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 market.
•Diagnostics. Develops diagnostics, tools and applications focused on clinically-oriented customers, especially within the reproductive health, immunodiagnostics and applied genomics markets.
Overview of the Third Quarter of Fiscal Year 2022
Our overall revenue in the third quarter of fiscal year 2022 was$711.8 million which decreased by$149.5 million , or 17.4%, as compared to the third quarter of fiscal year 2021, reflecting a decrease of$254.8 million , or 39%, in our Diagnostics segment revenue, which was partially offset by an increase of$105.3 million , or 51%, in our Discovery & Analytical Solutions segment revenue. The decrease in our Diagnostics segment revenue for the third quarter of fiscal year 2022 was driven by a decrease in revenue from our COVID-19 product offerings of$231.2 million and a decrease of approximately 6% in revenue attributable to unfavorable changes in foreign exchange rates, partially offset by an increase in revenue from our core portfolio of$17.0 million . The increase in our Discovery & Analytical Solutions segment revenue for the third quarter of fiscal year 2022 was driven by a 42% increase in revenue attributable to acquisitions and divestitures, and an increase of$105.3 million in our life sciences market revenue, partially offset by a 5% decrease in revenue due to unfavorable changes in foreign exchange rates. Our consolidated gross margins decreased 352 basis points in the third quarter of fiscal year 2022, as compared to the third quarter of fiscal year 2021, primarily due to increased amortization of acquired intangible assets and lower COVID-19 revenue partially offset by a favorable shift in product mix and service productivity. For the third quarter of fiscal year 2022, supply chain disruptions and inflation did not materially impact our results of operations as compared to the third quarter of fiscal year 2021 as the effects of our initiatives to reduce transportation costs more than offset the impact of inflation on our raw materials purchases. Our consolidated operating margins decreased 714 basis points in the third quarter of fiscal year 2022, as compared to the third quarter of fiscal year 2021, primarily due to lower COVID-19 revenue, increased costs related to amortization of acquired intangible assets, and investments in new product development and growth initiatives.
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 accounting for business combinations, long-lived assets, including goodwill and other intangible assets 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. 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 policies 28
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regarding business combinations, valuation of long-lived assets, including goodwill and other intangibles and employee compensation and benefits.
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 endedJanuary 2, 2022 (our "2021 Form 10-K"), as filed with theSecurities and Exchange Commission . There have been no significant changes in our critical accounting policies and estimates during the nine months endedOctober 2, 2022 .
Consolidated Results of Continuing Operations
Revenue
Revenue for the three months endedOctober 2, 2022 was$711.8 million , as compared to$861.3 million for the three months endedOctober 3, 2021 , a decrease of$149.5 million , or approximately 17.4%, which includes an approximate 11% increase in revenue attributable to acquisitions and divestitures, partially offset by a 6% 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 endedOctober 2, 2022 as compared to the three months endedOctober 3, 2021 and includes the effect of foreign exchange rate fluctuations, acquisitions and divestitures. Our Diagnostics segment revenue was$399.0 million for the three months endedOctober 2, 2022 , as compared to$653.8 million for the three months endedOctober 3, 2021 , a decrease of$254.8 million , or 39%, primarily due to a decrease in revenue from our COVID-19 product offerings of$231.2 million and a decrease of approximately 6% in revenue attributable to unfavorable changes in foreign exchange rates, partially offset by an increase in revenue from our core portfolio of$17.0 million . Our Discovery & Analytical Solutions segment revenue was$312.8 million for the three months endedOctober 2, 2022 , as compared to$207.5 million for the three months endedOctober 3, 2021 , an increase of$105.3 million , or 51%, driven by a 42% increase in revenue attributable to acquisitions and divestitures, and an increase of$105.3 million in our life sciences market revenue, partially offset by a 5% decrease in revenue due 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 for each of the three months endedOctober 2, 2022 andOctober 3, 2021 that otherwise would have been recorded by the acquired businesses during each of the respective periods. Revenue for the nine months endedOctober 2, 2022 was$2,570.6 million , as compared to$2,799.9 million for the nine months endedOctober 3, 2021 , a decrease of$229.3 million , or approximately 8%, which includes an approximate 12% increase in revenue attributable to acquisitions and divestitures, partially offset by a 4% decrease in revenue attributable to unfavorable changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for the nine months endedOctober 2, 2022 as compared to the nine months endedOctober 3, 2021 and includes the effect of foreign exchange rate fluctuations, acquisitions and divestitures. Our Diagnostics segment revenue was$1,625.1 million for the nine months endedOctober 2, 2022 , as compared to$2,222.5 million for the nine months endedOctober 3, 2021 , a decrease of$597.4 million , or 27%, primarily due to a decrease in revenue from our COVID-19 product offerings of$597.9 million and a decrease of approximately 4% in revenue due to unfavorable changes in foreign exchange rates, which were partially offset by an increase in revenue across our core portfolio of$83.2 million . Our Discovery & Analytical Solutions segment revenue was$945.5 million for the nine months endedOctober 2, 2022 , as compared to$577.4 million for the nine months endedOctober 3, 2021 , an increase of$368.1 million , or 64%, driven by a 50% increase in revenue attributable to acquisitions and divestitures, and an increase of$368.1 million in our life sciences market revenue, partially offset by a decrease of approximately 3% in revenue due 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$0.6 million of revenue for the nine months endedOctober 2, 2022 and$2.4 million of revenue for the nine months endedOctober 3, 2021 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 endedOctober 2, 2022 was$304.8 million , as compared to$338.5 million for the three months endedOctober 3, 2021 , a decrease of$33.7 million , or approximately 10%. As a percentage of revenue, cost of revenue increased to 42.8% for the three months endedOctober 2, 2022 , from 39.3% for the three months endedOctober 3, 2021 , resulting in a decrease in gross margin of 352 basis points to 57.2% for the three months endedOctober 2, 2022 , from 60.7% for the three months endedOctober 3, 2021 . Amortization of intangible assets increased and was$35.3 million for the three months endedOctober 2, 2022 , as compared to$28.5 million for the three months endedOctober 3, 2021 . Amortization of intangible assets from our recent acquisitions amounted to$23.2 million for the three months endedOctober 2, 2022 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of$11.3 million for the three months endedOctober 2, 2022 , as compared to$9.4 million for the three months ended 29
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October 3, 2021 . Stock compensation expense related to awards given toBioLegend employees post-acquisition added an incremental expense of$1.5 million for the three months endedOctober 2, 2022 . Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of$0.1 million for the three months endedOctober 2, 2022 . The overall decrease in gross margin was partially offset by a favorable shift in product mix and service productivity. Cost of revenue for the nine months endedOctober 2, 2022 was$1,017.1 million , as compared to$1,009.7 million for the nine months endedOctober 3, 2021 , an increase of$7.4 million , or approximately 1%. As a percentage of revenue, cost of revenue increased to 39.6% for the nine months endedOctober 2, 2022 , from 36.1% for the nine months endedOctober 3, 2021 , resulting in a decrease in gross margin of 350 basis points to 60.4% for the nine months endedOctober 2, 2022 , from 63.9% for the nine months endedOctober 3, 2021 . For the nine months endedOctober 2, 2022 , costs of goods sold increased by approximately$7.0 million , as compared to the nine months endedOctober 3, 2021 , as a result of supply chain disruptions and inflation. Amortization of intangible assets increased and was$107.1 million for the nine months endedOctober 2, 2022 , as compared to$64.3 million for the nine months endedOctober 3, 2021 . Amortization of intangible assets from our recent acquisitions amounted to$68.8 million for the nine months endedOctober 2, 2022 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of$45.0 million for the nine months endedOctober 2, 2022 , as compared to$14.7 million for the nine months endedOctober 3, 2021 . Stock compensation expense related to awards given toBioLegend employees post-acquisition added an incremental expense of$4.7 million for the nine months endedOctober 2, 2022 . Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of$0.4 million for the nine months endedOctober 2, 2022 . The overall decrease in gross margin was partially offset by a favorable shift in product mix and service productivity.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months endedOctober 2, 2022 were$240.0 million , as compared to$275.9 million for the three months endedOctober 3, 2021 , a decrease of$35.9 million , or 13%. As a percentage of revenue, selling, general and administrative expenses increased and were 33.7% for the three months endedOctober 2, 2022 , as compared to 32.0% for the three months endedOctober 3, 2021 . Amortization of intangible assets increased and was$56.2 million for the three months endedOctober 2, 2022 , as compared to$34.8 million for the three months endedOctober 3, 2021 . Amortization of intangible assets from our recent acquisitions amounted to$33.4 million for the three months endedOctober 2, 2022 . Purchase accounting adjustments decreased expenses by$2.1 million for the three months endedOctober 2, 2022 , which primarily consisted of a change in contingent consideration, as compared to adding incremental expense of$1.2 million for the three months endedOctober 3, 2021 . Acquisition and divestiture-related expenses, which primarily consisted of legal, due diligence and integration costs, added an incremental expense of$5.7 million for the three months endedOctober 2, 2022 , as compared to$46.4 million for the three months endedOctober 3, 2021 . Asset impairment costs added an incremental expense of$3.9 million for the three months endedOctober 3, 2021 . Legal and settlement costs for significant litigation matters, net of reversals, were$0.6 million for the three months endedOctober 2, 2022 . In addition to the above items, the decrease in selling, general and administrative expenses was primarily the result of lower costs resulting from cost containment and productivity initiatives, which were partially offset by costs related to investments in people, digital capabilities, innovation, and recent acquisitions. Selling, general and administrative expenses for the nine months endedOctober 2, 2022 were$765.7 million , as compared to$681.3 million for the nine months endedOctober 3, 2021 , an increase of$84.4 million , or 12%. As a percentage of revenue, selling, general and administrative expenses increased and were 29.8% for the nine months endedOctober 2, 2022 , as compared to 24.3% for the nine months endedOctober 3, 2021 . Amortization of intangible assets increased and was$173.4 million for the nine months endedOctober 2, 2022 , as compared to$94.3 million for the nine months endedOctober 3, 2021 . Amortization of intangible assets from our recent acquisitions amounted to$101.9 million for the nine months endedOctober 2, 2022 . Purchase accounting adjustments decreased expenses by$0.6 million for the nine months endedOctober 2, 2022 , which primarily consisted of a change in contingent consideration, as compared to adding incremental expenses of$1.6 million for the nine months endedOctober 3, 2021 . Acquisition and divestiture-related expenses, which primarily consisted of legal, due diligence and integration costs, added an incremental expense of$17.1 million for the nine months endedOctober 2, 2022 , as compared to$54.3 million for the nine months endedOctober 3, 2021 . Asset impairment costs added an incremental expense of$3.9 million for the nine months endedOctober 3, 2021 . Legal and settlement costs for significant litigation matters, net of reversals, decreased expenses by$0.6 million for the nine months endedOctober 2, 2022 . 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, innovation, and recent acquisitions. 30
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Research and Development Expenses
Research and development expenses for the three months endedOctober 2, 2022 were$53.5 million , as compared to$49.4 million for the three months endedOctober 3, 2021 , an increase of$4.1 million , or 8%. The increase in research and development expenses from our recent acquisitions were$9.7 million for the three months endedOctober 2, 2022 . As a percentage of revenue, research and development expenses increased and were 7.5% for the three months endedOctober 2, 2022 , as compared to 5.7% for the three months endedOctober 3, 2021 . Stock compensation expense related to awards given toBioLegend employees post-acquisition added an incremental expense of$1.3 million for the three months endedOctober 2, 2022 . Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of$0.1 million for the three months endedOctober 2, 2022 . Excluding the factors above, the net increase in research and development expenses was due to timing of non-COVID-19 investments in new product development, partially offset by a decrease in COVID-19 related research and development expenses. Research and development expenses for the nine months endedOctober 2, 2022 were$167.1 million , as compared to$139.8 million for the nine months endedOctober 3, 2021 , an increase of$27.3 million , or 20%. The increase in research and development expenses from our recent acquisitions were$29.3 million for the nine months endedOctober 2, 2022 . As a percentage of revenue, research and development expenses increased and were 6.5% for the nine months endedOctober 2, 2022 , as compared to 5.0% for the nine months endedOctober 3, 2021 . Stock compensation related to awards given toBioLegend employees post-acquisition added an incremental expense of$4.1 million for the nine months endedOctober 2, 2022 . Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of$0.2 million for the nine months endedOctober 2, 2022 . Excluding the factors above, the net increase in research and development expenses was due to timing of non-COVID-19 investments in new product development, partially offset by a decrease in COVID-19 related research and development expenses.
Restructuring and Other Costs, Net
We implemented restructuring plans in the first, second and third quarters of fiscal year 2022 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives and integrate new acquisitions (the "Q1 2022 Plan", "Q2 2022 Plan" and "Q3 2022 Plan", respectively). We implemented restructuring plans in each quarter of fiscal year 2021 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives and integrate new acquisitions (the "Q1 2021 Plan", "Q2 2021 Plan", "Q3 2021 Plan" and "Q4 2021 Plan", respectively). Details of 31
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the plans initiated in previous years (the "Previous Plans") are discussed more fully in Note 4, Restructuring and Other Costs, Net, to our audited consolidated financial statements in the 2021 Form 10-K.
The following table summarizes the reductions in headcount, the initial restructuring or contract termination charges by reporting segment, and the dates by which payments were substantially completed, or the dates by which payments are expected to be substantially completed, for restructuring actions implemented during fiscal years 2022 and 2021:
Workforce Reductions Closure of Excess Facility (Expected) Date Payments Substantially Completed by Discovery & Discovery & Headcount Analytical Analytical Reduction Solutions Diagnostics Solutions Diagnostics Total Severance Excess Facility (In thousands, except headcount data) Q3 2022 Plan 40$ 2,074 $ 1,122 $ - -$ 3,196 Q4 FY2022 - Q2 2022 Plan 243 7,336 2,052 - - 9,388 Q3 FY2022 - Q1 2022 Plan 81 5,832 399 - - 6,231 Q4 FY2022 - Q4 2021 Plan 31 3,139 77 150 - 3,366 Q3 FY2022 Q1 FY2023 Q3 2021 Plan 39 420 366 - - 786 Q2 FY2022 - Q2 2021 Plan 25 968 564 - - 1,532 Q1 FY2022 - Q1 2021 Plan 77 3,941 1,615 - - 5,556 Q4 FY2021 - We terminated various contractual commitments in connection with certain disposal activities and have recorded charges for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to the Company. We recorded net pre-tax (gains) charges of$(0.1) million and$7.9 million in the Discovery & Analytical Solutions segment during the three and nine months endedOctober 2, 2022 , respectively, as a result of these contract terminations. We recorded net pre-tax gains of$0.1 million in the Diagnostics segment during the nine months endedOctober 2, 2022 , as a result of changes in estimates from prior contract terminations. We recorded pre-tax charges of$1.4 million associated with closure of facilities during the nine months endedOctober 2, 2022 in the Discovery & Analytical Solutions segment. We recorded pre-tax charges of$0.2 million associated with closure of facilities during the nine months endedOctober 2, 2022 in the Diagnostics segment. We expect to make payments on these relocation activities through end of fiscal year 2022.
Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:
Three Months Ended Nine Months Ended October 2, October 3, October 2, October 3, 2022 2021 2022 2021 (In thousands) Interest income$ (667) $ (544) $ (2,024) $ (1,322) Interest expense 25,931 43,531 81,447 74,407 Change in fair value of financial securities 5,106 19,365 14,321 (8,566) Other components of net periodic pension credit (2,602) (3,537) (7,718) (10,583) Other expense, net 870 1,734 5,814 796
Total interest and other expense, net
The decrease in interest and other expense, net, for the three months endedOctober 2, 2022 , as compared to the three months endedOctober 3, 2021 , was primarily due to a decrease of$17.6 million in interest expense, a decrease in the change in fair value of financial securities of$14.3 million , and a decrease in other expense, net of$0.9 million , partially offset by an increase in other components of net periodic pension cost of$0.9 million . Interest expense for the three months endedOctober 2, 2022 was lower, as compared to interest expense for the three months endedOctober 3, 2021 , primarily due to a one-time$23.3 million of bridge financing and debt pre-issuance hedging costs that were recognized in expense in the third quarter of fiscal year 2021. 32
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The increase in interest and other expense, net, for the nine months endedOctober 2, 2022 , as compared to the nine months endedOctober 3, 2021 , was primarily due to an increase of$7.0 million in interest expense, which was the result of an overall increase in debt, a change in fair value of financial securities of$14.3 million that was recognized during the nine months endedOctober 2, 2022 as compared to$(8.6) million that was recognized during the nine months endedOctober 3, 2021 , an increase in other components of net periodic pension cost of$2.9 million and an increase in other expense, net of$5.0 million . Provision for Income Taxes The provision for income taxes from continuing operations was$12.6 million for the three months endedOctober 2, 2022 , as compared to$27.4 million for the three months endedOctober 3, 2021 . The provision for income taxes from continuing operations was$98.2 million for the nine months endedOctober 2, 2022 , as compared to$198.5 million for the nine months endedOctober 3, 2021 . The effective tax rate from continuing operations was 15.4% and 19.1% for the three and nine months endedOctober 2, 2022 , respectively, as compared to 20.3% and 22.0% for the three and nine months endedOctober 3, 2021 , respectively. The lower effective tax rate during the three and nine months endedOctober 2, 2022 , as compared to the three and nine months endedOctober 3, 2021 , was primarily due to projected lower income in certain higher tax rate jurisdictions in fiscal year 2022 as compared to fiscal year 2021, and a one-time discrete expense of$13.7 million due to the remeasurement of deferred tax liabilities in connection with a rate change in theUnited Kingdom that was recorded in the three months endedOctober 3, 2021 . During the three months endedOctober 2, 2022 , we recorded a net discrete benefit of$2.8 million , primarily related to a$2.2 million remeasurement ofU.S. state deferred tax liabilities, a net change in tax reserves of$0.6 million and excess tax benefits on stock compensation of$0.3 million , offset by return to provision adjustments of$0.3 million . During the nine months endedOctober 2, 2022 , we recorded a net discrete benefit of$3.7 million , primarily related to a$1.7 million remeasurement ofU.S. state and foreign deferred tax liabilities, excess tax benefits on stock compensation of$1.8 million , a net change in tax reserves of$0.1 million and return to provision adjustments of$0.1 million . The net tax benefit related to discrete items in the third quarter of fiscal year 2021 was$0.3 million , primarily related to a$1.2 million remeasurement of foreign deferred tax liabilities and excess tax benefits on stock compensation of$0.6 million , offset by an increase in tax reserves of$1.4 million and return to provision adjustments of$0.1 million . The discrete tax expense for the nine months endedOctober 3, 2021 included$13.7 million due to the remeasurement ofUnited Kingdom deferred tax liabilities on long-lived purchase accounting intangibles and a$1.5 million tax benefit related to other netUnited Kingdom deferred tax assets and liabilities in connection with theUnited Kingdom rate change. The remaining discrete tax benefit for the nine months endedOctober 3, 2021 , excluding theUnited Kingdom rate change, was$5.1 million , primarily related to excess tax benefits on stock compensation of$4.5 million and$6.4 million resulting from a transaction that was completed during the second quarter of fiscal year 2021, offset by an accrual for uncertain tax positions of$3.9 million , and return to provision adjustments of$1.9 million .
Reporting Segment Results of Continuing Operations
Discovery & Analytical Solutions
Revenue for the three months endedOctober 2, 2022 was$312.8 million , as compared to$207.5 million for the three months endedOctober 3, 2021 , an increase of$105.3 million , or 51%, which includes an approximate 42% increase in revenue attributable to acquisitions and divestitures and a decrease of approximately 5% in revenue attributable to unfavorable changes in foreign exchange rates. The life sciences market revenue increased by$105.3 million as a result of an increase in revenue from businesses acquired in fiscal year 2021 along with organic growth in our pharmaceutical and biotechnology markets. Revenue for the nine months endedOctober 2, 2022 was$945.5 million , as compared to$577.4 million for the nine months endedOctober 3, 2021 , an increase of$368.1 million , or 64%, which includes an approximate 50% increase in revenue attributable to acquisitions and divestitures and a decrease of approximately 3% in revenue attributable to unfavorable changes in foreign exchange rates. The life sciences market revenue increased by$368.1 million as a result of an increase in revenue from businesses acquired in fiscal year 2021 along with organic growth in our pharmaceutical and biotechnology markets. Operating income (loss) from continuing operations for the three months endedOctober 2, 2022 was$32.6 million , as compared to$(19.3) million for the three months endedOctober 3, 2021 , an increase of$51.9 million , or 269%. Amortization of intangible assets was$64.4 million for the three months endedOctober 2, 2022 , as compared to$25.8 million for the three months endedOctober 3, 2021 . Amortization of intangible assets from our recent acquisitions amounted to$51.5 million for the three months endedOctober 2, 2022 . Restructuring and other charges, net, were$1.6 million for the three months ended 33
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October 2, 2022 , as compared to$1.4 million for the three months endedOctober 3, 2021 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was$11.1 million for the three months endedOctober 2, 2022 , as compared to$5.5 million for the three months endedOctober 3, 2021 . Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of$6.6 million for the three months endedOctober 2, 2022 , as compared to$44.6 million for the three months endedOctober 3, 2021 . Legal and settlement costs for significant litigation matters, net of reversals, increased expenses by$0.6 million for the three months endedOctober 2, 2022 . Excluding the factors noted above, operating income increased for the three months endedOctober 2, 2022 , as compared to the three months endedOctober 3, 2021 , primarily as a result of higher sales volume and favorable product mix, partially offset by increased investments in new product development and growth initiatives. Operating income from continuing operations for the nine months endedOctober 2, 2022 was$106.0 million , as compared to$50.6 million for the nine months endedOctober 3, 2021 , an increase of$55.4 million , or 109%. Amortization of intangible assets was$185.1 million for the nine months endedOctober 2, 2022 , as compared to$50.9 million for the nine months endedOctober 3, 2021 . Amortization of intangible assets from our recent acquisitions amounted to$154.3 million for the nine months endedOctober 2, 2022 . Restructuring and other charges, net, were$11.7 million for the nine months endedOctober 2, 2022 , as compared to$6.9 million for the nine months endedOctober 3, 2021 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was$44.2 million for the nine months endedOctober 2, 2022 , as compared to$7.2 million for the nine months endedOctober 3, 2021 . Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of$11.2 million for the nine months endedOctober 2, 2022 , as compared to$48.7 million for the nine months endedOctober 3, 2021 . Legal and settlement costs for significant litigation matters, net of reversals, decreased expenses by$0.6 million for the nine months endedOctober 2, 2022 . Excluding the factors noted above, operating income increased for the nine months endedOctober 2, 2022 , as compared to the nine months endedOctober 3, 2021 , primarily as a result of higher sales volume and favorable product mix, partially offset by increased investments in new product development and growth initiatives.
Diagnostics
Revenue for the three months endedOctober 2, 2022 was$399.0 million , as compared to$653.8 million for the three months endedOctober 3, 2021 , a decrease of$254.8 million , or 39%, which includes a 6% decrease in revenue attributable to unfavorable changes in foreign exchange rates, partially offset by an increase of approximately 1% in revenue attributable to acquisitions and divestitures. 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 endedOctober 2, 2022 andOctober 3, 2021 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 endedOctober 2, 2022 was due to a decrease in revenue from our COVID-19 product offerings of$231.2 million and a decrease of approximately 6% in revenue due to unfavorable changes in foreign exchange rates, partially offset by an increase in revenue from our core portfolio of$17.0 million . Revenue for the nine months endedOctober 2, 2022 was$1,625.1 million , as compared to$2,222.5 million for the nine months endedOctober 3, 2021 , a decrease of$597.4 million , or 27%, which includes a 4% decrease in revenue attributable to unfavorable changes in foreign exchange rates, partially offset by an increase of approximately 2% in revenue attributable to acquisitions and divestitures. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not recognize$0.6 million of revenue in our Diagnostics segment for each of the nine months endedOctober 2, 2022 andOctober 3, 2021 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 nine months endedOctober 2, 2022 was due to a decrease in revenue from our COVID-19 product offerings of$597.9 million and a decrease of approximately 4% in revenue due to unfavorable changes in foreign exchange rates, which were partially offset by increase in revenue across our core portfolio of$83.2 million . Due to the termination of our contract with theCalifornia Department of Public Health , we recognized the contract liability pertaining to the nonrefundable prepayment amounting to$117.8 million as revenue in the second quarter of fiscal year 2022. Operating income from continuing operations for the three months endedOctober 2, 2022 was$94.7 million , as compared to$237.9 million for the three months endedOctober 3, 2021 , a decrease of$143.2 million , or 60%. Amortization of intangible assets decreased and was$27.1 million for the three months endedOctober 2, 2022 , as compared to$37.5 million for the three months endedOctober 3, 2021 . Amortization of intangible assets from our recent acquisitions amounted to$5.1 million for the three months endedOctober 2, 2022 . Restructuring and other charges, net, were$1.2 million for the three months endedOctober 2, 2022 , as compared to$0.6 million for the three months endedOctober 3, 2021 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was$0.3 million for the three months endedOctober 2, 2022 , as compared to$3.9 million for the three months endedOctober 3, 2021 . Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of$0.2 million for the three months ended 34
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October 2, 2022 , as compared to$3.2 million for the three months endedOctober 3, 2021 . Excluding the factors noted above, operating income decreased for the three months endedOctober 2, 2022 , as compared to the three months endedOctober 3, 2021 , primarily as a result of lower sales volume related to COVID-19 product offerings and unfavorable product mix. Operating income from continuing operations for the nine months endedOctober 2, 2022 was$553.9 million , as compared to$965.7 million for the nine months endedOctober 3, 2021 , a decrease of$411.8 million , or 43%. Amortization of intangible assets decreased and was$95.4 million for the nine months endedOctober 2, 2022 , as compared to$107.7 million for the nine months endedOctober 3, 2021 . Amortization of intangible assets from our recent acquisitions amounted to$16.3 million for the nine months endedOctober 2, 2022 . Restructuring and other charges, net, were$3.7 million for each of the nine months endedOctober 2, 2022 andOctober 3, 2021 , respectively. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was$0.8 million for the nine months endedOctober 2, 2022 , as compared to$7.6 million for the nine months endedOctober 3, 2021 . Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of$15.2 million for the nine months endedOctober 2, 2022 , as compared to$9.8 million for the nine months endedOctober 3, 2021 . Excluding the factors noted above, operating income decreased for the nine months endedOctober 2, 2022 , as compared to the nine months endedOctober 3, 2021 , primarily as a result of lower sales volume related to COVID-19 product offerings and unfavorable product mix.
Discontinued Operations
InAugust 2022 , we entered into aMaster Purchase and Sale Agreement (the "Purchase Agreement") withPolaris Purchaser, L.P. (the "Purchaser"), aDelaware limited partnership owned by funds managed by affiliates ofNew Mountain Capital L.L.C. (the "Sponsor"), under which we agreed to sell to the Purchaser certain assets and the equity interests of certain entities constituting our Analytical, Food and Enterprise Services businesses (the "Business") (as further defined in the Purchase Agreement), for cash consideration of up to approximately$2.45 billion and the Purchaser's assumption of certain liabilities relating to the Business (collectively, the "Transaction"). Approximately$2.30 billion of the purchase price will be payable in connection with the closing, subject to certain customary adjustments, which includes$75.0 million in deferred payments tied to the transfer of the PerkinElmer brand and related trademarks to the Purchaser (which may be completed within 24 months following the date of the closing at our election). The Purchase Agreement also provides for potential post-closing payments totaling up to$150.0 million , which are contingent on the exit valuation the Sponsor and its affiliated funds receive on a sale or other capital events related to the Business. The Transaction is expected to close in the first quarter of fiscal year 2023, subject to regulatory approvals and other customary closing conditions. The Business had been recorded in the Discovery & Analytical Solutions segment. The sale of the Business represents a strategic shift that will have a major effect on our operations and financial statements. Accordingly, we have classified the assets and liabilities related to the Business as assets and liabilities of discontinued operations in our consolidated balance sheets and results of operations are classified as income from discontinued operations in our consolidated statements of operations.
The summary pre-tax operating results of the discontinued operations, were as follows for the three and nine months ended:
Three Months Ended Nine Months Ended October 2, October 3, October 2, October 3, 2022 2021 2022 2021 (In thousands) Revenue$ 320,616 $ 305,369 $ 950,821 $ 902,946 Cost of revenue 208,669 196,393 639,937 590,960 Selling, general and administrative expenses 71,893 63,173 210,535 190,920 Research and development expenses 14,174 19,187 50,575 54,895 Restructuring and other costs, net 487 200 13,130 2,501 Operating income 25,393 26,416 36,644 63,670 Other expense (income), net 213 (240) 640 (659) Income from discontinued operations before income taxes$ 25,180 $ 26,656
We recorded a tax provision on discontinued operations and dispositions of
35 -------------------------------------------------------------------------------- Table of Contents 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, borrowing capacity available under our senior unsecured credit facility and access to 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. The proposed sale of the Business classified as discontinued operations, which is expected to close in the first quarter of fiscal year 2023, is expected to generate approximately$2.23 billion of proceeds. The Company expects to use these proceeds through a combination of funding upcoming debt maturities, opportunistic share repurchases and continued strategic and value creating acquisitions. We and our subsidiaries 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 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.
AtOctober 2, 2022 , we had cash and cash equivalents of$400.7 million , of which$106.3 million was held by our non-U.S. subsidiaries, and we had$1.5 billion of borrowing capacity available under our senior unsecured revolving credit facility. We had no other liquid investments atOctober 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 theU.S. including foreign operations, capital investments, acquisitions and repayment of debt. In addition, we transfer cash to theU.S. using nontaxable returns of capital, distribution of previously taxed income, as well as dividends, where the related income tax cost is managed efficiently. We have accrued tax expense on the unremitted earnings of foreign subsidiaries as required by the Tax Cuts and Jobs Act of 2017 (the "Tax Act") and where the foreign earnings are not considered permanently reinvested. In accordance with the Tax Act, we are making scheduled annual cash payments on our accrued transition tax. As of the end of fiscal year 2021, we identified approximately$1.2 billion in earnings that we no longer considered permanently reinvested, and have recorded a provision of approximately$37.1 million for theU.S. federal,U.S. state and non-U.S. taxes that would fall due when such earnings are repatriated. We began repatriating such earnings to theU.S. in the first quarter of fiscal year 2022 and expect to continue the repatriation beyond fiscal year 2022. 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. OnJuly 31, 2020 , 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"). OnJuly 22, 2022 , the Repurchase Program was terminated by the Board and the Board authorized us to repurchase shares of common stock for an aggregate amount up to$300.0 million under a new stock repurchase program (the "New Repurchase Program"). No shares remain available for repurchase under the Repurchase Program due to its termination. The New Repurchase Program will expire onJuly 22, 2024 unless terminated earlier by the Board and may be suspended or discontinued at any time. During the three months endedOctober 2, 2022 , we had no stock repurchases under the Repurchase Program or the New Repurchase 36
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Program. As of
As ofOctober 2, 2022 , we may have to pay contingent consideration related to acquisitions with open contingency periods of up to$102.1 million . As ofOctober 2, 2022 , we have recorded contingent consideration obligations of$44.6 million , of which$5.3 million was recorded in accrued expenses and other current liabilities, and$39.3 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 6.2 years fromOctober 2, 2022 , and the remaining weighted average expected earnout period atOctober 2, 2022 was 5.1 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, increasing the cost of borrowings 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 or fund our strategic transactions. Our pension plans have not experienced a material impact on liquidity or counterparty exposure due to the volatility and uncertainty in the credit markets. During the nine months endedOctober 2, 2022 , we contributed$5.0 million , in the aggregate, to pension plans outside ofthe United States , and expect to contribute an additional$1.2 million by the end of fiscal year 2022. 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. Cash Flows Operating Activities. Net cash provided by continuing operations was$545.3 million for the nine months endedOctober 2, 2022 , as compared to$994.5 million for the nine months endedOctober 3, 2021 , a decrease of$449.2 million , primarily due to lower profitability and more cash used in working capital during the nine months endedOctober 2, 2022 as compared to the nine months endedOctober 3, 2021 . The cash provided by operating activities for the nine months endedOctober 2, 2022 was principally a result of income from continuing operations of$415.2 million , and adjustments for non-cash charges aggregating to$442.5 million , including depreciation and amortization of$322.8 million , partially offset by net cash usage in working capital of$312.4 million . The cash provided by operating activities for the nine months endedOctober 3, 2021 was principally a result of income from continuing operations of$705.3 million , and adjustments for non-cash charges aggregating to$237.5 million , including depreciation and amortization of$197.4 million , as well as net cash provided by working capital of$51.7 million . During the nine months endedOctober 2, 2022 , we contributed$5.0 million , in the aggregate, to pension plans outside ofthe United States . Investing Activities. Net cash used in investing activities of our continuing operations was$97.7 million for the nine months endedOctober 2, 2022 , as compared to$4,044.4 million for the nine months endedOctober 3, 2021 , a decrease of$3,946.7 million . For the nine months endedOctober 2, 2022 , the net cash used for capital expenditures and acquisitions were$59.5 million and$7.8 million , respectively, as compared to$59.1 million and$3,967.7 million , respectively, for the nine months endedOctober 3, 2021 . The capital expenditures in each period were primarily for manufacturing, software and other capital equipment purchases. The cash used for acquisitions in fiscal year 2021 primarily included the cash component of the purchase price consideration to acquireBioLegend, Inc. During the nine months endedOctober 2, 2022 , purchases of investments were$45.0 million as compared to$19.1 million during the nine months endedOctober 3, 2021 . The cash used in investing activities during the nine months endedOctober 2, 2022 was partially offset by proceeds from disposition of businesses and assets of$5.7 million during the nine months endedOctober 2, 2022 , as compared to$1.5 million during the nine months endedOctober 3, 2021 . In addition, proceeds from notes receivable were$8.9 million during the nine months endedOctober 2, 2022 . Financing Activities. Net cash used in financing activities of our continuing operations was$585.1 million for the nine months endedOctober 2, 2022 , as compared to net cash provided by financing activities of$3,080.7 million for the nine months endedOctober 3, 2021 , a decrease in net cash provided by financing activities of$3,665.8 million . During the nine months endedOctober 2, 2022 , we made net payments of$508.0 million , as compared to net borrowings of$3,155.9 million during the nine months endedOctober 3, 2021 . The changes reflect financing transactions in fiscal year 2021 to finance acquisitions and to refinance borrowings as compared to our intentions to pay down debt in fiscal year 2022, which we expect to continue in the fourth quarter of fiscal year 2022 and throughout fiscal year 2023. During the nine months endedOctober 2, 2022 , we repurchased shares of our common stock for a total cost of$56.1 million , as compared to$73.0 million in the prior period. During the nine months endedOctober 2, 2022 , we paid$26.5 million in dividends as compared to$23.5 million for the nine months endedOctober 3, 2021 . We paid$0.8 million in settlement of hedges during the nine months endedOctober 2, 2022 , as compared to$1.5 million for the nine months endedOctober 3, 2021 . The cash used in financing activities during the nine 37
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months endedOctober 2, 2022 was partially offset by proceeds from the issuance of common stock under our stock plans of$6.3 million during the nine months endedOctober 2, 2022 , as compared to$22.8 million for the nine months endedOctober 3, 2021 . Borrowing Arrangements During the third quarter of fiscal year 2022, we repaid the remaining$50.0 million of the term loan facility. Since the beginning of the third quarter of fiscal year 2022, we have repurchased$32.9 million in aggregate principal amount of our 0.550% senior unsecured notes due inSeptember 2023 (the "2023 Notes") and$20.7 million in aggregate principal amount of our 0.850% senior unsecured notes due inSeptember 2024 (the "2024 Notes"), and we expect to continue repurchasing outstanding 2023 Notes and 2024 Notes from time to time, subject to market conditions. See Note 8, Debt, in the Notes to Condensed Consolidated Financial Statements and Note 13, Debt, to our audited consolidated financial statements in the 2021 Form 10-K for a detailed discussion of our borrowing arrangements.
Dividends
Our Board declared a regular quarterly cash dividend of$0.07 per share for the first quarter of fiscal year 2022 and in each quarter of fiscal year 2021. AtOctober 2, 2022 , we had accrued$8.8 million for dividends declared onJuly 22, 2022 for the third quarter of fiscal year 2022 that was paid onNovember 11, 2022 . OnOctober 26, 2022 , we announced that our Board had declared a quarterly dividend of$0.07 per share for the fourth quarter of fiscal year 2022 that will be payable inFebruary 2023 . 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.
Effects of Recently Adopted and Issued Accounting Pronouncements
See Note 1, Nature of Operations and Accounting Policies, to our audited
consolidated financial statements in the 2021 Form 10-K for a summary of
recently adopted new accounting pronouncements during the fiscal year ended
We have not adopted any new accounting pronouncements during the nine months endedOctober 2, 2022 , and there were no recently issued accounting pronouncements that are expected to have a significant impact on our financial statements.
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