REVVITY, INC. This quarterly report on Form 10-Q, including the following management's discussion and analysis, contains forward-looking information that you should read in conjunction with the condensed consolidated financial statements and notes to the condensed consolidated financial statements that we have included elsewhere in this report. 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," "intends," "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 below under the heading "Risk Factors" in Part II, Item 1A. 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.
Overview
We are a leading provider of products, services and solutions for the
diagnostics, life sciences and applied markets. Through our advanced
technologies and differentiated solutions, we address critical issues that help
to improve lives and the world around us.
The principal products and services of our two operating segments are:
• Discovery & Analytical Solutions. Provides products and services targeted
towards the life sciences and applied markets.
• Diagnostics. Develops diagnostics, tools and applications focused onclinically-oriented customers, especially within the reproductive health,
immunodiagnostics and applied genomics markets. The Diagnostics segment
serves the diagnostics market.
Overview of the First Quarter of Fiscal Year 2020 Our fiscal year ends on the Sunday nearestDecember 31 . We report fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. The fiscal year endingJanuary 3, 2021 ("fiscal year 2020") will include 53 weeks, and the fiscal year endedDecember 29, 2019 ("fiscal year 2019") included 52 weeks. Our overall revenue in the first quarter of fiscal year 2020 was$652.4 million and increased$3.7 million , or 1%, as compared to the first quarter of fiscal year 2019, reflecting an increase of$9.6 million , or 2%, in our Discovery & Analytical Solutions segment revenue and a decrease of$5.9 million , or 2%, in our Diagnostics segment revenue. The increase in our Discovery & Analytical Solutions segment revenue for the first quarter of fiscal year 2020 was primarily driven by an increase in our life sciences market revenue and the extra fiscal week partially offset by a decrease in our applied markets revenue, unfavorable changes in foreign exchange rates and reduced demand as a result of the COVID-19 pandemic resulting in lower sales volume in our product offerings in the industrial, environmental and food markets. The increase in our life sciences market revenue was the result of an increase in revenue in our pharma and biotech markets driven by continued growth of our Discovery, OneSource and Informatics businesses. The decrease in our Diagnostics segment revenue for the first quarter of fiscal year 2020 was driven by reduced demand as a result of the COVID-19 pandemic, resulting in lower sales volume in our reproductive health and immunodiagnostics businesses, and unfavorable changes in foreign exchange rates, partially offset by an increase in revenue from our applied genomics COVID-19 product offerings and the extra fiscal week. Our consolidated gross margins decreased 23 basis points in the first quarter of fiscal year 2020, as compared to the first quarter of fiscal year 2019, primarily due to increased amortization expense and lower volume partially offset by a favorable shift in product mix, service productivity and pricing initiatives. Our consolidated operating margins decreased 137 basis points in the first quarter of fiscal year 2020, as compared to the first quarter of fiscal year 2019, primarily due to increased costs related to amortization of acquired intangible assets, investments in new product development and the extra fiscal week, which were partially offset by lower costs as a result of our cost containment and productivity initiatives. We continue to believe that we are well positioned to take advantage of the spending trends in our end markets and to promote efficiencies in markets where current conditions may increase demand for certain services. Overall, we believe that our strategic focus on Diagnostics and Discovery and Analytical Solutions markets, coupled with our deep portfolio of technologies and applications, leading market positions, global scale and financial strength will provide us with a foundation for growth. 31
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Critical Accounting Policies and Estimates The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, warranty costs, bad debts, inventories, accounting for business combinations and dispositions, long-lived assets, income taxes, restructuring, pensions and other postretirement benefits, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are those policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. We believe our critical accounting policies include our policies regarding revenue recognition, warranty costs, allowances for doubtful accounts, inventory valuation, business combinations, value of long-lived assets, including goodwill and other intangibles, employee compensation and benefits, restructuring activities, gains or losses on dispositions and income taxes. For a more detailed discussion of our critical accounting policies and estimates, refer to the Notes to our audited consolidated financial statements and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year endedDecember 29, 2019 (our "2019 Form 10-K"), as filed with theSecurities and Exchange Commission (the "SEC"). There have been no significant changes in our critical accounting policies and estimates during the three months endedApril 5, 2020 . Consolidated Results of Continuing Operations Revenue Revenue for the three months endedApril 5, 2020 was$652.4 million , as compared to$648.7 million for the three months endedMarch 31, 2019 , an increase of$3.7 million , or approximately 1%, which includes an approximate 3% increase in revenue attributable to acquisitions and divestitures and a 2% decrease in revenue attributable to unfavorable changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for the three months endedApril 5, 2020 as compared to the three months endedMarch 31, 2019 and includes the effect of foreign exchange rate fluctuations, acquisitions and divestitures. Our Discovery & Analytical Solutions segment revenue was$398.4 million for the three months endedApril 5, 2020 , as compared to$388.8 million for the three months endedMarch 31, 2019 , an increase of$9.6 million , or 2%, primarily driven by an increase in our life sciences market revenue and extra fiscal week partially offset by a decrease in our applied markets revenue, unfavorable changes in foreign exchange rates and reduced demand for our product offerings in the industrial, environmental and food markets as a result of the COVID-19 pandemic. Our Diagnostics segment revenue was$254.0 million for the three months endedApril 5, 2020 , as compared to$259.9 million for the three months endedMarch 31, 2019 , a decrease of$5.9 million , or 2%, primarily due to lower sales volume in our reproductive health and immunodiagnostics businesses as a result of the COVID-19 pandemic and unfavorable changes in foreign exchange rates, partially offset by an increase in revenue from our applied genomics COVID-19 product offerings and the extra fiscal week. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize$0.2 million of revenue for each of the three months endedApril 5, 2020 andMarch 31, 2019 that otherwise would have been recorded by the acquired businesses during each of the respective periods. Cost of Revenue Cost of revenue for the three months endedApril 5, 2020 was$344.4 million , as compared to$340.9 million for the three months endedMarch 31, 2019 , an increase of$3.4 million , or approximately 1%. As a percentage of revenue, cost of revenue increased to 52.8% for the three months endedApril 5, 2020 , from 52.6% for the three months endedMarch 31, 2019 , resulting in a decrease in gross margin of 23 basis points to 47.2% for the three months endedApril 5, 2020 , from 47.4% for the three months endedMarch 31, 2019 . Amortization of intangible assets increased and was$16.1 million for the three months endedApril 5, 2020 , as compared to$14.8 million for the three months endedMarch 31, 2019 . Stock-based compensation expense was$0.3 million for each of the three months endedApril 5, 2020 andMarch 31, 2019 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of$1.1 million for the three months endedApril 5, 2020 , as compared to$0.3 million for the three months endedMarch 31, 2019 . In addition to the above items, the overall decrease in gross margin was primarily the result of increased amortization expense and lower volume partially offset by services productivity and pricing initiatives. 32
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Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months endedApril 5, 2020 were$208.6 million , as compared to$198.9 million for the three months endedMarch 31, 2019 , an increase of$9.7 million , or 5%. As a percentage of revenue, selling, general and administrative expenses increased and were 32.0% for the three months endedApril 5, 2020 , as compared to 30.7% for the three months endedMarch 31, 2019 . Amortization of intangible assets increased and was$31.2 million for the three months endedApril 5, 2020 , as compared to$23.9 million for the three months endedMarch 31, 2019 . Stock-based compensation expense was$2.5 million for the three months endedApril 5, 2020 as compared to$5.5 million for the three months endedMarch 31, 2019 . Other purchase accounting adjustments decreased expenses by$12.3 million for the three months endedApril 5, 2020 , as compared to increasing expenses by$3.1 million for the three months endedMarch 31, 2019 . Acquisition and divestiture-related expenses added an incremental expense of$12.4 million for the three months endedApril 5, 2020 , as compared to$1.6 million for the three months endedMarch 31, 2019 . Legal costs for significant litigation matters were$0.4 million for each of the three months endedApril 5, 2020 andMarch 31, 2019 . In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to growth investments and the extra fiscal week, which were partially offset by lower costs resulting from cost containment and productivity initiatives. Research and Development Expenses Research and development expenses for the three months endedApril 5, 2020 were$48.9 million , as compared to$48.0 million for the three months endedMarch 31, 2019 , an increase of$0.9 million , or 2%. As a percentage of revenue, research and development expenses increased and were 7.5% for the three months endedApril 5, 2020 , as compared to 7.4% for the three months endedMarch 31, 2019 . Stock-based compensation expense was$0.3 million for each of the three months endedApril 5, 2020 andMarch 31, 2019 . The increase in research and development expenses was driven by the extra fiscal week, partially offset by improvements in leveraging our investments in new product development.
Restructuring and Other Costs, Net
We have undertaken a series of restructuring actions related to the impact of
acquisitions and divestitures, the alignment of our operations with our growth
strategy, the integration of our business units and our productivity
initiatives. The activities associated with these plans have been reported as
restructuring and other costs, net, as applicable, and are included as a
component of income from continuing operations. The current portion of
restructuring and other costs is recorded in short-term accrued restructuring
and other costs and accrued expense and other current liabilities. The long-term
portion of restructuring and other costs is recorded in long-term liabilities
and operating lease liabilities.
We implemented a restructuring plan in the first quarter of fiscal year 2020
consisting of workforce reductions and closure of excess facilities principally
intended to realign resources to emphasize growth initiatives (the "Q1 2020
Plan"). We implemented a restructuring plan in each quarter of fiscal year 2019
consisting of workforce reductions principally intended to realign resources to
emphasize growth initiatives (the "Q1 2019 Plan", "Q2 2019 Plan", "Q3 2019 Plan"
and "Q4 2019 Plan", respectively). Details of the plans initiated in previous
years (the "Previous Plans") are discussed more fully in Note 5 to the audited
consolidated financial statements in the 2019 Form 10-K.
The following table summarizes the reductions in headcount, the initial
restructuring or contract termination charges by reporting segment, and the
dates by which payments were substantially completed, or the dates by which
payments are expected to be substantially completed, for restructuring actions
implemented during fiscal years 2020 and 2019 in continuing operations:
(Expected) Date
Payments Substantially
Workforce Reductions Closure of Excess Facility Completed by
Discovery & Discovery &
Headcount Analytical Analytical Excess
Reduction Solutions Diagnostics Solutions Diagnostics Total Severance Facility
(In thousands, except headcount data)
Q1 2020 Plan 32 $ 2,312 $ 1,134 $ 92 $ 682 $ 4,220 Q4 FY2020 Q1 FY2022
Q4 2019 Plan 22 $ 177 2,404 - - 2,581 Q3 FY2020 -
Q3 2019 Plan 259 $ 11,156 2,641 - - 13,797 Q2 FY2020 -
Q2 2019 Plan 44 4,461 1,129 - - 5,590 Q1 FY2020 -
Q1 2019 Plan 105 6,001 1,459 - - 7,460 Q4 FY2019 -
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We do not currently expect to incur any future charges for these plans. We expect to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022. In connection with the termination of various contractual commitments, we recorded additional pre-tax charges of$0.1 million and$0.2 million during the three months endedApril 5, 2020 , in the Diagnostics and Discovery & Analytical Solutions segments, respectively. We recorded pre-tax charges of$0.1 million and$1.3 million associated with relocating facilities during the three months endedApril 5, 2020 in the Diagnostics and Discovery & Analytical Solutions segments, respectively. We expect to make payments on these relocation activities through fiscal year 2021. AtApril 5, 2020 , we had$15.1 million recorded for accrued restructuring and other costs, of which$11.3 million was recorded in short-term accrued restructuring and other costs,$1.7 million was recorded in long-term liabilities, and$2.1 million was recorded in operating lease liabilities. AtDecember 29, 2019 , we had$13.9 million recorded for accrued restructuring and other costs, of which$11.6 million was recorded in short-term accrued restructuring and other costs,$0.4 million was recorded in accrued expenses and other current liabilities,$0.8 million was recorded in long-term liabilities, and$1.1 million was recorded in operating lease liabilities. The following table summarizes our restructuring accrual balances and related activity by restructuring plan, as well as other accrual balances and related activity, during the three months endedApril 5, 2020 : Balance at December 29, 2020 Changes in Balance at 2019 2020 Charges Estimates, Net 2020 Amounts Paid April 5, 2020 (In thousands) Severance: Q1 2020 Plan $ -$ 3,446 $ - $ (791 )$ 2,655 Q4 2019 Plan 889 - - (40 ) 849 Q3 2019 Plan 6,311 - - (1,456 ) 4,855 Q2 2019 Plan 1,889 - - (857 ) 1,032 Q1 2019 Plan 2,129 - - (669 ) 1,460 Facility: Q1 2020 Plan - 774 - (92 ) 682 Previous Plans 1,647 - - (112 ) 1,535 Restructuring 12,865 4,220 - (4,017 ) 13,068 Contract Termination 188 - 212 - 400 Other Costs 827 1,426 - (598 ) 1,655 Total Restructuring and Other Liabilities$ 13,880 $ 5,646 $
212 $ (4,615 )
Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
Three Months Ended
April 5, March 31,
2020 2019
(In thousands)
Interest income $ (265 ) $ (283 )
Interest expense 13,665 15,850Loss on disposition of businesses and assets, net - 2,133 Other income, net
(3,407 ) (1,135 )
Total interest and other expense, net $ 9,993 $ 16,565
Interest and other expense, net, for the three months ended April 5, 2020 was an
expense of $10.0 million , as compared to an expense of $16.6 million for the
three months ended March 31, 2019 , a decrease of $6.6 million . The decrease in
interest
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and other expense, net, for the three months endedApril 5, 2020 , as compared to the three months endedMarch 31, 2019 , was primarily due to an increase in other income, net of$2.3 million , a decrease in interest expense by$2.2 million , and a decrease in loss on disposition of businesses and assets, net by$2.1 million . The increase of$2.3 million in other income, net for the three months endedApril 5, 2020 , as compared to the three months endedMarch 31, 2019 consisted primarily of increased income related to foreign currency transactions and translation. The decrease of$2.2 million in interest expense for the three months endedApril 5, 2020 , as compared to the three months endedMarch 31, 2019 was the result of the favorable impact of the cross-currency swap that we entered into in the second quarter of fiscal year 2019 and the lower interest rate environment which allowed us to refinance our fixed-rate debt at a more favorable level in the third quarter of fiscal year 2019. The other components of net periodic pension credit were$1.7 million and$1.5 million for the three months endedApril 5, 2020 andMarch 31, 2019 , respectively. These amounts were included in other income, net. Provision for Income Taxes For the three months endedApril 5, 2020 , the provision for income taxes from continuing operations was$1.0 million , as compared to$1.3 million for the three months endedMarch 31, 2019 . The effective tax rate from continuing operations was 2.8% for the three months endedApril 5, 2020 , as compared to 3.6% for the three months endedMarch 31, 2019 . The lower effective tax rate during the three months endedApril 5, 2020 , as compared to the three months endedMarch 31, 2019 , was due to higher tax benefits related to discrete items which were$4.9 million for the three months endedApril 5, 2020 , as compared to$4.0 million for the three months endedMarch 31, 2019 . 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$7.5 million and$7.7 million as ofApril 5, 2020 andDecember 29, 2019 , 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 were included in accrued expenses and other current liabilities. 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 condensed consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the condensed consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded. Various tax years after 2010 remain open to examination by certain jurisdictions in which we have significant business operations, such asFinland ,Germany ,Italy ,Netherlands ,Singapore ,China andthe 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 our opinion, based on our review of the information available at this time, the total cost of resolving these contingencies atApril 5, 2020 would not have a material adverse effect on our condensed consolidated financial statements. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us. 35
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Reporting Segment Results of Continuing Operations Discovery & Analytical Solutions Revenue for the three months endedApril 5, 2020 was$398.4 million , as compared to$388.8 million for the three months endedMarch 31, 2019 , an increase of$9.6 million , or 2%, which includes an approximate 5% increase in revenue attributable to acquisitions and divestitures and a 2% decrease in revenue attributable to unfavorable changes in foreign exchange rates. The analysis in the remainder of this paragraph compares selected revenue by end market for the three months endedApril 5, 2020 , as compared to the three months endedMarch 31, 2019 , and includes the effect of foreign exchange fluctuations, acquisitions and divestitures. The increase in revenue in our Discovery & Analytical Solutions segment was a result of an increase of$28.4 million in our life sciences market revenue, partially offset by a decrease of$18.8 million in our applied markets revenue. The increase in our life sciences market revenue was the result of an increase in revenue in our pharmaceutical and biotechnology markets driven by continued growth in our Discovery, Informatics and OneSource businesses, as well as the extra fiscal week. The decrease in our applied markets revenue was driven by reduced demand as a result of the COVID-19 pandemic, resulting in a decrease in revenue from our industrial, environmental and food markets, as well as unfavorable changes in foreign exchange rates, partially offset by the extra fiscal week. Operating income from continuing operations for the three months endedApril 5, 2020 was$28.5 million , as compared to$36.9 million for the three months endedMarch 31, 2019 , a decrease of$8.4 million , or 23%. Amortization of intangible assets was$20.7 million for the three months endedApril 5, 2020 , as compared to$10.3 million for the three months endedMarch 31, 2019 . Restructuring and other charges, net, were$3.9 million for the three months endedApril 5, 2020 , as compared to$6.2 million for the three months endedMarch 31, 2019 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was$0.8 million for the three months endedApril 5, 2020 , as compared to zero for the three months endedMarch 31, 2019 . Acquisition and divestiture-related expenses, contingent consideration and other costs were minimal for the three months endedApril 5, 2020 , as compared to$0.6 million for the three months endedMarch 31, 2019 . Legal costs for significant litigation matters were$0.4 million for each of the three months endedApril 5, 2020 andMarch 31, 2019 . In addition to the factors noted above, operating income decreased for the three months endedApril 5, 2020 , as compared to the three months endedMarch 31, 2019 , primarily as a result of lower volume and the extra fiscal week, partially offset by pricing initiatives, services productivity as well as cost curtailment. Diagnostics Revenue for the three months endedApril 5, 2020 was$254.0 million , as compared to$259.9 million for the three months endedMarch 31, 2019 , a decrease of$5.9 million , or 2%, which includes an approximate 2% decrease in revenue attributable to unfavorable changes in foreign exchange rates. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize$0.2 million of revenue in our Diagnostics segment for each of the three months endedApril 5, 2020 andMarch 31, 2019 that otherwise would have been recorded by the acquired businesses during each of the respective periods. The decrease in our Diagnostics segment revenue for the three months endedApril 5, 2020 was driven by COVID-19, resulting in lower sales volume in our reproductive health and immunodiagnostics businesses, as well as unfavorable changes in foreign exchange rates, partially offset by increase in revenue from our applied genomics COVID-19 product offerings and the extra fiscal week. Operating income from continuing operations for the three months endedApril 5, 2020 was$29.6 million , as compared to$31.5 million for the three months endedMarch 31, 2019 , a decrease of$1.9 million , or 6%. Amortization of intangible assets decreased and was$26.5 million for the three months endedApril 5, 2020 , as compared to$28.5 million for the three months endedMarch 31, 2019 . Restructuring and other charges, net, were$1.9 million for the three months endedApril 5, 2020 , as compared to$1.5 million for the three months endedMarch 31, 2019 . Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of$0.2 million for the three months endedApril 5, 2020 , as compared to$4.3 million for the three months endedMarch 31, 2019 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was$0.3 million for each of the three months endedApril 5, 2020 andMarch 31, 2019 . In addition to the factors noted above, operating income decreased for the three months endedApril 5, 2020 , as compared to the three months endedMarch 31, 2019 , primarily as a result of lower sales volume, product mix and the extra fiscal week, partially offset by pricing initiatives and cost curtailment. Liquidity and Capital Resources We require cash to pay our operating expenses, make capital expenditures, make strategic acquisitions, service our debt and other long-term liabilities, repurchase shares of our common stock and pay dividends on our common stock. Our principal sources of funds are from our operations and the capital markets, particularly the debt markets. We anticipate that our internal 36
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operations will generate sufficient cash to fund our operating expenses, capital
expenditures, smaller acquisitions, interest payments on our debt and dividends
on our common stock. However, we expect to use external sources to satisfy the
balance of our debt when due and fund any larger acquisitions and other
long-term liabilities, such as contributions to our postretirement benefit
plans.
Principal factors that could affect the availability of our internally generated
funds include:
• changes in sales due to weakness in markets in which we sell our
products and services, and
• changes in our working capital requirements and capital expenditures.
Principal factors that could affect our ability to obtain cash from external sources include: • financial covenants contained in the financial instruments controlling
our borrowings that limit our total borrowing capacity,
• increases in interest rates applicable to our outstanding variable rate debt, • a ratings downgrade that could limit the amount we can borrow under our
senior unsecured revolving credit facility and our overall access to
the corporate debt market,
• increases in interest rates or credit spreads, as well as limitations
on the availability of credit, that affect our ability to borrow under
future potential facilities on a secured or unsecured basis,
• a decrease in the market price for our common stock, and
• volatility in the public debt and equity markets, including as a result
of the COVID-19 pandemic.
AtApril 5, 2020 , we had cash and cash equivalents of$195.1 million , of which$169.8 million was held by our non-U.S. subsidiaries, and we had$681.4 million of additional borrowing capacity available under our senior unsecured revolving credit facility. We had no other liquid investments atApril 5, 2020 . We utilize a variety of tax planning and financing strategies to ensure that our worldwide cash is available in the locations in which it is needed. The Tax Cuts and Jobs Act required us to pay a one-time transition tax on the unremitted earnings of foreign subsidiaries. Based on available information, we estimated the tax on the deemed repatriation of our foreign earnings and recorded a tax expense of$85.0 million in continuing operations atDecember 31, 2017 . During the fiscal years 2019 and 2018, we refined our calculations of the one-time transition tax based on newly issued guidance from the Internal Revenue Service and recorded a tax expense (benefit) of$2.7 million and$(4.6) million , respectively, in continuing operations related to the one-time transition tax. In addition, during fiscal year 2018, we determined that previously undistributed earnings of certain international subsidiaries no longer met the requirements of indefinite reinvestment and therefore recognized$2.9 million of income tax expense during the year. Our intent is to continue to reinvest the remaining undistributed earnings of our international subsidiaries indefinitely. No additional income tax expense has been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains numerous income tax provisions. The Company is currently evaluating the impact of the CARES Act, but at present does not expect that any of the provisions of the CARES Act would result in a material impact to the Company's consolidated financial statements or related disclosures. OnJuly 23, 2018 , our Board of Directors (the "Board") authorized us to repurchase shares of common stock for an aggregate amount up to$250.0 million under a stock repurchase program (the "Repurchase Program"). The Repurchase Program will expire onJuly 23, 2020 unless terminated earlier by the Board and may be suspended or discontinued at any time. During the three months endedApril 5, 2020 , we had no stock repurchases under the Repurchase Program. As ofApril 5, 2020 ,$197.8 million remained available for aggregate repurchases of shares under the Repurchase Program. In addition, our Board has authorized us to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans. During the three months endedApril 5, 2020 , we repurchased 66,360 shares of common stock for this purpose at an aggregate cost of$6.3 million . The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value. Any repurchased shares will be available for use in connection with corporate 37
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programs. If we continue to repurchase shares, the Repurchase Program will be funded using our existing financial resources, including cash and cash equivalents, and our senior unsecured revolving credit facility. The full impact of the ongoing COVID-19 pandemic on global financial markets is not yet known, but distressed global financial markets could adversely impact general economic conditions by reducing liquidity and credit availability, creating increased volatility in security prices, widening credit spreads and decreasing valuations of certain investments. The widening of credit spreads may create a less favorable environment for certain of our businesses and may affect the fair value of financial instruments that we issue or hold. Increases in credit spreads, as well as limitations on the availability of credit at rates we consider to be reasonable, could affect our ability to borrow under future potential facilities on a secured or unsecured basis, which may adversely affect our liquidity and results of operations. In difficult global financial markets, we may be forced to fund our operations at a higher cost, or we may be unable to raise as much funding as we need to support our business activities. During the first three months of fiscal year 2020, we contributed$2.1 million , in the aggregate, to our defined benefit pension plans outside ofthe United States and expect to contribute an additional$4.5 million by the end of fiscal year 2020. We could potentially have to make additional contributions in future periods for all pension plans. We expect to use existing cash and external sources to satisfy future contributions to our pension plans. Our pension plans have not experienced a material impact on liquidity or counterparty exposure due to the volatility and uncertainty in the credit markets. We recognize actuarial gains and losses in operating results in the fourth quarter of the year in which the gains and losses occur, unless there is an interim remeasurement required for one of our plans. It is difficult to reliably predict the magnitude of such adjustments for gains and losses in fiscal year 2020. These adjustments are primarily driven by events and circumstances beyond our control, including changes in interest rates, the performance of the financial markets and mortality assumptions. To the extent the discount rates decrease or the value of our pension and postretirement investments decrease, a loss to operations will be recorded in fiscal year 2020. Conversely, to the extent the discount rates increase or the value of our pension and postretirement investments increase more than expected, a gain will be recorded in fiscal year 2020. Cash Flows Operating Activities. Net cash provided by continuing operations was$60.1 million for the three months endedApril 5, 2020 , as compared to net cash used in continuing operations of$5.3 million for the three months endedMarch 31, 2019 , an increase in cash provided in operating activities of$65.4 million . The cash provided by operating activities for the three months endedApril 5, 2020 was principally a result of income from continuing operations of$33.7 million , and non-cash charges, including depreciation and amortization of$60.8 million , restructuring and other costs, net of$5.9 million , stock-based compensation expense of$3.1 million , amortization of deferred debt financing costs and accretion of discount of$0.7 million and a net cash increase in working capital of$29.0 million . These items were partially offset by a net cash decrease in accrued expenses, other assets and liabilities and other items and change in fair value of contingent consideration. The change in accrued expenses, other assets and liabilities and other items decreased cash provided by operating activities by$73.0 million for the three months endedApril 5, 2020 , as compared to$75.9 million for the three months endedMarch 31, 2019 . These changes primarily related to the timing of payments for pensions, taxes, restructuring, and salary and benefits, including the amortization of purchase accounting adjustments to record the inventory from certain acquisitions of$1.1 million for the three months endedApril 5, 2020 as compared to$0.3 million for the three months endedMarch 31, 2019 . For the three months endedApril 5, 2020 , the change in fair value of contingent consideration resulted in a decrease to cash provided by operating activities of$12.3 million , as compared to$3.1 million increase in cash provided for the three months endedMarch 31, 2019 . For the three months endedMarch 31, 2019 , we paid$11.8 million of stay bonuses associated with our acquisition ofTulip Diagnostics Private Limited . In addition,$6.4 million of contingent consideration payments were included in operating activities for the three months endedMarch 31, 2019 . Contributing to the net cash increase in working capital for the three months endedApril 5, 2020 , excluding the effect of foreign exchange rate fluctuations, was a decrease in accounts receivable of$80.6 million , an increase in inventory of$54.8 million , and an increase in accounts payable of$3.2 million , The decrease in accounts receivable was a result of strong accounts receivable collection during the first three months of fiscal year 2020. The increase in inventory was primarily due to seasonal inventory builds and lower than expected sales during the first three months of fiscal year 2020 due to the COVID-19 pandemic. The increase in accounts payable was primarily the result of term extensions and timing of disbursements during the first three months of fiscal year 2020. Investing Activities. Net cash used in investing activities was$22.0 million for the three months endedApril 5, 2020 , as compared to$29.2 million for the three months endedMarch 31, 2019 , a decrease of$7.2 million . For the three months endedApril 5, 2020 , the net cash used in investing activities was principally a result of cash used for capital expenditures of$20.5 million and purchases of investments of$1.6 million . These items were partially offset by$0.1 million in proceeds from disposition of businesses and assets and$0.1 million in proceeds from surrender of life insurance policies. Cash used for capital 38
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expenditures was$19.9 million for the three months endedMarch 31, 2019 . The capital expenditures in each period were primarily for manufacturing, software and other capital equipment purchases. During the three months endedMarch 31, 2019 , we used$5.0 million in cash for purchases of licenses,$4.4 million for acquisitions and$0.5 million for purchases of investments. In addition, proceeds from disposition of businesses and assets were$0.6 million for the three months endedMarch 31, 2019 . Financing Activities. Net cash used in financing activities was$24.6 million for the three months endedApril 5, 2020 , as compared to net cash provided by financing activities of$5.2 million for the three months endedMarch 31, 2019 , an increase in cash used in financing activities of$29.8 million . The cash used in financing activities during the three months endedApril 5, 2020 was a result of debt payments, payments of dividends, repurchase of our common stock pursuant to our equity incentive plans and net payments on other credit facilities. During the three months endedApril 5, 2020 , our debt payments totaled$141.0 million which were partially offset by debt borrowings of$125.0 million . This compares to debt payments of$152.0 million and debt issuance costs of$0.1 million , which were more than offset by our debt borrowings of$179.0 million during the three months endedMarch 31, 2019 . During the three months endedApril 5, 2020 , we paid$7.8 million in dividends as compared to$7.7 million for the three months endedMarch 31, 2019 . During the three months endedApril 5, 2020 , we repurchased 66,360 shares of our common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans, for a total cost of$6.3 million . This compares to repurchases of 57,289 shares of our common stock pursuant to our equity incentive plans for the three months endedMarch 31, 2019 , for a total cost of$5.3 million . During the three months endedApril 5, 2020 , we had net payments on other credit facilities of$4.3 million as compared to$3.5 million for the three months endedMarch 31, 2019 . In addition, during the three months endedMarch 31, 2019 , we paid$12.1 million for acquisition-related contingent consideration. This cash used in financing activities during the three months endedApril 5, 2020 was partially offset by proceeds from settlement of forward foreign exchange contracts and proceeds from the issuance of common stock under our stock plans. Proceeds from settlement of forward foreign exchange contracts was$8.7 million during the three months endedApril 5, 2020 , as compared to payments of$1.7 million for settlement of forward foreign exchange contracts for the three months endedMarch 31, 2019 . Proceeds from the issuance of common stock under our stock plans was$1.1 million during the three months endedApril 5, 2020 as compared to$8.6 million for the three months endedMarch 31, 2019 . Borrowing Arrangements Senior Unsecured Revolving Credit Facility. Our senior unsecured revolving credit facility provides for$1.0 billion of revolving loans that may be either US Dollar Base Rate loans or Eurocurrency Rate loans, as those terms are defined in the credit agreement, and has an initial maturity ofSeptember 16, 2024 . As ofApril 5, 2020 , undrawn letters of credit in the aggregate amount of$11.4 million were treated as issued and outstanding when calculating the borrowing availability under the facility. As ofApril 5, 2020 , we had$681.4 million available for additional borrowing under the facility. We plan to use the senior unsecured revolving credit facility for general corporate purposes, which may include working capital, refinancing existing indebtedness, capital expenditures, share repurchases, acquisitions and strategic alliances. The interest rates on the Eurocurrency Rate loans are based on the Eurocurrency Rate at the time of borrowing, plus a percentage spread based on the credit rating of our debt. The interest rates on the US Dollar Base Rate loans are based on the US Dollar Base Rate at the time of borrowing, plus a percentage spread based on the credit rating of our debt. The base rate is the higher of (i) the Federal Funds Rate (as defined in the credit agreement) plus 50 basis points (ii) the rate of interest in effect for such day as publicly announced from time to time byBank of America as its "prime rate," or (iii) the Eurocurrency Rate plus 1.00%. The Eurocurrency margin as ofApril 5, 2020 was 101.5 basis points. The weighted average Eurocurrency interest rate as ofApril 5, 2020 was 0.85%, resulting in a weighted average effective Eurocurrency Rate, including the margin, of 1.86%, which was the interest applicable to the borrowings outstanding as ofApril 5, 2020 . As ofApril 5, 2020 , the senior unsecured revolving credit facility had outstanding borrowings of$307.2 million , and$3.2 million of unamortized debt issuance costs. As ofDecember 29, 2019 , the senior unsecured revolving credit facility had outstanding borrowings of$325.4 million , and$3.4 million of unamortized debt issuance costs. The credit agreement for the facility contains affirmative, negative and financial covenants and events of default. The financial covenants include a debt-to-capital ratio that remains applicable for so long as our debt is rated as investment grade. In the event that our debt is not rated as investment grade, the debt-to-capital ratio covenant is replaced with a maximum consolidated leverage ratio covenant and a minimum consolidated interest coverage ratio covenant. We were in compliance with all applicable debt covenants as ofApril 5, 2020 . 1.875% Senior Unsecured Notes due 2026. OnJuly 19, 2016 , we issued €500.0 million aggregate principal amount of senior unsecured notes due in 2026 (the "2026 Notes") in a registered public offering and received approximately €492.3 million of net proceeds from the issuance. The 2026 Notes were issued at 99.118% of the principal amount, which resulted in a discount of €4.4 million. The 2026 Notes mature inJuly 2026 and bear interest at an annual rate of 1.875%. Interest on the 2026 Notes is payable annually onJuly 19th each year. The proceeds from the 2026 Notes were used to pay in full the 39
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outstanding balance of our previous senior unsecured revolving credit facility. As ofApril 5, 2020 , the 2026 Notes had an aggregate carrying value of$532.9 million , net of$3.2 million of unamortized original issue discount and$3.2 million of unamortized debt issuance costs. As ofDecember 29, 2019 , the 2026 Notes had an aggregate carrying value of$552.2 million , net of$3.5 million of unamortized original issue discount and$3.3 million of unamortized debt issuance costs. Prior toApril 19, 2026 (three months prior to their maturity date), we may redeem the 2026 Notes in whole at any time or in part from time to time, at our option, at a redemption price equal to the greater of (i) 100% of the principal amount of the 2026 Notes to be redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest in respect to the 2026 Notes being redeemed, discounted on an annual basis, at the applicable Comparable Government Bond Rate (as defined in the indenture governing the 2026 Notes) plus 35 basis points; plus, in each case, accrued and unpaid interest. In addition, at any time on or afterApril 19, 2026 (three months prior to their maturity date), we may redeem the 2026 Notes, at our option, at a redemption price equal to 100% of the principal amount of the 2026 Notes due to be redeemed plus accrued and unpaid interest. Upon a change of control (as defined in the indenture governing the 2026 Notes) and a contemporaneous downgrade of the 2026 Notes below investment grade, we will, in certain circumstances, make an offer to purchase the 2026 Notes at a price equal to 101% of their principal amount plus any accrued and unpaid interest. 0.6% Senior Unsecured Notes due in 2021. OnApril 11, 2018 , we issued €300.0 million aggregate principal amount of senior unsecured notes due in 2021 (the "2021 Notes") in a registered public offering and received approximately €298.7 million of net proceeds from the issuance. The 2021 Notes were issued at 99.95% of the principal amount, which resulted in a discount of €0.2 million. As ofApril 5, 2020 , the 2021 Notes had an aggregate carrying value of$322.6 million , net of$0.1 million of unamortized original issue discount and$0.9 million of unamortized debt issuance costs. As ofDecember 29, 2019 , the 2021 Notes had an aggregate carrying value of$334.2 million , net of$0.1 million of unamortized original issue discount and$1.1 million of unamortized debt issuance costs. The 2021 Notes mature inApril 2021 and bear interest at an annual rate of 0.6%. Interest on the 2021 Notes is payable annually onApril 9th each year. Prior to the maturity date of the 2021 Notes, we may redeem them in whole at any time or in part from time to time, at our option, at a redemption price equal to the greater of (i) 100% of the principal amount of the 2021 Notes to be redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest in respect to the 2021 Notes being redeemed, discounted on an annual basis, at the applicable Comparable Government Bond Rate (as defined in the indenture governing the 2021 Notes) plus 15 basis points; plus, in each case, accrued and unpaid interest. Upon a change of control (as defined in the indenture governing the 2021 Notes) and a contemporaneous downgrade of the 2021 Notes below investment grade, we will, in certain circumstances, make an offer to purchase the 2021 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest. 3.3% Senior Unsecured Notes due in 2029. OnSeptember 12, 2019 , we issued$850.0 million aggregate principal amount of senior unsecured notes due in 2029 (the "2029 Notes") in a registered public offering and received$847.2 million of net proceeds from the issuance. The 2029 Notes were issued at 99.67% of the principal amount, which resulted in a discount of$2.8 million . As ofApril 5, 2020 , the 2029 Notes had an aggregate carrying value of$839.9 million , net of$2.7 million of unamortized original issue discount and$7.4 million of unamortized debt issuance costs. As ofDecember 29, 2019 , the 2029 Notes had an aggregate carrying value of$839.9 million , net of$2.7 million of unamortized original issue discount and$7.4 million of unamortized debt issuance costs. The 2029 Notes mature inSeptember 2029 and bear interest at an annual rate of 3.3%. Interest on the 2029 Notes is payable semi-annually onMarch 15th andSeptember 15th each year. Proceeds from the 2029 Notes were used to repay all outstanding borrowings under our previous senior unsecured revolving credit facility with the remaining proceeds used in the redemption of the 5% senior unsecured notes that were due inNovember 2021 . Prior toJune 15, 2029 (three months prior to their maturity date), we may redeem the 2029 Notes in whole or in part, at our option, at a redemption price equal to the greater of (i) 100% of the principal amount of the 2029 Notes to be redeemed, and (ii) the sum of the present values of the remaining scheduled payments of principal and interest in respect to the 2029 Notes being redeemed (not including any portion of such payments of interest accrued but unpaid as of the date of redemption) assuming that such 2029 Notes matured onJune 15, 2029 , discounted at the date of redemption on a semi-annual basis (assuming a 360-day year of twelve 30-day months), at the Treasury Rate (as defined in the indenture governing the 2029 Notes) plus 25 basis points, plus accrued and unpaid interest. At any time on or afterJune 15, 2029 (three months prior to their maturity date), we may redeem the 2029 Notes, at our option, at a redemption price equal to 100% of the principal amount of the 2029 Notes to be redeemed plus accrued and unpaid interest. Upon a change of control (as defined in the indenture governing the 2029 Notes) and a contemporaneous downgrade of the 2029 Notes below investment grade, each holder of 2029 Notes will have the right to require us to repurchase such holder's 2029 Notes for 101% of their principal amount, plus accrued and unpaid interest. Other Debt Facilities. Our other debt facilities include Euro-denominated bank loans with an aggregate carrying value of$19.7 million (or €18.2 million) and$23.8 million (or €21.3 million) as ofApril 5, 2020 andDecember 29, 2019 , respectively. These bank loans are primarily utilized for financing fixed assets and are required to be repaid in monthly or quarterly installments with maturity dates extending to 2028. Of these bank loans, loans in the aggregate amount of$19.6 million bear fixed interest rates between 1.1% and 4.3% and a loan in the amount of$0.1 million bears a variable interest rate based on the 40
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Euribor rate plus a margin of 1.5%. An aggregate amount of$5.3 million of the bank loans are secured by mortgages on real property and the remaining$14.4 million are unsecured. Certain credit agreements for the unsecured bank loans include financial covenants which are based on an equity ratio or an equity ratio and minimum interest coverage ratio. We were in compliance with all applicable debt covenants as ofApril 5, 2020 . In addition, we had secured bank loans in the aggregate amount of$1.1 million and$1.9 million as ofApril 5, 2020 andDecember 29, 2019 , respectively. The secured bank loans of$1.1 million bear fixed annual interest rates between 1.95% and 20.0% and are required to be repaid in monthly installments until 2027.
Dividends
Our Board declared a regular quarterly cash dividend of$0.07 per share for the first quarter of fiscal year 2020 and in each quarter of fiscal year 2019. AtApril 5, 2020 , we had accrued$7.8 million for dividends declared onJanuary 23, 2020 for the first quarter of fiscal year 2020 that were paid onMay 8, 2020 . OnApril 30, 2020 , we announced that our Board had declared a quarterly dividend of$0.07 per share for the second quarter of fiscal year 2020 that will be payable inAugust 2020 . 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. Contractual Obligations Our contractual obligations, as described in the contractual obligations table contained in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2019 Form 10-K have not changed materially.
Effects of Recently Adopted and Issued Accounting Pronouncements See Note 1, Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements for a summary of recently adopted and issued accounting pronouncements.
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