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 and as a result, certain fiscal years will contain 53
weeks. Each of the fiscal years ended January 2, 2022 ("fiscal year 2021") and
December 29, 2019 ("fiscal year 2019") included 52 weeks. The fiscal year ended
January 3, 2021 ("fiscal year 2020") included 53 weeks. The fiscal year ending
January 1, 2023 ("fiscal year 2022") will include 52 weeks.
Overview of Fiscal Year 2021
During fiscal year 2021, we continued to see strong returns from our
acquisitions as well as our organic investments across technology, marketing and
people. Our overall revenue in fiscal year 2021 increased $1,284.4 million, or
34%, as compared to fiscal year 2020, reflecting an increase of $865.0 million,
or 42%, in our Diagnostics segment revenue and an increase of $419.4 million, or
24%, in our Discovery & Analytical Solutions segment revenue. Revenue from our
2021 acquisitions contributed $219.7 million to the increase in our overall
revenue during fiscal year 2021. The increase in our Diagnostics segment revenue
during fiscal year 2021 was primarily driven by increased demand for our
COVID-19 product offerings resulting in an increase of $749.0 million in our
immunodiagnostics revenue. Our Diagnostics segment revenue also increased during
fiscal year 2021 due to growth in our core product offerings resulting in an
increase of $61.9 million in our reproductive health revenue and an increase of
$54.2 million in our applied genomics revenue. Revenue from our 2021
acquisitions contributed $95.5 million to the increase in our Diagnostics
segment revenue during fiscal year 2021. The increase in our Discovery &
Analytical Solutions segment revenue during fiscal year 2021 was driven by an
increase of $305.1 million in our life sciences market revenue and an increase
of $114.3 million in our applied markets revenue. Revenue from our 2021
acquisitions contributed $124.3 million to the increase in our Discovery &
Analytical Solutions segment revenue during fiscal year 2021.
In our Diagnostics segment, we experienced tremendous demand for our
immunodiagnostics COVID-19 product offerings, particularly in the Americas,
partially offset by a decline in demand for these product offerings in the
Asia-Pacific region. We also experienced strong growth in our immunodiagnostics
and applied genomics core product and service offerings across all regions. In
our reproductive health business, an expanded range of product offerings and
increased geographic reach more than offset the impact of declining birthrates.
In our Discovery & Analytical Solutions segment, the increase in our life
sciences market revenue was the result of an increase in revenue in our
pharmaceutical and biotechnology markets, as well as an increase in revenue from
our Informatics business. The increase in our applied markets revenue was driven
by increased demand from our industrial, environmental and food markets.
Our consolidated gross margins increased 49 basis points in fiscal year 2021, as
compared to fiscal year 2020, primarily due to higher sales volume, a favorable
shift in product mix and continued productivity initiatives to improve our
supply chain, partially offset by increased amortization expense. Our
consolidated operating margin increased 42 basis points in fiscal year 2021, as
compared to fiscal year 2020, primarily due to higher sales volume leverage and
increased sales of our COVID-19 products offerings, which were partially offset
by increased amortization of intangible assets, investments in new product
development and growth initiatives.
Overall, we believe that our strategic priorities and recent portfolio
transformations, coupled with our expanded range of product offerings, leading
market positions, global scale and financial strength provides us with a
foundation for continued revenue growth, strong margins and cash flows, and
long-term earnings per share growth.
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Consolidated Results of Operations
Fiscal Year 2021 Compared to Fiscal Year 2020
Revenue
Revenue for fiscal year 2021 was $5.1 billion, as compared to $3.8 billion for
fiscal year 2020, an increase of $1.3 billion, or 34%, which includes an
approximate 8% increase in revenue attributable to acquisitions and
divestitures, and a 1% increase in revenue attributable to favorable changes in
foreign exchange rates. Revenue from our 2021 acquisitions contributed $219.7
million to the increase in our overall revenue during fiscal year 2021. The
analysis in the remainder of this paragraph compares segment revenue for fiscal
year 2021 as compared to fiscal year 2020 and includes the effect of foreign
exchange rate fluctuations, and acquisitions and divestitures. The total
increase in revenue reflects an increase in our Diagnostics segment revenue of
$865.0 million, or 42%, due to increased demand for our COVID-19 product
offerings resulting in an increase of $749.0 million in our immunodiagnostics
revenue. Our Diagnostics segment revenue also increased during fiscal year 2021
due to growth in our core product offerings resulting in an increase of $61.9
million in our reproductive health revenue and an increase of $54.2 million in
our applied genomics revenue. Our Discovery & Analytical Solutions segment
revenue increased by $419.4 million, or 24%, due to an increase of $305.1
million from our life sciences market revenue and an increase of $114.3 million
from our applied markets revenue. As a result of adjustments to deferred revenue
related to certain acquisitions required by business combination rules, we did
not recognize $0.8 million of revenue primarily related to our Diagnostics
segment for each of fiscal years 2021 and 2020 and $1.8 million and $0.3 million
of revenue primarily related to our Discovery & Analytical Solutions segment in
fiscal years 2021 and 2020 that otherwise would have been recorded by the
acquired businesses during each of the respective periods.
Cost of Revenue
Cost of revenue for fiscal year 2021 was $2.2 billion, as compared to $1.7
billion for fiscal year 2020, an increase of approximately $543.0 million, or
32%. As a percentage of revenue, cost of revenue decreased to 43.7% in fiscal
year 2021 from 44.2% in fiscal year 2020, resulting in an increase in gross
margin of approximately 49 basis points to 56.3% in fiscal year 2021 from 55.8%
in fiscal year 2020. Amortization of intangible assets increased and was $115.1
million for fiscal year 2021, as compared to $65.3 million for fiscal year 2020.
Amortization of intangible assets from our 2021 acquisitions amounted to $34.0
million. The amortization of purchase accounting adjustments to record the
inventory from certain acquisitions added an incremental expense of $35.2
million for fiscal year 2021, as compared to $2.8 million for fiscal year 2020.
Other purchase accounting adjustments added an incremental expense of $1.8
million for fiscal year 2021, of which $1.6 million was acquisition-related
stock compensation and $0.2 million was increased depreciation on property,
plant and equipment. Asset impairment was $7.9 million for fiscal year 2020. In
addition to the factors noted above, the overall increase in gross margin was
primarily the result of higher sales volume, a favorable shift in product mix
and continued productivity initiatives to improve our supply chain, partially
offset by increased amortization expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal year 2021 were $1,227.5
million, as compared to $917.9 million for fiscal year 2020, an increase of
approximately $309.6 million, or 33.7%. As a percentage of revenue, selling,
general and administrative expenses decreased to 24.2% in fiscal year 2021 from
24.3% in fiscal year 2020. Amortization of intangible assets increased to $175.1
million for fiscal year 2021, as compared to $127.3 million for fiscal year
2020. Amortization of intangible assets from our 2021 acquisitions amounted to
$37.2 million. Acquisition and divestiture-related expenses added an incremental
expense of $83.4 million for fiscal year 2021, of which $3.9 million was
acquisition-related stock compensation, as compared to acquisition and
divestiture-related expenses increasing expenses by $8.7 million for fiscal year
2020. Purchase accounting adjustments added an incremental expense of $3.2
million for fiscal year 2021, of which $3.1 million was change in contingent
consideration and $0.1 million was increased depreciation on property, plant and
equipment, as compared to purchase accounting adjustments decreasing expenses by
$8.8 million for fiscal year 2020, which was attributable to change in
contingent consideration. Asset impairment costs added an incremental expense of
$3.9 million for fiscal year 2021. Legal costs for significant litigation
matters and settlements were $0.1 million for fiscal year 2021, as compared to
$7.1 million for fiscal year 2020. Costs for significant environmental matters
were $5.2 million for fiscal year 2020. In addition to the above items, the
increase in selling, general and administrative expenses was primarily the
result of costs related to investments in people, digital capabilities and
innovation, and recent acquisitions amplified by pandemic-related cost controls
and disruptions in the prior year.
Research and Development Expenses
Research and development expenses for fiscal year 2021 were $275.0 million, as
compared to $205.4 million for fiscal year 2020, an increase of $69.6 million,
or 33.9%. Research and development expenses from our 2021 acquisitions were
$25.4
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million. As a percentage of revenue, research and development expenses were flat
at 5.4% in each of fiscal years 2021 and 2020. Stock compensation related to our
acquisitions added an incremental expense of $1.4 million in fiscal year 2021.
Purchase accounting adjustments for depreciation on property, plant and
equipment added an incremental expense of $0.1 million in fiscal year 2021.
The increase in research and development expenses was driven by our investments
in new product development.
Restructuring and Other Costs, Net
We have undertaken a series of restructuring actions related to the impact of
acquisitions and divestitures, the alignment of our operations with our growth
strategy and the integration of our business units and productivity initiatives.
Restructuring and other costs, net were $16.4 million for fiscal year 2021 as
compared to $8.0 million for fiscal year 2020.
We implemented restructuring plans in fiscal years 2021 and 2020, consisting of
workforce reductions principally intended to realign resources to emphasize
growth initiatives and integrate new acquisitions.
We have also terminated various contractual commitments in connection with
certain disposal activities and relocating operations and have recorded charges,
to the extent applicable, for the costs of terminating these contracts before
the end of their terms and the costs that will continue to be incurred for the
remaining terms without economic benefit to us. The aggregate charges for these
actions totaled $0.2 million during fiscal year 2020. See Note 4, Restructuring
and Other Costs, Net, in the Notes to Consolidated Financial Statements for
further discussion of the restructuring activities.
Interest and Other Expense, Net
Interest and other expense, net, consisted of the following for the fiscal years
ended:
January 2, January 3,
2022 2021
(In thousands)
Interest income $ (2,241) $ (1,010)
Interest expense including costs of bridge financing 102,128 49,712
Change in fair value of financial securities (10,985) (35)
Other components of net periodic pension (credit) cost (39,767) 18,833
Other expense, net 3,357 4,717
Total interest and other expense, net $ 52,492 $ 72,217
The decrease of $19.7 million in interest and other expense, net, in fiscal year
2021 as compared to fiscal year 2020 was largely due to a net pension credit of
$39.8 million in fiscal year 2021 as compared to a net pension cost of $18.8
million in fiscal year 2020, a decrease in other expense, net of $1.4 million
and a change in fair value of financial securities of $11.0 million, partially
offset by an increase of $52.4 million in interest expense in fiscal year 2021.
The increase of $52.4 million in interest expense in fiscal year 2021 was the
result of $23.4 million of costs of bridge financing and debt pre-issuance
hedges that were recognized in fiscal year 2021 and interest expense from new
debt in fiscal year 2021. A more complete discussion of our liquidity is set
forth below under the heading "Liquidity and Capital Resources."
Provision for Income Taxes
The effective tax rates on continuing operations were 26.3% and 19.7% for fiscal
years 2021 and 2020, respectively. Certain of our subsidiaries have, at various
times, been granted tax relief in their respective countries, resulting in lower
income taxes than would otherwise be the case under ordinary tax rates. A
reconciliation of income tax expense at the U.S. federal statutory income tax
rate to the recorded tax provision is as follows for the fiscal years ended:
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January 2, January 3,
2022 2021
(In thousands)
Tax at statutory rate $ 268,776 $ 190,339
Non-U.S. rate differential, net (34,676) (40,216)
U.S. taxation of multinational operations 9,731 9,050
State income taxes, net 37,907 13,306
Prior year tax matters 3,068 8,262
Effect of stock compensation (2,961) (8,818)
General business tax credits (4,277) (4,136)
Change in valuation allowance 3,070 10
Rate change on long term intangibles 14,031 -
Effect of foreign operations 37,147 -
Foreign consolidations - 15,222
Others, net 4,787 (4,753)
Total $ 336,603 $ 178,266 The variation in our effective tax rate for fiscal year 2021 is primarily
affected by the recognition of $37.1 million in U.S. federal, U.S. state and
non-U.S. taxes due when we repatriate foreign earnings that we no longer
consider indefinitely reinvested. We also recognized $19.0 million in fiscal
year 2021 and $21.8 million in fiscal year 2020 of benefits derived from tax
holidays in China and Singapore. The effect of these benefits, derived from tax
holidays, on basic and diluted earnings per share for fiscal year 2021 was $0.16
and $0.16, respectively, and for fiscal year 2020 was $0.20 and $0.19,
respectively. The tax holiday in China is renewed every three years. We expect
to renew the tax holiday for two of our subsidiaries in China that expired in
fiscal year 2021. The tax holiday for one of our subsidiaries in Singapore is
scheduled to expire in fiscal year 2023.
Fiscal Year 2020 Compared to Fiscal Year 2019
For a discussion of our results of operations for fiscal year 2020 as compared
to fiscal year 2019, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations in our annual report on Form 10-K
for the fiscal year ended January 3, 2021 filed with the Securities and Exchange
Commission on March 2, 2021.
Business Combinations
Acquisitions in fiscal year 2021
Acquisition of BioLegend, Inc. In fiscal year 2021, we completed the acquisition
of BioLegend, Inc. ("BioLegend") for an aggregate consideration of $5.7 billion.
BioLegend's revenue and net loss for the period from the acquisition date to
January 2, 2022 were $91.7 million and $25.8 million, respectively.
Other acquisitions in 2021. During fiscal year 2021, we also completed the
acquisition of seven other businesses for aggregate consideration of $1.2
billion. The acquired businesses include Oxford Immunotec Global PLC for a total
consideration of $590.9 million and Nexcelom Bioscience Holdings, LLC for a
total consideration of $267.3 million, and five other businesses, which were
acquired for a total consideration of $331.0 million.
Acquisitions in Fiscal Year 2020
During fiscal year 2020, we completed the acquisition of four businesses for
aggregate consideration of $438.9 million. The acquired businesses include
Horizon Discovery Group plc ("Horizon"), a company based in Cambridge, UK with
approximately 400 employees, which was acquired on December 23, 2020 for a total
consideration of $399.8 million (£296.0 million), and three other businesses
which were acquired for a total consideration of $39.1 million.
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See Note 3, Business Combinations, in the Notes to Consolidated Financial
Statements for a detailed discussion of our acquisitions.
Reporting Segment Results of Continuing Operations
Discovery & Analytical Solutions
Fiscal Year 2021 Compared to Fiscal Year 2020
Revenue for fiscal year 2021 was $2,135.2 million, as compared to $1,715.8
million for fiscal year 2020, an increase of $419.4 million, or 24%, which
includes an approximate 12% increase in revenue attributable to acquisitions and
divestitures and a 1% increase in revenue attributable to favorable changes in
foreign exchange rates. Revenue from our 2021 acquisitions contributed $124.3
million to the increase in our Discovery & Analytical Solutions segment revenue
during fiscal year 2021. As a result of adjustments to deferred revenue related
to certain acquisitions required by business combination rules, we did not
recognize $1.8 million and $0.3 million of revenue primarily related to our
Discovery & Analytical Solutions segment for fiscal years 2021 and 2020,
respectively, that otherwise would have been recorded by the acquired businesses
during the period. The analysis in the remainder of this paragraph compares
revenue by end-market for fiscal year 2021, as compared to fiscal year 2020, and
includes the effect of foreign exchange fluctuations and acquisitions and
divestitures. The increase in revenue in our Discovery & Analytical Solutions
segment was a result of an increase of $305.1 million in our life sciences
market revenue and an increase of $114.3 million in our applied markets revenue.
The increase in our life sciences market revenue was the result of an increase
in revenue in our pharmaceutical and biotechnology markets driven by continued
growth of our Informatics business. The increase in our applied markets revenue
was driven by increased demand from our industrial, environmental and food
markets.
Operating income from continuing operations for fiscal year 2021 was $189.8
million, as compared to $183.5 million for fiscal year 2020, an increase of $6.3
million, or 3%. Amortization of intangible assets increased to $113.8 million
for fiscal year 2021 as compared to $76.3 million for fiscal year 2020.
Amortization of intangible assets from our 2021 acquisitions amounted to $55.1
million. The amortization of purchase accounting adjustments to record the
inventory from certain acquisitions added an incremental expense of $23.8
million in fiscal year 2021, as compared to $1.3 million for fiscal year 2020.
Acquisition and divestiture-related costs, contingent consideration and other
costs added an incremental expense of $76.6 million for fiscal year 2021, as
compared to decreasing expenses by $4.0 million for fiscal year 2020. Legal
costs for significant litigation matters and settlements were $5.9 million for
fiscal year 2020. Restructuring and other costs, net were $11.3 million for
fiscal year 2021 as compared to $3.8 million for fiscal year 2020. Excluding the
factors noted above, the overall increase in operating income for fiscal year
2021 as compared to fiscal year 2020, was primarily as a result of higher sales
volume and favorable product mix, partially offset by increased investments in
new product development and growth initiatives.
Fiscal Year 2020 Compared to Fiscal Year 2019
For a discussion of our results of operations for fiscal year 2020 as compared
to fiscal year 2019, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations in our annual report on Form 10-K
for the fiscal year ended January 3, 2021 filed with the Securities and Exchange
Commission on March 2, 2021.
Diagnostics
Fiscal Year 2021 Compared to Fiscal Year 2020
Revenue for fiscal year 2021 was $2,931.9 million, as compared to $2,066.9
million for fiscal year 2020, an increase of $865.0 million, or 42%, which
includes an approximate 5% increase in revenue attributable to acquisitions and
divestitures and a 2% increase in revenue attributable to favorable changes in
foreign exchange rates. Revenue from our 2021 acquisitions contributed $95.5
million to the increase in our Diagnostics segment revenue during fiscal year
2021. As a result of adjustments to deferred revenue related to certain
acquisitions required by business combination rules, we did not recognize $0.8
million of revenue for each of fiscal years 2021 and 2020 that otherwise would
have been recorded by the acquired businesses during each of the respective
periods. The increase in our Diagnostics segment revenue during fiscal year 2021
was primarily driven by increased demand for our COVID-19 product offerings
resulting in an increase of $749.0 million in our immunodiagnostics revenue. Our
Diagnostics segment revenue also increased during fiscal year 2021 due to growth
in our core product offerings resulting in an increase of $61.9 million in our
reproductive health revenue and an increase of $54.2 million in our applied
genomics revenue.
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Operating income from continuing operations for fiscal year 2021 was $1,219.9
million, as compared to $874.2 million for fiscal year 2020, an increase of
$345.7 million, or 40%. Amortization of intangible assets increased and was
$176.5 million for fiscal year 2021 as compared to $116.3 million for fiscal
year 2020. Amortization of intangible assets from our 2021 acquisitions amounted
to $16.2 million. Restructuring and other costs, net increased and were $5.1
million for fiscal year 2021 as compared to $4.3 million for fiscal year 2020.
Acquisition and divestiture-related expenses, contingent consideration and other
costs added an incremental expense of $15.9 million in fiscal year 2021, as
compared to an incremental expense of $5.0 million for fiscal year 2020. The
amortization of purchase accounting adjustments to record the inventory from
certain acquisitions added an incremental expense of $11.4 million in fiscal
year 2021, as compared to $1.5 million for fiscal year 2020. Legal costs for
significant litigation matters and settlements were $0.1 million for fiscal year
2021, as compared to $1.2 million for fiscal year 2020. Asset impairment was
$3.9 million for fiscal year 2021, as compared to $7.9 million for fiscal year
2020. Excluding the factors noted above, operating income increased during
fiscal year 2021, as compared to fiscal year 2020, primarily as a result of
higher sales volume and favorable product mix, partially offset by increased
investments in new product development and growth initiatives.
Fiscal Year 2020 Compared to Fiscal Year 2019
For a discussion of our results of operations for fiscal year 2020 as compared
to fiscal year 2019, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations in our annual report on Form 10-K
for the fiscal year ended January 3, 2021 filed with the Securities and Exchange
Commission on March 2, 2021.
Liquidity and Capital Resources
We require cash to pay our operating expenses, make capital expenditures, make
strategic acquisitions, service our debt and other long-term liabilities,
repurchase shares of our common stock and pay dividends on our common stock. Our
principal sources of funds are cash flows from our operations, borrowing
capacity available under our senior unsecured credit facility and access to the
debt markets. We anticipate that our internal operations will generate
sufficient cash to fund our operating expenses, capital expenditures, smaller
acquisitions, interest payments on our debt and dividends on our common stock.
However, we expect to use external sources to satisfy the balance of our debt
when due, any larger acquisitions and other long-term liabilities, such as
contributions to our postretirement benefit plans.
We and our subsidiaries and affiliates may from time to time, in our sole
discretion, purchase, repay, redeem or retire any of our outstanding debt
securities (including any publicly issued debt securities), in privately
negotiated or open market transactions, by tender offer or otherwise, or extend
or refinance any of our outstanding indebtedness.
Principal factors that could affect the availability of our internally generated
funds include:
•changes in sales due to weakness in markets in which we sell our products and
services, and
•changes in our working capital requirements.
Principal factors that could affect our ability to obtain cash from external
sources include:
•financial covenants contained in the financial instruments controlling our
borrowings that limit our total borrowing capacity,
•increases in interest rates applicable to our outstanding variable rate debt,
•a ratings downgrade that could limit the amount we can borrow under our senior
unsecured revolving credit facility and our overall access to the corporate debt
market,
•increases in interest rates or credit spreads, as well as limitations on the
availability of credit, that affect our ability to borrow under future potential
facilities on a secured or unsecured basis,
•a decrease in the market price for our common stock, and
•volatility in the public debt and equity markets.
Cash Flows
Fiscal Year 2021 Compared to Fiscal Year 2020
Operating Activities. Net cash provided by continuing operations was $1,410.8
million for fiscal year 2021, as compared to $892.2 million for fiscal year
2020, an increase of $518.6 million. The cash provided by operating activities
for fiscal year 2021 was principally a result of income from continuing
operations of $943.3 million, adjustments for non-cash charges
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aggregating to $363.1 million, including depreciation and amortization of $358.0
million, and a net cash increase in working capital of $104.4 million. During
fiscal year 2021, $1.7 million of contingent consideration payments were
included in operating activities. During fiscal year 2021, we contributed $6.9
million, in the aggregate, to pension plans outside of the United States, and
$20.0 million to our defined benefit pension plan in the United States for the
plan year 2019.
Investing Activities. Net cash used in the investing activities of our
continuing operations was $4,112.8 million for fiscal year 2021, as compared to
$504.5 million for fiscal year 2020, an increase of $3,608.3 million. For fiscal
year 2021, we used $3,991.3 million of net cash for acquisitions, as compared to
$411.5 million used in fiscal year 2020. Capital expenditures for fiscal year
2021 were $99.9 million, primarily for manufacturing equipment and other capital
equipment purchases, as compared to $77.5 million for fiscal year 2020. During
fiscal year 2021, we purchased investments amounting to $23.1 million as
compared to $20.1 million in fiscal year 2020. These items were partially offset
by $1.5 million in proceeds from disposition of businesses and assets in fiscal
year 2021, as compared to $4.3 million in fiscal year 2020, and by proceeds from
surrender of life insurance policies of $0.1 million in fiscal year 2021, as
compared to $0.3 million in fiscal year 2020.
Financing Activities. Net cash provided by the financing activities of our
continuing operations was $2,941.7 million for fiscal year 2021, as compared to
net cash used in the financing activities of our continuing operations of $202.9
million for fiscal year 2020, an increase of $3,144.5 million in net cash used
in financing activities. The cash provided by financing activities during fiscal
year 2021 was a result of proceeds from the sale of unsecured senior notes,
proceeds from borrowings, proceeds from a term loan and proceeds from the
issuance of common stock under stock plans. During fiscal year 2021, proceeds
from the sale of unsecured senior notes were $3,086.1 million, our proceeds from
debt borrowings totaled $1,400.3 million and proceeds from a term loan were
$500.0 million. These were partially offset by payments on borrowings of
$1,559.1 million, payments of senior unsecured notes of $339.6 million and debt
issuance costs of $31.0 million during fiscal year 2021. This compares to debt
borrowings of $714.7 million, which were more than offset by debt payments of
$897.7 million during fiscal year 2021. Proceeds from the issuance of common
stock under our stock plans were $25.1 million during fiscal year 2021, as
compared to $37.7 million for fiscal year 2020. This cash provided by financing
activities during fiscal year 2021 was partially offset by repurchases of our
common stock, payments of dividends, net payments on other credit facilities
settlement of swap and settlement of cash flow hedges. During fiscal year 2021,
we repurchased 433,000 shares of common stock under the Repurchase Program and
71,248 shares of our common stock to satisfy minimum statutory tax withholding
obligations in connection with the vesting of restricted stock awards and
restricted stock unit awards granted pursuant to our equity incentive plans and
to satisfy obligations related to the exercise of stock options made pursuant to
our equity incentive plans, for a total cost of $73.1 million. This compares to
repurchases of 72,251 shares of our common stock pursuant to our equity
incentive plans in fiscal year 2020, for a total cost of $6.9 million. During
fiscal year 2021, we paid $32.4 million in dividends as compared to $31.2
million for fiscal year 2020. During fiscal year 2021, we paid $14.3 million for
settlement of a swap. During fiscal year 2021, we had net payments on other
credit facilities of $13.7 million as compared to $4.5 million for fiscal year
2020. We paid $4.5 million in settlement of hedges during fiscal year 2021 as
compared to $4.6 million for fiscal year 2020. During fiscal year 2021, we paid
$2.2 million for acquisition-related contingent consideration as compared to
$10.4 million in fiscal year 2020.
Fiscal Year 2020 Compared to Fiscal Year 2019
For a discussion of our results of operations for fiscal year 2020 as compared
to fiscal year 2019, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations in our annual report on Form 10-K
for the fiscal year ended January 3, 2021 filed with the Securities and Exchange
Commission on March 2, 2021.
Borrowing Arrangements
See Note 13, Debt, in the Notes to Consolidated Financial Statements for a
detailed discussion of our borrowing arrangements.
Dividends
Our Board of Directors (our "Board") declared a regular quarterly cash dividend
of $0.07 per share in each quarter of fiscal years 2021 and 2020, resulting in
an annual dividend rate of $0.28 per share. At January 2, 2022, we had
accrued $8.8 million for a dividend declared in October 2021 for
the fourth quarter of fiscal year 2021 that was paid in February 2022. On
January 27, 2022, we announced that our Board had declared a quarterly dividend
of $0.07 per share for the first quarter of fiscal year 2022 that will be
payable in May 2022. In the future, our Board may determine to reduce or
eliminate our common stock dividend in order to fund investments for growth,
repurchase shares or conserve capital resources.
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Capital Expenditures
During fiscal year 2022, we expect to invest an amount for capital expenditures
similar to that in fiscal year 2021, primarily to introduce new products, to
improve our operating processes, to shift the production capacity to lower cost
locations, and to develop information technology. We expect to use our available
cash and internally generated funds to fund these expenditures.
Other Potential Liquidity Considerations
At January 2, 2022, we had cash and cash equivalents of $618.3 million, of which
$526.3 million was held by our non-U.S. subsidiaries, and we had $1.5 billion of
additional borrowing capacity available under a senior unsecured revolving
credit facility. We had no other liquid investments at January 2, 2022.
We utilize a variety of tax planning and financing strategies to ensure that our
worldwide cash is available in the locations in which it is needed. We use our
non-U.S. cash for needs outside of the U.S. including foreign operations,
capital investments, acquisitions and repayment of debt. In addition, we also
transfer cash to the U.S. using nontaxable returns of capital, distributions of
previously taxed income, as well as dividends, where the related income tax cost
is managed efficiently.
Prior to enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), we did
not provide deferred income tax expense on the cumulative undistributed earnings
of our international subsidiaries. At December 31, 2017, we accrued for a
one-time transition tax expense of $85.0 million on our unremitted foreign
earnings in accordance with the Tax Act. The U.S. Treasury subsequently issued
regulations on the Tax Act and we recorded tax expense (benefit) of $2.7 million
and $(4.6) million during fiscal years 2019 and 2018, respectively. We continue
to make our scheduled tax payments associated with this one-time transition tax
expense accrual.
As of January 2, 2022, we evaluated our undistributed foreign earnings and
identified approximately $1.2 billion in earnings that we no longer considered
indefinitely reinvested. We intend to begin repatriating such earnings to the
U.S., in whole or in part, during fiscal year 2022. In doing so, we have
recorded a provision of approximately $37.1 million for the U.S. federal, U.S.
state and non-U.S. taxes that would fall due when such earnings are repatriated.
No additional income tax expense has been provided for any remaining
undistributed foreign earnings, or any additional outside basis difference
inherent in these entities, as these amounts continue to be indefinitely
reinvested.
On July 31, 2020, our Board authorized us to repurchase shares of common stock
for an aggregate amount up to $250.0 million under a stock repurchase program
(the "Repurchase Program"). The Repurchase Program will expire on July 27, 2022
unless terminated earlier by our Board and may be suspended or discontinued at
any time. During fiscal year 2021, we repurchased 433,000 shares of common stock
under the Repurchase Program at an aggregate cost of $62.6 million. As of
January 2, 2022, $187.4 million remained available for aggregate repurchases of
shares under the Repurchase Program.
In addition, our Board has authorized us to repurchase shares of common stock to
satisfy minimum statutory tax withholding obligations in connection with the
vesting of restricted stock awards and restricted stock unit awards granted
pursuant to our equity incentive plans and to satisfy obligations related to the
exercise of stock options made pursuant to our equity incentive plans. During
fiscal year 2021, we repurchased 71,248 shares of common stock for this purpose
at an aggregate cost of $10.5 million. During fiscal year 2020, we repurchased
72,251 shares of common stock for this purpose at an aggregate cost of $6.9
million.
The repurchased shares have been reflected as additional authorized but unissued
shares, with the payments reflected in common stock and capital in excess of par
value. Any repurchased shares will be available for use in connection with
corporate programs. If we continue to repurchase shares, the Repurchase Program
will be funded using our existing financial resources, including cash and cash
equivalents, and our existing senior unsecured revolving credit facility.
As of January 2, 2022, we may have to pay contingent consideration, related to
acquisitions with open contingency periods, of up to $108.4 million. As of
January 2, 2022, we have recorded contingent consideration obligations of $58.0
million, of which $1.3 million was recorded in accrued expenses and other
current liabilities, and $56.7 million was recorded in long-term liabilities.
The expected maximum earnout period for acquisitions with open contingency
periods does not exceed 6.9 years from January 2, 2022, and the remaining
weighted average expected earnout period at January 2, 2022 was 5.4 years.
Distressed global financial markets could adversely impact general economic
conditions by reducing liquidity and credit availability, creating increased
volatility in security prices, widening credit spreads and decreasing valuations
of certain investments. The widening of credit spreads may create a less
favorable environment for certain of our businesses and may affect the fair
value of financial instruments that we issue or hold. Increases in credit
spreads, as well as limitations on the
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availability of credit at rates we consider to be reasonable, could affect our
ability to borrow under future potential facilities on a secured or unsecured
basis, which may adversely affect our liquidity and results of operations. In
difficult global financial markets, we may be forced to fund our operations at a
higher cost, or we may be unable to raise as much funding as we need to support
our business activities.
Our pension plans have not experienced a material impact on liquidity or
counterparty exposure due to the volatility and uncertainty in the credit
markets. With respect to plans outside of the United States, we expect to
contribute $7.0 million in the aggregate during fiscal year 2022. During fiscal
years 2021 and 2020, we contributed $6.9 million and $7.5 million, in the
aggregate, to pension plans outside of the United States, respectively. During
fiscal year 2021, we contributed $20.0 million to our defined benefit pension
plan in the United States for the plan year 2019. We could potentially have to
make additional funding payments in future periods for all pension plans. We
expect to use existing cash and external sources to satisfy future contributions
to our pension plans.
We are conducting a number of environmental investigations and remedial actions
at our current and former locations, and are subject to various claims, legal
proceedings and investigations covering a wide range of matters that arise in
the ordinary course of our business activities. Although we have established
accruals for potential losses that we believe are probable and reasonably
estimable, in our opinion, based on our review of the information available at
this time, the total cost of resolving these contingencies at January 2, 2022
should not have a material adverse effect on our consolidated financial
statements included in this annual report on Form 10-K. However, each of these
matters is subject to uncertainties, and it is possible that some of these
matters may be resolved unfavorably to us. See "Business-Environmental Matters"
above and Note 16, Contingencies, in the Notes to Consolidated Financial
Statements for a discussion of these matters and proceedings.
Effects of Recently Issued and Adopted Accounting Pronouncements
See Note 1, Nature of Operations and Accounting Policies, in the Notes to
Consolidated Financial Statements for a summary of recently adopted and issued
accounting pronouncements.
Application of Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to accounting for business combinations, long-lived assets, including
goodwill and other intangibles and employee compensation and benefits. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in preparation of our consolidated
financial statements.
Business combinations. Business combinations are accounted for at fair value.
Acquisition costs are expensed as incurred and recorded in selling, general and
administrative expenses; restructuring costs associated with a business
combination are expensed subsequent to the acquisition date; and changes in
deferred tax asset valuation allowances and income tax uncertainties after the
acquisition date affect income tax expense. Measurement period adjustments are
made in the period in which the amounts are determined and the current period
income effect of such adjustments will be calculated as if the adjustments had
been completed as of the acquisition date. All changes that do not qualify as
measurement period adjustments are also included in current period earnings. The
accounting for business combinations requires estimates and judgment as to
expectations for future cash flows of the acquired business, and the allocation
of those cash flows to identifiable intangible assets, in determining the
estimated fair value for assets acquired and liabilities assumed. The fair
values assigned to tangible and intangible assets acquired and liabilities
assumed, including contingent consideration, are based on management's estimates
and assumptions, as well as other information compiled by management, including
valuations that utilize customary valuation procedures and techniques. For
intangible assets, we normally utilize the "income method" which incorporates
the forecast of all the expected future net cash flows attributable to the
subject intangible asset, adjusted to present value by applying an appropriate
discount rate that reflects the risk factors associated with the cash flow
streams. Depending on the asset valued, the key assumptions included one or more
of the following: (1) future revenue growth rates, (2) future gross margin, (3)
future selling, general and administrative expenses, (4) royalty rates, (5)
customer attrition rates, and (6) discount rates. If the actual results differ
from the estimates and judgments used in these estimates, the amounts recorded
in the financial statements could result in a possible impairment of the
intangible assets and goodwill, require acceleration of the amortization expense
of finite-lived intangible assets, or the recognition of additional
consideration which would be expensed. The fair value of contingent
consideration is remeasured each period based on relevant information and
changes to the fair value are included in the operating results for the period.
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Value of long-lived assets, including goodwill and other intangibles. We carry a
variety of long-lived assets on our consolidated balance sheets including
property and equipment, operating lease right of use assets, investments,
identifiable intangible assets, and goodwill. We periodically review the
carrying value of all of these assets based, in part, upon current estimates of
fair values and our projections of anticipated future cash flows. We undertake
this review (i) on an annual basis for assets such as goodwill and
non-amortizing intangible assets and (ii) on a periodic basis for other
long-lived assets when facts and circumstances suggest that cash flows related
to those assets may be diminished. Any impairment charge that we record reduces
our earnings.
For goodwill, the test consists of the comparison of the fair value to the
carrying value of the reporting unit to determine if the carrying value exceeds
the fair value. If the carrying value of the reporting unit exceeds its fair
value, an impairment loss in an amount equal to that excess is recognized up to
the amount of goodwill. We perform the annual impairment assessment on the later
of January 1 or the first day of each fiscal year. This same impairment test
will be performed at other times during the course of the year should an event
occur which suggests that the recoverability of goodwill should be reconsidered.
We completed the annual goodwill impairment test using a measurement date of
January 4, 2021, and concluded that there was no goodwill impairment. At
January 4, 2021, the fair value exceeded the carrying value by more than 20.0%
for each reporting unit, except for our Tulip reporting unit, which had a fair
value that was between 10% and 20% more than its carrying value. The range of
the long-term terminal growth rates for the reporting units was 3.0% to 5.0% for
the fiscal year 2021 impairment analysis. The range for the discount rates for
the reporting units was 8.0% to 12.5%. Keeping all other variables constant, a
10.0% change in any one of these input assumptions for the various reporting
units, except for our Tulip reporting unit, would still allow us to conclude
that there was no impairment of goodwill. At January 2, 2022, the operating
performance of our Tulip reporting unit exceeded the original forecast and the
forecast for this reporting unit no longer indicates any sensitivity that would
lead to a material impairment charge.
We consistently employ the income approach to estimate the current fair value
when testing for impairment of goodwill. A number of significant assumptions and
estimates are involved in the application of the income approach to forecast
operating cash flows, including markets and market share, sales volumes and
prices, costs to produce, tax rates, capital spending, discount rates and
working capital changes. Cash flow forecasts are based on approved business unit
operating plans for the early years' cash flows and historical relationships in
later years. The income approach is sensitive to changes in long-term terminal
growth rates and the discount rates. The long-term terminal growth rates are
consistent with our historical long-term terminal growth rates, as the current
economic trends are not expected to affect our long-term terminal growth rates.
We corroborate the income approach with a market approach. While we believe that
our estimates of current value are reasonable, if actual results differ from the
estimates and judgments used including such items as future cash flows and the
volatility inherent in markets which we serve, impairment charges against the
carrying value of those assets could be required in the future.
Employee compensation and benefits. We sponsor both funded and unfunded U.S. and
non-U.S. defined benefit pension plans and other postretirement benefits.
Retirement and postretirement benefit plans are a significant cost of doing
business, and represent obligations that will be ultimately settled far in the
future, and therefore are subject to estimation. Retirement and postretirement
benefit plan expenses are allocated to cost of revenue, research and
development, and selling, general and administrative expenses, in our
consolidated statements of operations. We immediately recognize actuarial gains
and losses in operating results in the year in which the gains and losses occur.
Actuarial gains and losses are measured annually as of the calendar month-end
that is closest to our fiscal year end and accordingly will be recorded in the
fourth quarter, unless we are required to perform an interim remeasurement.
We recognized a gain of $30.9 million in fiscal year 2021 and a loss of $18.0
million in fiscal year 2020, for our retirement and postretirement benefit
plans, which include the charge or benefit for the mark-to-market adjustment for
the benefit plans, which was recorded in the fourth quarter of each fiscal year.
The loss or income related to the mark-to-market adjustment on benefit plans was
a pre-tax gain of $24.7 million in fiscal year 2021 and a pre-tax loss of $25.4
million in fiscal year 2020. We expect income of approximately $5.4 million in
fiscal year 2022 for our retirement and postretirement benefit plans, excluding
the charge for or benefit from the mark-to-market adjustment. It is difficult to
reliably calculate and predict whether there will be a mark-to-market adjustment
in fiscal year 2022. Mark-to-market adjustments are primarily driven by events
and circumstances beyond our control, including changes in interest rates, the
performance of the financial markets and mortality assumptions. To the extent
the discount rates decrease or the value of our pension and postretirement
investments decrease, mark-to market charges to operations will be recorded in
fiscal year 2022. Conversely, to the extent the discount rates increase or the
value of our pension and postretirement investments increase more than expected,
mark-to market income will be recorded in fiscal year 2022. Pension accounting
is intended to reflect the recognition of future benefit costs over the
employee's approximate service period based on the terms of the plans and the
investment and funding decisions made. We are required to make assumptions
regarding such variables as the expected long-term rate of return on assets, the
discount rate applied and mortality assumptions, to determine service cost and
interest cost, in order to arrive at expected pension income or expense for the
year. We use discount rates for each individual plan based upon the expected
cash flows using the applicable spot rates derived from a yield curve over the
projected cash flow period.
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If any of our assumptions were to change as of January 2, 2022, our pension plan
expenses would also change as follows:
Increase (Decrease) at
January 2, 2022
Percentage Point Change Non-U.S. U.S.
Pension plans discount rate +0.25 $ (12,823) $ (7,442)
-0.25 13,639 7,773
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