of solutions including reagents, liquid handling and detection and imaging technologies that enable researchers to improve the drug discovery process. These products, solutions and services enable pharmaceutical companies to create better therapeutics by helping to bring products to market faster and more efficiently. Our research portfolio includes a wide range of systems consisting of instrumentation for automation and detection solutions, in vitro and in vivo imaging and analysis hardware and software, plus a portfolio of consumable products, including drug discovery and research reagents. We sell our research solutions to pharmaceutical, biotechnology and academic research customers globally.
Principal Products:
Our principal products for Human Health applications include the following:
Diagnostics:
| • | The DELFIA® Xpress screening platform, which is a complete solution for prenatal screening, and includes a fast, continuous loading system supported by kits for both first and second trimester analyses, and clinically validated LifeCycle™ software. A Placental Growth Factor assay is used to screen pregnant women for early-onset pre-eclampsia. |
| • | The NeoGram™ MS/MS AAAC in vitro diagnostic kit, which is used to support detection of metabolic disorders in newborns by tandem mass spectrometry. |
| • | The NeoBase™ Non-derivatized MS/MS kit, which analyzes newborn blood samples for measurement of amino acids and other metabolic analytes for specific diseases. |
| • | The GSP® Neonatal hTSH, T4 17µ-OHP, GALT IRT and BTD kits, which are used for screening congenital neonatal conditions from a drop of blood. |
| • | The Specimen Gate® informatics data management solution, which is designed specifically for newborn screening laboratories. |
| • | The First Trimester Screen|Fß™ screening protocol, which is used to provide a first trimester prenatal aneuploidy screening service by combining ultrasound measurement of the fluid accumulation behind the neck of the fetus with maternal serum markers. It is designed to assess patient-specific risk for fetal Down syndrome, trisomy 18 and trisomy 13. |
| • | Amorphous silicon digital x-ray flat panel detectors, which contain an enabling technology for digital x-ray imaging that replaces film and produces improved image resolution and diagnostic capability in applications such as radiography, cardiology, angiography and cancer treatments. |
| • | The prenatal BACs-on-Beads® ("BoBs®") in vitro diagnostic (“IVD”) assay for rapid prenatal testing of multiple genetic diseases and chromosomal abnormalities, which is the first IVD product from the BoBs® proprietary multiplexed bead-based technology product family. |
| • | ViaCord® Umbilical cord tissue stem cell banking services for the banking of stem cells harvested from umbilical cord tissue for potential therapeutic application. |
| • | Signature Precision Panel™ prenatal and newborn tests, which are used to rapidly screen for aneuploidies of chromosomes 13, 18, 21, X and Y, as well as 20 severe microdeletion/duplication syndromes during pregnancy. Our newborn testing and diagnostics service portfolio was also expanded to include a panel to screen for six Lysosomal Storage Disorders. The panel tests for Krabbe disease, Gaucher's disease, Niemann-Pick disease (Type A and Type B), Pompe disease, Fabry disease and MPS 1. |
| • | Oncology testing services utilizing OncoChip® microarray technology for early diagnoses of hematological malignancies. |
| • | The XRD™ family of amorphous silicon digital x-ray flat panel detectors, which provide imaging for medical applications such as radiation therapy and veterinary imaging as well as industrial imaging applications including pipeline inspection, manufacturing inspection, PCB inspection and 3D Cone Beam CT. |
| • | The Dexela® family of CMOS digital x-ray flat panel detectors, which provide imaging for mammography, dental, and industrial imaging applications such as PCB inspection and 3D Cone Beam CT. |
Research:
| • | Radiometric detection solutions, including over 1,100 NEN® radiochemicals, the Tri-carb® and MicroBeta2® families of liquid scintillation counters, which are used for beta, gamma and luminescence counting in microplate formats utilized in research, environmental and drug discovery applications. |
| • | The Opera® high content screening system and Operetta® high content imaging system, which are used to automate imaging and analysis for cell-based assays for drug discovery and basic cellular science research laboratories. |
| • | The Columbus™ image data storage and analysis system, which provides a single solution to the storage and analysis of high content data from any major high content screening system helping to visualize and analyze high content images via the Internet. |
| • | The UltraVIEW® VoX™ 3D live cell imaging system, which is a high-resolution, high speed, confocal imaging system that allows for the observation and measurement of cellular and molecular processes in real time. Volocity® 6.0 3D image analysis software allows scientists to understand intracellular and intercellular relationships for 3D data visualization, publication, restoration and analysis of images from a range of fluorescence microscopy and high content image systems. |
| • | The EnVision® Multilabel Plate Reader and EnSpire® Multimode Plate Reader, which are targeted towards a wide range of high-throughput screening applications, including those using AlphaLISA® and/or AlphaScreen® technology. The EnSpire reader has the option of Corning® Epic® label-free technology providing more physiologically relevant data for the identification of new therapeutic targets. |
| • | A wide range of homogeneous biochemical and cellular assay reagents, including LANCE® Ultra™ and Alpha Technology™ assay platforms, which are used for drug discovery targets such as G-protein coupled receptors (“GPCR”), kinases, antibodies and epigenetic modification enzymes. |
| • | A broad portfolio of recombinant GPCR and Ion Channel cell lines, including over 300 products and 120 ready-to-use frozen cell lines for a wide range of disease areas. |
| • | The AlphaLISA® research assays, including over 100 no-wash biomarker kits for both biotherapeutics and small molecule development in a variety of therapeutic areas including cancer, neurodegeneration and virology. |
| • | TSA™ Plus biotin kits, which can increase sensitivity of histochemistry and cytochemistry as much as 10 to 20 times. |
| • | In vivo imaging technologies for preclinical research, including the IVIS® Spectrum™ series and the FMT® series for 3D imaging, the IVIS® Lumina™ series for 2D imaging, and the Quantum FX microCT. These technologies are designed to provide for non-invasive longitudinal monitoring of disease progression, cell trafficking and gene expression patterns in living animals and are complemented by a broad portfolio of fluorescent and bioluminescent in vivo imaging reagents that can be useful for identifying, characterizing and quantifying a range of disease biomarkers and therapeutic efficacy in living animal models. |
| • | LapChip® for molecular diagnostics in clinical research laboratories, which uses microfluidic technology to perform reproducible, high-resolution, electrophoretic separations for analyzing multiplex polymerase chain reaction products for molecular biology applications. |
| • | Next-generation sequencing tools including LabChip® fractionation and separation systems, Sciclone®, Zephyr® and JANUS® automated liquid handling workstations and Geospiza® data analysis program. |
| • | A wide reagent portfolio including the HCA ImagAmp™ reagent kit for high content screening and cellular analysis applications, which is used in a variety of research areas including cell differentiation, cell toxicity, programmed cell death, drug discovery, protein expression and signaling pathway analysis. |
| • | An expanded epigenetic detection reagents portfolio specifically validated for drug discovery and life sciences research covering nine different histone marks, as well as p53, with more than 15 validated in vitro and cell-based assays to help researchers discover novel drug compounds directed against several epigenetic targets. |
| • | The Vectra® 2 automated slide imaging system, which is an integrated solution to advance the identification and validation of new drug targets to improve the assessment of drug response. |
| • | The Western Lighting ECL Pro™ non-radioactive light-emitting system, which detects proteins immobilized on a membrane in Western blots. |
| • | The cell::explorer® and plate::explorer® automated workstations, which allow integration of multiple laboratory instrumentation using a centralized robotic interface, allowing higher throughput and turnkey-application focused solutions. |
| • | Informatics platforms including Ensemble® for Chemistry™, Ensemble® for Biology™, Ensemble® for QA/QC, iLab™, ChemDraw®, ChemBioOffice® and Labworks® which are integrated suites that focus on the complex and varied needs of understanding and managing data for productivity and collaboration. |
| • | Licensing for the exclusive, worldwide rights to the TIBCO® Spotfire® software platform in certain scientific research and development markets through an exclusive strategic relationship with TIBCO Software, Inc. |
| • | Asset Genius™, an informatics-based business intelligence solution, which assists laboratories in deploying, utilizing and managing laboratory assets throughout their lifecycle. |
| • | An expanded portfolio of molecular 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, and assays for chlamydia trachomatis and neisseria gonorrhoeae. |
New Products:
Significant new products introduced or acquired for Human Health applications in fiscal year 2013 include the following:
Diagnostics:
| • | An expanded portfolio of medical x-ray detectors, including the Dexela® CMOS Cardiac detector, the XRpad™ cassette sized Radiography detector and the XRD™ combined Radiography & Fluoroscopy detector. |
| • | A novel PCR-based assay for quantification of trinucleotide repeats used to detect normal, intermediate, pre- and full mutations associated with Fragile X. |
| • | The EnLite™ Neonatal TREC™ System, a screening test for Severe Combined Immunodeficiency, which consists of EnLite™ Neonatal TREC™ reagent kits, the Victor EnLite™ instrument and EnLite™ Workstation software. |
Research:
| • | Geospiza GeneSifter® Analysis Edition, an integrated informatics platform for the visualization and analysis from sample to results of microarray and next-generation sequencing data. |
| • | Expanded assay kits utilizing AlphaLISA® technology in the area of metabolic research and for the development and safety testing of biotherapeutic drugs. |
| • | The IVIS® Lumina™ Series III which provides an expandable, sensitive imaging system for both fluorescent and bioluminescent preclinical in vivo imaging. |
| • | RediFect™ lentiviral tools to create stably transfected cells to monitor tumor growth, track primary or stem cells in vivo and various other applications using IVIS in vivo imaging systems. |
| • | HER2Sense™ preclinical imaging agent, supporting breast cancer discovery research, which is the first fluorescent, discovery research imaging agent to be based on a commercial therapeutic antibody. |
| • | BacteriSense™ 645 Targeted Fluorescent Imaging Agent, which is used to monitor infections of both gram-negative and gram-positive bacteria. |
| • | FolateRSense™ 680 Targeted Fluoresent Imaging Agent, which is used to closely monitor and quantitate tumor growth and metabolism |
| • | BombesinRSense™ 680 Targeted Fluorescent Imaging Agent, which is used to target and identify bombesin receptors expressed in many types of cancer. |
| • | VivoTag® 680XL Protein Labeling Kit, which helps to prepare fluorescently labeled antibodies, proteins or peptides for small animal in vivo imaging applications. |
| • | Lead Discovery™ powered by TIBCO® Spotfire®, which adds chemical intelligence to the TIBCO® Spotfire® business intelligence platform, enabling scientific professionals to derive new information from chemical structures relevant to experimental data. |
| • | Datalytix™, a tool enabling self-service import and manipulation of relevant data into the TIBCO® Spotfire® software from scientifically significant data sources such as compound registries, biological assay repositories, LIMS and other corporate information systems. |
| • | ChemDraw® and Chem3D® mobile apps for the iPad® device, new chemical structure drawing and visualization apps, available in multiple languages and featuring our Flick-to-Share™ technology. |
Brand Names:
Our Human Health segment offers additional products under various brand names, including AlphaLISA®, AlphaScreen®, Asset Genius™, AutoDELFIA®, BACS-on-Beads®, BoBs®, cell::explorer®, Chem3D®, ChemBioOffice®, ChemDraw®, Columbus™, Datalytix™, Dexela® CMOS FPDs™, Elsevier's Reaxys®, EnLite™, Ensemble® for Biology™, Ensemble® for Chemistry™, Ensemble® for QA/QC, EnSpire®, EnVision®, Evolution™, FMT®, FragilEase™, Genoglyphix®, Geospiza®, GSP®, iLab™, inForm™, IVIS®, JANUS®, LabChip®, LABWORKS® EZ-Reader™, LANCE®, LifeCycle™, Living Image®, MultiPROBE®, NEN®, NTD Labs®, Nuance®, Oncoglyphix™, Opera®, Operetta®, Pannoramic™, plate::explorer®, Quantum™, Sciclone®, Search Genius™, Signature Genomics®, Signature Precision Panel™, Signature PrenatalChip®, SignatureChip®, Specimen Gate™, TIBCO® Spotfire®, Tri-Carb®, TRIO™, Twister®, UltraVIEW® VoX™, VariSpec™, Vectra®, ViaCord®, VICTOR™, ViewLux®, VivoTag®, Volocity®, Wizard®, XRD™, XRpad™ and Zephyr®.
Environmental Health Segment
Our Environmental Health segment provides products, services and solutions to facilitate the creation of safer food and consumer products, more secure surroundings and efficient energy resources. The Environmental Health segment serves the environmental, industrial and laboratory services markets. Our Environmental Health segment generated revenue of $956.5 million in fiscal year 2013.
Environmental Market:
For the environmental market, we develop and provide analytical technologies, solutions and services that enable our customers to understand the characterization and health of many aspects of our environment, including air, water, soil and food.
Our technologies are used to detect and help reduce the impact products and industrial processes may have on our environment. For example, we have solutions to help ensure compliance with regulatory standards that protect the purity of the world's water supply by detecting harmful substances, such as trace metal, organic, pesticide, chemical and radioactive contaminants.
We provide a variety of solutions that detect the presence of potentially dangerous materials, including adulterants in food such as melamine in milk, to enable our customers to protect their products against contaminants. Our solutions are also used to identify and prevent counterfeiting of medicine, toxic metals in toys and many other consumer products. Our methods and analyses are transferable throughout the supply chain so our customers are able to keep pace with industry standards as well as governmental regulations and certifications.
Industrial Market:
We provide analytical instrumentation for the industrial market which includes the chemical, petrochemical, lubricant, electronics, semiconductor and quality assurance industries.
Laboratory Services Market:
We have approximately 1,500 service personnel to support our customers throughout the world and to help them improve the productivity of their labs. Our OneSource® laboratory service business strategy is aligned with customers' needs to accelerate science as our service portfolio enables efficiency gains within their labs.
Principal Products:
Our principal products for Environmental Health applications include the following:
| • | The Clarus® series of gas chromatographs, gas chromatographs/mass spectrometers and the TurboMatrix™ family of 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 Flexar™ series of liquid chromatography and mass spectrometry instruments, which are controlled by the Chromera® chromatography data system and incorporate an ergonomic industrial design to deliver a wide range of pressure and detector options to address the application needs of high pressure liquid chromatography laboratories. These systems are used to identify and quantify compounds for applications in the environmental, food, beverage, and pharmaceutical industries. |
| • | The AxION® 2 TOF MS platform, which helps companies deliver highly sensitive and accurate measurements to help ensure quality products and services to consumers across the environmental, food and pharmaceutical sectors and is used for the identification of unexpected compounds in samples, providing a high level of resolution and mass accuracy. |
| • | Our atomic spectroscopy family of instruments, including the AAnalyst™/PinAAcle® series of atomic absorption spectrometers, the Optima® family of inductively coupled plasma (“ICP”) optical emission spectrometers and the NexION® family of ICP mass spectrometers, which are used in the environmental and chemical industries, among others, to determine the elemental content of a sample. |
| • | Our infrared spectroscopy family, including the Spectrum Two™ spectrometer, a compact and portable instrument which is used for high-speed infrared analysis for unknown substance identification, material qualification or concentration determination in fuel and lubricant analysis, polymer analysis and pharmaceutical and environmental applications and the Frontier™ spectrometer, which is designed to provide high sensitivity and performance for safe drug development and for determining chemical and material properties in a variety of samples, including consumer products. |
| • | The LAMBDA™ UV/Vis series, which is used to measure liquids, solids, pastes and powder samples and for regulatory tests requiring variable bandwidths. |
| • | The DSC™ 8000 and 8500, which feature a second generation, power controlled double furnace designed to provide fast heating and cooling rates required to accurately understand how materials behave under different conditions. |
| • | The DMA™ 8000, a thermal analysis system, which is used by scientists in the polymers, composites, pharmaceutical and food and beverage industries for applications ranging from simple quality control to advanced research. |
| • | The OilExpress™ 4 Oil Condition Monitoring Systems, which combine the high-performance Spectrum Two™ FT-IR spectrometer with an OilPrep™ oil dilution system to quickly analyze contaminants in oil. |
| • | OneSource® Laboratory services made up of a comprehensive portfolio of multivendor instrument management, QA/QC, lab relocation and regulatory compliance services. OneSource programs are tailored to the specific needs and goals of individual customers. |
New Products:
New products introduced or acquired for Environmental Health applications in fiscal year 2013 include the following:
| • | The DariyGuard™ Milk Powder Analyzer, an infrared spectrometer specifically developed for food suppliers and manufacturers to help ensure the safety and quality of milk powder in their supply chains. |
| • | The GC SNFR™ Olfactory Port accessory to our GC product line, which provides a complete aroma characterization solution that seamlessly integrates sensory evaluation with GC and GC/MS analytical data |
| • | TMA 4000, a thermomechanical analysis system enabling customers to measure expansion of small components. |
| • | The AxION® Direct Sample Analysis system, which is an innovative technology that reduces or eliminates sample preparation steps and eliminates the need for front-end gas or liquid chromatography separation for direct sample introduction to a mass spectrometer. |
| • | OneSource® Scientific IT Solutions, which is a series of informatics-based consulting, planning and management offerings to assist in laboratory productivity. |
| • | Supra-d™ QuEChERS™ Dispersive Solid Phase Extraction solution for sample preparation in pesticide residue analysis to test the safety of fruit and vegetables. |
| • | AxION® eDoor™, which is a multi-vendor, web-based open access software that is designed to help manage multiple locations, chemists, instrument types and applications and includes “walk up” sample introduction with results delivered via Web, email and PDA. |
Brand Names:
Our Environmental Health segment offers additional products under various brand names, including AxION®, Chromera™, Clarus®, Flexar™, Frontier™, HyperDSC®, LAMBDA™, NexION®, OilExpress™, OilPrep™, OneSource®, Optima™, Spectrum™, Supra-clean®, Supra-d™, Supra-poly®, Ultraspray® and Ultratune®.
Marketing
All of our businesses market their products and services primarily through their own specialized sales forces. As of December 29, 2013, we employed approximately 3,600 sales and service representatives operating in approximately 35 countries and marketing products and services in more than 150 countries. In geographic regions where we do not have a sales and service presence, we utilize distributors to sell our products.
Raw Materials, Key Components and Supplies
Each of our businesses uses a wide variety of raw materials, key components and supplies that are generally available from alternate sources of supply and in adequate quantities from domestic and foreign sources. We generally have multi-year contracts, with no minimum purchase requirements, with certain of our suppliers. For certain critical raw materials, key components and supplies required for the production of some of our principal products, we have qualified only a limited or a single source of supply. We periodically purchase quantities of some of these critical raw materials in excess of current requirements, in anticipation of future manufacturing needs. With sufficient lead times, we believe we would be able to qualify alternative suppliers for each of these raw materials and key components. See the applicable risk factor in “Item 1A. Risk Factors” for an additional description of this risk.
Intellectual Property
We own numerous United States and foreign patents and have patent applications pending in the United States and abroad. We also license intellectual property rights to and from third parties, some of which bear royalties and are terminable in specified circumstances. In addition to our patent portfolio, we possess a wide array of unpatented proprietary technology and know-how. We also own numerous United States and foreign trademarks and trade names for a variety of our product names, 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. We are currently involved in a lawsuit involving claims of violation of intellectual property rights. See “Item 3. Legal Proceedings” for a discussion of this matter.
Backlog
We believe that backlog is not a meaningful indicator of future business prospects for either of our business segments due to the short lead time required on a majority of our sales. Therefore, we believe that backlog information is not material to an understanding of our business.
Competition
Due to the wide range of our products and services, we face many different types of competition and competitors. This affects our ability to sell our products and services and the prices at which these products and services are sold. Our competitors range from large 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 small 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 niches. We expect the proportion of large competitors to increase through the continued consolidation of competitors.
We believe we compete effectively in each of the areas in which our businesses experience competition.
Research and Development
Research and development expenditures were $133.0 million during fiscal year 2013, $132.6 million during fiscal year 2012, and $115.8 million during fiscal year 2011.
We have a broad product base, and we do not expect any single research and development project to have significant costs. We directed our research and development efforts in fiscal years 2013, 2012, and 2011 primarily toward the diagnostics and research markets within our Human Health segment, and the environmental, and laboratory service and support markets within our Environmental Health segment, in order to help accelerate our growth initiatives. We expect to continue our strong investments in research and development to drive growth during fiscal year 2014, and to continue to emphasize the diagnostics and research markets within our Human Health segment, and the environmental, industrial and laboratory services markets within our Environmental Health segment.
Environmental Matters
Our operations are subject to various foreign, federal, state and local environmental and safety laws and regulations. These requirements include those governing uses, emissions and discharges of hazardous substances, the remediation of contaminated soil and groundwater, the regulation of radioactive materials, and the health and safety of our employees.
We may have liability under the Comprehensive Environmental Response Compensation and Liability Act and comparable state statutes that impose liability for investigation and remediation of contamination without regard to fault, in connection with materials that we or our former businesses sent to various third-party sites. We have incurred, and expect to incur, costs pursuant to these statutes.
We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party (“PRP”) for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. During fiscal year 2013, we accrued an additional $5.7 million related to a particular site for increased monitoring and mitigation activities, of which $4.6 million was recorded in the fourth quarter of fiscal year 2013. We have accrued $13.5 million as of December 29, 2013, 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. This amount is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site,
these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on our consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
We may become subject to new or unforeseen environmental costs or liabilities. Compliance with new or more stringent laws or regulations, stricter interpretations of existing laws, or the discovery of new contamination could cause us to incur additional costs.
Employees
As of December 29, 2013, we employed approximately 7,600 employees in our continuing operations. Several of our subsidiaries are parties to contracts with labor unions and workers’ councils. As of December 29, 2013, we estimate that we employed an aggregate of approximately 1,400 union and workers’ council employees. We consider our relations with employees to be satisfactory.
Financial Information About Reporting Segments
We realigned our organization at the beginning of fiscal year 2013, to allow us to implement our strategy and propel our vision to improve global health by innovating technologies that help make healthcare more effective, affordable and accessible around the world. Our Informatics business, as well as our field service on products previously sold by our former Bio-discovery business, were moved from our Environmental Health segment into our Human Health segment. The results reported for fiscal year 2013 reflect this new alignment of our operating segments. Financial information relating to fiscal years 2012 and 2011 has been retrospectively adjusted to reflect the changes to the operating segments.
We have included the expenses for our corporate headquarters, such as legal, tax, audit, human resources, information technology, and other management and compliance costs, as well as the activity related to the mark-to-market adjustment on postretirement benefit plans, as “Corporate” below. We have a process to allocate and recharge expenses to the reportable segments when these costs are administered or paid by the corporate headquarters based on the extent to which the segment benefited from the expenses. These amounts have been calculated in a consistent manner and are included in our calculations of segment results to internally plan and assess the performance of each segment for all purposes, including determining the compensation of the business leaders for each of our reporting segments.
The table below sets forth revenue and operating income (loss), excluding discontinued operations, by reporting segment for the fiscal years ended:
| December 29, 2013 | December 30, 2012 | January 1, 2012 | |||||||||
| (As adjusted) | |||||||||||
| (In thousands) | |||||||||||
| Human Health | |||||||||||
| Product revenue | $ | 957,022 | $ | 926,733 | $ | 761,665 | |||||
| Service revenue | 252,734 | 247,909 | 216,227 | ||||||||
| Total revenue | 1,209,756 | 1,174,642 | 977,892 | ||||||||
| Operating income from continuing operations(1) | 146,100 | 59,196 | 89,725 | ||||||||
| Environmental Health | |||||||||||
| Product revenue | 541,048 | 547,941 | 557,845 | ||||||||
| Service revenue | 415,428 | 392,622 | 382,771 | ||||||||
| Total revenue | 956,476 | 940,563 | 940,616 | ||||||||
| Operating income from continuing operations(1) | 97,052 | 111,844 | 108,922 | ||||||||
| Corporate | |||||||||||
| Operating loss from continuing operations(2) | (25,710 | ) | (72,497 | ) | (107,519 | ) | |||||
| Continuing Operations | |||||||||||
| Product revenue | $ | 1,498,070 | $ | 1,474,674 | $ | 1,319,510 | |||||
| Service revenue | 668,162 | 640,531 | 598,998 | ||||||||
| Total revenue | 2,166,232 | 2,115,205 | 1,918,508 | ||||||||
| Operating income from continuing operations | 217,442 | 98,543 | 91,128 | ||||||||
| Interest and other expense, net | 64,110 | 47,956 | 26,774 | ||||||||
| Income from continuing operations before income taxes | $ | 153,332 | $ | 50,587 | $ | 64,354 |
| (1) | Pre-tax impairment charges have been included in the Human Health and Environmental Health operating income from continuing operations. We recognized a $6.7 million pre-tax impairment charge in the Human Health segment in fiscal year 2013. We recognized $73.4 million of pre-tax impairment charges in the Human Health segment and also recognized $0.7 million of pre-tax impairment charges in the Environmental Health segment in fiscal year 2012. We recognized a $3.0 million pre-tax impairment charge in the Human Health segment in fiscal year 2011. |
| (2) | Activity related to the mark-to-market adjustment on postretirement benefit plans have been included in the Corporate operating loss from continuing operations, and together constituted pre-tax income of $17.6 million in fiscal year 2013, a pre-tax loss of $31.8 million in fiscal year 2012, and a pre-tax loss of $67.9 million in fiscal year 2011. |
Additional information relating to our reporting segments is as follows for the fiscal years ended:
| Depreciation and Amortization Expense | Capital Expenditures | ||||||||||||||||||||||
| December 29, 2013 | December 30, 2012 | January 1, 2012 | December 29, 2013 | December 30, 2012 | January 1, 2012 | ||||||||||||||||||
| (As adjusted) | (As adjusted) | ||||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
| Human Health | $ | 100,174 | $ | 101,336 | $ | 81,938 | $ | 20,910 | $ | 24,525 | $ | 16,570 | |||||||||||
| Environmental Health | 25,915 | 23,001 | 27,288 | 16,532 | 14,488 | 12,015 | |||||||||||||||||
| Corporate | 2,382 | 2,528 | 1,695 | 1,549 | 3,395 | 2,007 | |||||||||||||||||
| Continuing operations | $ | 128,471 | $ | 126,865 | $ | 110,921 | $ | 38,991 | $ | 42,408 | $ | 30,592 |
| Total Assets | |||||||||||
| December 29, 2013 | December 30, 2012 | January 1, 2012 | |||||||||
| (As adjusted) | |||||||||||
| (In thousands) | |||||||||||
| Human Health | $ | 2,698,640 | $ | 2,714,366 | $ | 2,674,243 | |||||
| Environmental Health | 1,213,801 | 1,153,444 | 1,150,015 | ||||||||
| Corporate | 34,271 | 33,952 | 31,181 | ||||||||
| Net current and long-term assets of discontinued operations | — | — | 202 | ||||||||
| Total assets | $ | 3,946,712 | $ | 3,901,762 | $ | 3,855,641 |
Financial Information About Geographic Areas
Both of our reporting segments conduct business in, and derive substantial revenue from, various countries outside the United States. During fiscal year 2013, we had $1,330.6 million in sales from our international operations, representing approximately 60% of our total sales. During fiscal year 2013, we derived approximately 48% of our international sales from our Human Health segment, and approximately 52% of our international sales from our Environmental Health segment. We anticipate that sales from international operations will continue to represent a substantial portion of our total sales in the future.
We are exposed to the risks associated with international operations, including exchange rate fluctuations, regional and country-specific political and economic conditions, foreign receivables collection concerns, trade protection measures and import or export licensing requirements, tax risks, staffing and labor law concerns, intellectual property protection risks, and differing regulatory requirements. Additional geographic information is discussed in Note 23 to our consolidated financial statements included in this annual report on Form 10-K.
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