UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________________________
Form 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 28, 2014 | |
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to | |
Commission file number 001-5075
_____________________________________
PerkinElmer, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts | 04-2052042 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
940 Winter Street, Waltham, Massachusetts | 02451 | |
(Address of Principal Executive Offices) | (Zip Code) | |
(Registrant’s telephone number, including area code): (781) 663-6900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, $1 Par Value | New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of the common stock, $1 par value per share, held by non-affiliates of the registrant on June 27, 2014, was $5,228,997,924 based upon the last reported sale of $46.79 per share of common stock on June 27, 2014.
As of February 19, 2015, there were outstanding 113,026,313 shares of common stock, $1 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of PerkinElmer, Inc.’s Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 28, 2015 are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
Page | ||
PART I | ||
Item 1. | ||
Item 1A. | ||
Item 1B. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II | ||
Item 5. | ||
Item 6. | ||
Item 7. | ||
Item 7A. | ||
Item 8. | ||
Item 9. | ||
Item 9A. | ||
Item 9B. | ||
PART III | ||
Item 10. | ||
Item 11. | ||
Item 12. | ||
Item 13. | ||
Item 14. | ||
PART IV | ||
Item 15. | ||
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PART I
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 28, 2014, we employed approximately 7,700 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 ReAlignment:
In January 2015, we approved and announced a new alignment of our businesses effective for fiscal year 2015 that is designed to enable us to both deliver complete solutions targeted towards certain end markets and to develop value-added applications and solutions to foster further expansion of those markets. As part of this realignment, our OneSource multivendor service offering business that serves the life sciences end market will be moved from our Environmental Health segment into our Human Health segment. Beginning in fiscal year 2015, we will report financial results under our Human Health and Environmental Health segments using this new alignment.
Acquisitions in Fiscal Year 2014:
Acquisition of Perten Instruments Group AB. In December 2014, we acquired all of the outstanding stock of Perten Instruments Group AB ("Perten"). Perten is a provider of analytical instruments and services for quality control of food, grain, flour and feed. We expect this acquisition to enhance our industrial, environmental and safety business by expanding our product offerings to the academic and industrial end markets. We paid the shareholders of Perten $269.9 million in cash for the stock of Perten. We have reported the operations for this acquisition within the results of our Environmental Health segment from the acquisition date.
Other acquisitions. In addition to the Perten acquisition, we completed the acquisition of two businesses in fiscal year 2014 for total consideration of $18.0 million in cash and $4.3 million of assumed debt. We reported the operations for these acquisitions within the results of our Human Health and Environmental Health segments from the acquisition dates.
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Restructuring:
During fiscal year 2014, we recorded pre-tax restructuring charges of $7.7 million in our Human Health segment and $6.7 million in our Environmental Health segment related to a workforce reduction from reorganization activities. Our management approved these plans principally to realign resources to emphasize growth initiatives and to focus resources on higher growth end markets. We also recorded net pre-tax restructuring reversals of $0.8 million in our Human Health segment and $1.7 million in our Environmental Health segment related to lower than expected costs associated with workforce reductions, which were partially offset by higher than expected costs for the closure of excess facility space. In addition during fiscal year 2014, we recorded a pre-tax restructuring charge of $1.5 million in our Environmental Health segment primarily as a result of terminating various contractual commitments. This pre-tax restructuring activity has been reported as restructuring and contract termination charges and is included as a component of operating expenses from continuing operations. We expect no significant impact on future operating results or cash flows from the restructuring activities executed in fiscal year 2014.
As part of our ongoing business strategy, we also took the following actions:
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 expired on October 24, 2014. On October 23, 2014, our Board authorized us to repurchase up to 8.0 million shares of common stock under a new stock repurchase program (the "New Repurchase Program"). The New Repurchase Program will expire on October 23, 2016 unless terminated earlier by our Board, and may be suspended or discontinued at any time. During fiscal year 2014, we repurchased 1.4 million shares of common stock in the open market at an aggregate cost of $61.3 million, including commissions, under these repurchase programs. As of December 28, 2014, approximately 7.4 million shares authorized by our Board under the New Repurchase Program remained available for repurchase.
Discontinued Operations:
In May 2014, our management approved the shutdown of our microarray-based diagnostic testing laboratory in the United States, which had been reported within our Human Health segment. We determined that, with the lack of adequate reimbursement from health care payers, the microarray-based diagnostic testing laboratory in the United States would need significant investment in its operations to reduce costs in order to effectively compete in the market. The shutdown of the microarray-based diagnostic testing laboratory in the United States resulted in a $0.1 million net pre-tax loss primarily related to the disposal of fixed assets, which was partially offset by the sale of a building in fiscal year 2014.
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, 2014, 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.
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 our Human Health segment, we serve the diagnostics and research markets. Our Human Health segment generated revenue of $1,243.4 million in fiscal year 2014.
Diagnostics Market:
We provide early detection for genetic disorders from pregnancy to early childhood, as well as flat panel X-ray 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 babies. Our instruments, reagents and software test and screen for genetic abnormalities, disorders and diseases, including Down syndrome, hypothyroidism, infertility and various metabolic conditions. Our flat panel X-ray 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 flat panel X-ray 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 systems, and detection and imaging technologies that enable scientists to improve life sciences research and drug discovery processes. These products, solutions and services enable pharmaceutical companies to create better therapeutics by helping to bring products to market
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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 and maternal health screening, and includes a fast continuous loading system supported by kits for both first and second trimester analyses, including dried blood spot assays for prenatal screening, 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 17α-OHP, GALT IRT, BTD, PKU, Total Galactose and G6PD 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. |
• | A PCR-based assay for quantification of trinucleotide repeats used to detect normal, intermediate, pre and full mutations associated with Fragile X. |
• | 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. |
• | The XRpad® family of amorphous Silicon (a-Si) flat panel cassette X-ray detectors, which enable X-ray system manufacturers to upgrade their systems from film to digital and to produce exceptional image resolution and diagnostic capability for radiography especially when imaging small anatomical features such as bone fractures and lung nodules. |
• | 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. |
• | The XRD™ family of a-Si flat panel X-ray 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 flat panel X-ray detectors, which provide imaging for mammography, dental, and industrial imaging applications such as PCB inspection and 3D Cone Beam CT. |
• | An expanded portfolio of molecular-based infectious disease screening technologies for blood bank and clinical laboratory settings in China. The tools include a qualitative 3-in-1 assay for the detection of hepatitis B, hepatitis C and HIV, as well as assays for other communicable diseases. |
Research:
• | Radiometric detection solutions, including over 1,100 NEN® radiochemicals, the Tri-carb®, Quantulus™ GCT families of liquid scintillation analyzers, Wizard2® Gamma counters and MicroBeta2® plate based LSA, which are used for beta, gamma and luminescence counting in microplate formats utilized in research, environmental and drug discovery applications. |
• | The Operetta® high content imaging system, which is 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 EnVision® Multilabel Plate Reader, which is targeted towards a wide range of high-throughput screening applications, including those using AlphaScreen®, AlphaLISA® and/or AlphaPlex™ technologies. |
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• | 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. |
• | AlphaScreen®, AlphaLISA® and AlphaPlex™ research assays, including over 200 no-wash biomarker kits for both biotherapeutics and small molecule development in a variety of therapeutic areas including cancer, inflammation, metabolic disorders, 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 and the IVIS® Lumina™ series for 2D imaging. 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. |
• | Next-generation sequencing automation and nucleic acid quantitation including LabChip® separation, as well as Sciclone®, Zephyr® and JANUS® automated liquid handling workstations for library preparation. |
• | JANUS® BioTx™ Workstation for automated small scale purification, which offers column, tip and plate based chromatography on a single platform. |
• | Expanded assay kits utilizing AlphaLISA® technology in the area of metabolic research and for the development and safety testing of biotherapeutic drugs. |
• | 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. |
• | The Quantitative Pathology technologies for cancer immunology research including our Opal™ multiplexed tissue staining workflow. Vectra® automated quantitative pathology imaging system and inForm® advanced image analysis software. These enable the detection, visualization and quantification of multiple cell phenotypes within the same tissue section. |
• | 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 E-Notebook for Chemistry and Biology 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. |
• | 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. |
• | Licensing for the exclusive, worldwide rights to the TIBCO® Spotfire® software platform in certain scientific research and development markets, and certain clinical 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. |
New Products:
Significant new products introduced or acquired for Human Health applications in fiscal year 2014 include the following:
Diagnostics:
• | An expanded portfolio of medical X-ray detectors, including the XRpad® cassette sized 4336 and 4343 F Radiography detectors and the XRD™ 4343 RF combined Radiography & Fluoroscopy detector. |
• | 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:
• | The Opera® Phenix™ high content screening system a platform for high speed phenotypic drug screening of complex cellular models. |
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• | The EnSight™ Multimode Plate Reader benchtop system, which offers well plate imaging alongside label-free and labeled detection technologies for target-based and phenotypic assays. |
• | The Lamina™ multilabel slide scanner, a high throughput imaging system designed to assist research pathologists to study protein expression and the relationships between disease markers in formalin-fixed, paraffin-embedded (FFPE) tissue sections. |
• | Mantra™ quantitative pathology workstation with inForm® image analysis software enables visualization, quantification and phenotyping of multiple types of immune cells simultaneously in intact FFPE tissue sections for cancer immunology research. |
• | Opal™ multiplexed staining kits for amplified detection of immunohistochemistry utilized for biomarker assessment. |
• | Solaris™ open air imaging platform, which is a research tool that enables translational in vivo preclinical imaging in small and large animals. |
• | We collaborated with Sofie Biosciences to offer benchtop PET systems for in vivo preclinical imaging. The G4 PET/X-ray and G8 PET/CT delivers PET imaging with an intuitive user interface and efficient workflows, ensuring subject monitoring throughout preparation and imaging. |
• | Quantum GX™ microCT platform is an in vivo microCT scanner that offers industry leading microCT resolution for pre-clinical imaging applications or eight second scan times for higher throughput with lower doses of radiation. With Quantum GX 3D data from the IVIS and FMT imaging platforms can be coregistered with microCT. |
• | LabChip® devices for molecular diagnostics in clinical research laboratories, which use microfluidic technology to perform reproducible, high-resolution, electrophoretic separations for analyzing multiplex polymerase chain reaction products for molecular biology applications. |
• | LabChip® GXII Touch™ for protein characterization in pharma and biotech research laboratories, which require analysis and recording of protein product critical quality attributes. |
• | JANUS® chemagic™ Workstation, which combines magnetic bead nucleic acid isolation technology with a fully-supported automated liquid handler, enabling extraction for genomic analysis from a variety of human and veterinary blood, plasma and saliva sample types. |
• | AlphaLISA® SureFire® Ultra Assays for screening therapeutic antibodies and small molecules on cultured cells or tissue lysates. |
• | AlphaPlex™ reagent technology, a homogeneous, all-in-one-well multiplexing reagent system for performing ultra-sensitive immunoassay analyses. |
• | CellCarrier® Ultra 384-well microplates, which are used in high content imaging applications such as phenotypic screening and three-dimensional disease model studies. |
• | IVIS® Spectrum BL, a 2D and 3D optical imaging system designed to improve quantitative outcomes of bioluminescent, chemiluminescent and Cerenkov in vivo imaging. |
• | High Content Profiler™ powered by TIBCO® Spotfire®, which provides automated workflows for quality control and hit classification for truly multi-parametric cellular drug screens. |
• | Elements® electronic lab notebook, a cloud-based lab notebook that is delivered through a web browser to allow scientists to capture data, collaborate with colleagues, and search for results. |
Brand Names:
Our Human Health segment offers additional products under various brand names, including AlphaLISA®, AlphaPlex™, AlphaScreen®, Asset Genius™, AutoDELFIA®, BACS-on-Beads®, BoBs®, cell::explorer®, Chem3D®, ChemBioOffice®, ChemDraw®, Columbus™, Datalytix™, Dexela® CMOS FPDs™, Elements®, Elsevier's Reaxys®, EnLite™, EnSight™, EnSpire®, EnVision®, Evolution™, FMT®, FragilEase™, Genoglyphix®, Geospiza®, GSP®, High Content Profiler™, iLab™, inForm®, IVIS®, JANUS®, LabChip®, LABWORKS® EZ-Reader™, LANCE®, LifeCycle™, LimsLink™, Living Image®, Mantra™, MicroBeta2® MultiPROBE®, NEN®, NTD Labs®, Nuance®, Oncoglyphix™, Opal™, Opera®, Operetta®, Pannoramic™, plate::explorer®, Quantulus™ GCT, Quantum™, Sciclone®, Search Genius™, Specimen Gate™, Tri-Carb®, TRIO™, Twister®, UltraVIEW® VoX™, VariSpec™, Vectra®, ViaCord®, VICTOR™, ViewLux®, VivoTag®, Volocity®, Wizard2®, 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. Our Environmental Health segment serves the environmental, industrial and laboratory services markets. Our Environmental Health segment generated revenue of $993.8 million in fiscal year 2014.
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.
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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, polymer, electronics, pharmaceutical, and food and dietary supplement industries. Our industrial instrumentation is primarily used by customers focusing on quality assurance standards.
Laboratory Services Market:
We have approximately 1,600 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 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. |
• | Supra-d™ QuEChERS™ Dispersive Solid Phase Extraction solution for sample preparation in pesticide residue analysis to test the safety of fruit and vegetables. |
• | 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. |
• | 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™ IR and NIR spectrometers, which are designed to provide high sensitivity, flexibility to address a range of sample types and safe drug development and for determining chemical and material properties in a variety of samples, including consumer products. |
• | The LAMBDA™ UV/Vis is a series of spectrophotometers, which provide sampling flexibility to enable measuring of a wide range of sample types from liquids, powders and solid materials both in regulated industries as well as QC/QA and research applications. |
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• | 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 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. |
• | TMA 4000, a thermomechanical analysis system enabling customers to measure expansion of small components. |
• | 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. |
• | The DairyGuard™ 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. |
New Products:
New products introduced or acquired for Environmental Health applications in fiscal year 2014 include the following:
• | The NexION® 350 ICP-MS, which is used for multi-elemental inorganic analyses in the environmental and chemical industries, among others, and delivers a variety of features engineered to enhance signal stability and complete nanoparticle characterization. |
• | Syngistix™ Atomic Spectroscopy Software, a cross-platform instrument control solution enabling lab professionals conducting inorganic elemental analysis to work across AA, ICP and ICP-MS technologies. |
• | HybridXLT™ torch, a new sample introduction component for the Optima® 8x00 ICP-OES series of spectrometers. |
• | Asset Informatics and Analytics, which provides customers with insights into their laboratory operations through proprietary dashboards (powered by TIBCO® Spotfire®), business consulting services and a mobile app to allow customers to understand the performance and utilization of their laboratory assets. |
• | OneSource® Scientific IT Solutions, a series of informatics-based consulting, planning and management offerings to assist in laboratory productivity. |
• | OneSource® Mobile Application, which provides instant mobile access to service activity and equipment data including the ability to open a service call, check service history and view future scheduled events. |
• | OneSource® Dashboard, a TIBCO SpotFire® driven interactive graphical platform providing visibility to a customer’s global asset population, service event and downtime distribution as well as key performance indicators to assist in asset operation. |
• | The Elm™ air sensing network, which monitors and measures the details of air quality using a high-density deployment of nano-technology sensors. Elm™ network identifies hyper-local pollutant levels in real-time, wirelessly transmitting the data to a cloud-based system for storage, analysis and processing. |
• | The DA 7250 NIR Analyzer, which measures the nutritional quality of food samples such as grains, flakes, feed pellets, powders, pastes, slurries and liquids with no sample preparation. |
• | The IM 9500 Whole Grain Analyzer, which analyzes a wide range of grains and oilseeds for moisture, protein, oil and many other parameters. |
Brand Names:
Our Environmental Health segment offers additional products under various brand names, including AAnalyst™, AxION®, Chromera®, Clarus®, DairyGuard™, Elm™, Flexar™, Frontier™, HyperDSC®, LAMBDA™, NexION®, OilExpress™, OilPrep™, OneSource®, Optima™, Perten®, PinAAcle®, Spectrum™, Spectrum Two™, Spotlight™, Supra-clean®, Supra-d™, Supra-poly® and Ultraspray®.
Marketing
All of our businesses market their products and services primarily through their own specialized sales forces. As of December 28, 2014, 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
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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.
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 $121.1 million during fiscal year 2014, $132.4 million during fiscal year 2013, and $131.8 million during fiscal year 2012.
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 2014, 2013, and 2012 primarily toward the diagnostics and research markets within our Human Health segment, and the environmental, industrial 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 2015, 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
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connection with materials that we or our former businesses sent to various third-party sites. We have incurred, and expect to incur, costs pursuant to these statutes.
We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party (“PRP”) for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. We have accrued $12.3 million and $13.5 million as of December 28, 2014 and December 29, 2013, respectively, which represents our management’s estimate of the cost of the remediation of known environmental matters, and does not include any potential liability for related personal injury or property damage claims. These amounts are recorded in accrued expenses and other current liabilities. During fiscal year 2014, we recorded a benefit of $2.3 million for cost reimbursements related to a particular site, of which $1.2 million was for future monitoring and mitigation activities. 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. Our environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on our consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
We may become subject to new or unforeseen environmental costs or liabilities. Compliance with new or more stringent laws or regulations, stricter interpretations of existing laws, or the discovery of new contamination could cause us to incur additional costs.
Employees
As of December 28, 2014, we employed approximately 7,700 employees in our continuing operations. Several of our subsidiaries are parties to contracts with labor unions and workers’ councils. As of December 28, 2014, we estimate that we employed an aggregate of approximately 1,500 union and workers’ council employees. We consider our relations with employees to be satisfactory.
Financial Information About Business 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 operating segments.
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The table below sets forth revenue and operating income (loss) from continuing operations by operating segment for the fiscal years ended:
December 28, 2014 | December 29, 2013 | December 30, 2012 | |||||||||
(In thousands) | |||||||||||
Human Health | |||||||||||
Product revenue | $ | 996,767 | $ | 957,022 | $ | 926,733 | |||||
Service revenue | 246,635 | 244,088 | 237,892 | ||||||||
Total revenue | 1,243,402 | 1,201,110 | 1,164,625 | ||||||||
Operating income from continuing operations(1) | 220,165 | 156,452 | 63,773 | ||||||||
Environmental Health | |||||||||||
Product revenue | 543,308 | 541,048 | 547,941 | ||||||||
Service revenue | 450,509 | 415,428 | 392,622 | ||||||||
Total revenue | 993,817 | 956,476 | 940,563 | ||||||||
Operating income from continuing operations(1) | 109,129 | 97,052 | 111,844 | ||||||||
Corporate | |||||||||||
Operating loss from continuing operations(2)(3) | (118,552 | ) | (25,710 | ) | (72,497 | ) | |||||
Continuing Operations | |||||||||||
Product revenue | $ | 1,540,075 | $ | 1,498,070 | $ | 1,474,674 | |||||
Service revenue | 697,144 | 659,516 | 630,514 | ||||||||
Total revenue | 2,237,219 | 2,157,586 | 2,105,188 | ||||||||
Operating income from continuing operations | 210,742 | 227,794 | 103,120 | ||||||||
Interest and other expense, net | 41,139 | 64,110 | 47,956 | ||||||||
Income from continuing operations before income taxes | $ | 169,603 | $ | 163,684 | $ | 55,164 | |||||
____________________________
(1) | Pre-tax impairment charges have been included in our Human Health and Environmental Health operating income from continuing operations. We had no pre-tax impairment charges in fiscal year 2014. We recognized a $0.2 million pre-tax impairment charge in our Human Health segment in fiscal year 2013. We recognized $73.4 million of pre-tax impairment charges in our Human Health segment and also recognized $0.7 million of pre-tax impairment charges in our Environmental Health segment in fiscal year 2012. |
(2) | Activity related to the mark-to-market adjustment on postretirement benefit plans has been included in the Corporate operating loss from continuing operations, and in the aggregate constituted a pre-tax loss of $75.9 million in fiscal year 2014, pre-tax income of $17.6 million in fiscal year 2013, and a pre-tax loss of $31.8 million in fiscal year 2012. |
(3) | Includes expenses related to litigation with Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”). Enzo filed a complaint in 2002 alleging that we separately and together with other defendants breached distributorship and settlement agreements with Enzo, infringed Enzo's patents, engaged in unfair competition and fraud, and committed torts against Enzo by, among other things, engaging in commercial development and exploitation of Enzo's patented products and technology. We entered into a settlement agreement with Enzo dated June 20, 2014 and during fiscal year 2014 paid $7.0 million into a designated escrow account to resolve this matter, of which $3.7 million had been accrued in previous years and $3.3 million was recorded during fiscal year 2014. In addition, $3.4 million of expenses were incurred and recorded in preparation for the trial during fiscal year 2014. |
Additional information relating to our reporting segments is as follows for the fiscal years ended:
Depreciation and Amortization Expense | Capital Expenditures | ||||||||||||||||||||||
December 28, 2014 | December 29, 2013 | December 30, 2012 | December 28, 2014 | December 29, 2013 | December 30, 2012 | ||||||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||||||
Human Health | $ | 89,969 | $ | 98,582 | $ | 99,597 | $ | 15,201 | $ | 20,900 | $ | 24,518 | |||||||||||
Environmental Health | 24,736 | 25,915 | 23,001 | 12,149 | 16,532 | 14,488 | |||||||||||||||||
Corporate | 2,031 | 2,382 | 2,528 | 1,722 | 1,549 | 3,395 | |||||||||||||||||
Continuing operations | 116,736 | 126,879 | 125,126 | 29,072 | 38,981 | 42,401 | |||||||||||||||||
Discontinued operations | $ | 339 | $ | 1,590 | $ | 1,741 | $ | 213 | $ | 10 | $ | 7 | |||||||||||
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Total Assets | |||||||||||
December 28, 2014 | December 29, 2013 | December 30, 2012 | |||||||||
(In thousands) | |||||||||||
Human Health | $ | 2,645,411 | $ | 2,692,809 | $ | 2,700,565 | |||||
Environmental Health | 1,453,683 | 1,213,801 | 1,153,444 | ||||||||
Corporate | 34,981 | 34,271 | 33,952 | ||||||||
Net current and long-term assets of discontinued operations | — | 5,831 | 13,801 | ||||||||
Total assets | $ | 4,134,075 | $ | 3,946,712 | $ | 3,901,762 | |||||
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 2014, we had $1,387.9 million in sales from our international operations, representing approximately 60% of our total sales. During fiscal year 2014, we derived approximately 50% of our international sales from our Human Health segment and approximately 50% 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.
Item 1A. | Risk Factors |
The following important factors affect our business and operations generally or affect multiple segments of our business and operations:
If the markets into which we sell our products decline or do not grow as anticipated due to a decline in general economic conditions, or there are uncertainties surrounding the approval of government or industrial funding proposals, or there are unfavorable changes in government regulations, we may see an adverse effect on the results of our business operations.
Our customers include pharmaceutical and biotechnology companies, laboratories, academic and research institutions, public health authorities, private healthcare organizations, doctors and government agencies. Our quarterly revenue and results of operations are highly dependent on the volume and timing of orders received during the quarter. In addition, our revenues and earnings forecasts for future quarters are often based on the expected trends in our markets. However, the markets we serve do not always experience the trends that we may expect. Negative fluctuations in our customers’ markets, the inability of our customers to secure credit or funding, restrictions in capital expenditures, general economic conditions, cuts in government funding or unfavorable changes in government regulations would likely result in a reduction in demand for our products and services. In addition, government funding is subject to economic conditions and the political process, which is inherently fluid and unpredictable. Our revenues may be adversely affected if our customers delay or reduce purchases as a result of uncertainties surrounding the approval of government or industrial funding proposals. Such declines could harm our consolidated financial position, results of operations, cash flows and trading price of our common stock, and could limit our ability to sustain profitability.
Our growth is subject to global economic and political conditions, and operational disruptions at our facilities.
Our business is affected by global economic conditions and the state of the financial markets, particularly as the United States and other countries balance concerns around debt, inflation, growth and budget allocations in their policy initiatives. There can be no assurance that global economic conditions and financial markets will not worsen and that we will not experience any adverse effects that may be material to our consolidated cash flows, results of operations, financial position or our ability to access capital, such as the adverse effects resulting from a prolonged shutdown in government operations both in the United States and internationally. Our business is also affected by local economic environments, including inflation, recession, financial liquidity and currency volatility or devaluation. Political changes, some of which may be disruptive, could interfere with our supply chain, our customers and all of our activities in a particular location.
While we take precautions to prevent production or service interruptions at our global facilities, a major earthquake, fire, flood, power loss or other catastrophic event that results in the destruction or delay of any of our critical business operations
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could result in our incurring significant liability to customers or other third parties, cause significant reputational damage or have a material adverse effect on our business, operating results or financial condition.
Certain of these risks can be hedged to a limited degree using financial instruments, or other measures, and some of these risks are insurable, but any such mitigation efforts are costly and may not always be fully successful. Our ability to engage in such mitigation efforts has decreased or become even more costly as a result of recent market developments.
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions, and evolving customer needs and industry standards. Many of the businesses competing with us in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities, and established distribution channels to deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technology that does not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend upon several factors, including our ability to:
• | accurately anticipate customer needs, |
• | innovate and develop new technologies and applications, |
• | successfully commercialize new technologies in a timely manner, |
• | price our products competitively, and manufacture and deliver our products in sufficient volumes and on time, and |
• | differentiate our offerings from our competitors’ offerings. |
Many of our products are used by our customers to develop, test and manufacture their products. We must anticipate industry trends and consistently develop new products to meet our customers’ expectations. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenue. We may also suffer a loss in market share and potential revenue if we are unable to commercialize our technology in a timely and efficient manner.
In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications.
We may not be able to successfully execute acquisitions or license technologies, integrate acquired businesses or licensed technologies into our existing businesses, make acquired businesses or licensed technologies profitable, or successfully divest businesses.
We have in the past supplemented, and may in the future supplement, our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our acquisition of Perten in the fourth quarter of fiscal year 2014. However, we may be unable to identify or complete promising acquisitions or license transactions for many reasons, such as:
• | competition among buyers and licensees, |
• | the high valuations of businesses and technologies, |
• | the need for regulatory and other approval, and |
• | our inability to raise capital to fund these acquisitions. |
Some of the businesses we acquire may be unprofitable or marginally profitable, or may increase the variability of our revenue recognition. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we would have to improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations, such as incompatible management, information or other systems, cultural differences, loss of key personnel, unforeseen regulatory requirements, previously undisclosed liabilities or difficulties in predicting financial results. Additionally, if we are not successful in selling businesses we seek to divest, the activity of such businesses may dilute our earnings and we may not be able to achieve the expected benefits of such divestitures. As a result, our financial results may differ from our forecasts or the expectations of the investment community in a given quarter or over the long term.
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To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us. We may also incur expenses related to completing acquisitions or licensing technologies, or in evaluating potential acquisitions or technologies, which may adversely impact our profitability.
We may not be successful in adequately protecting our intellectual property.
Patent and trade secret protection is important to us because developing new products, processes and technologies gives us a competitive advantage, although it is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents. Patent applications we file, however, may not result in issued patents or, if they do, the claims allowed in the patents may be narrower than what is needed to protect fully our products, processes and technologies. The expiration of our previously issued patents may cause us to lose a competitive advantage in certain of the products and services we provide. Similarly, applications to register our trademarks may not be granted in all countries in which they are filed. For our intellectual property that is protected by keeping it secret, such as trade secrets and know-how, we may not use adequate measures to protect this intellectual property.
Third parties may also challenge the validity of our issued patents, may circumvent or “design around” our patents and patent applications, or may claim that our products, processes or technologies infringe their patents. In addition, third parties may assert that our product names infringe their trademarks. We may incur significant expense in legal proceedings to protect our intellectual property against infringement by third parties or to defend against claims of infringement by third parties. Claims by third parties in pending or future lawsuits could result in awards of substantial damages against us or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or other countries.
If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage.
We may not be able to renew our existing licenses, or licenses we may obtain in the future, on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.
Our licenses typically subject us to various economic and commercialization obligations. If we fail to comply with these obligations, we could lose important rights under a license, such as the right to exclusivity in a market. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out of our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third-party could obtain a patent that curtails our freedom to operate under one or more licenses.
If we do not compete effectively, our business will be harmed.
We encounter aggressive competition from numerous competitors in many areas of our business. We may not be able to compete effectively with all of these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjust the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.
Our quarterly operating results could be subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate, which could increase the volatility of our stock price and potentially cause losses to our shareholders.
Given the nature of the markets in which we participate, we cannot reliably predict future revenue and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we may not be able to make those adjustments or make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed, due in part to our research and development and manufacturing costs. As a result, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:
• | demand for and market acceptance of our products, |
• | competitive pressures resulting in lower selling prices, |
• | changes in the level of economic activity in regions in which we do business, |
• | changes in general economic conditions or government funding, |
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• | settlements of income tax audits, |
• | expenses incurred in connection with claims related to environmental conditions at locations where we conduct or formerly conducted operations, |
• | differing tax laws and changes in those laws, or changes in the countries in which we are subject to taxation, |
• | changes in our effective tax rate, |
• | changes in industries, such as pharmaceutical and biomedical, |
• | changes in the portions of our revenue represented by our various products and customers, |
• | our ability to introduce new products, |
• | our competitors’ announcement or introduction of new products, services or technological innovations, |
• | costs of raw materials, energy or supplies, |
• | changes in healthcare or other reimbursement rates paid by government agencies and other third parties for certain of our products and services, |
• | our ability to realize the benefit of ongoing productivity initiatives, |
• | changes in the volume or timing of product orders, |
• | fluctuation in the expense related to the mark-to-market adjustment on postretirement benefit plans |
• | changes in our assumptions underlying future funding of pension obligations, and |
• | changes in assumptions used to determine contingent consideration in acquisitions. |
A significant disruption in third-party package delivery and import/export services, or significant increases in prices for those services, could interfere with our ability to ship products, increase our costs and lower our profitability.
We ship a significant portion of our products to our customers through independent package delivery and import/export companies, including UPS and Federal Express in the United States; TNT, UPS and DHL in Europe; and UPS in Asia. We also ship our products through other carriers, including national trucking firms, overnight carrier services and the United States Postal Service. If one or more of the package delivery or import/export providers experiences a significant disruption in services or institutes a significant price increase, we may have to seek alternative providers and the delivery of our products could be prevented or delayed. Such events could cause us to incur increased shipping costs that could not be passed on to our customers, negatively impacting our profitability and our relationships with certain of our customers.
Disruptions in the supply of raw materials, certain key components and other goods from our limited or single source suppliers could have an adverse effect on the results of our business operations, and could damage our relationships with customers.
The production of our products requires a wide variety of raw materials, key components and other goods that are generally available from alternate sources of supply. However, certain critical raw materials, key components and other goods required for the production and sale of some of our principal products are available from limited or single sources of supply. We generally have multi-year contracts with no minimum purchase requirements with these suppliers, but those contracts may not fully protect us from a failure by certain suppliers to supply critical materials or from the delays inherent in being required to change suppliers and, in some cases, validate new raw materials. Such raw materials, key components and other goods can usually be obtained from alternative sources with the potential for an increase in price, decline in quality or delay in delivery. A prolonged inability to obtain certain raw materials, key components or other goods is possible and could have an adverse effect on our business operations, and could damage our relationships with customers.
We are subject to the rules of the Securities and Exchange Commission requiring disclosure as to whether certain materials known as conflict minerals (tantalum, tin, gold, tungsten and their derivatives), which may be contained in our products are mined from the Democratic Republic of the Congo and adjoining countries. As a result of these rules, we may incur additional costs in complying with the disclosure requirements and in satisfying those customers who require that the components used in our products be certified as conflict-free, and the potential lack of availability of these materials at competitive prices could increase our production costs.
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The manufacture and sale of products and services may expose us to product liability claims for which we could have substantial liability.
We face an inherent business risk of exposure to product liability claims if our products, services or product candidates are alleged or found to have caused injury, damage or loss. We may in the future be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms of any insurance policy that we can obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies in the United States and abroad, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil, criminal or monetary penalties.
Our operations are subject to regulation by different state and federal government agencies in the United States and other countries, as well as to the standards established by international standards bodies. If we fail to comply with those regulations or standards, we could be subject to fines, penalties, criminal prosecution or other sanctions. Some of the products produced by our Human Health segment are subject to regulation by the United States Food and Drug Administration and similar foreign and domestic agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with those regulations or standards, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution.
We are also subject to a variety of laws, regulations and standards that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of toxic or hazardous substances, and our business practices in the United States and abroad such as anti-bribery, anti-corruption and competition laws. This requires that we devote substantial resources to maintaining our compliance with those laws, regulations and standards. A failure to do so could result in the imposition of civil, criminal or monetary penalties having a material adverse effect on our operations.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The healthcare industry is highly regulated and if we fail to comply with its extensive system of laws and regulations, we could suffer fines and penalties or be required to make significant changes to our operations which could have a significant adverse effect on the results of our business operations.
The healthcare industry, including the genetic screening market, is subject to extensive and frequently changing international and United States federal, state and local laws and regulations. In addition, legislative provisions relating to healthcare fraud and abuse, patient privacy violations and misconduct involving government insurance programs provide federal enforcement personnel with substantial powers and remedies to pursue suspected violations. We believe that our business will continue to be subject to increasing regulation as the federal government continues to strengthen its position on healthcare matters, the scope and effect of which we cannot predict. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal damages, fines and penalties, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur liabilities from third-party claims, all of which could have a significant adverse effect on our business.
Economic, political and other risks associated with foreign operations could adversely affect our international sales and profitability.
Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented the majority of our total revenue in fiscal year 2014. We anticipate that sales from international operations will continue to represent a substantial portion of our total revenue. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results of operations could be harmed by a variety of factors, including:
• | changes in foreign currency exchange rates, |
• | changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets, |
• | longer payment cycles of foreign customers and timing of collections in foreign jurisdictions, |
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• | embargoes, trade protection measures and import or export licensing requirements, |
• | policies in foreign countries benefiting domestic manufacturers or other policies detrimental to companies headquartered in the United States, |
• | differing tax laws and changes in those laws, or changes in the countries in which we are subject to tax, |
• | adverse income tax audit settlements or loss of previously negotiated tax incentives, |
• | differing business practices associated with foreign operations, |
• | difficulty in transferring cash between international operations and the United States, |
• | difficulty in staffing and managing widespread operations, |
• | differing labor laws and changes in those laws, |
• | differing protection of intellectual property and changes in that protection, |
• | increasing global enforcement of anti-bribery and anti-corruption laws, and |
• | differing regulatory requirements and changes in those requirements. |
If we do not retain our key personnel, our ability to execute our business strategy will be limited.
Our success depends to a significant extent upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers and scientists, and on our ability to continue to attract, retain, and motivate qualified personnel. The competition for these employees is intense. The loss of the services of key personnel could have a material adverse effect on our operating results. In addition, there could be a material adverse effect on us should the turnover rates for key personnel increase significantly or if we are unable to continue to attract qualified personnel. We do not maintain any key person life insurance policies on any of our officers or employees.
Our success also depends on our ability to execute leadership succession plans. The inability to successfully transition key management roles could have a material adverse effect on our operating results.
If we experience a significant disruption in, or breach in security of, our information technology systems, or if we fail to implement new systems, software and technologies successfully, our business could be adversely affected.
We rely on several centralized information technology systems throughout our company to develop, manufacture and provide products and services, keep financial records, process orders, manage inventory, process shipments to customers and operate other critical functions. Our information technology systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophes or other unforeseen events. If we were to experience a prolonged system disruption in the information technology systems that involve our interactions with customers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. In addition, security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in our suffering significant financial or reputational damage.
We have a substantial amount of outstanding debt, which could impact our ability to obtain future financing and limit our ability to make other expenditures in the conduct of our business.
Our debt level and related debt service obligations could have negative consequences, including:
• | requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes, such as acquisitions and stock repurchases; |
• | reducing our flexibility in planning for or reacting to changes in our business and market conditions; and |
• | exposing us to interest rate risk since a portion of our debt obligations are at variable rates. |
In addition, we may incur additional indebtedness in the future to meet future financing needs. If we add new debt, the risks described above could increase.
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Restrictions in our senior unsecured revolving credit facility and other debt instruments may limit our activities.
Our senior unsecured revolving credit facility and our 5% senior unsecured notes due in 2021 (the "2021 Notes") include restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company. These include restrictions on our ability and the ability of our subsidiaries to:
• | pay dividends on, redeem or repurchase our capital stock, |
• | sell assets, |
• | incur obligations that restrict our subsidiaries’ ability to make dividend or other payments to us, |
• | guarantee or secure indebtedness, |
• | enter into transactions with affiliates, and |
• | consolidate, merge or transfer all, or substantially all, of our assets and the assets of our subsidiaries on a consolidated basis. |
We are also required to meet specified financial ratios under the terms of certain of our existing debt instruments. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control, such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition. In addition, if we are unable to maintain our investment grade credit rating, our borrowing costs would increase and we would be subject to different and potentially more restrictive financial covenants under some of our existing debt instruments.
Any future indebtedness that we incur may include similar or more restrictive covenants. Our failure to comply with any of the restrictions in our senior unsecured revolving credit facility, our 2021 Notes or any future indebtedness may result in an event of default under those debt instruments, which could permit acceleration of the debt under those debt instruments, and require us to prepay that debt before its scheduled due date under certain circumstances.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.
As of December 28, 2014, our total assets included $2.8 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights, customer relationships, core technology and technology licenses, net of accumulated amortization. We test certain of these items—specifically all of those that are considered “non-amortizing”—at least annually for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned. All of our amortizing intangible assets are also evaluated for impairment should events occur that call into question the value of the intangible assets.
Adverse changes in our business, adverse changes in the assumptions used to determine the fair value of our reporting units, or the failure to grow our Human Health and Environmental Health segments may result in impairment of our intangible assets, which could adversely affect our results of operations.
Our share price will fluctuate.
Over the last several years, stock markets in general and our common stock in particular have experienced significant price and volume volatility. Both the market price and the daily trading volume of our common stock may continue to be subject to significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our common stock may be affected by:
• | operating results that vary from our financial guidance or the expectations of securities analysts and investors, |
• | the financial performance of the major end markets that we target, |
• | the operating and securities price performance of companies that investors consider to be comparable to us, |
• | announcements of strategic developments, acquisitions and other material events by us or our competitors, and |
• | changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, commodity and equity prices and the value of financial assets. |
Dividends on our common stock could be reduced or eliminated in the future.
On October 23, 2014, we announced that our Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2014 that will be payable in February 2015. On January 23, 2015, we announced that our Board had
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declared a quarterly dividend of $0.07 per share for the first quarter of fiscal year 2015 that will be payable in May 2015. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
Item 1B. | Unresolved Staff Comments |
Not applicable.
Item 2. | Properties |
As of December 28, 2014, our continuing operations occupied 2,440,435 square feet in over 124 locations. We own 267,770 square feet of this space, and lease the balance. We conduct our operations in manufacturing and assembly plants, research laboratories, administrative offices and other facilities located in 14 states and 36 foreign countries.
Facilities outside of the United States account for approximately 1,452,030 square feet of our owned and leased property, or approximately 60% of our total occupied space.
Our real property leases are both short-term and long-term. We believe that our properties are well-maintained and are adequate for our present requirements.
The following table indicates, as of December 28, 2014, the approximate square footage of real property owned and leased attributable to the continuing operations of our reporting segments:
Owned | Leased | Total | ||||||
(In square feet) | ||||||||
Human Health | 254,789 | 1,127,617 | 1,382,406 | |||||
Environmental Health | 12,981 | 987,073 | 1,000,054 | |||||
Corporate offices | — | 57,975 | 57,975 | |||||
Continuing operations | 267,770 | 2,172,665 | 2,440,435 | |||||
Item 3. | Legal Proceedings |
We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in the opinion of our management, based on its review of the information available at this time, the total cost of resolving these contingencies at December 28, 2014 should not have a material adverse effect on our consolidated financial statements included in this annual report on Form 10-K. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us.
Item 4. | Mine Safety Disclosures |
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are our executive officers as of February 24, 2015. No family relationship exists between any one of these officers and any of the other executive officers or directors.
Name | Position | Age | ||
Robert F. Friel | Chairman, Chief Executive Officer and President | 59 | ||
Frank A. Wilson | Senior Vice President and Chief Financial Officer | 56 | ||
Joel S. Goldberg | Senior Vice President, Administration, General Counsel and Secretary | 46 | ||
John R. Letcher | Senior Vice President, Human Resources | 53 | ||
James Corbett | Senior Vice President and President, Human Health | 52 | ||
Jon DiVincenzo | Senior Vice President and President, Environmental Health | 49 | ||
Andrew Okun | Vice President and Chief Accounting Officer | 45 | ||
Robert F. Friel, 59. Mr. Friel currently serves as our Chairman, Chief Executive Officer and President. Prior to being appointed President and Chief Executive Officer in February 2008 and Chairman in April 2009, Mr. Friel had served as President and Chief Operating Officer since August 2007, and as Vice Chairman and President of our Life and Analytical Sciences unit since January 2006. Mr. Friel was our Executive Vice President and Chief Financial Officer, with responsibility for business development and information technology in addition to his oversight of the finance functions, from October 2004 until January 2006. Mr. Friel joined PerkinElmer in February 1999 as our Senior Vice President and Chief Financial Officer. Prior to joining PerkinElmer, he held several senior management positions with AlliedSignal, Inc., now Honeywell International. He received a Bachelor of Arts degree in economics from Lafayette College and a Master of Science degree in taxation from Fairleigh Dickinson University. Mr. Friel is currently a director of CareFusion Corporation and Xylem Inc. He also previously served on the national board of trustees for the March of Dimes Foundation.
Frank A. Wilson, 56. Mr. Wilson joined us in May 2009 as our Senior Vice President and Chief Financial Officer. Prior to joining us, Mr. Wilson held key financial and business management roles over 12 years at the Danaher Corporation, including Corporate Vice President of Investor Relations; Group Vice President of Business Development; Group Vice President of Finance for Danaher Motion Group; President of Gems Sensors; and Group Vice President of Finance for the Industrial Controls Group. Previously, Mr. Wilson worked for several years at AlliedSignal Inc., now Honeywell International, where he last served as Vice President of Finance and Chief Financial Officer for Commercial Aviations Systems. His earlier experience includes PepsiCo Inc. in financial and controllership positions of increasing responsibility, E.F. Hutton and Company, and KPMG Peat Marwick. Mr. Wilson received a Bachelor’s degree in business administration from Baylor University and is also a Certified Public Accountant.
Joel S. Goldberg, 46. Mr. Goldberg joined us as our Senior Vice President, General Counsel and Secretary in July 2008. Prior to joining us, Mr. Goldberg spent seven years at Millennium Pharmaceuticals, Inc., where he most recently served as Vice President, Chief Compliance Officer and Secretary. During his seven years with Millennium, he focused in the areas of mergers and acquisitions, strategic alliances, investment and financing transactions, securities and healthcare related compliance, and employment law. Previously, he was an associate of the law firm Edwards & Angell, LLP. Mr. Goldberg graduated from the Northeastern University School of Law and also holds a Master of Business Administration from Northeastern University. He completed his undergraduate degree at the University of Wisconsin-Madison.
John R. Letcher, 53. Mr. Letcher is our Senior Vice President of Human Resources. He joined us in 1999 as our Vice President of Human Resources for the Optoelectronics business unit and in 2003 was named Vice President of Human Resources for the Life and Analytical Sciences business unit. In 2008, Mr. Letcher was named Vice President of Human Resources for PerkinElmer, Inc. He was named Senior Vice President of Human Resources in January 2010. Previously, he served as Director of Human Resources of ABB Americas, Inc., the United States subsidiary of an international engineering company. Prior to that, Mr. Letcher held the positions of Business Controller in ABB Americas, Inc.’s United States Power Generation Gas Turbine Power business; Vice President of Finance for General Ship Corporation and Senior Auditor for Arthur Andersen. Mr. Letcher holds a Bachelor of Science degree in accounting and information technology from Boston College.
James Corbett, 52. Mr. Corbett was appointed President of our Human Health business in March 2014 and has been a Senior Vice President and officer of PerkinElmer since February 2012. Mr. Corbett was appointed President of the Diagnostics business in May 2010 and was appointed President of the Life Sciences and Technology business in May 2013. Mr. Corbett joined the Company in October of 2007 through our acquisition of ViaCord, where he served as President. Prior to joining ViaCord, he co-founded CADx Systems, a company focused on the oncology market, where he held the position of Executive
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Vice President and Director with responsibility for worldwide sales and marketing, technical support and business development. Following the 2004 acquisition of CADx by iCAD, Inc., he was named Chief Commercial Officer. In addition, Mr. Corbett worked for Abbott Laboratories for 14 years in a variety of sales and marketing positions including Worldwide Marketing Manager for Abbott Diagnostics Immunoassay Systems and Region Manager for Abbott Diagnostics. Mr. Corbett holds a Bachelor of Science degree in business from the University of Massachusetts. Mr. Corbett also serves on the national board of trustees for the March of Dimes Foundation.
Jon DiVincenzo, 49. Mr. DiVincenzo was appointed Senior Vice President and President of our Environmental Health business in November 2013. Prior to joining us, Mr. DiVincenzo served as the President and Chief Executive Officer of Enzymatics, now a part of Qiagen, a provider of molecular biology reagents, from 2012 to 2013. He previously worked at Millipore for 18 years, where he last served as President of the Bioscience division and also led the company's Lab Water business. Mr. DiVincenzo holds a Bachelor of Science in mechanical engineering from Northeastern University where he currently serves on the College of Engineering's Advisory Council. He is also a member of the Corporate Executive Board for Innovation and member of the Board of Directors of the Analytical Life Sciences and Diagnostics Association.
Andrew Okun, 45. Mr. Okun serves as our Vice President and Chief Accounting Officer, a position in which he has served since April 2011. Mr. Okun joined us in 2001 and has served in financial and controllership positions of increasing responsibility, including Director of Finance for the Optoelectronics business from 2001 through 2005, Vice President of Finance from 2005 through 2009 and Vice President and Corporate Controller from 2009 through 2011. Prior to joining us, Mr. Okun most recently worked for Honeywell International as a Site Controller as well as for Coopers & Lybrand. Mr. Okun is a Certified Public Accountant and earned his Master of Business Administration from the University of Virginia. He completed his undergraduate degree at the University of Santa Barbara.
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PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Price of Common Stock
Our common stock is listed and traded on the New York Stock Exchange. The following table sets forth the high and low per share closing sale prices for our common stock on that exchange for each quarter in fiscal years 2014 and 2013.
2014 Fiscal Quarters | |||||||||||||||
First | Second | Third | Fourth | ||||||||||||
High | $46.21 | $47.52 | $48.25 | $45.76 | |||||||||||
Low | 40.94 | 41.97 | 43.51 | 39.83 | |||||||||||
2013 Fiscal Quarters | |||||||||||||||
First | Second | Third | Fourth | ||||||||||||
High | $35.86 | $34.95 | $38.63 | $41.18 | |||||||||||
Low | 31.74 | 30.35 | 32.39 | 36.33 | |||||||||||
As of February 19, 2015, we had approximately 4,529 holders of record of our common stock.
Stock Repurchase Program
The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated.
Issuer Repurchases of Equity Securities | |||||||||||
Period | Total Number of Shares Purchased(1)(2) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||
September 29, 2014—October 26, 2014 | 98 | 40.40 | — | 8,000,000 | |||||||
October 27, 2014—November 23, 2014 | 600,343 | 44.15 | 600,000 | 7,400,000 | |||||||
November 24, 2014—December 28, 2014 | 54 | 40.95 | — | 7,400,000 | |||||||
Activity for quarter ended December 28, 2014 | 600,495 | 44.15 | 600,000 | 7,400,000 | |||||||
____________________________
(1) | 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 expired on October 24, 2014. On October 23, 2014, our Board authorized us to repurchase up to 8.0 million shares of common stock under a new stock repurchase program (the "New Repurchase Program"). The New Repurchase Program will expire on October 23, 2016 unless terminated earlier by our Board, and may be suspended or discontinued at any time. During the fourth quarter of fiscal year 2014, we repurchased 0.6 million shares of common stock in the open market at an aggregate cost of $26.5 million, including commissions, under the New Repurchase Program. As of December 28, 2014, approximately 7.4 million shares authorized by our Board under the New Repurchase Program remained available for repurchase. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value. |
(2) | Our Board has authorized us to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to our equity incentive plans. During the fourth quarter of fiscal year 2014, we repurchased 495 shares of common stock for this purpose. 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. |
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Dividends
During fiscal years 2014 and 2013, we declared regular quarterly cash dividends on our common stock. The table below sets forth the cash dividends per share that we declared on our common stock during each of those fiscal years, by quarter.
2014 Fiscal Quarters | 2014 Total | ||||||||||||||||||
First | Second | Third | Fourth | ||||||||||||||||
Cash dividends declared per common share | $ | 0.07 | $ | 0.07 | $ | 0.07 | $ | 0.07 | $ | 0.28 | |||||||||
2013 Fiscal Quarters | 2013 Total | ||||||||||||||||||
First | Second | Third | Fourth | ||||||||||||||||
Cash dividends declared per common share | $ | 0.07 | $ | 0.07 | $ | 0.07 | $ | 0.07 | $ | 0.28 | |||||||||
While it is our current intention to pay regular quarterly cash dividends, any decision to pay future cash dividends will be made by our Board and will depend on our earnings, financial condition and other factors. Our Board may reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources. For further information related to our stockholders’ equity, see Note 19 to our consolidated financial statements included in this annual report on Form 10-K.
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Stock Performance Graph
Set forth below is a line graph comparing the cumulative total shareholder return on our common stock against the cumulative total return of the S&P Composite-500 Index and a Peer Group Index for the five fiscal years from January 3, 2010 to December 28, 2014. Our Peer Group Index consists of Affymetrix, Inc., Agilent Technologies Inc., Thermo Fisher Scientific Inc., and Waters Corporation. The peer group is the same as the peer group used in the stock performance graph in our Annual Report on Form 10-K for fiscal year ended December 29, 2014, except that it does not include Life Technologies Corporation, which has been excluded due to its acquisition by Thermo Fisher Scientific Inc.
Comparison of Five-Year Cumulative Total Return
PerkinElmer, Inc. Common Stock, S&P Composite-500 and
Peer Group Index
TOTAL RETURN TO SHAREHOLDERS
(Includes reinvestment of dividends)
03-Jan-10 | 02-Jan-11 | 01-Jan-12 | 30-Dec-12 | 29-Dec-13 | 28-Dec-14 | ||||||||||||||||||
PerkinElmer, Inc. | $ | 100.00 | $ | 127.04 | $ | 99.57 | $ | 156.15 | $ | 208.92 | $ | 225.03 | |||||||||||
S&P 500 Index | $ | 100.00 | $ | 115.06 | $ | 117.49 | $ | 136.30 | $ | 180.44 | $ | 205.14 | |||||||||||
Peer Group | $ | 100.00 | $ | 122.35 | $ | 103.41 | $ | 131.71 | $ | 206.88 | $ | 231.54 | |||||||||||
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Item 6. | Selected Financial Data |
The following table sets forth selected historical financial information as of and for each of the fiscal years in the five-year period ended December 28, 2014. We derived the selected historical financial information for the balance sheets for the fiscal years ended December 28, 2014 and December 29, 2013 and the statement of operations for each of the fiscal years in the three-year period ended December 28, 2014 from our audited consolidated financial statements which are included elsewhere in this annual report on Form 10-K. We derived the selected historical financial information for the statements of operations for the fiscal years ended January 1, 2012 and January 2, 2011 from our audited consolidated financial statements which are not included in this annual report on Form 10-K. We derived the selected historical financial information for the balance sheets as of December 30, 2012, January 1, 2012 and January 2, 2011 from our audited consolidated financial statements which are not included in this annual report on Form 10-K. We adjusted the information in the consolidated financial statements, where appropriate, to account for the adoption of new guidance applicable to certain of our health care businesses, our change in accounting for pension and other postretirement benefit plans and for discontinued operations.
Our historical financial information may not be indicative of our future results of operations or financial position.
The following selected historical financial information should be read together with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the related notes, included elsewhere in this annual report on Form 10-K.
Fiscal Years Ended | |||||||||||||||||||
December 28, 2014 | December 29, 2013 | December 30, 2012 | January 1, 2012 | January 2, 2011 | |||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||
Revenue | $ | 2,237,219 | $ | 2,157,586 | $ | 2,105,188 | $ | 1,906,190 | $ | 1,692,643 | |||||||||
Operating income from continuing operations(1)(2)(3)(4) | 210,742 | 227,794 | 103,120 | 94,777 | 159,488 | ||||||||||||||
Interest and other expense (income), net(5)(6) | 41,139 | 64,110 | 47,956 | 26,774 | (8,383 | ) | |||||||||||||
Income from continuing operations before income taxes | 169,603 | 163,684 | 55,164 | 68,003 | 167,871 | ||||||||||||||
Income from continuing operations, net of income taxes(7)(8)(9)(10)(11) | 161,166 | 174,267 | 71,289 | 3,383 | 140,071 | ||||||||||||||
(Loss) income from discontinued operations and dispositions, net of income taxes(12)(13) | (3,388 | ) | (7,055 | ) | (1,349 | ) | 4,272 | 250,912 | |||||||||||
Net income | $ | 157,778 | $ | 167,212 | $ | 69,940 | $ | 7,655 | $ | 390,983 | |||||||||
Basic earnings per share: | |||||||||||||||||||
Continuing operations | $ | 1.43 | $ | 1.55 | $ | 0.63 | $ | 0.03 | $ | 1.20 | |||||||||
Discontinued operations | (0.03 | ) | (0.06 | ) | (0.01 | ) | 0.04 | 2.14 | |||||||||||
Net income | $ | 1.40 | $ | 1.49 | $ | 0.61 | $ | 0.07 | $ | 3.34 | |||||||||
Diluted earnings per share: | |||||||||||||||||||
Continuing operations | $ | 1.42 | $ | 1.54 | $ | 0.62 | $ | 0.03 | $ | 1.19 | |||||||||
Discontinued operations | (0.03 | ) | (0.06 | ) | (0.01 | ) | 0.04 | 2.13 | |||||||||||
Net income | $ | 1.39 | $ | 1.47 | $ | 0.61 | $ | 0.07 | $ | 3.31 | |||||||||
Weighted-average common shares outstanding: | |||||||||||||||||||
Basic: | 112,593 | 112,254 | 113,728 | 112,976 | 117,109 | ||||||||||||||
Diluted: | 113,739 | 113,503 | 114,860 | 113,864 | 117,982 | ||||||||||||||
Cash dividends declared per common share | $ | 0.28 | $ | 0.28 | $ | 0.28 | $ | 0.28 | $ | 0.28 | |||||||||
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As of | |||||||||||||||||||
December 28, 2014 | December 29, 2013 | December 30, 2012 | January 1, 2012 | January 2, 2011 | |||||||||||||||
(In thousands) | |||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||
Total assets(12)(13) | $ | 4,134,075 | $ | 3,946,712 | $ | 3,901,762 | $ | 3,855,641 | $ | 3,208,946 | |||||||||
Short-term debt | 1,075 | 2,624 | 1,772 | — | 2,255 | ||||||||||||||
Long-term debt(5)(14) | 1,051,892 | 932,104 | 938,824 | 944,908 | 424,000 | ||||||||||||||
Stockholders’ equity(1)(15) | 2,042,102 | 1,994,487 | 1,939,812 | 1,842,216 | 1,925,391 | ||||||||||||||
Common shares outstanding(15) | 112,481 | 112,626 | 115,036 | 113,157 | 115,715 | ||||||||||||||
(1) | Activity related to the mark-to-market adjustment on postretirement benefit plans was a pre-tax loss of $75.9 million in fiscal year 2014, pre-tax income of $17.6 million in fiscal year 2013, a pre-tax loss of $31.8 million in fiscal year 2012, a pre-tax loss of $67.9 million in fiscal year 2011 and a pre-tax loss of $0.2 million in fiscal year 2010. |
(2) | We recorded pre-tax restructuring and contract termination charges, net, of $13.4 million in fiscal year 2014, $33.9 million in fiscal year 2013, $25.1 million in fiscal year 2012, $13.4 million in fiscal year 2011 and $18.6 million in fiscal year 2010. |
(3) | On April 27, 2010 we sold a building which provided net proceeds of $11.0 million. We recorded a pre-tax gain of $3.4 million in operating income. |
(4) | In fiscal year 2013, we recorded pre-tax impairment charges of $0.2 million as the carrying amounts of certain long-lived assets were not recoverable and exceeded their fair value. In fiscal year 2012, we recorded pre-tax impairment charges of $74.2 million as a result of a review of certain of our trade names within our portfolio as part of a realignment of our marketing strategy. In fiscal year 2011, we recorded a pre-tax impairment charge of $3.0 million for the full impairment of license agreements that we no longer intend to use. |
(5) | In fiscal years 2014, 2013, 2012 and 2011, interest expense was $36.3 million, $49.9 million, $45.8 million and $24.8 million, respectively, with higher interest expense in fiscal years 2013 and 2012 due primarily to increased debt and the higher interest rates on those debt balances with the issuance in fiscal year 2011 of the senior unsecured notes due in 2021. In fiscal year 2013, we redeemed all of our 6% senior unsecured notes due in 2015 (the “2015 Notes”) that included a prepayment premium of $11.1 million, which is included in other expense, net, the write-off of $2.8 million for the remaining unamortized derivative losses for previously settled cash flow hedges, which is included in interest expense, and the write-off of $0.2 million for the remaining deferred debt issuance costs, which is included in interest expense. In fiscal year 2014, interest expense was lower due to lower debt outstanding throughout fiscal year 2014 and an increased mix of variable rate debt with lower interest rates due to the redemption of the 2015 Notes. For fiscal year 2011, acquisition related financing costs added an additional expense of $3.1 million, and is included in interest expense. |
(6) | In fiscal year 2010, we acquired the remaining fifty percent equity interest in our joint venture (the "ICPMS Joint Venture") with the company previously known as MDS, Inc. for the development and manufacturing of our Inductively Coupled Plasma Mass Spectrometry product line. The fair value of the acquisition was $67.7 million, including cash consideration of $35.0 million, non-cash consideration of $2.6 million for certain non-exclusive rights to intangible assets we own, and $30.4 million representing the fair value of our fifty percent equity interest in the ICPMS Joint Venture held prior to the acquisition. We recognized a pre-tax gain of $25.6 million from the re-measurement to fair value of our previously held equity interest in the ICPMS Joint Venture. This pre-tax gain is reported in interest and other expense (income), net, for fiscal year 2010. |
(7) | The fiscal year 2014 effective tax rate on continuing operations of 5.0% was primarily due to income in lower tax rate jurisdictions, partially offset by losses in higher tax rate jurisdictions and a tax benefit of $7.0 million related to discrete items. |
(8) | The benefit from income taxes in fiscal year 2013 was primarily due to a tax benefit of $24.0 million related to discrete items and losses in higher tax rate jurisdictions, offset by a provision from income taxes related to profits in lower tax rate jurisdictions. |
(9) | The benefit from income taxes in fiscal year 2012 was primarily due to a tax benefit of $7.0 million related to discrete items and losses in higher tax rate jurisdictions, which included pre-tax impairment charges of $74.2 million, partially offset by a provision from income taxes related to profits in lower tax rate jurisdictions. |
(10) | The fiscal year 2011 effective tax rate on continuing operations of 95.0% was primarily due to the fiscal year 2011 provision of $79.7 million related to our planned $350.0 million repatriation of previously unremitted earnings. |
(11) | The fiscal year 2010 effective tax rate on continuing operations of 16.6% was primarily due to the favorable impact related to the gain on the previously held equity interest in the ICPMS Joint Venture. |
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(12) | In May 2014, we approved the shutdown of our microarray-based diagnostic testing laboratory in the United States. The shutdown resulted in a $0.1 million net pre-tax loss primarily related to the disposal of fixed assets, which was partially offset by the sale of a building in fiscal year 2014. |
(13) | In November 2010, we sold our Illumination and Detection Solutions (“IDS”) business for approximately $500.0 million, $482.0 million net of payments for acquired cash balances, subject to an adjustment for working capital as of the closing date. We recognized a pre-tax gain of $315.3 million, inclusive of the net working capital adjustment, in fiscal year 2010 as a result of the sale of our IDS business. The gain was recognized as a gain on the disposition of discontinued operations. |
(14) | In October 2011, we issued and sold ten-year senior notes at a rate of 5% with a face value of $500.0 million and received $496.9 million of net proceeds from the issuance. The debt, which matures in November 2021, is unsecured. |
(15) | In fiscal year 2014, we repurchased in the open market 1.4 million shares of our common stock at an aggregate cost of $61.3 million, including commissions under both the New Repurchase Program and the Repurchase Program. In fiscal year 2013, we repurchased in the open market approximately 3.6 million shares of our common stock at an aggregate cost of $123.0 million, including commissions under the Repurchase Program. In fiscal year 2012, we did not repurchase any shares of our common stock under any stock repurchase program. In fiscal year 2011, we repurchased in the open market approximately 4.0 million shares of our common stock at an aggregate cost of $107.8 million, including commissions. In fiscal year 2010, we repurchased in the open market approximately 3.0 million shares of our common stock at an aggregate cost of $71.5 million, including commissions. The repurchases made during fiscal years 2011 and 2010 were made pursuant to our stock repurchase program originally announced in October 2008 that expired in October 2012. 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. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This annual report on Form 10-K, including the following management’s discussion and analysis, contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this annual report on Form 10-K. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “plans,” “anticipates,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors above under the heading “Risk Factors” in Item 1A above that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Accounting Period
Our fiscal year ends on the Sunday nearest December 31. We report fiscal years under a 52/53 week format. Under this method, certain years will contain 53 weeks. Each of the fiscal years ended December 28, 2014, December 29, 2013 and December 30, 2012 included 52 weeks. The fiscal year ending January 3, 2016 will include 53 weeks. The extra week during fiscal year 2015 will be included in the third quarter.
Overview of Fiscal Year 2014
During fiscal year 2014, we continued to see good performance from acquisitions, investments in our ongoing technology and sales and marketing initiatives. Our overall revenue in fiscal year 2014 increased $79.6 million, or 4%, as compared to fiscal year 2013, reflecting an increase of $42.3 million, or 4%, in our Human Health segment revenue and an increase of $37.3 million, or 4%, in our Environmental Health segment revenue. The increase in our Human Health segment revenue during fiscal year 2014 was primarily due to growth in our diagnostics market from our newborn and prenatal screening and infectious disease testing solutions as well as from our medical imaging business' new wireless cassette detector. The increase in our Environmental Health segment revenue during fiscal year 2014 was primarily due to an increase in our services revenue, which included our OneSource multivendor service offerings within our laboratory service market.
In our Human Health segment during fiscal year 2014 as compared to fiscal year 2013, we experienced growth in our diagnostics business as birth rates increased and from continued expansion of our prenatal, newborn and infectious disease screening solutions in emerging markets such as China and Brazil, as well as from increased demand for our medical imaging business' new wireless cassette detector used in diagnostic imaging and veterinary applications. In the research market we experienced growth related to our informatics, radiometric detection, and high-content screening offerings, as well as our microfluidics technology licensing program. This growth in the research market was partially offset by declines in some products in our research market due to weakness in the global academic end market, specifically in Europe, as well as the expiration of certain patents in our licensing portfolio. As the rising cost of healthcare continues to be one of the critical issues facing our customers, we anticipate that the benefits of providing earlier detection of disease, which can result in savings of long-term health care costs as well as create better outcomes for patients, are increasingly valued and we expect to see continued growth in these markets.
In our Environmental Health segment, our laboratory services business offers services designed to enable our customers to increase efficiencies and production time, while reducing maintenance costs, all of which continue to be critical for our customers. During fiscal year 2014, we continued to experience growth in our laboratory services business, which included the addition of new customers to our OneSource multivendor service offering. These increases were partially offset by decreased demand across some of our products in the environmental and industrial markets, primarily in the Asian industrial end markets. We anticipate that the continued development of contaminant regulations and corresponding testing protocols will result in increased demand for efficient, analytically sensitive and information rich testing solutions.
Our consolidated gross margins decreased 34 basis points in fiscal year 2014, as compared to fiscal year 2013, due to unfavorable changes in product mix, with an increase in sales of lower gross margin product offerings, pricing pressure, a higher mark-to-market loss for our postretirement benefit plans in fiscal year 2014 as compared to fiscal year 2013, and negative impacts from foreign currency exchange rates. These items were partially offset by increased sales volume and cost containment and productivity initiatives. Our consolidated operating margin decreased 114 basis points in fiscal year 2014, as compared to fiscal year 2013, primarily due to a pre-tax loss of $75.9 million in fiscal year 2014 as compared to pre-tax income of $17.6 million in fiscal year 2013 for the mark-to-market adjustments for our postretirement plans and lower gross margins. These items were partially offset by increased sales volume, cost containment and productivity initiatives and lower restructuring charges.
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We believe we are well positioned to continue to take advantage of the spending trends in our end markets and to promote our efficiencies in markets where current conditions may increase demand for certain services. Overall, we believe that our strategic focus on Human Health and Environmental Health coupled with our breadth of end markets, deep portfolio of technologies and applications, leading market positions, global scale and financial strength will provide us with a foundation for growth.
Consolidated Results of Continuing Operations
Revenue
2014 Compared to 2013. Revenue for fiscal year 2014 was $2,237.2 million, as compared to $2,157.6 million for fiscal year 2013, an increase of $79.6 million, or 4%, which includes an approximate 1% increase in revenue attributable to acquisitions and an approximate 1% decrease in revenue attributable to changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2014 as compared to fiscal year 2013 and includes the effect of foreign exchange rate fluctuations and acquisitions. The total increase in revenue reflects a $42.3 million, or 4%, increase in our Human Health segment revenue, due to an increase in diagnostics market revenue of $39.8 million and an increase in research market revenue of $2.5 million. Our Environmental Health segment revenue increased $37.3 million, or 4%, due to an increase in laboratory services market revenue of $33.8 million and an increase in environmental and industrial markets revenue of $3.5 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $2.9 million of revenue primarily related to our informatics business in our Human Health segment for fiscal year 2014 and $7.3 million for fiscal year 2013 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
2013 Compared to 2012. Revenue for fiscal year 2013 was $2,157.6 million, as compared to $2,105.2 million for fiscal year 2012, an increase of $52.4 million, or 2%, which includes an approximate 1% increase in revenue attributable to acquisitions and an approximate 0.4% decrease in revenue attributable to changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2013 as compared to fiscal year 2012 and includes the effect of foreign exchange rate fluctuations and acquisitions. The total increase in revenue reflects a $36.5 million, or 3%, increase in our Human Health segment revenue, due to an increase in diagnostics market revenue of $22.8 million and an increase in research market revenue of $13.7 million. Our Environmental Health segment revenue for fiscal year 2013 as compared to fiscal year 2012 increased $15.9 million, or 2%, due to an increase in laboratory services market revenue of $23.2 million, partially offset by decreases in environmental and industrial markets revenue of $7.3 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $7.3 million of revenue primarily related to our informatics business in our Human Health segment for fiscal year 2013 and $26.2 million for fiscal year 2012 that otherwise would have been recorded by the acquired businesses during each of the respective periods.
Cost of Revenue
2014 Compared to 2013. Cost of revenue for fiscal year 2014 was $1,232.6 million, as compared to $1,181.4 million for fiscal year 2013, an increase of approximately $51.2 million, or 4%. As a percentage of revenue, cost of revenue increased to 55.1% in fiscal year 2014 from 54.8% in fiscal year 2013, resulting in a decrease in gross margin of approximately 34 basis points to 44.9% in fiscal year 2014 from 45.2% in fiscal year 2013. Amortization of intangible assets decreased and was $49.7 million for fiscal year 2014, as compared to $52.0 million for fiscal year 2013. The mark-to-market adjustment for postretirement benefit plans was a loss of $8.4 million for fiscal year 2014, as compared to a loss of $0.8 million for fiscal year 2013. Stock-based compensation expense was $1.5 million for fiscal year 2014, as compared to $1.3 million for fiscal year 2013. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $2.4 million for fiscal year 2014, as compared to $0.2 million for fiscal year 2013. Acquisition related costs for integration, contingent consideration and other costs added an incremental expense of $0.1 million for fiscal year 2014, as compared to $0.2 million for fiscal year 2013. In addition to the factors noted above, the decrease in gross margin was primarily the result of unfavorable changes in product mix, with an increase in sales of lower gross margin product offerings, pricing pressure, and negative impacts from foreign exchange rates. These items were partially offset by increased sales volume and cost containment and productivity initiatives.
2013 Compared to 2012. Cost of revenue for fiscal year 2013 was $1,181.4 million, as compared to $1,143.7 million for fiscal year 2012, an increase of approximately $37.8 million, or 3%. As a percentage of revenue, cost of revenue increased to 54.8% in fiscal year 2013 from 54.3% in fiscal year 2012, resulting in a decrease in gross margin of approximately 43 basis points to 45.2% in fiscal year 2013 from 45.7% in fiscal year 2012. Amortization of intangible assets increased and was $52.0 million for fiscal year 2013, as compared to $50.7 million for fiscal year 2012. The mark-to-market adjustment for postretirement benefit plans was a loss of $0.8 million for fiscal year 2013, as compared to $3.7 million for fiscal year 2012. Stock-based compensation expense was $1.3 million for both fiscal years 2013 and 2012. The amortization of purchase
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accounting adjustments to record the inventory from certain acquisitions was $0.2 million for fiscal year 2013, as compared to $5.2 million for fiscal year 2012. Acquisition related costs for integration, contingent consideration and other costs added an incremental expense of $0.2 million for fiscal year 2013. In addition to the factors noted above, the decrease in gross margin was primarily the result of pricing pressure and unfavorable changes in product mix with an increase in sales of lower gross margin product offerings, partially offset by productivity improvements.
Selling, General and Administrative Expenses
2014 Compared to 2013. Selling, general and administrative expenses for fiscal year 2014 were $659.3 million, as compared to $581.9 million for fiscal year 2013, an increase of approximately $77.4 million, or 13%. As a percentage of revenue, selling, general and administrative expenses increased and were 29.5% in fiscal year 2014, compared to 27.0% in fiscal year 2013. Amortization of intangible assets decreased and was $33.1 million for fiscal year 2014, as compared to $36.9 million for fiscal year 2013. The mark-to-market adjustment for postretirement benefit plans was a loss of $67.1 million for fiscal year 2014, as compared to income of $18.1 million for fiscal year 2013. Stock-based compensation expense increased and was $12.5 million for fiscal year 2014, as compared to $11.9 million for fiscal year 2013. During fiscal year 2014, we recorded a benefit of $2.3 million for cost reimbursements related to a particular site, of which $1.2 million was for future monitoring and mitigation activities, as compared to an expense of $4.6 million for environmental costs for fiscal year 2013. Acquisition related costs for integration, contingent consideration and other costs added an incremental expense of $0.4 million for fiscal year 2014 and $1.1 million for fiscal year 2013. In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to growth investments, particularly in emerging territories, partially offset by cost containment and productivity initiatives.
2013 Compared to 2012. Selling, general and administrative expenses for fiscal year 2013 were $581.9 million, as compared to $627.4 million for fiscal year 2012, a decrease of approximately $45.5 million, or 7%. As a percentage of revenue, selling, general and administrative expenses decreased and were 27.0% in fiscal year 2013, compared to 29.8% in fiscal year 2012. Amortization of intangible assets decreased and was $36.9 million for fiscal year 2013, as compared to $38.9 million for fiscal year 2012. The mark-to-market adjustment for postretirement benefit plans was income of $18.1 million for fiscal year 2013, as compared to a loss of $27.9 million for fiscal year 2012. Stock-based compensation expense decreased and was $11.9 million for fiscal year 2013, as compared to $18.6 million for fiscal year 2012. Environmental charges related to a particular site for increased monitoring and mitigation activities were $4.6 million during the fourth quarter of fiscal year 2013. Acquisition related costs for integration, contingent consideration and other costs added an incremental expense of $1.1 million for fiscal year 2013 and $0.3 million for fiscal year 2012. In addition to the factors noted above, the decrease in selling, general and administrative expenses was primarily the result of cost containment and productivity initiatives.
Research and Development Expenses
2014 Compared to 2013. Research and development expenses for fiscal year 2014 were $121.1 million, as compared to $132.4 million for fiscal year 2013, a decrease of $11.3 million, or 8.5%. As a percentage of revenue, research and development expenses decreased to 5.4% in fiscal year 2014, as compared to 6.1% in fiscal year 2013. Amortization of intangible assets increased and was $0.6 million for fiscal year 2014, as compared to $0.3 million for fiscal year 2013. The mark-to-market adjustment for postretirement benefit plans was a loss of $0.4 million for fiscal year 2014, as compared to income of $0.3 million for fiscal year 2013. Stock-based compensation expense decreased and was $0.5 million for fiscal year 2014, as compared to $0.9 million for fiscal year 2013. Acquisition related costs added an incremental expense of $0.2 million for fiscal year 2013. We have a broad product base, and we do not expect any single research and development project to have significant costs. In addition to the above items, the decrease in research and development expenses was primarily the result of the consolidation of research and development activities into our newly opened Center for Innovation. We directed research and development efforts similarly during fiscal years 2014 and 2013, primarily toward the diagnostics and research markets within our Human Health segment, and the environmental, industrial and laboratory services markets within our Environmental Health segment, in order to help accelerate our growth initiatives.
2013 Compared to 2012. Research and development expenses for fiscal year 2013 were $132.4 million, as compared to $131.8 million for fiscal year 2012, an increase of $0.6 million, or 0.4%. As a percentage of revenue, research and development expenses decreased to 6.1% in fiscal year 2013, as compared to 6.3% in fiscal year 2012. Amortization of intangible assets decreased and was $0.3 million for fiscal year 2013, as compared to $0.5 million for fiscal year 2012. The mark-to-market adjustment for postretirement benefit plans was income of $0.3 million for fiscal year 2013, as compared to a loss of $0.2 million for fiscal year 2012. Stock-based compensation expense increased and was $0.9 million for fiscal year 2013, as compared to $0.7 million for fiscal year 2012. Acquisition related costs added an incremental expense of $0.2 million for fiscal year 2013. We directed research and development efforts similarly during fiscal years 2013 and 2012, primarily toward the diagnostics and research markets within our Human Health segment, and the environmental, industrial and laboratory services markets within our Environmental Health segment, in order to help accelerate our growth initiatives.
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Restructuring and Contract Termination Charges, Net
We have undertaken a series of restructuring actions related to the impact of acquisitions and divestitures, the alignment of our operations with our growth strategy, the integration of our business units and productivity initiatives. Restructuring and contract termination charges for fiscal year 2014 were $13.4 million, as compared to $33.9 million for fiscal year 2013 and $25.1 million for fiscal year 2012.
We implemented a restructuring plan in the third quarter of fiscal year 2014 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q3 2014 Plan"). We implemented restructuring plans in the second and first quarters of fiscal year 2014, the first quarter of fiscal year 2013, and the fourth quarter of fiscal year 2012 consisting of workforce reductions principally intended to focus resources on higher growth end markets (the "Q2 2014 Plan", "Q1 2014 Plan", "Q1 2013 Plan" and "Q4 2012 Plan", respectively). We implemented restructuring plans in the fourth and third quarters of fiscal year 2013 consisting of workforce reductions and the closure of excess facility space principally intended to shift certain of our research and development resources into a newly opened Center for Innovation (the "Q4 2013 Plan" and "Q3 2013 Plan", respectively). We implemented restructuring plans in the second quarter of fiscal year 2013, and the third, second and first quarters of fiscal year 2012 consisting of workforce reductions and the closure of excess facility space principally intended to shift certain of our operations into a newly established shared service center, as well as realign operations, research and development resources, and production resources as a result of previous acquisitions (the "Q2 2013 Plan", "Q3 2012 Plan", "Q2 2012 Plan" and "Q1 2012 Plan", respectively). All other previous restructuring plans were workforce reductions or the closure of excess facility space principally intended to integrate our businesses in order to realign operations, reduce costs, achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with our growth strategy (the "Previous Plans"). We also have terminated various contractual commitments in connection with certain disposal activities and have recorded charges, to the extent applicable, for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us. We expect no significant impact on future operating results or cash flows from the restructuring activities executed in fiscal year 2014. We expect the impact of future cost savings on operating results and cash flows from the restructuring activities executed in fiscal year 2013 to exceed $9.0 million annually beginning in fiscal year 2015, primarily resulting in a decrease in research and development expenses.
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The following table summarizes the number of employees reduced, the initial restructuring and contract termination charges by operating segment, and the expected dates payments will be substantially completed for restructuring actions during fiscal years 2014, 2013, and 2012. We expect to make payments for the leases of our Previous Plans, of which the terms vary in length, through fiscal year 2022.
Workforce Reductions | Closure of Excess Facility or Contract Termination Charges | Total | (Expected) Date Payments Substantially Completed by | ||||||||||||||||||||||
Headcount Reduction | Human Health | Environmental Health | Human Health | Environmental Health | Severance | Excess Facility or Contract Termination | |||||||||||||||||||
(In thousands, except headcount data) | |||||||||||||||||||||||||
Q3 2014 Plan | 152 | $ | 6,863 | $ | 6,188 | $ | — | $ | — | $ | 13,051 | Q3 FY2015 | — | ||||||||||||
Q2 2014 Plan | 22 | 460 | 275 | — | — | 735 | Q2 FY2015 | — | |||||||||||||||||
Q1 2014 Plan | 17 | 370 | 197 | — | — | 567 | Q4 FY2014 | — | |||||||||||||||||
2014 Contract Termination Charges | N/A | N/A | N/A | — | 1,545 | 1,545 | N/A | Q4 FY2015 | |||||||||||||||||
Q4 2013 Plan | 73 | 902 | 3,006 | 7,271 | — | 11,179 | Q4 FY2014 | Q1 FY2019 | |||||||||||||||||
Q3 2013 Plan | 29 | 394 | — | 138 | — | 532 | Q1 FY2014 | Q4 FY2013 | |||||||||||||||||
Q2 2013 Plan(1) | 264 | 9,395 | 8,737 | 522 | 50 | 18,704 | Q4 FY2014 | Q3 FY2014 | |||||||||||||||||
Q1 2013 Plan | 62 | 2,340 | 245 | — | — | 2,585 | Q3 FY2013 | — | |||||||||||||||||
2013 Contract Termination Charges | N/A | N/A | N/A | — | 696 | 696 | N/A | Q4 FY2015 | |||||||||||||||||
Q4 2012 Plan | 54 | 523 | 2,413 | — | — | 2,936 | Q1 FY2014 | — | |||||||||||||||||
Q3 2012 Plan(2) | 61 | 3,671 | 3,728 | — | — | 7,399 | Q3 FY2014 | — | |||||||||||||||||
Q2 2012 Plan(3) | 203 | 3,976 | 242 | — | — | 4,218 | Q3 FY2014 | — | |||||||||||||||||
Q1 2012 Plan(4) | 112 | 5,252 | 388 | 79 | — | 5,719 | Q1 FY2013 | Q2 FY2012 | |||||||||||||||||
2012 Contract Termination Charges | N/A | N/A | N/A | $ | — | $ | 1,470 | $ | 1,470 | N/A | Q4 FY2015 | ||||||||||||||
____________________________
(1) | Subsequent to the initial charge, during fiscal year 2013, we recorded an additional $0.6 million pre-tax restructuring charge in our Human Health segment for the Q2 2013 Plan for services that were provided for one-time termination benefits in which the employee was required to render service beyond the legal notification period. |
(2) | Local law required some severance for the Q3 2012 Plan to be paid in monthly installments through the fourth quarter of fiscal year 2014. |
(3) | Subsequent to the initial charge, during fiscal years 2013 and 2012, we recorded an additional $2.1 million and $3.2 million, respectively, pre-tax restructuring charges in our Human Health segment for the Q2 2012 Plan for services that were provided for one-time termination benefits in which the employee was required to render service beyond the legal notification period. |
(4) | Subsequent to the initial charge, during fiscal year 2012, we recorded an additional $0.7 million pre-tax restructuring charge primarily in our Environmental Health segment for the Q1 2012 Plan for services that were provided for one-time termination benefits in which the employee was required to render service beyond the legal notification period. |
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At December 28, 2014, we had $23.8 million recorded for accrued restructuring and contract termination charges, of which $17.1 million was recorded in short-term accrued restructuring and $6.7 million was recorded in long-term liabilities. At December 29, 2013, we had $35.5 million recorded for accrued restructuring and contract termination charges, of which $26.4 million was recorded in short-accrued restructuring and $9.1 million was recorded in long-term liabilities. The following table summarizes our restructuring and contract termination accrual balances and related activity by restructuring plan, as well as contract termination, during fiscal years 2014, 2013, and 2012:
Balance at January 1, 2012 | 2012 Charges and Changes in Estimates, Net | 2012 Amounts Paid | Balance at December 30, 2012 | 2013 Charges and Changes in Estimates, Net | 2013 Amounts Paid | Balance at December 29, 2013 | 2014 Charges and Changes in Estimates, Net | 2014 Amounts Paid | Balance at December 28, 2014 | ||||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||||||
Severance: | |||||||||||||||||||||||||||||||||||||||
Q3 2014 Plan | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 13,051 | $ | (2,992 | ) | $ | 10,059 | ||||||||||||||||||
Q2 2014 Plan | — | — | — | — | — | — | — | 735 | (484 | ) | 251 | ||||||||||||||||||||||||||||
Q1 2014 Plan | — | — | — | — | — | — | — | 567 | (475 | ) | 92 | ||||||||||||||||||||||||||||
Q4 2013 Plan(1) | — | — | — | — | 3,908 | (1,921 | ) | 1,987 | (121 | ) | (1,541 | ) | 325 | ||||||||||||||||||||||||||
Q3 2013 Plan | — | — | — | — | 394 | (257 | ) | 137 | — | (137 | ) | — | |||||||||||||||||||||||||||
Q2 2013 Plan(2) | — | — | — | — | 18,704 | (5,954 | ) | 12,750 | (796 | ) | (10,373 | ) | 1,581 | ||||||||||||||||||||||||||
Q1 2013 Plan(3) | — | — | — | — | 2,585 | (2,377 | ) | 208 | (208 | ) | — | — | |||||||||||||||||||||||||||
Facility: | |||||||||||||||||||||||||||||||||||||||
Q4 2013 Plan(1) | — | — | — | — | 7,271 | (417 | ) | 6,854 | 1,055 | (2,106 | ) | 5,803 | |||||||||||||||||||||||||||
Q3 2013 Plan | — | — | — | — | 138 | (138 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Q2 2013 Plan(2) | — | — | — | — | 572 | (572 | ) | — | 184 | (184 | ) | — | |||||||||||||||||||||||||||
Previous Plans(4) | 20,819 | 23,581 | (17,249 | ) | 27,151 | (376 | ) | (13,476 | ) | 13,299 | (2,622 | ) | (5,262 | ) | 5,415 | ||||||||||||||||||||||||
Restructuring | 20,819 | 23,581 | (17,249 | ) | 27,151 | 33,196 | (25,112 | ) | 35,235 | 11,845 | (23,554 | ) | 23,526 | ||||||||||||||||||||||||||
Contract Termination | 2,067 | 1,470 | (2,941 | ) | 596 | 696 | (992 | ) | 300 | 1,545 | (1,541 | ) | 304 | ||||||||||||||||||||||||||
Total Restructuring and Contract Termination | $ | 22,886 | $ | 25,051 | $ | (20,190 | ) | $ | 27,747 | $ | 33,892 | $ | (26,104 | ) | $ | 35,535 | $ | 13,390 | $ | (25,095 | ) | $ | 23,830 | ||||||||||||||||
____________________________
(1) | During fiscal year 2014, we recorded a pre-tax restructuring reversal of $0.1 million in our Environmental Health segment related to lower than expected costs associated with the remaining severance payments for the Q4 2013 Plan and recorded an additional pre-tax restructuring charge of $1.1 million in our Human Health segment related to higher than expected costs associated with the closure of the excess facility for the Q4 2013 Plan. |
(2) | During fiscal year 2014, we recorded pre-tax restructuring reversals of $0.3 million in our Human Health segment and $0.5 million in our Environmental Health segment related to lower than expected costs associated with the remaining severance payments for the Q2 2013 Plan. In addition during fiscal year 2014, we incurred an additional pre-tax restructuring charge of $0.1 million in each of our Human Health and Environmental Health segments related to higher than expected costs associated with the closure of the excess facility space for the Q2 2013 Plan. |
(3) | During fiscal year 2014, we recorded a pre-tax restructuring reversal of $0.2 million in our Human Health segment related to lower than expected costs associated with the remaining severance payments for the Q1 2013 Plan. |
(4) | During fiscal year 2014, we recognized pre-tax restructuring reversals of $1.6 million in our Human Health segment and $1.1 million in our Environmental Health segment related to lower than expected costs associated with workforce reductions for the previous restructuring plans. During fiscal year 2014, we recognized an additional pre-tax restructuring charge of $0.1 million in our Human Health segment related to higher than expected costs associated with the closure of the excess facility space for the previous restructuring plans. |
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Impairment of Assets
2014 Compared to 2013. Impairment of assets was zero in fiscal year 2014, as compared to $0.2 million in fiscal year 2013. The fiscal year 2013 pre-tax impairment charge was $0.2 million for the impairment of certain long-lived assets within our Human Health segment as the carrying amounts of the long-lived assets were not recoverable and exceeded their fair value. Additional information regarding impairment of assets is discussed in Note 12 to our consolidated financial statements included in this annual report on Form 10-K.
2013 Compared to 2012. Impairment of assets was $0.2 million in fiscal year 2013, as compared to $74.2 million in fiscal year 2012. As part of integrating our recent acquisitions, in the fourth quarter of fiscal year 2012, we decided that prospectively we would primarily focus on the PerkinElmer trade name. Accordingly, we undertook a review of certain of our trade names within our portfolio as part of a realignment of our marketing strategy, which resulted in pre-tax impairment charges of $73.4 million in our Human Health segment and $0.7 million in our Environmental Health segment during fiscal year 2012.
Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
December 28, 2014 | December 29, 2013 | December 30, 2012 | |||||||||
(In thousands) | |||||||||||
Interest income | $ | (667 | ) | $ | (650 | ) | $ | (747 | ) | ||
Interest expense | 36,270 | 49,924 | 45,787 | ||||||||
Other expense, net | 5,536 | 14,836 | 2,916 | ||||||||
Total interest and other expense, net | $ | 41,139 | $ | 64,110 | $ | 47,956 | |||||
2014 Compared to 2013. Interest and other expense, net, for fiscal year 2014 was an expense of $41.1 million, as compared to an expense of $64.1 million for fiscal year 2013, a decrease of $23.0 million. The decrease in interest and other expense, net, in fiscal year 2014 as compared to fiscal year 2013 was primarily due to a decrease in interest expense and other expense. Interest expense decreased by $13.7 million in fiscal year 2014 as compared to fiscal year 2013, primarily due to the redemption of our fixed rate 2015 Notes in fiscal year 2013, resulting in lower debt outstanding and an increased mix of variable rate debt with lower interest rates during fiscal year 2014. In addition, during fiscal year 2013, we wrote-off $2.8 million for the remaining unamortized derivative losses for previously settled cash flow hedges and wrote-off $0.2 million for the remaining deferred debt issuance costs related to the prepayment of our 2015 Notes. Other expenses for fiscal year 2014 decreased by $9.3 million as compared to fiscal year 2013, primarily due to a prepayment premium of $11.1 million for the redemption of our 2015 Notes in fiscal year 2013, which was partially offset by expenses related to foreign currency transactions and translation of non-functional currency assets and liabilities. A more complete discussion of our liquidity is set forth below under the heading “Liquidity and Capital Resources.”
2013 Compared to 2012. Interest and other expense, net, for fiscal year 2013 was an expense of $64.1 million, as compared to an expense of $48.0 million for fiscal year 2012, an increase of $16.2 million. The increase in interest and other expense, net, in fiscal year 2013 as compared to fiscal year 2012 was primarily due to an increase in other expense, net, resulting from a prepayment premium of $11.1 million for the redemption of our 2015 Notes. Interest expense increased by $4.1 million in fiscal year 2013 as compared to fiscal year 2012, primarily due to 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 related to the prepayment of our 2015 Notes. Interest income decreased by $0.1 million in fiscal year 2013 as compared to fiscal year 2012, primarily due to lower cash balances throughout fiscal year 2013. Other expenses for fiscal year 2013 increased by $11.9 million as compared to fiscal year 2012, and consisted primarily of the prepayment premium of $11.1 million for the redemption of our 2015 Notes, expenses related to foreign currency transactions and translation of non-functional currency assets and liabilities.
Provision for (Benefit from) Income Taxes
2014 Compared to 2013. The fiscal year 2014 provision for income taxes on continuing operations was $8.4 million, as compared to a benefit of $10.6 million for fiscal year 2013. The effective tax rate on continuing operations was a provision of 5.0% for fiscal year 2014 as compared to a benefit of 6.5% for fiscal year 2013. The provision for income taxes in fiscal year 2014 was primarily due to income in lower tax rate jurisdictions, partially offset by losses in higher rate jurisdictions and a tax benefit of $7.0 million related to discrete items. The benefit from income taxes in fiscal year 2013 was primarily due a tax benefit of $24.0 million related to discrete items and losses in higher tax rate jurisdictions, partially offset by a provision from income taxes related to profits in lower tax rate jurisdictions. The $24.0 million of discrete items includes $9.4 million for
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lapses in statutes of limitations during the first quarter of fiscal year 2013 and $9.2 million primarily for lapses in statutes of limitations and audit settlements in the fourth quarter of fiscal year 2013.
2013 Compared to 2012. The fiscal year 2013 benefit from income taxes on continuing operations was $10.6 million, as compared to a benefit of $16.1 million for fiscal year 2012. The effective tax rate on continuing operations was a benefit of 6.5% for fiscal year 2013 as compared to a benefit of 29.2% for fiscal year 2012. The benefit from income taxes in fiscal year 2013 was primarily due to a tax benefit of $24.0 million related to discrete items and losses in higher tax rate jurisdictions, partially offset by a provision from income taxes related to profits in lower tax rate jurisdictions. The $24.0 million of discrete items includes $9.4 million for lapses in statutes of limitations during the first quarter of fiscal year 2013 and $9.2 million primarily for lapses in statutes of limitations and audit settlements in the fourth quarter of fiscal year 2013. The benefit from income taxes in fiscal year 2012 was primarily due to a tax benefit of $7.0 million related to discrete items and losses in higher tax rate jurisdictions, which included the pre-tax impairment charges of $74.2 million, partially offset by a provision from income taxes related to profits in lower tax rate jurisdictions.
Discontinued Operations
As part of our continuing efforts to focus on higher growth opportunities, we have discontinued certain businesses. We have accounted for these businesses as discontinued operations and, accordingly, have presented the results of operations and related cash flows as discontinued operations for all periods presented. Any remaining assets and liabilities of these businesses have been presented separately, and are reflected within assets and liabilities from discontinued operations in the accompanying consolidated balance sheets as of December 28, 2014 and December 29, 2013.
We recorded the following pre-tax gains and losses, which have been reported as a net gain or loss on disposition of discontinued operations during the three fiscal years ended:
December 28, 2014 | December 29, 2013 | December 30, 2012 | |||||||||
(In thousands) | |||||||||||
Loss on disposition of microarray-based diagnostic testing laboratory | $ | (90 | ) | $ | — | $ | — | ||||
(Loss) gain on disposition of Photoflash business | (14 | ) | 493 | 2,459 | |||||||
Loss on disposition of Technical Services business | (156 | ) | (2,100 | ) | — | ||||||
Loss on disposition of other discontinued operations | — | (203 | ) | (54 | ) | ||||||
Net (loss) gain on disposition of discontinued operations before income taxes | $ | (260 | ) | $ | (1,810 | ) | $ | 2,405 | |||
In May 2014, our management approved the shutdown of our microarray-based diagnostic testing laboratory in the United States, which had been reported within our Human Health segment. We determined that, with the lack of adequate reimbursement from health care payers, the microarray-based diagnostic testing laboratory in the United States would need significant investment in its operations to reduce costs in order to effectively compete in the market. The shutdown of the microarray-based diagnostic testing laboratory in the United States resulted in a $0.1 million net pre-tax loss primarily related to the disposal of fixed assets, which was partially offset by the sale of a building in fiscal year 2014.
In June 2010, we sold our Photoflash business, which was included in our Environmental Health segment. We recognized a pre-tax loss of $0.01 million in fiscal year 2014, a pre-tax gain of $0.5 million in fiscal year 2013 and a pre-tax gain of $2.5 million in fiscal year 2012 for contingent consideration related to this sale. These gains and losses were recognized as a (loss) gain on disposition of discontinued operations.
In August 1999, we sold the assets of our Technical Service business. During fiscal years 2014 and 2013, we recorded pre-tax losses of $0.2 million and $2.1 million, respectively, for a contingency related to this business. These losses were recognized as a (loss) gain on disposition of discontinued operations.
During fiscal years 2014, 2013, and 2012, we settled various commitments related to the divestiture of other discontinued operations. We recognized net pre-tax losses during fiscal years 2013 and 2012. These losses were recognized as a (loss) gain on disposition of discontinued operations.
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Summary pre-tax operating results of the discontinued operations for the periods prior to disposition, which included a $1.0 million pre-tax restructuring charge related to workforce reductions in the microarray-based diagnostic testing laboratory in the United States during fiscal year 2014, were as follows during the three fiscal years ended:
December 28, 2014 | December 29, 2013 | December 30, 2012 | |||||||||
(In thousands) | |||||||||||
Revenue | $ | 348 | $ | 8,646 | $ | 10,017 | |||||
Costs and expenses | 5,307 | 18,998 | 14,594 | ||||||||
Loss from discontinued operations before income taxes | $ | (4,959 | ) | $ | (10,352 | ) | $ | (4,577 | ) | ||
We recorded a tax benefit of $1.8 million on discontinued operations in fiscal year 2014, a tax benefit of $5.1 million on discontinued operations in fiscal year 2013 and a tax benefit of $0.8 million on discontinued operations in fiscal year 2012.
Business Combinations
Acquisitions in fiscal year 2014
Acquisition of Perten Instruments Group AB. In December 2014, we acquired all of the outstanding stock of Perten. Perten is a provider of analytical instruments and services for quality control of food, grain, flour and feed. We expect this acquisition to enhance our industrial, environmental and safety business by expanding our product offerings to the academic and industrial end markets. We paid the shareholders of Perten $269.9 million in cash for the stock of Perten. The excess of the purchase price over the fair value of the acquired 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 have reported the operations for this acquisition within the results of our Environmental Health segment from the acquisition date.
Other acquisitions in fiscal year 2014. In addition to the Perten acquisition, we completed the acquisition of two businesses in fiscal year 2014 for total consideration of $18.0 million in cash and $4.3 million of assumed debt. 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 Human Health and Environmental Health segments from the acquisition dates.
Acquisitions in fiscal year 2013
During 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. During fiscal year 2014, we paid $0.4 million in additional deferred consideration for one of these acquisitions. 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 Human Health and Environmental Health segments from the acquisition dates.
Acquisition in fiscal year 2012
Acquisition of Shanghai Haoyuan Biotech Co., Ltd. In November 2012, we acquired all outstanding stock of Shanghai Haoyuan Biotech Co., Ltd. ("Haoyuan"). Haoyuan is a provider of nucleic acid-based blood screening solutions for the blood banking and clinical diagnostics markets. We expect this acquisition to extend our capabilities into nucleic acid blood screening, as well as deepen our position in the growing molecular clinical diagnostics market in China. We paid the shareholders of Haoyuan $38.0 million in cash for the stock of Haoyuan. We recorded a receivable of $2.7 million from the shareholders of Haoyuan as a reduction of purchase price for the settlement of certain contingencies. This receivable was collected in fiscal year 2013. As of the closing date, we potentially had to pay the shareholders additional contingent consideration of up to $30.0 million, which at closing had an estimated fair value of $1.9 million. The excess of the purchase price over the fair value of the acquired 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 this acquisition within the results of our Human Health segment from the acquisition date.
We do not consider the acquisitions completed during fiscal years 2014, 2013, and 2012, to be material to our consolidated results of operations; therefore, we are not presenting pro forma financial information of operations. We have also
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determined that the presentation of the results of operations for each of those acquisitions, from the date of acquisition, is impracticable due to the integration of the operations upon acquisition.
As of December 28, 2014 the allocation of purchase prices for acquisitions completed in fiscal years 2013 and 2012 were final. The preliminary allocation of the purchase prices for acquisitions completed in fiscal year 2014 were based upon initial valuations. Our estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete our 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. We expect 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, we 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. Adjustments to the preliminary allocations of the purchase prices during the measurement period require the revision of comparative prior period financial information when reissued in subsequent financial statements. The effect of adjustments to the allocations of the purchase prices made during the measurement period would be as if the adjustments had been completed on the acquisition dates. The effects of any such adjustments, if material, may cause changes in depreciation, amortization, or other income or expense recognized in prior periods. All changes that do not qualify as adjustments made during the measurement periods are included in current period earnings.
Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds or product development milestones during the earnout period.
We may have to pay contingent consideration, related to all acquisitions with open contingency periods, of up to $31.4 million as of December 28, 2014. As of December 28, 2014, we had recorded contingent consideration obligations relating to our acquisition of Tetra Teknolojik Sistemler Limited Sirketi with an estimated fair value of $0.1 million. The earnout period for each of these acquisitions does not exceed three years from the respective acquisition date. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the 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 consideration which would be expensed.
In connection with the purchase price allocations for acquisitions, we estimate the fair value of deferred revenue assumed with our acquisitions. The estimated fair value of deferred revenue is determined by the legal performance obligation at the date of acquisition, and is generally based on the nature of the activities to be performed and the related costs to be incurred after the acquisition date. The fair value of an assumed liability related to deferred revenue is estimated based on the current market cost of fulfilling the obligation, plus a normal profit margin thereon. The estimated costs to fulfill the deferred revenue are based on the historical direct costs related to providing the services. We do not include any costs associated with selling effort, research and development, or the related fulfillment margins on these costs. In most acquisitions, profit associated with selling effort is excluded because the acquired businesses would have concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition. The sum of the costs and operating income approximates, in theory, the amount that we would be required to pay a third-party to assume the obligation.
Contingencies, Including Tax Matters
We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party (“PRP”) for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. We have accrued $12.3 million and $13.5 million as of December 28, 2014 and December 29, 2013, respectively, which represents our management’s estimate of the cost of the remediation of known environmental matters, and does not include any potential liability for related personal injury or property damage claims. These amounts are recorded in
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accrued expenses and other current liabilities. During fiscal year 2014, we recorded a benefit of $2.3 million for cost reimbursements related to a particular site, of which $1.2 million was for future monitoring and mitigation activities. 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. Our environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on our consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
Various tax years after 2007 remain open to examination by certain tax jurisdictions in which we have significant business operations, such as China, Finland, Germany, Italy, Netherlands, Singapore, the United Kingdom and the United States. The tax years under examination vary by jurisdiction. We regularly review our tax positions in each significant taxing jurisdiction in the process of evaluating our unrecognized tax benefits. We make adjustments to our unrecognized tax benefits when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority; and/or (iii) the statute of limitations expires regarding a tax position.
We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Although we have established accruals for potential losses that we believe are probable and reasonably estimable, in the opinion of our management, based on its review of the information available at this time, the total cost of resolving these contingencies at December 28, 2014 should not have a material adverse effect on our consolidated financial statements included in this annual report on Form 10-K. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us.
Reporting Segment Results of Continuing Operations
In January 2015, we approved and announced a new alignment of our businesses effective for fiscal year 2015 that is designed to enable us to both deliver complete solutions targeted towards certain end markets and to develop value-added applications and solutions to foster further expansion of those markets. As part of this realignment, our OneSource multivendor service offering business that serves the life sciences end market will be moved from our Environmental Health segment into our Human Health segment. Beginning in fiscal year 2015, we will report financial results under our Human Health and Environmental Health segments using this new alignment.
Human Health
2014 Compared to 2013. Revenue for fiscal year 2014 was $1,243.4 million, as compared to $1,201.1 million for fiscal year 2013, an increase of $42.3 million, or 4%, which includes an approximate 0.4% increase in revenue attributable to acquisitions and an approximate 1% decrease in revenue attributable to changes in foreign exchange rates. The analysis in the remainder of this paragraph compares selected revenue by product type for fiscal year 2014, as compared to fiscal year 2013, and includes the effect of foreign exchange fluctuations and acquisitions. The increase in revenue in our Human Health segment was a result of an increase in diagnostics market revenue of $39.8 million and an increase in research market revenue of $2.5 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $2.9 million of revenue in our Human Health segment for fiscal year 2014 and $7.3 million of revenue in our Human Health segment for fiscal year 2013 that otherwise would have been recorded by the acquired businesses during each of the respective periods. This increase in our Human Health segment during fiscal year 2014 was primarily due to growth in our diagnostics business as birth rates increased and from continued expansion of our prenatal, newborn and infectious disease screening solutions in emerging markets such as China and Brazil, as well as from increased demand for our medical imaging business' new wireless cassette detector used in diagnostic imaging and veterinary applications. In the research market we experienced growth related to our informatics, radiometric detection, and high-content screening offerings, as well as our microfluidics technology licensing program. This growth in the research market was offset by declines in some products in our research market due to weakness in the global academic end market, specifically in Europe, as well as the expiration of certain patents in our licensing portfolio.
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Operating income from continuing operations for fiscal year 2014 was $220.2 million, as compared to $156.5 million for fiscal year 2013, an increase of $63.7 million, or 41%. Amortization of intangible assets decreased and was $72.6 million for fiscal year 2014 as compared to $79.1 million for fiscal year 2013. Restructuring and contract termination charges decreased and were $6.9 million for fiscal year 2014 as compared to $22.1 million for fiscal year 2013. Impairment of assets was a charge of $0.2 million for fiscal year 2013 as the carrying amounts of certain long-lived assets were not recoverable and exceeded their fair value. Acquisition related costs for integration, contingent consideration and other costs decreased expenses by $1.7 million for fiscal year 2014, as compared to adding an incremental expense of $1.4 million for fiscal year 2013. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $0.2 million for fiscal year 2013. In addition to the factors noted above, increased sales volume in the diagnostics and research markets and cost containment and productivity initiatives increased operating income for fiscal year 2014.
2013 Compared to 2012. Revenue for fiscal year 2013 was $1,201.1 million, as compared to $1,164.6 million for fiscal year 2012, an increase of $36.5 million, or 3%, which includes an approximate 2% increase in revenue attributable to acquisitions and an approximate 0.3% decrease in revenue attributable to changes in foreign exchange rates. The analysis in the remainder of this paragraph compares selected revenue by product type for fiscal year 2013, as compared to fiscal year 2012, and includes the effect of foreign exchange fluctuations and acquisitions. The increase in revenue in our Human Health segment was a result of an increase in diagnostics market revenue of $22.8 million and an increase in research market revenue of $13.7 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $7.3 million of revenue in our Human Health segment for fiscal year 2013 and $26.2 million of revenue in our Human Health segment for fiscal year 2012 that otherwise would have been recorded by the acquired businesses during each of the respective periods. This increase in our Human Health segment revenue during fiscal year 2013 was due to growth in the diagnostics market as birth rates in the United States increased and from continued expansion of our prenatal, newborn and infectious disease screening solutions in key regions outside the United States, particularly in emerging markets such as China, the Middle East and Africa, and Korea, as well as increased demand for our informatics offerings and in-vivo imaging systems in the research market. This growth was partially offset by slight declines in our medical imaging business despite continued growth in our complementary metal-oxide-semiconductor imaging technology, as well as declines in our radiometric detection businesses within the research market, as a result of sequestration concerns in the United States, European austerity and weakening research markets in Asia, particularly in Japan.
Operating income from continuing operations for fiscal year 2013 was $156.5 million, as compared to $63.8 million for fiscal year 2012, an increase of $92.7 million, or 145%. Amortization of intangible assets decreased and was $79.1 million for fiscal year 2013 as compared to $79.7 million for fiscal year 2012. Restructuring and contract termination charges increased and were $22.1 million for fiscal year 2013 as compared to $17.5 million for fiscal year 2012. Impairment of assets was a charge of $0.2 million for fiscal year 2013 as the carrying amounts of certain long-lived assets were not recoverable and exceeded their fair value, as compared to $73.4 million for fiscal year 2012 as a result of a review of certain of our trade names within our portfolio as part of a realignment of our marketing strategy. Acquisition related costs for integration, contingent consideration and other costs added an incremental expense of $1.4 million for fiscal year 2013, as compared to an incremental expense of $0.1 million for fiscal year 2012. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $0.2 million for fiscal year 2013, as compared to $5.2 million for fiscal year 2012. In addition to the factors noted above, increased sales volume in the diagnostics and research markets, favorable changes in product mix, and cost containment initiatives, increased operating income for fiscal year 2013, which was partially offset by higher costs related to growth and productivity investments.
Environmental Health
2014 Compared to 2013. Revenue for fiscal year 2014 was $993.8 million, as compared to $956.5 million for fiscal year 2013, an increase of $37.3 million, or 4%, which includes an approximate 1% decrease in revenue attributable to changes in foreign exchange rates and an approximate 1% increase in revenue attributable to acquisitions. The analysis in the remainder of this paragraph compares selected revenue by product type for fiscal year 2014, as compared to fiscal year 2013, and includes the effect of foreign exchange fluctuations and acquisitions. The increase in revenue in our Environmental Health segment was a result of an increase in revenue of $33.8 million from the laboratory services market and an increase in revenue of $3.5 million from the environmental and industrial markets. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.01 million of revenue for fiscal year 2013 that otherwise would have been recorded by the acquired businesses during each of the respective periods. This increase in our Environmental Health segment revenue during fiscal year 2014 was primarily due to continued growth in our laboratory services business, which included the addition of new customers to our OneSource multivendor service offering. These increases were partially offset by decreased demand across some of our products in the environmental and industrial markets, primarily in the Asian industrial end markets.
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Operating income from continuing operations for fiscal year 2014 was $109.1 million, as compared to $97.1 million for fiscal year 2013, an increase of $12.1 million, or 12%. Amortization of intangible assets increased and was $10.8 million for fiscal year 2014 as compared to $10.1 million for fiscal year 2013. Restructuring and contract termination charges decreased and were $6.5 million for fiscal year 2014 as compared to $11.8 million for fiscal year 2013. Acquisition related costs for contingent consideration and other costs added an incremental expense of $2.1 million in fiscal year 2014, as compared to an incremental expense of $0.2 million for fiscal year 2013. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $2.4 million for fiscal year 2014. In addition to the factors noted above, savings related to cost containment initiatives increased operating income for fiscal year 2014, which was partially offset by unfavorable changes in product mix, with an increase in sales of lower gross margin product offerings, and pricing pressure.
2013 Compared to 2012. Revenue for fiscal year 2013 was $956.5 million, as compared to $940.6 million for fiscal year 2012, an increase of $15.9 million or 2%