REVVITY, INC. This quarterly report on Form 10-Q, including the following management's discussion and analysis, contains forward-looking information that you should read in conjunction with the condensed consolidated financial statements and notes to the condensed consolidated financial statements that we have included elsewhere in this report. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as "believes," "plans," "anticipates," "intends," "expects," "will" and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors below under the heading "Risk Factors" in Part II, Item 1A. that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a leading provider of products, services and solutions for the diagnostics, life sciences and applied markets. Through our advanced technologies and differentiated solutions, we address critical issues that help to improve lives and the world around us. The principal products and services of our two operating segments are: •Discovery & Analytical Solutions. Provides products and services targeted towards the life sciences and applied markets. •Diagnostics. Develops diagnostics, tools and applications focused on clinically-oriented customers, especially within the reproductive health, immunodiagnostics and applied genomics markets. The Diagnostics segment serves the diagnostics market. Overview of the Third Quarter of Fiscal Year 2020 Our fiscal year ends on the Sunday nearestDecember 31 . We report fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. The fiscal year endingJanuary 3, 2021 ("fiscal year 2020") will include 53 weeks, and the fiscal year endedDecember 29, 2019 ("fiscal year 2019") included 52 weeks. Our overall revenue in the third quarter of fiscal year 2020 was$964.0 million and increased$257.1 million , or 36%, as compared to the third quarter of fiscal year 2019, reflecting an increase of$260.4 million , or 93%, in our Diagnostics segment revenue partially offset by a decrease of$3.3 million , or 1%, in our Discovery & Analytical Solutions segment revenue. The increase in our Diagnostics segment revenue for the third quarter of fiscal year 2020 was driven by increased demand for our immunodiagnostics and applied genomics COVID-19 product offerings as well as favorable changes in foreign exchange rates, partially offset by a decrease in revenue from our reproductive health franchise. The decrease in our Discovery & Analytical Solutions segment revenue for the third quarter of fiscal year 2020 was driven by a decrease in our applied markets revenue, partially offset by an increase in our life sciences market revenue and favorable changes in foreign exchange rates. The decrease in our applied markets revenue was driven by reduced demand as a result of the COVID-19 pandemic, resulting in a decrease in revenue from our industrial, environmental and food markets, partially offset by favorable changes in foreign exchange rates. 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 and OneSource businesses, partially offset by a decrease in revenue from our academia and governmental markets. Our consolidated gross margins increased 630 basis points in the third quarter of fiscal year 2020, as compared to the third quarter of fiscal year 2019, primarily due to higher sales volume, favorable shift in product mix and service productivity and pricing initiatives, partially offset by increased amortization expense. Our consolidated operating margins increased 1460 basis points in the third quarter of fiscal year 2020, as compared to the third quarter of fiscal year 2019, primarily due to higher sales volume, which was partially offset by increased costs related to amortization of acquired intangible assets, investments in new product development and growth initiatives. We continue to believe that we are well positioned to take advantage of the spending trends in our end markets and to promote efficiencies in markets where current conditions may increase demand for certain services. Overall, we believe that our strategic focus on Diagnostics and Discovery and Analytical Solutions markets, coupled with our deep portfolio of technologies and applications, leading market positions, global scale and financial strength will provide us with a foundation for growth. 36 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, warranty costs, bad debts, inventories, accounting for business combinations and dispositions, long-lived assets, income taxes, restructuring, pensions and other postretirement benefits, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are those policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. We believe our critical accounting policies include our policies regarding revenue recognition, warranty costs, allowances for doubtful accounts, inventory valuation, business combinations, value of long-lived assets, including goodwill and other intangibles, employee compensation and benefits, restructuring activities, gains or losses on dispositions and income taxes. For a more detailed discussion of our critical accounting policies and estimates, refer to the Notes to our audited consolidated financial statements and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year endedDecember 29, 2019 (our "2019 Form 10-K"), as filed with theSecurities and Exchange Commission (the "SEC"). There have been no significant changes in our critical accounting policies and estimates during the nine months endedOctober 4, 2020 . Consolidated Results of Continuing Operations Revenue Revenue for the three months endedOctober 4, 2020 was$964.0 million , as compared to$706.9 million for the three months endedSeptember 29, 2019 , an increase of$257.1 million , or approximately 36%, which includes an approximate 1% increase in revenue attributable to acquisitions and divestitures and a 1% increase in revenue attributable to favorable changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for the three months endedOctober 4, 2020 as compared to the three months endedSeptember 29, 2019 and includes the effect of foreign exchange rate fluctuations, acquisitions and divestitures. Our Diagnostics segment revenue was$540.4 million for the three months endedOctober 4, 2020 , as compared to$280.0 million for the three months endedSeptember 29, 2019 , an increase of$260.4 million , or 93%, primarily due to increased demand for our immunodiagnostics and applied genomics COVID-19 product offerings, as well as favorable changes in foreign exchange rates, partially offset by a decrease in revenue from our reproductive health franchise. Our Discovery & Analytical Solutions segment revenue was$423.6 million for the three months endedOctober 4, 2020 , as compared to$426.9 million for the three months endedSeptember 29, 2019 , a decrease of$3.3 million , or 1%, driven by a decrease in our applied markets revenue due to reduced demand as a result of the COVID-19 pandemic, resulting in lower sales volume in our product offerings in the industrial, environmental and food markets, partially offset by an increase in our life sciences market revenue and favorable 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 4, 2020 andSeptember 29, 2019 that otherwise would have been recorded by the acquired businesses during each of the respective periods. Revenue for the nine months endedOctober 4, 2020 was$2,428.1 million , as compared to$2,078.2 million for the nine months endedSeptember 29, 2019 , an increase of$350.0 million , or approximately 17%, which includes an approximate 2% increase in revenue attributable to acquisitions and divestitures and a 1% 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 4, 2020 as compared to the nine months endedSeptember 29, 2019 and includes the effect of foreign exchange rate fluctuations, acquisitions and divestitures. Our Diagnostics segment revenue was$1,215.1 million for the nine months endedOctober 4, 2020 , as compared to$828.5 million for the nine months endedSeptember 29, 2019 , an increase of$386.6 million , or 47%, primarily due to increased demand for our immunodiagnostics and applied genomics COVID-19 product offerings, partially offset by a decrease in revenue from our reproductive health franchise and unfavorable changes in foreign exchange rates. Our Discovery & Analytical Solutions segment revenue was$1,213.0 million for the nine months endedOctober 4, 2020 , as compared to$1,249.7 million for the nine months endedSeptember 29, 2019 , a decrease of$36.7 million , or 3%, primarily driven by a decrease in our applied markets revenue due to reduced demand as a result of the COVID-19 pandemic, resulting in lower sales volume in our product offerings in the industrial, environmental and food markets, and unfavorable changes in foreign exchange rates, partially offset by an increase in our life sciences market revenue. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination accounting rules, we did not 37 -------------------------------------------------------------------------------- Table of Contents recognize$0.6 million of revenue for each of the nine months endedOctober 4, 2020 andSeptember 29, 2019 that otherwise would have been recorded by the acquired businesses during each of the respective periods. Cost of Revenue Cost of revenue for the three months endedOctober 4, 2020 was$436.6 million , as compared to$364.6 million for the three months endedSeptember 29, 2019 , an increase of$71.9 million , or approximately 20%. As a percentage of revenue, cost of revenue decreased to 45.3% for the three months endedOctober 4, 2020 , from 51.6% for the three months endedSeptember 29, 2019 , resulting in an increase in gross margin of 630 basis points to 54.7% for the three months endedOctober 4, 2020 , from 48.4% for the three months endedSeptember 29, 2019 . Amortization of intangible assets increased and was$16.7 million for the three months endedOctober 4, 2020 , as compared to$15.2 million for the three months endedSeptember 29, 2019 . Stock-based compensation expense was$0.5 million for each of the three months endedOctober 4, 2020 andSeptember 29, 2019 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of$0.3 million for the three months endedOctober 4, 2020 , as compared to$7.7 million for the three months endedSeptember 29, 2019 . In addition to the above items, the overall increase in gross margin was primarily the result of higher volume, favorable shift in product mix and service productivity and pricing initiatives partially offset by increased amortization expense. Cost of revenue for the nine months endedOctober 4, 2020 was$1,145.3 million , as compared to$1,080.3 million for the nine months endedSeptember 29, 2019 , an increase of$65.0 million , or approximately 6%. As a percentage of revenue, cost of revenue decreased to 47.2% for the nine months endedOctober 4, 2020 , from 52.0% for the nine months endedSeptember 29, 2019 , resulting in an increase in gross margin of 481 basis points to 52.8% for the nine months endedOctober 4, 2020 , from 48.0% for the nine months endedSeptember 29, 2019 . Amortization of intangible assets increased and was$48.8 million for the nine months endedOctober 4, 2020 , as compared to$45.6 million for the nine months endedSeptember 29, 2019 . Stock-based compensation expense was$1.0 million for the nine months endedOctober 4, 2020 , as compared to$1.2 million for the nine months ended andSeptember 29, 2019 . The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of$1.8 million for the nine months endedOctober 4, 2020 , as compared to$13.3 million for the nine months endedSeptember 29, 2019 . In addition to the above items, the overall increase in gross margin was primarily the result of higher volume, favorable shift in product mix and service productivity and pricing initiatives partially offset by increased amortization expense. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months endedOctober 4, 2020 were$225.2 million , as compared to$204.2 million for the three months endedSeptember 29, 2019 , an increase of$21.1 million , or 10.3%. As a percentage of revenue, selling, general and administrative expenses decreased and were 23.4% for the three months endedOctober 4, 2020 , as compared to 28.9% for the three months endedSeptember 29, 2019 . Amortization of intangible assets increased and was$32.2 million for the three months endedOctober 4, 2020 , as compared to$26.1 million for the three months endedSeptember 29, 2019 . Stock-based compensation expense was$6.3 million for the three months endedOctober 4, 2020 as compared to$11.6 million for the three months endedSeptember 29, 2019 . Other purchase accounting adjustments added an incremental expense of$2.6 million for the three months endedOctober 4, 2020 , as compared to$1.2 million for the three months endedSeptember 29, 2019 . Acquisition and divestiture-related expenses added an incremental expense of$0.2 million for the three months endedOctober 4, 2020 , as compared to an incremental expense of$0.8 million for the three months endedSeptember 29, 2019 . Legal costs for significant litigation matters and settlements added an incremental expense of$0.8 million for the three months endedSeptember 29, 2019 . Acceleration of executive compensation added an incremental expense of$7.7 million for the three months endedSeptember 29, 2019 . In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to growth investments, which were partially offset by lower costs resulting from cost containment and productivity initiatives. Selling, general and administrative expenses for the nine months endedOctober 4, 2020 were$654.8 million , as compared to$604.6 million for the nine months endedSeptember 29, 2019 , an increase of$50.3 million , or 8.3%. As a percentage of revenue, selling, general and administrative expenses decreased and were 27.0% for the nine months endedOctober 4, 2020 , as compared to 29.1% for the nine months endedSeptember 29, 2019 . Amortization of intangible assets increased and was$94.1 million for the nine months endedOctober 4, 2020 , as compared to$75.6 million for the nine months endedSeptember 29, 2019 . Stock-based compensation expense was$17.9 million for the nine months endedOctober 4, 2020 as compared to$23.1 million for the nine months endedSeptember 29, 2019 . Other purchase accounting adjustments decreased expenses by$8.8 million for the nine months endedOctober 4, 2020 , as compared to increasing expenses by$4.4 million for the nine months endedSeptember 29, 2019 . Acquisition and divestiture-related expenses added an incremental expense of$7.4 million for the nine months endedOctober 4, 2020 , as compared to$3.3 million for the nine months endedSeptember 29, 2019 . Legal costs for significant litigation matters and settlements were$3.6 million for the nine months endedOctober 4, 2020 , as 38 -------------------------------------------------------------------------------- Table of Contents compared to$1.6 million for the nine months endedSeptember 29, 2019 . Costs for significant environmental matters added an incremental expense of$5.2 million for the nine months endedOctober 4, 2020 . Acceleration of executive compensation added an incremental expense of$7.7 million for the nine months endedSeptember 29, 2019 . In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to growth investments and the extra fiscal week, which were partially offset by lower costs resulting from cost containment and productivity initiatives. Research and Development Expenses Research and development expenses for the three months endedOctober 4, 2020 were$50.1 million , as compared to$45.4 million for the three months endedSeptember 29, 2019 , an increase of$4.8 million , or 10.5%. As a percentage of revenue, research and development expenses decreased and were 5.2% for the three months endedOctober 4, 2020 , as compared to 6.4% for the three months endedSeptember 29, 2019 . Stock-based compensation expense was$0.3 million for the three months endedOctober 4, 2020 , as compared to$0.2 million for the three months endedSeptember 29, 2019 . The increase in research and development expenses was driven by our investments in new product development. Research and development expenses for the nine months endedOctober 4, 2020 were$148.6 million , as compared to$141.7 million for the nine months endedSeptember 29, 2019 , an increase of$6.9 million , or 4.8%. As a percentage of revenue, research and development expenses decreased and were 6.1% for the nine months endedOctober 4, 2020 , as compared to 6.8% for the nine months endedSeptember 29, 2019 . Stock-based compensation expense was$0.9 million for the nine months endedOctober 4, 2020 , as compared to$0.8 million for the nine months endedSeptember 29, 2019 . 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, the integration of our business units and our productivity initiatives. The activities associated with these plans have been reported as restructuring and other costs, net, as applicable, and are included as a component of income from continuing operations. The current portion of restructuring and other costs is recorded in short-term accrued restructuring and other costs, accrued expense and other current liabilities, and operating lease right-of-use-assets. The long-term portion of restructuring and other costs is recorded in long-term liabilities and operating lease liabilities. We implemented a restructuring plan in the third quarter of fiscal year 2020 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q3 2020 Plan"). We implemented a restructuring plan in the first quarter of fiscal year 2020 consisting of workforce reductions and closure of excess facilities principally intended to realign resources to emphasize growth initiatives (the "Q1 2020 Plan"). We implemented a restructuring plan in each quarter of fiscal year 2019 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q1 2019 Plan", "Q2 2019 Plan", "Q3 2019 Plan" and "Q4 2019 Plan", respectively). Details of the plans initiated in previous years (the "Previous Plans") are discussed more fully in Note 5 to the audited consolidated financial statements in the 2019 Form 10-K. The following table summarizes the reductions in headcount, the initial restructuring or contract termination charges by reporting segment, and the dates by which payments were substantially completed, or the dates by which payments are expected to be substantially completed, for restructuring actions implemented during fiscal years 2020 and 2019 in continuing operations: 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 2020 Plan 23$ 2,080 $ 901 $ - $ -$ 2,981 Q2 FY2021 - Q1 2020 Plan 32 2,312 1,134 92 682 4,220 Q4 FY2020 Q1 FY2022 Q4 2019 Plan 22 177 2,404 - - 2,581 Q3 FY2020 - Q3 2019 Plan 259 11,156 2,641 - - 13,797 Q2 FY2020 - Q2 2019 Plan 44 4,461 1,129 - - 5,590 Q1 FY2020 - Q1 2019 Plan 105 6,001 1,459 - - 7,460 Q4 FY2019 - 39
-------------------------------------------------------------------------------- Table of Contents We do not currently expect to incur any future charges for these plans. We expect to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022. In connection with the termination of various contractual commitments, we recorded additional pre-tax charges of$0.2 million and$0.1 million during the nine months endedOctober 4, 2020 in the Discovery & Analytical Solutions segment and Diagnostics segment, respectively. We recorded pre-tax charges of$0.9 million and$3.1 million associated with relocating facilities during the three and nine months endedOctober 4, 2020 , respectively, in the Discovery & Analytical Solutions segment. We recorded pre-tax charges of$0.4 million associated with relocating facilities during the nine months endedOctober 4, 2020 , in the Diagnostics segment. We expect to make payments on these relocation activities through fiscal year 2021. AtOctober 4, 2020 , we had$15.5 million recorded for accrued restructuring and other costs, of which$10.3 million was recorded in short-term accrued restructuring and other costs,$0.5 million was recorded in operating lease right-of-use assets,$1.3 million was recorded in operating lease liabilities and$3.3 million was recorded in long-term liabilities. AtDecember 29, 2019 , we had$13.9 million recorded for accrued restructuring and other costs, of which$11.6 million was recorded in short-term accrued restructuring and other costs,$0.4 million was recorded in accrued expenses and other current liabilities,$0.8 million was recorded in long-term liabilities, and$1.1 million was recorded in operating lease liabilities. The following table summarizes our restructuring accrual balances and related activity by restructuring plan, as well as other accrual balances and related activity, during the nine months endedOctober 4, 2020 : Balance at December 29, 2020 Changes in 2020 Amounts Balance at 2019 2020 Charges Estimates, Net Paid October 4, 2020 (In thousands) Severance: Q3 2020 Plan $ -$ 2,981 $ -$ (566) $ 2,415 Q1 2020 Plan - 3,446 - (2,239) 1,207 Q4 2019 Plan 889 - (69) (454) 366 Q3 2019 Plan 6,311 - - (2,654) 3,657 Q2 2019 Plan 1,889 - - (1,241) 648 Q1 2019 Plan 2,129 - - (669) 1,460 Facility: Q1 2020 Plan - 774 - (95) 679 Previous Plans 1,647 - 269 (511) 1,405 Restructuring 12,865 7,201 200 (8,429) 11,837 Contract Termination 188 - 212 (68) 332 Other Costs 827 3,462 - (981) 3,308 Total Restructuring and Other Liabilities$ 13,880 $ 10,663 $ 412$ (9,478) $ 15,477 Interest and Other Expense, Net Interest and other expense, net, consisted of the following: Three Months Ended Nine Months Ended October 4, September 29, October 4, September 29, 2020 2019 2020 2019 (In thousands) Interest income$ (205) $ (292)$ (662) $ (925) Interest expense 12,057 16,149 37,308 49,206 Loss on disposition of businesses and assets, net - - - 2,469 Debt extinguishment costs - 471 - 471 Other expense (income), net 2,397 (922) (1,592) 658 Total interest and other expense, net$ 14,249 $
15,406
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Interest and other expense, net, for the three months ended October 4, 2020 was
$14.2 million , as compared to $15.4 million for the three months ended
September 29, 2019 , a decrease of $1.2 million . The decrease in interest and
other expense, net, for the three months ended October 4, 2020 , as compared to
the three months ended September 29, 2019 , was primarily due to a decrease in
interest expense by $4.1 million which was partially offset by an increase in
other expense (income), net of $3.3 million and a decrease in interest income by
$0.1 million . The decrease of $4.1 million in interest expense for the three
months ended October 4, 2020 , as compared to the three months ended
September 29, 2019 , was primarily the result of the lower interest rate
environment that allowed us to refinance our fixed-rate debt at a more favorable
level in the third quarter of fiscal year 2019. The increase of $3.3 million in
other expense (income), net for the three months ended October 4, 2020 , as
compared to the three months ended September 29, 2019 , consisted primarily of
higher foreign exchange loss related to foreign currency transactions and
translation. The other components of net periodic pension credit were $1.6
million and $1.4 million for the three months ended October 4, 2020 and
September 29, 2019 , respectively. These amounts were included in other expense
(income), net.
Interest and other expense, net, for the nine months ended October 4, 2020 was
$35.1 million , as compared to $51.9 million for the nine months ended
September 29, 2019 , a decrease of $16.8 million . The decrease in interest and
other expense, net, for the nine months ended October 4, 2020 , as compared to
the nine months ended September 29, 2019 , was primarily due to a decrease in
interest expense by $11.9 million , a decrease in other expense (income), net by
$2.3 million , and a decrease in loss on disposition of businesses and assets,
net by $2.5 million , which were partially offset by a decrease in interest
income by $0.3 million . The decrease of $11.9 million in interest expense for
the nine months ended October 4, 2020 , as compared to the nine months ended
September 29, 2019 was primarily the result of the lower interest rate
environment that allowed us to refinance our fixed-rate debt at a more favorable
level in the third quarter of fiscal year 2019, and also the favorable impact of
the cross-currency interest rate swap that we executed in the second quarter of
fiscal year 2019. The decrease of $2.3 million in other expense (income), net
for the nine months ended October 4, 2020 , as compared to the nine months ended
September 29, 2019 consisted primarily of reduced expenses related to foreign
currency transactions and translation. The other components of net periodic
pension credit were $4.9 million and $4.4 million for the nine months ended
October 4, 2020 and September 29, 2019 , respectively. These amounts were
included in other expense (income), net.
Provision for Income Taxes
For the three months ended October 4, 2020 , the provision for income taxes from
continuing operations was $57.0 million , as compared to $4.6 million for the
three months ended September 29, 2019 . For the nine months ended October 4,
2020 , the provision for income taxes from continuing operations was $85.6
million , as compared to $8.6 million for the nine months ended September 29,
2019 .
The effective tax rate from continuing operations was 24.4% and 19.8% for the
three and nine months ended October 4, 2020 , respectively, as compared to 7.3%
and 5.0% for the three and nine months ended September 29, 2019 , respectively.
The higher effective tax rate during the three months ended October 4, 2020 , as
compared to the three months ended September 29, 2019 , was due to certain higher
tax rate jurisdictions projected to have higher income in fiscal year 2020 as
compared to fiscal year 2019, a $15.2 million accrual for a foreign filing
position, and lower tax benefits related to other discrete items which were $2.3
million for the three months ended October 4, 2020 , as compared to $3.5 million
of net tax benefit for the three months ended September 29, 2019 . The higher
effective tax rate during the nine months ended October 4, 2020 , as compared to
the nine months ended September 29, 2019 , was due to certain higher tax
jurisdictions projected to have higher income in fiscal year 2020 as compared to
fiscal year 2019, an accrual for a foreign filing position and lower tax
benefits related to discrete items. For the first nine months of fiscal years
2020 and 2019, we recorded a net discrete income tax expense of $7.4 million and
a net discrete income tax benefit of $12.7 million , respectively. The discrete
tax expense in the first nine months of fiscal year 2020 primarily consisted of
a $15.2 million accrual related to a foreign filing position, partially offset
by recognition of excess tax benefits on stock compensation of $7.6 million and
a valuation allowance release of $3.8 million . We also provided for interest on
uncertain tax positions of $1.5 million and $1.2 million related to foreign tax
rate changes. The discrete tax benefits recorded in the first nine months of
fiscal year 2019 primarily consisted of excess tax benefits on stock
compensation of $4.6 million , U.S. federal return to provision adjustments of
$6.5 million and $3.7 million associated with a tax election made during fiscal
year 2019, partially offset by tax expense of $2.7 million related to a change
in tax reform transition tax.
Contingencies, Including Tax Matters
We are conducting a number of environmental investigations and remedial actions
at our current and former locations and, along with other companies, have been
named a potentially responsible party ("PRP") for certain waste disposal sites.
We accrue for environmental issues in the accounting period that our
responsibility is established and when the cost can be reasonably estimated. We
have accrued $12.7 million and $7.7 million as of October 4, 2020 and
December 29, 2019 , respectively, which represents our management's estimate of
the cost of the remediation of known environmental matters, and does not include
any potential liability for related personal injury or property damage claims.
These amounts were included in accrued expenses and other current liabilities.
Our environmental accrual is not discounted and does not reflect the recovery of
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any material amounts through insurance or indemnification arrangements. The cost
estimates are subject to a number of variables, including the stage of the
environmental investigations, the magnitude of the possible contamination, the
nature of the potential remedies, possible joint and several liability, the time
period over which remediation may occur, and the possible effects of changing
laws and regulations. For sites where we have been named a PRP, our management
does not currently anticipate any additional liability to result from the
inability of other significant named parties to contribute. We expect that the
majority of such accrued amounts could be paid out over a period of up to ten
years. As assessment and remediation activities progress at each individual
site, these liabilities are reviewed and adjusted to reflect additional
information as it becomes available. There have been no environmental problems
to date that have had, or are expected to have, a material adverse effect on our
condensed consolidated financial statements. While it is possible that a loss
exceeding the amounts recorded in the condensed consolidated financial
statements may be incurred, the potential exposure is not expected to be
materially different from those amounts recorded.
Various tax years after 2010 remain open to examination by certain jurisdictions
in which we have significant business operations, such as Finland , Germany ,
China , Netherlands , Singapore , the United Kingdom , Luxembourg and the United
States . The tax years under examination vary by jurisdiction. We regularly
review our tax positions in each significant taxing jurisdiction in the process
of evaluating our unrecognized tax benefits. We make adjustments to our
unrecognized tax benefits when: (i) facts and circumstances regarding a tax
position change, causing a change in management's judgment regarding that tax
position; (ii) a tax position is effectively settled with a tax authority;
and/or (iii) the statute of limitations expires regarding a tax position.
We are subject to various claims, legal proceedings and investigations covering
a wide range of matters that arise in the ordinary course of our business
activities. Although we have established accruals for potential losses that we
believe are probable and reasonably estimable, in our opinion, based on our
review of the information available at this time, the total cost of resolving
these contingencies at October 4, 2020 would not have a material adverse effect
on our condensed consolidated financial statements. However, each of these
matters is subject to uncertainties, and it is possible that some of these
matters may be resolved unfavorably to us.
Reporting Segment Results of Continuing Operations
Discovery & Analytical Solutions
Revenue for the three months ended October 4, 2020 was $423.6 million , as
compared to $426.9 million for the three months ended September 29, 2019 , a
decrease of $3.3 million , or 1%, which includes an approximate 1% increase in
revenue attributable to acquisitions and divestitures and a 1% increase in
revenue attributable to favorable changes in foreign exchange rates. The
analysis in the remainder of this paragraph compares selected revenue by end
market for the three months ended October 4, 2020 , as compared to the three
months ended September 29, 2019 , and includes the effect of foreign exchange
fluctuations, acquisitions and divestitures. The decrease in revenue in our
Discovery & Analytical Solutions segment was a result of a decrease of $12.0
million in our applied markets revenue, partially offset by an increase of $8.8
million in our life sciences market revenue. The decrease in our applied markets
revenue was driven by reduced demand as a result of the COVID-19 pandemic,
resulting in a decrease in revenue from our industrial, environmental and food
markets, partially offset by favorable changes in foreign exchange rates. The
increase in our life sciences market revenue was the result of an increase in
revenue in our pharmaceutical and biotechnology markets driven by continued
growth in our Informatics and OneSource businesses, partially offset by a
decrease in revenue from our academia and governmental markets.
Revenue for the nine months ended October 4, 2020 was $1,213.0 million , as
compared to $1,249.7 million for the nine months ended September 29, 2019 , a
decrease of $36.7 million , or 3%, which includes an approximate 2% increase in
revenue attributable to acquisitions and divestitures and a 1% decrease in
revenue attributable to unfavorable changes in foreign exchange rates. The
analysis in the remainder of this paragraph compares selected revenue by end
market for the nine months ended October 4, 2020 , as compared to the nine months
ended September 29, 2019 , and includes the effect of foreign exchange
fluctuations, acquisitions and divestitures. The decrease in revenue in our
Discovery & Analytical Solutions segment was a result of a decrease of $69.1
million in our applied markets revenue, partially offset by an increase of $32.4
million in our life sciences market revenue. The decrease in our applied markets
revenue was driven by reduced demand as a result of the COVID-19 pandemic,
resulting in a decrease in revenue from our industrial, environmental and food
markets, partially offset by favorable changes in foreign exchange rates. The
increase in our life sciences market revenue was primarily the result of an
increase in revenue in our pharmaceutical and biotechnology markets driven by
continued growth in our Informatics and OneSource businesses, which were
partially offset by a decrease in revenue from our academia and governmental
markets.
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Operating income from continuing operations for the three months ended
October 4, 2020 was $42.7 million , as compared to $52.3 million for the three
months ended September 29, 2019 , a decrease of $9.7 million , or 18%.
Amortization of intangible assets was $17.6 million for the three months ended
October 4, 2020 , as compared to $13.7 million for the three months ended
September 29, 2019 . Restructuring and other charges, net, were $2.0 million for
the three months ended October 4, 2020 , as compared to $11.4 million for the
three months ended September 29, 2019 . The amortization of purchase accounting
adjustments to record the inventory from certain acquisitions was $7.4 million
for the three months ended September 29, 2019 . Acquisition and
divestiture-related expenses, contingent consideration and other costs added an
incremental expense of $0.2 million for the three months ended October 4, 2020 ,
as compared to $0.4 million for the three months ended September 29, 2019 . Legal
costs for significant litigation matters and settlements was $0.8 million for
the three months ended September 29, 2019 . In addition to the factors noted
above, operating income decreased for the three months ended October 4, 2020 , as
compared to the three months ended September 29, 2019 , primarily as a result of
lower sales volume and increased investments in new product development and
growth initiatives, partially offset by pricing initiatives and services
productivity.
Operating income from continuing operations for the nine months ended October 4,
2020 was $110.6 million , as compared to $147.0 million for the nine months ended
September 29, 2019 , a decrease of $36.3 million , or 25%. Amortization of
intangible assets was $58.8 million for the nine months ended October 4, 2020 ,
as compared to $37.1 million for the nine months ended September 29, 2019 .
Restructuring and other charges, net, were $6.7 million for the nine months
ended October 4, 2020 , as compared to $22.4 million for the nine months ended
September 29, 2019 . The amortization of purchase accounting adjustments to
record the inventory from certain acquisitions was $1.0 million for the nine
months ended October 4, 2020 , as compared to $12.5 million for the nine months
ended September 29, 2019 . Acquisition and divestiture-related expenses,
contingent consideration and other costs decreased expenses by $5.3 million for
the nine months ended October 4, 2020 , as compared to increasing expense by $1.4
million for the nine months ended September 29, 2019 . Legal costs for
significant litigation matters and settlements were $2.4 million for the nine
months ended October 4, 2020 , as compared to $1.6 million for the nine months
ended September 29, 2019 . In addition to the factors noted above, operating
income decreased for the nine months ended October 4, 2020 , as compared to the
nine months ended September 29, 2019 , primarily as a result of lower sales
volume and increased investments in new product development and growth
initiatives, partially offset by pricing initiatives and services productivity.
Diagnostics
Revenue for the three months ended October 4, 2020 was $540.4 million , as
compared to $280.0 million for the three months ended September 29, 2019 , an
increase of $260.4 million , or 93%, which includes an approximate 1% increase in
revenue attributable to favorable changes in foreign exchange rates. As a result
of adjustments to deferred revenue related to certain acquisitions required by
business combination accounting rules, we did not recognize $0.2 million of
revenue in our Diagnostics segment for each of the three months ended October 4,
2020 and September 29, 2019 that otherwise would have been recorded by the
acquired businesses during each of the respective periods. The increase in our
Diagnostics segment revenue for the three months ended October 4, 2020 was
driven by increased demand resulting in higher sales volume in our
immunodiagnostics and applied genomics COVID-19 product offerings, as well as
favorable changes in foreign exchange rates, which were partially offset by a
decrease in revenue from our reproductive health franchise.
Revenue for the nine months ended October 4, 2020 was $1,215.1 million , as
compared to $828.5 million for the nine months ended September 29, 2019 , an
increase of $386.6 million , or 47%, which includes an approximate 1% decrease in
revenue attributable to unfavorable changes in foreign exchange rates. As a
result of adjustments to deferred revenue related to certain acquisitions
required by business combination accounting rules, we did not recognize $0.6
million of revenue in our Diagnostics segment for each of the nine months ended
October 4, 2020 and September 29, 2019 that otherwise would have been recorded
by the acquired businesses during each of the respective periods. The increase
in our Diagnostics segment revenue for the nine months ended October 4, 2020 was
driven by increased demand for our immunodiagnostics and applied genomics
COVID-19 product offerings, partially offset by a decrease in revenue from our
reproductive health and unfavorable changes in foreign exchange rates.
Operating income from continuing operations for the three months ended
October 4, 2020 was $223.8 million , as compared to $47.4 million for the three
months ended September 29, 2019 , an increase of $176.4 million , or 372%.
Amortization of intangible assets increased and was $31.3 million for the three
months ended October 4, 2020 , as compared to $27.5 million for the three months
ended September 29, 2019 . Restructuring and other charges, net, were $2.1
million for the three months ended October 4, 2020 , as compared to $2.6 million
for the three months ended September 29, 2019 . Acquisition and
divestiture-related expenses, contingent consideration and other costs added an
incremental expense of $2.9 million for the three months ended October 4, 2020 ,
as compared to $1.8 million for the three months ended September 29, 2019 . The
amortization of purchase accounting adjustments to record the inventory from
certain acquisitions was $0.3 million for each of the three months ended
October 4, 2020 and September 29, 2019 . In addition to the factors noted above,
operating income
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increased for the three months ended October 4, 2020 , as compared to the three
months ended September 29, 2019 , 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 ended October 4,
2020 was $413.7 million , as compared to $128.2 million for the nine months ended
September 29, 2019 , an increase of $285.5 million , or 223%. Amortization of
intangible assets decreased and was $84.0 million for the nine months ended
October 4, 2020 , as compared to $84.1 million for the nine months ended
September 29, 2019 . Restructuring and other charges, net, were $4.3 million for
the nine months ended October 4, 2020 , as compared to $5.4 million for the nine
months ended September 29, 2019 . Acquisition and divestiture-related expenses,
contingent consideration and other costs added an incremental expense of $4.4
million for the nine months ended October 4, 2020 , as compared to $6.9 million
for the nine months ended September 29, 2019 . The amortization of purchase
accounting adjustments to record the inventory from certain acquisitions was
$0.8 million for each of the three months ended October 4, 2020 and
September 29, 2019 . Legal costs for significant litigation matters and
settlements were $1.2 million for the nine months ended October 4, 2020 . In
addition to the factors noted above, operating income increased for the nine
months ended October 4, 2020 , as compared to the nine months ended September 29,
2019 , primarily as a result of higher sales volume and favorable product mix,
partially offset by increased investments in new product development and growth
initiatives.
Liquidity and Capital Resources
We require cash to pay our operating expenses, make capital expenditures, make
strategic acquisitions, service our debt and other long-term liabilities,
repurchase shares of our common stock and pay dividends on our common stock. Our
principal sources of funds are from our operations and the capital markets,
particularly the debt markets. We anticipate that our internal operations will
generate sufficient cash to fund our operating expenses, capital expenditures,
smaller acquisitions, interest payments on our debt and dividends on our common
stock. However, we expect to use external sources to satisfy the balance of our
debt when due and fund any larger acquisitions and other long-term liabilities,
such as contributions to our postretirement benefit plans.
Principal factors that could affect the availability of our internally generated
funds include:
•changes in sales due to weakness in markets in which we sell our products and
services, and
•changes in our working capital requirements and capital expenditures.
Principal factors that could affect our ability to obtain cash from external
sources include:
•financial covenants contained in the financial instruments controlling our
borrowings that limit our total borrowing capacity,
•increases in interest rates applicable to our outstanding variable rate debt,
•a ratings downgrade that could limit the amount we can borrow under our senior
unsecured revolving credit facility and our overall access to the corporate debt
market,
•increases in interest rates or credit spreads, as well as limitations on the
availability of credit, that affect our ability to borrow under future potential
facilities on a secured or unsecured basis,
•a decrease in the market price for our common stock, and
•volatility in the public debt and equity markets, including as a result of the
COVID-19 pandemic.
At October 4, 2020 , we had cash and cash equivalents of $258.3 million , of which
$241.2 million was held by our non-U.S. subsidiaries, and we had $922.6 million
of additional borrowing capacity available under our senior unsecured revolving
credit facility. We had no other liquid investments at October 4, 2020 .
We utilize a variety of tax planning and financing strategies to ensure that our
worldwide cash is available in the locations in which it is needed. The Tax Cuts
and Jobs Act required us to pay a one-time transition tax on the unremitted
earnings of foreign subsidiaries. Based on available information, we estimated
the tax on the deemed repatriation of our foreign earnings and recorded a tax
expense of $85.0 million in continuing operations at December 31, 2017 . During
the fiscal years 2019 and 2018, we refined our calculations of the one-time
transition tax based on newly issued guidance from the Internal Revenue Service
and recorded a tax expense (benefit) of $2.7 million and $(4.6) million ,
respectively, in continuing operations related to the one-time transition tax.
In addition, during fiscal year 2018, we determined that previously
undistributed earnings of certain international subsidiaries no longer met the
requirements of indefinite reinvestment and therefore recognized $2.9 million of
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income tax expense. Our intent is to continue to reinvest the remaining
undistributed earnings of our international subsidiaries indefinitely. No
additional income tax expense has been provided for any remaining undistributed
foreign earnings not subject to the transition tax, or any additional outside
basis difference inherent in these entities, as these amounts continue to be
indefinitely reinvested in foreign operations.
On March 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among
other things, contains numerous income tax provisions. We do not expect that any
of the provisions of the CARES Act will result in a material impact to our
consolidated financial statements or related disclosures.
On July 23, 2018 , our Board of Directors (the "Board") authorized us to
repurchase shares of common stock for an aggregate amount up to $250.0 million
under a stock repurchase program (the "Repurchase Program"). The Repurchase
Program expired on July 23, 2020 , and no shares remain available for repurchase
under the Repurchase Program due to its expiration. On July 31, 2020 , the Board
authorized us to repurchase shares of common stock for an aggregate amount up to
$250.0 million under a new stock repurchase program (the "New Repurchase
Program"). The New Repurchase Program will expire on July 27, 2022 unless
terminated earlier by the Board and may be suspended or discontinued at any
time. During the nine months ended October 4, 2020 , we had no stock repurchases
under either the Repurchase Program or the New Repurchase Program. As of
October 4, 2020 , $250.0 million remained available for aggregate repurchases of
shares under the New Repurchase Program.
In addition, the Board has authorized us to repurchase shares of common stock to
satisfy minimum statutory tax withholding obligations in connection with the
vesting of restricted stock awards and restricted stock unit awards granted
pursuant to our equity incentive plans and to satisfy obligations related to the
exercise of stock options made pursuant to our equity incentive plans. During
the three months ended October 4, 2020 , we repurchased 1,416 shares of common
stock for this purpose at an aggregate cost of $0.2 million . During the nine
months ended October 4, 2020 , we repurchased 71,350 shares of common stock for
this purpose at an aggregate cost of $6.8 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 senior unsecured revolving credit facility.
The full impact of the ongoing COVID-19 pandemic on global financial markets is
not yet known, but distressed global financial markets could adversely impact
general economic conditions by reducing liquidity and credit availability,
creating increased volatility in security prices, widening credit spreads and
decreasing valuations of certain investments. The widening of credit spreads may
create a less favorable environment for certain of our businesses and may affect
the fair value of financial instruments that we issue or hold. Increases in
credit spreads, as well as limitations on the availability of credit at rates we
consider to be reasonable, could affect our ability to borrow under future
potential facilities on a secured or unsecured basis, which may adversely affect
our liquidity and results of operations. In difficult global financial markets,
we may be forced to fund our operations at a higher cost, or we may be unable to
raise as much funding as we need to support our business activities.
During the first nine months of fiscal year 2020, we contributed $5.2 million ,
in the aggregate, to our defined benefit pension plans outside of the United
States and expect to contribute an additional $1.4 million by the end of fiscal
year 2020. We could potentially have to make additional contributions in future
periods for all pension plans. We expect to use existing cash and external
sources to satisfy future contributions to our pension plans.
Our pension plans have not experienced a material impact on liquidity or
counterparty exposure due to the volatility and uncertainty in the credit
markets. We recognize actuarial gains and losses in operating results in the
fourth quarter of the year in which the gains and losses occur, unless there is
an interim remeasurement required for one of our plans. It is difficult to
reliably predict the magnitude of such adjustments for gains and losses in
fiscal year 2020. These adjustments are primarily driven by events and
circumstances beyond our control, including changes in interest rates, the
performance of the financial markets and mortality assumptions. To the extent
the discount rates decrease or the value of our pension and postretirement
investments decrease, a loss to operations will be recorded in fiscal year 2020.
Conversely, to the extent the discount rates increase or the value of our
pension and postretirement investments increase more than expected, a gain will
be recorded in fiscal year 2020.
Cash Flows
Operating Activities. Net cash provided by continuing operations was $410.1
million for the nine months ended October 4, 2020 , as compared to net cash
provided by continuing operations of $148.3 million for the nine months ended
September 29, 2019 , an increase in cash provided in operating activities of
$261.8 million . The cash provided by operating activities for the nine months
ended October 4, 2020 was principally a result of income from continuing
operations of $347.7
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million, and non-cash charges, including depreciation and amortization of $182.5
million , stock-based compensation expense of $19.8 million , restructuring and
other costs, net of $11.1 million , amortization of deferred debt financing costs
and accretion of discount of $2.6 million , loss on disposition of businesses and
assets, net of $0.9 million and a net cash increase of $17.8 million in accrued
expenses, other assets and liabilities and other items, including the change in
fair value of contingent consideration. The change in accrued expenses, other
assets and liabilities and other items increased cash provided by operating
activities by $17.8 million for the nine months ended October 4, 2020 , whereas
the changes in accrued expenses, other assets and liabilities and other items
decreased cash provided by operating activities by $126.2 million for the nine
months ended September 29, 2019 . These changes primarily related to the timing
of payments for pensions, taxes, restructuring, and salary and benefits,
including the amortization of purchase accounting adjustments to record the
inventory from certain acquisitions of $1.8 million for the nine months ended
October 4, 2020 as compared to $13.3 million for the nine months ended
September 29, 2019 . For the nine months ended October 4, 2020 , the change in
fair value of contingent consideration resulted in a decrease to cash provided
by operating activities of $8.8 million , as compared to a $4.4 million increase
in cash provided for the nine months ended September 29, 2019 . These items were
partially offset by a net cash decrease in working capital of $172.2 million .
Contributing to the net cash decrease in working capital for the nine months
ended October 4, 2020 , excluding the effect of foreign exchange rate
fluctuations, was an increase in inventory of $120.9 million and an increase in
accounts receivable of $67.7 million , which were partially offset by an increase
in accounts payable of $16.4 million . The increase in inventory was primarily
due to the ramp up of COVID-19 product offerings and seasonal inventory builds
as well as lower than expected sales in our Discovery & Analytical Solutions
segment during the first nine months of fiscal year 2020. The increase in
accounts receivable was a result of higher sales volume in our Diagnostics
segment during the first nine months of fiscal year 2020. The increase in
accounts payable was primarily the result of term extensions and timing of
disbursements during the first nine months of fiscal year 2020. For the nine
months ended October 4, 2020 , $4.8 million of contingent consideration payments
were included in operating activities, as compared to $20.3 million for the nine
months ended September 29, 2019 . In addition, we paid $11.8 million of stay
bonuses associated with our acquisition of Tulip Diagnostics Private Limited for
the nine months ended September 29, 2019 .
Investing Activities. Net cash used in investing activities was $68.1 million
for the nine months ended October 4, 2020 , as compared to $315.5 million for the
nine months ended September 29, 2019 , a decrease of $247.4 million . For the nine
months ended October 4, 2020 , the net cash used in investing activities was
principally a result of cash used for capital expenditures of $57.4 million ,
purchases of investments of $9.6 million and cash used for acquisitions of $3.7
million . These items were partially offset by $2.4 million in proceeds from
disposition of businesses and assets and $0.1 million in proceeds from surrender
of life insurance policies. Cash used for capital expenditures was $53.1 million
for the nine months ended September 29, 2019 . The capital expenditures in each
period were primarily for manufacturing, software and other capital equipment
purchases. During the nine months ended September 29, 2019 , we used $252.6
million for acquisitions, $5.4 million for purchases of investments and $5.0
million for purchases of licenses. Proceeds from disposition of businesses and
assets were $0.6 million for the nine months ended September 29, 2019 .
Financing Activities. Net cash used in financing activities was $276.3 million
for the nine months ended October 4, 2020 , as compared to net cash provided by
financing activities of $401.3 million for the nine months ended September 29,
2019 , an increase in cash used in financing activities of $677.6 million . The
cash used in financing activities during the nine months ended October 4, 2020
was principally a result of debt payments, payments of dividends, repurchase of
our common stock pursuant to our equity incentive plans and net payments on
other credit facilities. During the nine months ended October 4, 2020 , our debt
payments totaled $515.2 million which were partially offset by debt borrowings
of $257.0 million . This compares to debt payments of $1,419.5 million and
payments of debt issuance costs of $7.9 million , which were partially offset by
our debt borrowings of $1,034.4 million and proceeds from the sale of senior
unsecured notes of $847.2 million during the nine months ended September 29,
2019 . During the nine months ended October 4, 2020 , we paid $23.4 million in
dividends as compared to $23.3 million for the nine months ended September 29,
2019 . During the nine months ended October 4, 2020 , we had net payments on other
credit facilities of $8.1 million as compared to $11.2 million for the nine
months ended September 29, 2019 . During the nine months ended October 4, 2020 ,
we repurchased 71,350 shares of our common stock to satisfy minimum statutory
tax withholding obligations in connection with the vesting of restricted stock
awards and restricted stock unit awards granted pursuant to our equity incentive
plans and to satisfy obligations related to the exercise of stock options made
pursuant to our equity incentive plans, for a total cost of $6.8 million . This
compares to repurchases of 67,222 shares of our common stock pursuant to our
equity incentive plans for the nine months ended September 29, 2019 , for a total
cost of $6.2 million . During the nine months ended October 4, 2020 , we paid $5.2
million for acquisition-related contingent consideration as compared to $28.2
million for the nine months ended September 29, 2019 . In addition, during the
nine months ended October 4, 2020 , we paid $2.1 million for the settlement of
forward foreign exchange contracts, as compared to $1.6 million for the nine
months ended September 29, 2019 . This cash used in financing activities during
the nine months ended October 4, 2020 was partially offset by proceeds from the
issuance of common stock under our stock plans of $27.5 million during the nine
months ended October 4, 2020 as compared to $17.6 million for the nine months
ended September 29, 2019 .
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Borrowing Arrangements
Senior Unsecured Revolving Credit Facility. Our senior unsecured revolving
credit facility provides for $1.0 billion of revolving loans that may be either
US Dollar Base Rate loans or Eurocurrency Rate loans, as those terms are defined
in the credit agreement, and has an initial maturity of September 16, 2024 . As
of October 4, 2020 , undrawn letters of credit in the aggregate amount of $11.4
million were treated as issued and outstanding when calculating the borrowing
availability under the facility. As of October 4, 2020 , we had $922.6 million
available for additional borrowing under the facility. We plan to use the senior
unsecured revolving credit facility for general corporate purposes, which may
include working capital, refinancing existing indebtedness, capital
expenditures, share repurchases, acquisitions and strategic alliances. The
interest rates on the Eurocurrency Rate loans are based on the Eurocurrency Rate
at the time of borrowing, plus a percentage spread based on the credit rating of
our debt. The interest rates on the US Dollar Base Rate loans are based on the
US Dollar Base Rate at the time of borrowing, plus a percentage spread based on
the credit rating of our debt. The base rate is the higher of (i) the Federal
Funds Rate (as defined in the credit agreement) plus 50 basis points (ii) the
rate of interest in effect for such day as publicly announced from time to time
by Bank of America as its "prime rate," or (iii) the Eurocurrency Rate plus
1.00%. The Eurocurrency margin as of October 4, 2020 was 101.5 basis points. The
weighted average Eurocurrency interest rate as of October 4, 2020 was 0.15%,
resulting in a weighted average effective Eurocurrency Rate, including the
margin, of 1.16%, which was the interest applicable to the borrowings
outstanding as of October 4, 2020 . As of October 4, 2020 , the senior unsecured
revolving credit facility had outstanding borrowings of $66.0 million , and $2.8
million of unamortized debt issuance costs. As of December 29, 2019 , the senior
unsecured revolving credit facility had outstanding borrowings of $325.4
million , and $3.4 million of unamortized debt issuance costs. The credit
agreement for the facility contains affirmative, negative and financial
covenants and events of default. The financial covenants include a
debt-to-capital ratio that remains applicable for so long as our debt is rated
as investment grade. In the event that our debt is not rated as investment
grade, the debt-to-capital ratio covenant is replaced with a maximum
consolidated leverage ratio covenant and a minimum consolidated interest
coverage ratio covenant. We were in compliance with all applicable debt
covenants as of October 4, 2020 .
1.875% Senior Unsecured Notes due 2026. On July 19, 2016 , we issued €500.0
million aggregate principal amount of senior unsecured notes due in 2026 (the
"2026 Notes") in a registered public offering and received approximately €492.3
million of net proceeds from the issuance. The 2026 Notes were issued at 99.118%
of the principal amount, which resulted in a discount of €4.4 million. The 2026
Notes mature in July 2026 and bear interest at an annual rate of 1.875%.
Interest on the 2026 Notes is payable annually on July 19th each year. The
proceeds from the 2026 Notes were used to pay in full the outstanding balance of
our previous senior unsecured revolving credit facility. As of October 4, 2020 ,
the 2026 Notes had an aggregate carrying value of $579.6 million , net of $3.2
million of unamortized original issue discount and $2.9 million of unamortized
debt issuance costs. As of December 29, 2019 , the 2026 Notes had an aggregate
carrying value of $552.2 million , net of $3.5 million of unamortized original
issue discount and $3.3 million of unamortized debt issuance costs.
Prior to April 19, 2026 (three months prior to their maturity date), we may
redeem the 2026 Notes in whole at any time or in part from time to time, at our
option, at a redemption price equal to the greater of (i) 100% of the principal
amount of the 2026 Notes to be redeemed, or (ii) the sum of the present values
of the remaining scheduled payments of principal and interest in respect to the
2026 Notes being redeemed, discounted on an annual basis, at the applicable
Comparable Government Bond Rate (as defined in the indenture governing the 2026
Notes) plus 35 basis points; plus, in each case, accrued and unpaid interest. In
addition, at any time on or after April 19, 2026 (three months prior to their
maturity date), we may redeem the 2026 Notes, at our option, at a redemption
price equal to 100% of the principal amount of the 2026 Notes due to be redeemed
plus accrued and unpaid interest.
Upon a change of control (as defined in the indenture governing the 2026 Notes)
and a contemporaneous downgrade of the 2026 Notes below investment grade, we
will, in certain circumstances, make an offer to purchase the 2026 Notes at a
price equal to 101% of their principal amount plus any accrued and unpaid
interest.
0.6% Senior Unsecured Notes due in 2021. On April 11, 2018 , we issued €300.0
million aggregate principal amount of senior unsecured notes due in 2021 (the
"2021 Notes") in a registered public offering and received approximately €298.7
million of net proceeds from the issuance. The 2021 Notes were issued at 99.95%
of the principal amount, which resulted in a discount of €0.2 million. As of
October 4, 2020 , the 2021 Notes had an aggregate carrying value of $351.0
million , net of $30 thousand of unamortized original issue discount and $0.4
million of unamortized debt issuance costs. As of December 29, 2019 , the 2021
Notes had an aggregate carrying value of $334.2 million , net of $0.1 million of
unamortized original issue discount and $1.1 million of unamortized debt
issuance costs. The 2021 Notes mature in April 2021 and bear interest at an
annual rate of 0.6%. Interest on the 2021 Notes is payable annually on April 9th
each year. Prior to the maturity date of the 2021 Notes, we may redeem them in
whole at any time or in part from time to time, at our option, at a redemption
price equal to the greater of (i) 100% of the principal amount of the 2021 Notes
to be redeemed, or (ii) the sum of the present values of the remaining scheduled
payments of principal and interest in respect to the 2021 Notes being redeemed,
discounted on an annual basis, at the applicable Comparable Government Bond Rate
(as defined in the indenture governing the 2021 Notes) plus 15 basis points;
plus, in each case, accrued and unpaid interest. Upon a change of control (as
defined in the indenture governing the 2021 Notes)
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and a contemporaneous downgrade of the 2021 Notes below investment grade, we
will, in certain circumstances, make an offer to purchase the 2021 Notes at a
price equal to 101% of their principal amount, plus accrued and unpaid interest.
3.3% Senior Unsecured Notes due in 2029. On September 12, 2019 , we issued $850.0
million aggregate principal amount of senior unsecured notes due in 2029 (the
"2029 Notes") in a registered public offering and received $847.2 million of net
proceeds from the issuance. The 2029 Notes were issued at 99.67% of the
principal amount, which resulted in a discount of $2.8 million . As of October 4,
2020 , the 2029 Notes had an aggregate carrying value of $840.4 million , net of
$2.5 million of unamortized original issue discount and $7.0 million of
unamortized debt issuance costs. As of December 29, 2019 , the 2029 Notes had an
aggregate carrying value of $839.9 million , net of $2.7 million of unamortized
original issue discount and $7.4 million of unamortized debt issuance costs. The
2029 Notes mature in September 2029 and bear interest at an annual rate of 3.3%.
Interest on the 2029 Notes is payable semi-annually on March 15th and September
15th each year. Proceeds from the 2029 Notes were used to repay all outstanding
borrowings under our previous senior unsecured revolving credit facility with
the remaining proceeds used in the redemption of the 5% senior unsecured notes
that were due in November 2021 . Prior to June 15, 2029 (three months prior to
their maturity date), we may redeem the 2029 Notes in whole or in part, at our
option, at a redemption price equal to the greater of (i) 100% of the principal
amount of the 2029 Notes to be redeemed, and (ii) the sum of the present values
of the remaining scheduled payments of principal and interest in respect to the
2029 Notes being redeemed (not including any portion of such payments of
interest accrued but unpaid as of the date of redemption) assuming that such
2029 Notes matured on June 15, 2029 , discounted at the date of redemption on a
semi-annual basis (assuming a 360-day year of twelve 30-day months), at the
Treasury Rate (as defined in the indenture governing the 2029 Notes) plus 25
basis points, plus accrued and unpaid interest. At any time on or after June 15,
2029 (three months prior to their maturity date), we may redeem the 2029 Notes,
at our option, at a redemption price equal to 100% of the principal amount of
the 2029 Notes to be redeemed plus accrued and unpaid interest. Upon a change of
control (as defined in the indenture governing the 2029 Notes) and a
contemporaneous downgrade of the 2029 Notes below investment grade, each holder
of 2029 Notes will have the right to require us to repurchase such holder's 2029
Notes for 101% of their principal amount, plus accrued and unpaid interest.
Other Debt Facilities. Our other debt facilities include Euro-denominated bank
loans with an aggregate carrying value of $17.8 million (or €15.2 million) and
$23.8 million (or €21.3 million) as of October 4, 2020 and December 29, 2019 ,
respectively. These bank loans are primarily utilized for financing fixed assets
and are required to be repaid in monthly or quarterly installments with maturity
dates extending to 2028. Of these bank loans, loans in the aggregate amount of
$17.7 million bear fixed interest rates between 1.1% and 4.3% and a loan in the
amount of $0.1 million bears a variable interest rate based on the Euribor rate
plus a margin of 1.5%. An aggregate amount of $5.0 million of the bank loans are
secured by mortgages on real property and the remaining $12.8 million are
unsecured. Certain credit agreements for the unsecured bank loans include
financial covenants which are based on an equity ratio or an equity ratio and
minimum interest coverage ratio. We were in compliance with all applicable debt
covenants as of October 4, 2020 .
In addition, we had secured bank loans in the aggregate amount of $0.8 million
and $1.9 million as of October 4, 2020 and December 29, 2019 , respectively. The
secured bank loans of $0.8 million bear fixed annual interest rates between
1.95% and 20.0% and are required to be repaid in monthly installments until
2027.
Dividends
Our Board declared a regular quarterly cash dividend of$0.07 per share for each of the first three quarters of fiscal year 2020 and for each quarter of fiscal year 2019. AtOctober 4, 2020 , we had accrued$7.8 million for dividends declared onJuly 23, 2020 for the third quarter of fiscal year 2020 that were paid onNovember 6, 2020 . OnOctober 22, 2020 , we announced that the Board had declared a quarterly dividend of$0.07 per share for the fourth quarter of fiscal year 2020 that will be payable inFebruary 2021 . In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources. Contractual Obligations Our contractual obligations, as described in the contractual obligations table contained in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2019 Form 10-K have not changed materially.
Effects of Recently Adopted and Issued Accounting Pronouncements See Note 1, Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements for a summary of recently adopted and issued accounting pronouncements.
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