filings.toolsItem 1. Unaudited Financial Statements
93K characters. Original on sec.gov ·
Item 1. Unaudited Financial Statements
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | |||||||||||||||||||||||
| April 3, 2022 | April 4, 2021 | ||||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||
| Product revenue | $ | 866,945 | $ | 811,552 | |||||||||||||||||||
| Service revenue | 392,497 | 496,137 | |||||||||||||||||||||
| Total revenue | 1,259,442 | 1,307,689 | |||||||||||||||||||||
| Cost of product revenue | 403,651 | 339,312 | |||||||||||||||||||||
| Cost of service revenue | 176,560 | 183,231 | |||||||||||||||||||||
| Total cost of revenue | 580,211 | 522,543 | |||||||||||||||||||||
| Selling, general and administrative expenses | 334,393 | 251,410 | |||||||||||||||||||||
| Research and development expenses | 76,609 | 60,216 | |||||||||||||||||||||
| Restructuring and other costs, net | 13,384 | 5,744 | |||||||||||||||||||||
| Operating income from continuing operations | 254,845 | 467,776 | |||||||||||||||||||||
| Interest and other expense (income), net | 37,245 | (12,706) | |||||||||||||||||||||
| Income from continuing operations before income taxes | 217,600 | 480,482 | |||||||||||||||||||||
| Provision for income taxes | 40,597 | 101,139 | |||||||||||||||||||||
| Income from continuing operations | 177,003 | 379,343 | |||||||||||||||||||||
| Loss on disposition of discontinued operations before income taxes | — | — | |||||||||||||||||||||
| Provision for income taxes on discontinued operations and dispositions | 41 | 38 | |||||||||||||||||||||
| Loss from discontinued operations and dispositions | (41) | (38) | |||||||||||||||||||||
| Net income | $ | 176,962 | $ | 379,305 | |||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Income from continuing operations | $ | 1.40 | $ | 3.39 | |||||||||||||||||||
| Loss from discontinued operations and dispositions | (0.00) | (0.00) | |||||||||||||||||||||
| Net income | $ | 1.40 | $ | 3.39 | |||||||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Income from continuing operations | $ | 1.40 | $ | 3.37 | |||||||||||||||||||
| Loss from discontinued operations and dispositions | (0.00) | (0.00) | |||||||||||||||||||||
| Net income | $ | 1.40 | $ | 3.37 | |||||||||||||||||||
| Weighted average shares of common stock outstanding: | |||||||||||||||||||||||
| Basic | 126,137 | 112,028 | |||||||||||||||||||||
| Diluted | 126,635 | 112,495 | |||||||||||||||||||||
| Cash dividends declared per common share | $ | 0.07 | $ | 0.07 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | |||||||||||||||||||||||
| April 3, 2022 | April 4, 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net income | $ | 176,962 | $ | 379,305 | |||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of income taxes | (84,011) | (72,305) | |||||||||||||||||||||
| Unrealized (loss) gain on securities, net of income taxes | (16) | 94 | |||||||||||||||||||||
| Other comprehensive loss | (84,027) | (72,211) | |||||||||||||||||||||
| Comprehensive income | $ | 92,935 | $ | 307,094 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| April 3, 2022 | January 2, 2022 | ||||||||||
| (In thousands, except share and per share data) | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 669,755 | $ | 618,319 | |||||||
| Accounts receivable, net | 941,722 | 1,023,792 | |||||||||
| Inventories | 645,924 | 624,714 | |||||||||
| Other current assets | 197,110 | 173,955 | |||||||||
| Total current assets | 2,454,511 | 2,440,780 | |||||||||
| Property, plant and equipment, net | 547,035 | 545,605 | |||||||||
| Operating lease right-of-use assets | 201,966 | 207,775 | |||||||||
| Intangible assets, net | 3,942,878 | 4,063,104 | |||||||||
| Goodwill | 7,367,284 | 7,416,584 | |||||||||
| Other assets, net | 334,793 | 326,706 | |||||||||
| Total assets | $ | 14,848,467 | $ | 15,000,554 | |||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 3,729 | $ | 4,240 | |||||||
| Accounts payable | 376,694 | 355,458 | |||||||||
| Accrued expenses and other current liabilities | 882,628 | 854,046 | |||||||||
| Total current liabilities | 1,263,051 | 1,213,744 | |||||||||
| Long-term debt | 4,863,978 | 4,979,737 | |||||||||
| Deferred taxes and long-term liabilities | 1,354,991 | 1,480,469 | |||||||||
| Operating lease liabilities | 180,105 | 185,359 | |||||||||
| Total liabilities | 7,662,125 | 7,859,309 | |||||||||
| Commitments and contingencies (see Note 14) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock—$1 par value per share, authorized 1,000,000 shares; none issued or outstanding | — | — | |||||||||
| Common stock—$1 par value per share, authorized 300,000,000 shares; issued and outstanding 126,140,000 shares and 126,241,000 shares at April 3, 2022 and January 2, 2022, respectively | 126,140 | 126,241 | |||||||||
| Capital in excess of par value | 2,721,690 | 2,760,522 | |||||||||
| Retained earnings | 4,585,231 | 4,417,174 | |||||||||
| Accumulated other comprehensive loss | (246,719) | (162,692) | |||||||||
| Total stockholders’ equity | 7,186,342 | 7,141,245 | |||||||||
| Total liabilities and stockholders’ equity | $ | 14,848,467 | $ | 15,000,554 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| For the Three-Month Period Ended April 3, 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock Shares | Common Stock Amount | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Balance, January 2, 2022 | 126,241 | $ | 126,241 | $ | 2,760,522 | $ | 4,417,174 | $ | (162,692) | $ | 7,141,245 | ||||||||||||||||||||||||
| Net income | — | — | — | 176,962 | — | 176,962 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (84,027) | (84,027) | |||||||||||||||||||||||||||||
| Dividends | — | — | — | (8,905) | — | (8,905) | |||||||||||||||||||||||||||||
| Exercise of employee stock options and related income tax benefits | 18 | 18 | 1,379 | — | — | 1,397 | |||||||||||||||||||||||||||||
| Purchases of common stock | (307) | (307) | (55,285) | — | — | (55,592) | |||||||||||||||||||||||||||||
| Issuance of common stock for long-term incentive program | 188 | 188 | 12,282 | — | — | 12,470 | |||||||||||||||||||||||||||||
| Stock compensation | — | — | 2,792 | — | — | 2,792 | |||||||||||||||||||||||||||||
| Balance, April 3, 2022 | 126,140 | $ | 126,140 | $ | 2,721,690 | $ | 4,585,231 | $ | (246,719) | $ | 7,186,342 | ||||||||||||||||||||||||
| For the Three-Month Period Ended April 4, 2021 | |||||||||||||||||||||||||||||||||||
| Common Stock Shares | Common Stock Amount | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Balance, January 3, 2021 | 112,090 | $ | 112,090 | $ | 148,101 | $ | 3,507,262 | $ | (31,961) | $ | 3,735,492 | ||||||||||||||||||||||||
| Net income | — | — | — | 379,305 | — | 379,305 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (72,211) | (72,211) | |||||||||||||||||||||||||||||
| Dividends | — | — | — | (7,846) | — | (7,846) | |||||||||||||||||||||||||||||
| Exercise of employee stock options and related income tax benefits | 95 | 95 | 4,892 | — | — | 4,987 | |||||||||||||||||||||||||||||
| Issuance of common stock for employee stock purchase plans | — | — | 8 | — | — | 8 | |||||||||||||||||||||||||||||
| Purchases of common stock | (295) | (295) | (42,484) | — | — | (42,779) | |||||||||||||||||||||||||||||
| Issuance of common stock for long-term incentive program | 176 | 176 | 4,274 | — | — | 4,450 | |||||||||||||||||||||||||||||
| Stock compensation | — | — | 899 | — | — | 899 | |||||||||||||||||||||||||||||
| Balance, April 4, 2021 | 112,066 | $ | 112,066 | $ | 115,690 | $ | 3,878,721 | $ | (104,172) | $ | 4,002,305 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | |||||||||||
| April 3, 2022 | April 4, 2021 | ||||||||||
| (In thousands) | |||||||||||
| Operating activities: | |||||||||||
| Net income | $ | 176,962 | $ | 379,305 | |||||||
| Loss from discontinued operations and dispositions, net of income taxes | 41 | 38 | |||||||||
| Income from continuing operations | 177,003 | 379,343 | |||||||||
| Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: | |||||||||||
| Stock-based compensation | 15,262 | 5,157 | |||||||||
| Restructuring and other costs, net | 13,384 | 5,744 | |||||||||
| Depreciation and amortization | 120,052 | 70,186 | |||||||||
| Change in fair value of contingent consideration | 693 | 240 | |||||||||
| Amortization of deferred debt financing costs and accretion of discounts and debt extinguishment costs | 1,900 | 896 | |||||||||
| Change in fair value of financial securities | 12,125 | (19,298) | |||||||||
| Amortization of acquired inventory revaluation | 16,868 | 2,981 | |||||||||
| Changes in assets and liabilities which provided (used) cash, excluding effects from companies acquired: | |||||||||||
| Accounts receivable, net | 69,065 | 165,190 | |||||||||
| Inventories | (46,968) | (15,008) | |||||||||
| Accounts payable | 26,352 | (5,048) | |||||||||
| Accrued expenses and other | (122,521) | (116,883) | |||||||||
| Net cash provided by operating activities of continuing operations | 283,215 | 473,500 | |||||||||
| Investing activities: | |||||||||||
| Capital expenditures | (29,431) | (14,311) | |||||||||
| Purchases of investments | (22,995) | (4,000) | |||||||||
| Cash paid for acquisitions, net of cash, cash equivalents and restricted cash acquired | (3,880) | (443,543) | |||||||||
| Net cash used in investing activities of continuing operations | (56,306) | (461,854) | |||||||||
| Financing activities: | |||||||||||
| Payments on borrowings | (220,000) | (743,545) | |||||||||
| Proceeds from borrowings | 220,000 | 584,000 | |||||||||
| Payments of term loan | (100,000) | — | |||||||||
| Proceeds from sale of senior unsecured notes | — | 799,856 | |||||||||
| Payments of debt financing and equity issuance costs | — | (7,882) | |||||||||
| Settlement of cash flow hedges | (762) | 6,005 | |||||||||
| Net payments on other credit facilities | (1,064) | (9,799) | |||||||||
| Proceeds from issuance of common stock under stock plans | 1,397 | 4,987 | |||||||||
| Purchases of common stock | (55,592) | (42,779) | |||||||||
| Dividends paid | (8,837) | (7,852) | |||||||||
| Net cash (used in) provided by financing activities of continuing operations | (164,858) | 582,991 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (10,636) | (6,849) |
| Net increase in cash, cash equivalents and restricted cash | 51,415 | 587,788 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 619,337 | 402,613 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 670,752 | $ | 990,401 | |||||||
| Supplemental disclosures of cash flow information | |||||||||||
| Reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total shown in the condensed consolidated statements of cash flows: | |||||||||||
| Cash and cash equivalents | $ | 669,755 | $ | 988,234 | |||||||
| Restricted cash included in other current assets | 997 | 2,167 | |||||||||
| Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | 670,752 | $ | 990,401 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), in accordance with accounting principles generally accepted in the United States of America (the “U.S.” or the "United States") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information in the footnote disclosures of the financial statements has been condensed or omitted where it substantially duplicates information provided in the Company’s latest audited consolidated financial statements, in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended January 2, 2022, filed with the SEC (the “2021 Form 10-K”). The balance sheet amounts at January 2, 2022 in this report were derived from the Company’s audited 2021 consolidated financial statements included in the 2021 Form 10-K. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended April 3, 2022 and April 4, 2021, respectively, are not necessarily indicative of the results for the entire fiscal year or any future period.
Note 2: Revenue
Disaggregation of revenue
In the following tables, revenue is disaggregated by primary geographical markets, primary end-markets and timing of revenue recognition.
| Reportable Segments | |||||||||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| April 3, 2022 | April 4, 2021 | ||||||||||||||||||||||||||||||||||
| Discovery & Analytical Solutions | Diagnostics | Total | Discovery & Analytical Solutions | Diagnostics | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Primary geographical markets | |||||||||||||||||||||||||||||||||||
| Americas | $ | 273,158 | $ | 327,936 | $ | 601,094 | $ | 175,115 | $ | 400,927 | $ | 576,042 | |||||||||||||||||||||||
| Europe | 158,238 | 198,168 | 356,406 | 135,458 | 311,743 | 447,201 | |||||||||||||||||||||||||||||
| Asia | 170,970 | 130,972 | 301,942 | 144,036 | 140,410 | 284,446 | |||||||||||||||||||||||||||||
| $ | 602,366 | $ | 657,076 | $ | 1,259,442 | $ | 454,609 | $ | 853,080 | $ | 1,307,689 | ||||||||||||||||||||||||
| Primary end-markets | |||||||||||||||||||||||||||||||||||
| Diagnostics | $ | — | $ | 657,076 | $ | 657,076 | $ | — | $ | 853,080 | $ | 853,080 | |||||||||||||||||||||||
| Life sciences | 412,409 | — | 412,409 | 277,201 | — | 277,201 | |||||||||||||||||||||||||||||
| Applied markets | 189,957 | — | 189,957 | 177,408 | — | 177,408 | |||||||||||||||||||||||||||||
| $ | 602,366 | $ | 657,076 | $ | 1,259,442 | $ | 454,609 | $ | 853,080 | $ | 1,307,689 | ||||||||||||||||||||||||
| Timing of revenue recognition | |||||||||||||||||||||||||||||||||||
| Products and services transferred at a point in time | $ | 461,314 | $ | 554,520 | $ | 1,015,834 | $ | 326,662 | $ | 615,106 | $ | 941,768 | |||||||||||||||||||||||
| Services transferred over time | 141,052 | 102,556 | 243,608 | 127,947 | 237,974 | 365,921 | |||||||||||||||||||||||||||||
| $ | 602,366 | $ | 657,076 | $ | 1,259,442 | $ | 454,609 | $ | 853,080 | $ | 1,307,689 |
Major Customer Concentration
Revenues from one customer in the Company's Diagnostics segment represent approximately $112.7 million and $205.6 million of the Company's total revenue for the three months ended April 3, 2022 and April 4, 2021, respectively.
On March 31, 2022, the Company was notified by the California Department of Public Health (“CDPH”) that, due to the decrease in COVID-19 cases and the related decreased need for testing for COVID-19, the CDPH intends to end its contract with the Company for the supply and operation of the Valencia Branch Laboratory effective on May 15, 2022. The Company shall recognize the unamortized contract liability pertaining to the nonrefundable prepayment as revenue over the remaining period through May 15, 2022. As of March 31, 2022, the unamortized contract liability was $126.2 million. The contract liability that the Company expects to recognize in revenue in the second quarter of fiscal year 2022 amounts to $117.8 million.
Contract Balances
Contract assets: The unbilled receivables (contract assets) primarily relate to the Company's right to consideration for work completed but not billed at the reporting date. The unbilled receivables are transferred to trade receivables when billed to customers. Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the condensed consolidated balance sheets.
| (In thousands) | |||||
| Balance at January 2, 2022 | $ | 72,117 | |||
| Transferred to trade receivables from unbilled receivables recognized at the beginning of the period | (37,062) | ||||
| Increases as a result of recognition of revenue before billing to customers, excluding amounts transferred to trade receivables during the period | 27,156 | ||||
| Balance at April 3, 2022 | $ | 62,211 |
Contract liabilities: The contract liabilities primarily relate to the advance consideration received from customers for products and related services for which transfer of control has not occurred at the balance sheet date. Contract liabilities are classified as either current in "Accounts payable" or "Accrued expenses and other current liabilities" or as long-term in "Long-term liabilities" in the condensed consolidated balance sheets based on the timing of when the Company expects to recognize revenue.
| (In thousands) | |||||
| Balance at January 2, 2022 | $ | 201,073 | |||
| Revenue recognized that was included in the contract liability balance at the beginning of the period | (57,691) | ||||
| Increases due to cash received, excluding amounts recognized as revenue during the period | 28,486 | ||||
| Balance at April 3, 2022 | $ | 171,868 |
Note 3: Business Combinations
Acquisitions in fiscal year 2022
During the first quarter of fiscal year 2022, the Company completed the acquisition of two businesses for aggregate consideration of $13.5 million. Identifiable definite-lived intangible assets, such as core technology, acquired as part of these acquisitions had a weighted average amortization period of 5 years.
Acquisitions in fiscal year 2021
Acquisition of BioLegend, Inc. In fiscal year 2021, the Company completed the acquisition of BioLegend, Inc. ("BioLegend") and paid an aggregate consideration 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 the Company's common stock having a fair value of approximately $2.6 billion based on the $187.56 per share closing price of the Company's 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 the Company's common stock. BioLegend is recognized as a leading, global provider of life science antibodies and reagents, headquartered in San Diego, California, with approximately 700 employees. The operations for this acquisition is reported within the results of the Company's Discovery & Analytical Solutions segment from the acquisition date. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and is not tax deductible. Identifiable definite-lived intangible assets, such as core technology,
trade names, customer relationships and clone library, acquired as part of this acquisition had a weighted-average amortization period of 16.3 years.
BioLegend's revenue and net loss from the acquisition date to January 2, 2022 were $91.7 million and $25.8 million, respectively. The net loss includes $47.0 million of amortization of intangible assets recognized in the acquisition as well as $16.6 million of amortization of fair value adjustment to acquired inventory. The following unaudited pro forma information presents the combined financial results for the Company and BioLegend as if the acquisition of BioLegend had been completed at the beginning of fiscal year 2020:
| Three Months Ended April 4, 2021 | |||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||
| Pro Forma Statement of Operations Information: | |||||||||||||||||
| Revenue | $ | 1,385,114 | |||||||||||||||
| Income from continuing operations | $ | 370,624 | |||||||||||||||
| Basic earnings per share: | |||||||||||||||||
| Income from continuing operations | $ | 2.94 | |||||||||||||||
| Diluted earnings per share: | |||||||||||||||||
| Income from continuing operations | $ | 2.93 |
The unaudited pro forma information for the first quarter of fiscal year 2021 has been calculated after applying the Company's accounting policies and the impact of acquisition date fair value adjustments. These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on debt obtained to finance the transaction, and increased amortization for the fair value of acquired intangible assets.
The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of the period presented, or of future results of the consolidated entities. The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
Other acquisitions in 2021. During fiscal year 2021, the Company also completed the acquisition of seven other businesses for aggregate consideration of $1.2 billion. The acquired businesses include Oxford Immunotec Global PLC, a company based in Abingdon, UK with approximately 275 employees, for total consideration of $590.9 million and Nexcelom Bioscience Holdings, LLC, 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 $318.6 million. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as employee workforces acquired, and has been allocated to goodwill, which is not tax deductible. Identifiable definite-lived intangible assets, such as core technology, trade names, and customer relationships, acquired as part of these acquisitions had a weighted-average amortization period of 12.3 years.
The total purchase price for the acquisitions in fiscal year 2021 has been allocated to the estimated fair value of assets acquired and liabilities assumed as follows:
| BioLegend | Other | ||||||||||
| (In thousands) | |||||||||||
| Fair value of business combination: | |||||||||||
| Cash payments | $ | 3,336,115 | 1,128,584 | ||||||||
| Common stock issued | 2,638,369 | — | |||||||||
| Other liability | 6,857 | 2,910 | |||||||||
| Contingent consideration | — | 45,031 | |||||||||
| Working capital and other adjustments | — | 183 | |||||||||
| Less: cash acquired | (292,377) | (195,010) | |||||||||
| Total | $ | 5,688,964 | $ | 981,698 | |||||||
| Identifiable assets acquired and liabilities assumed: | |||||||||||
| Current assets | $ | 184,704 | $ | 72,104 | |||||||
| Property, plant and equipment | 147,200 | 26,507 | |||||||||
| Other assets | 9,330 | 15,564 | |||||||||
| Identifiable intangible assets: | |||||||||||
| Core technology and clone library | 782,400 | 290,089 | |||||||||
| Trade names and patents | 38,000 | 39,626 | |||||||||
| Licenses | 8,979 | — | |||||||||
| Customer relationships and backlog | 1,714,800 | 141,670 | |||||||||
| Goodwill | 3,510,710 | 550,023 | |||||||||
| Deferred taxes | (668,920) | (86,100) | |||||||||
| Deferred revenue | — | (1,197) | |||||||||
| Debt assumed | — | (4,628) | |||||||||
| Liabilities assumed | (38,239) | (61,960) | |||||||||
| Total | $ | 5,688,964 | $ | 981,698 |
The preliminary allocations of the purchase prices for acquisitions are based upon initial valuations. The Company's estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete its valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. These adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings. There were no material measurement period adjustments recognized in the current period.
The allocations of the purchase prices for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed.
As of April 3, 2022, the Company may have to pay contingent consideration related to acquisitions with open contingency periods of up to $111.3 million. As of April 3, 2022, the Company has recorded contingent consideration obligations of $49.8 million, of which $1.1 million was recorded in accrued expenses and other current liabilities, and $48.7 million was recorded in long-term liabilities. As of January 2, 2022, the Company had recorded contingent consideration obligations with an estimated fair value 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 6.7 years from April 3, 2022, and the remaining weighted average expected earnout period at April 3, 2022 was 5.7 years. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.
Total acquisition and divestiture-related costs for the three months ended April 3, 2022 and April 4, 2021 were $20.5 million and $4.4 million, respectively. These amounts included $7.5 million of stock compensation expense related to awards given to BioLegend employees for the three months ended April 3, 2022 and $5.4 million of net foreign exchange gain related to the Company's acquisition of Oxford and $5.4 million of incentive award associated with the Company's acquisition of Meizheng Group for the three months ended April 4, 2021. These acquisition and divestiture-related costs were expensed as incurred and recorded in selling, general and administrative expenses and interest and other expense, net in the Company's condensed consolidated statements of operations.
Note 4: Restructuring and Other Costs, Net
The Company implemented a restructuring plan in the first quarter of fiscal year 2022 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives and integrate new acquisitions (the "Q1 2022 Plan"). The Company implemented restructuring plans in each quarter of fiscal year 2021 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives and integrate new acquisitions (the "Q1 2021 Plan", "Q2 2021 Plan", "Q3 2021 Plan" and "Q4 2021 Plan", respectively). Details of the plans initiated in previous years (the “Previous Plans”) are discussed more fully in Note 4, Restructuring and Other Costs, Net, to the audited consolidated financial statements in the 2021 Form 10-K.
The following table summarizes the reductions in headcount, the initial restructuring or contract termination charges by reporting segment, and the dates by which payments were substantially completed, or the dates by which payments are expected to be substantially completed, for restructuring actions implemented during fiscal years 2022 and 2021:
| Workforce Reductions | Closure of Excess Facility | Total | (Expected) Date Payments Substantially Completed by | ||||||||||||||||||||||||||||||||||||||||||||
| Headcount Reduction | Discovery & Analytical Solutions | Diagnostics | Discovery & Analytical Solutions | Diagnostics | Severance | Excess Facility | |||||||||||||||||||||||||||||||||||||||||
| (In thousands, except headcount data) | |||||||||||||||||||||||||||||||||||||||||||||||
| Q1 2022 Plan | 81 | $ | 5,832 | $ | 399 | $ | — | $ | — | $ | 6,231 | Q4 FY2022 | — | ||||||||||||||||||||||||||||||||||
| Q4 2021 Plan | 31 | 3,139 | 77 | 150 | — | 3,366 | Q3 FY2022 | Q1 FY2023 | |||||||||||||||||||||||||||||||||||||||
| Q3 2021 Plan | 39 | 420 | 366 | — | — | 786 | Q2 FY2022 | — | |||||||||||||||||||||||||||||||||||||||
| Q2 2021 Plan | 25 | 968 | 564 | — | — | 1,532 | Q1 FY2022 | — | |||||||||||||||||||||||||||||||||||||||
| Q1 2021 Plan | 77 | 3,941 | 1,615 | — | — | 5,556 | Q4 FY2021 | — |
The Company has terminated various contractual commitments in connection with certain disposal activities and has recorded charges 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 the Company. The Company recorded net pre-tax charges of $6.3 million in the Discovery & Analytical Solutions segment during the three months ended April 3, 2022 as a result of these contract terminations. The Company recorded net pre-tax gains of $0.4 million in the Diagnostics segment during the three months ended April 3, 2022 as a result of changes in estimates from prior contract terminations.
The Company recorded pre-tax charges of $1.3 million and $0.2 million associated with relocating facilities during the three months ended April 3, 2022 and April 4, 2021, respectively, in the Discovery & Analytical Solutions segment. The Company expects to make payments on these relocation activities through end of fiscal year 2022.
Note 5: Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
| Three Months Ended | |||||||||||||||||||||||
| April 3, 2022 | April 4, 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Interest income | $ | (595) | $ | (411) | |||||||||||||||||||
| Interest expense | 28,388 | 14,126 | |||||||||||||||||||||
| Change in fair value of financial securities | 12,125 | (19,298) | |||||||||||||||||||||
| Other components of net periodic pension credit | (2,362) | (3,719) | |||||||||||||||||||||
| Other income, net | (311) | (3,404) | |||||||||||||||||||||
| Total interest and other expense (income), net | $ | 37,245 | $ | (12,706) |
Note 6: Inventories
Inventories consisted of the following:
| April 3, 2022 | January 2, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Raw materials | $ | 239,937 | $ | 229,356 | |||||||
| Work in progress | 77,667 | 69,744 | |||||||||
| Finished goods | 328,320 | 325,614 | |||||||||
| Total inventories | $ | 645,924 | $ | 624,714 |
Note 7: Debt
The Company’s debt consisted of the following:
| April 3, 2022 | |||||||||||||||||||||||
| Outstanding Principal | Unamortized Debt Discount | Unamortized Debt Issuance Costs | Net Carrying Amount | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Long-Term Debt: | |||||||||||||||||||||||
| Senior Unsecured Revolving Credit Facility | $ | — | $ | — | $ | (3,181) | $ | (3,181) | |||||||||||||||
| Unsecured Term Loan Credit Facility | 400,000 | — | (477) | 399,523 | |||||||||||||||||||
| 0.550% Senior Unsecured Notes due in 2023 ("2023 Notes") | 500,000 | (131) | (1,798) | 498,071 | |||||||||||||||||||
| 0.850% Senior Unsecured Notes due in 2024 ("2024 Notes") | 800,000 | (408) | (4,519) | 795,073 | |||||||||||||||||||
| 1.875% Senior Unsecured Notes due in 2026 ("2026 Notes") | 551,800 | (2,341) | (2,155) | 547,304 | |||||||||||||||||||
| 1.900% Senior Unsecured Notes due in 2028 ("2028 Notes") | 500,000 | (338) | (4,078) | 495,584 | |||||||||||||||||||
| 3.3% Senior Unsecured Notes due in 2029 ("2029 Notes") | 850,000 | (2,199) | (6,086) | 841,715 | |||||||||||||||||||
| 2.55% Senior Unsecured Notes due in March 2031 ("March 2031 Notes") | 400,000 | (123) | (3,227) | 396,650 | |||||||||||||||||||
| 2.250% Senior Unsecured Notes due in September 2031 ("September 2031 Notes") | 500,000 | (1,458) | (4,302) | 494,240 | |||||||||||||||||||
| 3.625% Senior Unsecured Notes due in 2051 ("2051 Notes") | 400,000 | (4) | (4,333) | 395,663 | |||||||||||||||||||
| Other Debt Facilities, non-current | 3,336 | — | — | 3,336 | |||||||||||||||||||
| Total Long-Term Debt | $ | 4,905,136 | $ | (7,002) | $ | (34,156) | $ | 4,863,978 | |||||||||||||||
| Current Portion of Long-term Debt: | |||||||||||||||||||||||
| Other Debt Facilities, current | 3,729 | — | — | 3,729 | |||||||||||||||||||
| Total | $ | 4,908,865 | $ | (7,002) | $ | (34,156) | $ | 4,867,707 |
| January 2, 2022 | |||||||||||||||||||||||
| Outstanding Principal | Unamortized Debt Discount | Unamortized Debt Issuance Costs | Net Carrying Amount | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Long-Term Debt: | |||||||||||||||||||||||
| Senior Unsecured Revolving Credit Facility | $ | — | $ | — | $ | (3,362) | $ | (3,362) | |||||||||||||||
| Unsecured Term Loan Credit Facility | 500,000 | (14) | (658) | 499,328 | |||||||||||||||||||
| 2023 Notes | 500,000 | (152) | (2,093) | 497,755 | |||||||||||||||||||
| 2024 Notes | 800,000 | (447) | (4,945) | 794,608 | |||||||||||||||||||
| 2026 Notes | 568,600 | (2,538) | (2,280) | 563,782 | |||||||||||||||||||
| 2028 Notes | 500,000 | (348) | (4,200) | 495,452 | |||||||||||||||||||
| 2029 Notes | 850,000 | (2,252) | (6,234) | 841,514 | |||||||||||||||||||
| March 2031 Notes | 400,000 | (126) | (3,294) | 396,580 | |||||||||||||||||||
| September 2031 Notes | 500,000 | (1,485) | (4,380) | 494,135 | |||||||||||||||||||
| 2051 Notes | 400,000 | (4) | (4,335) | 395,661 | |||||||||||||||||||
| Other Debt Facilities, non-current | 4,284 | — | — | 4,284 | |||||||||||||||||||
| Total Long-Term Debt | $ | 5,022,884 | $ | (7,366) | $ | (35,781) | $ | 4,979,737 | |||||||||||||||
| Current Portion of Long-term Debt: | |||||||||||||||||||||||
| Other Debt Facilities, current | 4,240 | — | — | 4,240 | |||||||||||||||||||
| Total | $ | 5,027,124 | $ | (7,366) | $ | (35,781) | $ | 4,983,977 |
Note 8: Earnings Per Share
Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period less restricted unvested shares. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method. The following table reconciles the number of shares utilized in the earnings per share calculations:
| Three Months Ended | |||||||||||||||||||||||
| April 3, 2022 | April 4, 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Number of common shares—basic | 126,137 | 112,028 | |||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options | 339 | 359 | |||||||||||||||||||||
| Restricted stock awards | 159 | 108 | |||||||||||||||||||||
| Number of common shares—diluted | 126,635 | 112,495 | |||||||||||||||||||||
| Number of potentially dilutive securities excluded from calculation due to antidilutive impact | 512 | 162 |
Antidilutive securities include outstanding stock options with exercise prices and average unrecognized compensation cost in excess of the average fair market value of common stock for the related period. Antidilutive options were excluded from the calculation of diluted net income per share and could become dilutive in the future.
Note 9: Segment Information
The Company discloses information about its operating segments based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. The Company evaluates the performance of its operating segments based on revenue and operating income. Intersegment revenue and transfers are not
significant. The accounting policies of the operating segments are the same as those described in Note 1, Nature of Operations and Accounting Policies, to the audited consolidated financial statements in the 2021 Form 10-K.
The principal products and services of the Company's two operating segments are:
-
Discovery & Analytical Solutions. Provides products and services targeted towards the life sciences and applied markets.
-
Diagnostics. Develops diagnostics, tools and applications focused on clinically-oriented customers, especially within the reproductive health, immunodiagnostics and applied genomics markets. The Diagnostics segment serves the diagnostics market.
The Company has included the expenses for its 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. The Company has 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 the Company’s 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 the Company’s operating segments.
Revenue and operating income (loss) from continuing operations by operating segment are shown in the table below:
| Three Months Ended | |||||||||||||||||||||||
| April 3, 2022 | April 4, 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Discovery & Analytical Solutions | |||||||||||||||||||||||
| Product revenue | $ | 408,875 | $ | 267,255 | |||||||||||||||||||
| Service revenue | 193,491 | 187,354 | |||||||||||||||||||||
| Total revenue | 602,366 | 454,609 | |||||||||||||||||||||
| Operating income from continuing operations | 14,515 | 42,947 | |||||||||||||||||||||
| Diagnostics | |||||||||||||||||||||||
| Product revenue | 458,070 | 544,297 | |||||||||||||||||||||
| Service revenue | 199,006 | 308,783 | |||||||||||||||||||||
| Total revenue | 657,076 | 853,080 | |||||||||||||||||||||
| Operating income from continuing operations | 258,012 | 441,467 | |||||||||||||||||||||
| Corporate | |||||||||||||||||||||||
| Operating loss from continuing operations | (17,682) | (16,638) | |||||||||||||||||||||
| Continuing Operations | |||||||||||||||||||||||
| Product revenue | 866,945 | 811,552 | |||||||||||||||||||||
| Service revenue | 392,497 | 496,137 | |||||||||||||||||||||
| Total revenue | 1,259,442 | 1,307,689 | |||||||||||||||||||||
| Operating income from continuing operations | 254,845 | 467,776 | |||||||||||||||||||||
| Interest and other expense (income), net | 37,245 | (12,706) | |||||||||||||||||||||
| Income from continuing operations before income taxes | $ | 217,600 | $ | 480,482 |
Note 10: Stockholders’ Equity
Comprehensive Income:
The components of accumulated other comprehensive loss consisted of the following:
| April 3, 2022 | January 2, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Foreign currency translation adjustments, net of income taxes | $ | (245,821) | $ | (161,810) | |||||||
| Unrecognized prior service costs, net of income taxes | (842) | (842) | |||||||||
| Unrealized net losses on securities, net of income taxes | (56) | (40) | |||||||||
| Accumulated other comprehensive loss | $ | (246,719) | $ | (162,692) |
Stock Repurchases:
On July 31, 2020, the Company's Board of Directors (the "Board") authorized the Company 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 the Board and may be suspended or discontinued at any time. During the three months ended April 3, 2022, the Company repurchased 240,000 shares of common stock under the Repurchase Program for an aggregate cost of $43.4 million. As of April 3, 2022, $144.0 million remained available for aggregate repurchases of shares under the Repurchase Program.
In addition, the Board has authorized the Company 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 the Company’s equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to the Company's equity incentive plans. During the three months ended April 3, 2022, the Company repurchased 67,107 shares of common stock for this purpose at an aggregate cost of $12.2 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.
Dividends:
The Board declared a regular quarterly cash dividend of $0.07 per share for the first quarter of fiscal year 2022 and in each quarter of fiscal year 2021. At April 3, 2022, the Company had accrued $8.8 million for dividends declared on January 27, 2022 for the first quarter of fiscal year 2022 that will be paid on May 13, 2022. On April 28, 2022, the Company announced that the Board had declared a quarterly dividend of $0.07 per share for the second quarter of fiscal year 2022 that will be payable in August 2022. In the future, the Board may determine to reduce or eliminate the Company’s common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
Note 11: Goodwill and Intangible Assets, Net
The Company tests goodwill and non-amortizing intangible assets at least annually for possible impairment. Accordingly, the Company completes the annual testing of impairment for goodwill and non-amortizing intangible assets on the later of January 1 or the first day of each fiscal year. In addition to its annual test, the Company regularly evaluates whether events or circumstances have occurred that may indicate a potential impairment of goodwill or non-amortizing intangible assets.
The process of testing goodwill for impairment involves the determination of the fair value of the applicable reporting units. 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*.* The Company performed its annual impairment testing for its reporting units as of January 3, 2022, its annual impairment testing date for fiscal year 2022. The Company concluded that there was no goodwill impairment, and the fair value exceeded the carrying value by more than 20% for each reporting unit. For the fiscal year 2022 impairment analysis, the range of the long-term terminal growth rates for the Company’s reporting units was 2% to 5% and the range of the discount rates for the reporting units was 7% to 11.5%. Keeping all other variables constant, a 10% change in any one of these input assumptions for the various reporting units would still allow the Company to conclude that there was no impairment of goodwill.
The Company has consistently employed 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 the Company’s historical long-term terminal growth rates, as the current economic trends are not expected to affect the long-term terminal growth rates of the Company. The Company corroborates the income approach with a market approach.
The changes in the carrying amount of goodwill for the three months ended April 3, 2022 were as follows:
| Discovery & Analytical Solutions | Diagnostics | Consolidated | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Balance at January 2, 2022 | $ | 5,446,234 | $ | 1,970,350 | $ | 7,416,584 | |||||||||||
| Foreign currency translation | (38,132) | (13,795) | (51,927) | ||||||||||||||
| Acquisitions, earn-outs and other | (1,085) | 3,712 | 2,627 | ||||||||||||||
| Balance at April 3, 2022 | $ | 5,407,017 | $ | 1,960,267 | $ | 7,367,284 |
Identifiable intangible asset balances by category were as follows:
| April 3, 2022 | January 2, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Patents | $ | 31,025 | $ | 31,033 | |||||||
| Less: Accumulated amortization | (28,742) | (28,693) | |||||||||
| Net patents | 2,283 | 2,340 | |||||||||
| Trade names and trademarks | 168,225 | 170,983 | |||||||||
| Less: Accumulated amortization | (64,762) | (62,441) | |||||||||
| Net trade names and trademarks | 103,463 | 108,542 | |||||||||
| Licenses | 68,001 | 67,887 | |||||||||
| Less: Accumulated amortization | (54,897) | (54,315) | |||||||||
| Net licenses | 13,104 | 13,572 | |||||||||
| Core technology | 1,841,179 | 1,834,177 | |||||||||
| Less: Accumulated amortization | (527,001) | (494,310) | |||||||||
| Net core technology | 1,314,178 | 1,339,867 | |||||||||
| Customer relationships | 3,165,411 | 3,195,704 | |||||||||
| Less: Accumulated amortization | (726,145) | (673,425) | |||||||||
| Net customer relationships | 2,439,266 | 2,522,279 | |||||||||
| In-process research and development | — | 5,920 | |||||||||
| Net amortizable intangible assets | 3,872,294 | 3,992,520 | |||||||||
| Non-amortizing intangible asset: | |||||||||||
| Trade name | 70,584 | 70,584 | |||||||||
| Total | $ | 3,942,878 | $ | 4,063,104 |
Total amortization expense related to definite-lived intangible assets was $102.7 million and $54.2 million for the three months ended April 3, 2022 and April 4, 2021, respectively. Estimated amortization expense related to amortizable intangible assets for each of the next five years is $309.3 million for the remainder of fiscal year 2022, $402.4 million for fiscal year 2023, $390.9 million for fiscal year 2024, $363.7 million for fiscal year 2025, and $350.3 million for fiscal year 2026.
Note 12: Derivatives and Hedging Activities
The Company uses derivative instruments as part of its 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. The Company enters into derivative instruments with major investment grade financial institutions and has policies to monitor the credit risk of those counterparties. The Company does not enter into derivative contracts for trading or other speculative purposes, nor does the Company use leveraged financial instruments. Approximately 60% of the Company’s business is conducted outside of the United States, generally in foreign currencies. As a result, fluctuations in foreign currency exchange rates can increase the costs of financing, investing and operating the business.
In the ordinary course of business, the Company enters 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 the Company’s condensed consolidated balance sheets. The unrealized gains and losses on the Company’s 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 the Company’s condensed consolidated statement of cash flows.
Principal hedged currencies include the Chinese Renminbi, British Pound, Euro, Singapore Dollar and Swedish Krona. The Company held forward foreign exchange contracts, designated as economic hedges, with U.S. dollar equivalent notional amounts totaling $376.6 million, $371.9 million and $969.5 million at April 3, 2022, January 2, 2022 and April 4, 2021, respectively, 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 the three months ended April 3, 2022 and April 4, 2021.
In addition, in connection with certain intercompany loan agreements utilized to finance its acquisitions and stock repurchase program, the Company 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. The Company records these hedges at fair value on the Company’s condensed 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 the Company’s condensed consolidated statement 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, and combined U.S. Dollar notional amounts of $1,309.0 million as of April 4, 2021. 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 for each of the three months ended April 3, 2022 and April 4, 2021. The Company paid $0.8 million and received $6.0 million during the three months ended April 3, 2022 and April 4, 2021, respectively, from the settlement of these hedges.
During fiscal year 2018, the Company designated a portion of the 2026 Notes to hedge its net investments in certain foreign subsidiaries. Unrealized translation adjustments from a portion of the 2026 Notes were included in the foreign currency translation component of accumulated other comprehensive income ("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 April 3, 2022, the total notional amount of the 2026 Notes that was designated to hedge net investments in foreign subsidiaries was €497.2 million. The unrealized foreign exchange gains recorded in AOCI related to the net investment hedge were $16.7 million and $21.6 million for the three months ended April 3, 2022 and April 4, 2021, respectively.
The Company does not expect any material net pre-tax gains or losses to be reclassified from accumulated other comprehensive loss into interest and other expense, net within the next twelve months.
Note 13: Fair Value Measurements
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, derivatives, marketable securities and accounts receivable. The Company believes it had no significant concentrations of credit risk as of April 3, 2022.
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during the three months ended April 3, 2022. The Company’s financial assets and liabilities carried at fair
value are primarily comprised of marketable securities, derivative contracts used to hedge the Company’s currency risk, and acquisition-related contingent consideration. The Company has not elected to measure any additional financial instruments or other items at fair value.
Valuation Hierarchy: The following summarizes the three levels of inputs required to measure fair value. For Level 1 inputs, the Company utilizes quoted market prices as these instruments have active markets. For Level 2 inputs, the Company utilizes quoted market prices in markets that are not active, broker or dealer quotations, or utilizes alternative pricing sources with reasonable levels of price transparency. For Level 3 inputs, the Company utilizes unobservable inputs based on the best information available, including estimates by management primarily based on information provided by third-party fund managers, independent brokerage firms and insurance companies. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
The following tables show the assets and liabilities carried at fair value measured on a recurring basis as of April 3, 2022 and January 2, 2022 classified in one of the three classifications described above:
| Fair Value Measurements at April 3, 2022 Using: | |||||||||||||||||||||||
| Total Carrying Value at April 3, 2022 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Marketable securities | $ | 56,683 | $ | 56,683 | $ | — | $ | — | |||||||||||||||
| Foreign exchange derivative assets | 229 | — | 229 | — | |||||||||||||||||||
| Foreign exchange derivative liabilities | (1,258) | — | (1,258) | — | |||||||||||||||||||
| Contingent consideration | (49,828) | — | — | (49,828) |
| Fair Value Measurements at January 2, 2022 Using: | |||||||||||||||||||||||
| Total Carrying Value at January 2, 2022 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Marketable securities | $ | 53,073 | $ | 53,073 | $ | — | $ | — | |||||||||||||||
| Foreign exchange derivative assets | 3,765 | — | 3,765 | — | |||||||||||||||||||
| Foreign exchange derivative liabilities | (3,463) | — | (3,463) | — | |||||||||||||||||||
| Contingent consideration | (57,996) | — | — | (57,996) |
Level 1 and Level 2 Valuation Techniques: The Company’s Level 1 and Level 2 assets and liabilities are comprised of investments in equity and fixed-income securities as well as derivative contracts. For financial assets and liabilities that utilize Level 1 and Level 2 inputs, the Company utilizes both direct and indirect observable price quotes, including common stock price quotes, foreign exchange forward prices and bank price quotes. Below is a summary of valuation techniques for Level 1 and Level 2 financial assets and liabilities.
Marketable securities: Include equity and fixed-income securities measured at fair value using the quoted market prices in active markets at the reporting date.
Foreign exchange derivative assets and liabilities: Include foreign exchange derivative contracts that are valued using quoted forward foreign exchange prices at the reporting date. The Company’s foreign exchange derivative contracts are subject to master netting arrangements that allow the Company and its counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled under these arrangements have been presented in the Company's condensed consolidated balance sheet on a net basis and are recorded in other assets. As of both April 3, 2022 and January 2, 2022, none of the master netting arrangements involved collateral.
Level 3 Valuation Techniques: The Company’s Level 3 liabilities are comprised of contingent consideration related to acquisitions. For liabilities that utilize Level 3 inputs, the Company uses significant unobservable inputs. Below is a summary of valuation techniques for Level 3 liabilities.
Contingent consideration: Contingent consideration is measured at fair value at the acquisition date using projected milestone dates, discount rates, probabilities of success and projected revenues (for revenue-based considerations). Projected risk-adjusted contingent payments are discounted back to the current period using a discounted cash flow model.
The fair values of contingent consideration are calculated on a quarterly basis based on a collaborative effort of the Company’s operations, finance and accounting groups, as appropriate. Potential valuation adjustments are made as additional information becomes available, including the progress towards achieving the revenue targets as compared to initial projections, with the impact of such adjustments being recorded in the Company's condensed consolidated statements of operations.
A reconciliation of the beginning and ending Level 3 net liabilities for contingent consideration is as follows:
| Three Months Ended | |||||||||||||||||||||||
| April 3, 2022 | April 4, 2021 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Balance at beginning of period | $ | (57,996) | $ | (2,953) | |||||||||||||||||||
| Additions | (4,961) | — | |||||||||||||||||||||
| Amounts paid and foreign currency translation | 1,422 | 69 | |||||||||||||||||||||
| Adjustments recognized in goodwill | 12,400 | — | |||||||||||||||||||||
| Change in fair value (included within selling, general and administrative expenses) | (693) | (240) | |||||||||||||||||||||
| Balance at end of period | $ | (49,828) | $ | (3,124) |
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturities of these assets and liabilities. If measured at fair value, cash and cash equivalents would be classified as Level 1.
The Company's outstanding senior unsecured notes had a fair value of $4,270.3 million and a carrying value of $4,464.3 million as of April 3, 2022. The Company's outstanding senior unsecured notes had a fair value of $4,612.8 million and a carrying value of $4,479.5 million as of January 2, 2022. The fair values of the outstanding senior unsecured notes were estimated using market quotes from brokers and were based on current rates offered for similar debt, which are Level 2 measurements.
The Company’s other debt facilities, including the Company's senior revolving and term loan credit facilities, had an aggregate carrying value of $403.4 million and $504.5 million as of April 3, 2022 and January 2, 2022, respectively. The carrying value approximates fair value and were classified as Level 2.
Note 14: Contingencies
The Company is conducting a number of environmental investigations and remedial actions at current and former locations of the Company and, along with other companies, has been named a potentially responsible party (“PRP”) for certain waste disposal sites. The Company accrues for environmental issues in the accounting period that the Company’s responsibility is established and when the cost can be reasonably estimated. The Company has accrued $12.0 million and $11.9 million as of April 3, 2022 and January 2, 2022, respectively, which represents its 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. These amounts were included in accrued expenses and other current liabilities. The Company's 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 the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects 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 the Company’s condensed consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the condensed consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
The Company is subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of its business activities. Although the Company has established accruals for potential losses that it
believes are probable and reasonably estimable, in the opinion of the Company’s management, based on its review of the information available at this time, the total cost of resolving these contingencies at April 3, 2022 would not have a material adverse effect on the Company’s condensed consolidated financial statements. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company.
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