Summary of Significant Accounting Policies

12 Months Ended

Jan. 02, 2022

Summary of Significant Accounting Policies

(3) Summary of significant accounting policies

The consolidated financial statements of the Company have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, after the elimination of intercompany transactions.

(a) Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods and disclosures. The estimates and underlying assumptions can impact all elements of the financial statements, including, but are not limited to, accounting for deductions from revenues (e.g. rebates, sales allowances, and discounts), receivable and inventory valuations, fixed asset valuations, useful lives, impairment of goodwill and tangible and intangible assets, the fair value of assets acquired and liabilities assumed in a business combination and related purchase price allocation, long-term employee benefit obligations, income taxes, environmental matters, litigation and allocations of costs. Estimates are based on historical experience, complex judgments, facts and circumstances available at the time and various other assumptions that are believed to be reasonable under the circumstances but are inherently uncertain and unpredictable. Actual results could differ materially from those estimates.

(b) Accounting for business combinations

Business combinations are accounted for under the acquisition method of accounting, which requires the acquired assets, including separately identifiable intangible assets, and assumed liabilities to be recorded as of the acquisition date at their respective fair values. Any excess of the purchase price over the fair value of the assets acquired, including separately identifiable intangible assets, and liabilities assumed is recorded as goodwill. Fair value determination is subject to a significant degree of estimates.

The determination of the fair value of assets acquired and liabilities assumed involves assessments of factors such as the expected future cash flows associated with individual assets and liabilities and appropriate discount rates at the date of the acquisition. Where appropriate, external advisors are consulted to assist in the determination of fair value. For non-observable market values, fair value has been determined using acceptable valuation principles (e.g., multiple excess earnings and relief from royalty methods).

Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; this occurs with the transfer of control of the Company’s goods or services. The Company considers revenue to be earned when all of the following criteria are met: the Company has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or consideration the Company expects to receive for transferring the goods or providing services, is determinable; and the Company has transferred control of the promised items to the customer. A promise in a contract to transfer a distinct good or service to the customer is identified as a performance obligation. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Provisions for rebates and discounts are provided for in the period in which related sales are recorded based on historical experience and updated for changes in facts and circumstances, as appropriate. Such provisions are recorded as a reduction of revenue.

Product revenue includes sales of consumable supplies and test kits for equipment, sales and leases of instruments, as well as services related thereto. Revenue from sales of consumable supplies and test kits is generally recognized upon shipment or delivery based on the contractual shipping terms of the respective customer contract. Revenue from instrument sales is generally recognized upon installation and customer acceptance. Service revenue on equipment and instrument maintenance contracts is recognized over the life of the service arrangement or as services are performed. Revenue earned from operating leases is recognized over the lease term, normally five to seven years. Revenue earned under sales-type leases is recognized at the beginning of the lease, as well as a lease receivable and unearned interest associated with the lease.

The Company may also enter into transactions that involve multiple performance obligations, such as the sale of products and related services. In accounting for these transactions, the Company allocates arrangement consideration to the deliverables by use of the standalone selling price method.

A portion of the Company’s product revenue includes revenue earned under reagent rental programs which provide customers the right to use instruments at no separate cost to the customer in consideration for a multi-year agreement to purchase annual minimum amounts of consumables. For these arrangements, the contract consideration is allocated between the lease component related to the instruments and the non-lease component related to the reagents, assays and consumables based on the relative standalone prices for each component. The cost of the instrument is capitalized within property and equipment, and is charged to cost of product revenue on a straight-line basis over the term of the minimum purchase agreement. All revenue related to the non-lease component is recognized when control of the diagnostics kits have passed to the customer.

The Company enters into collaboration arrangements that generate collaboration revenue and royalty revenue from license agreements. Revenue from collaborations is presented “gross” where the Company is deemed the principal in the arrangement and “net” where the Company is deemed the agent in the arrangement. For more information related to the Company’s collaboration arrangements, see Note 13–Collaborations and Other Relationships.

(d) Shipping and handling

The revenue received for shipping and handling is included in Net revenue on the consolidated statements of operations and is less than 1% of total net revenue for each period presented. Shipping and handling costs were $76.0 million, $61.2 million, and $62.1 million for the fiscal years ended January 2, 2022, January 3, 2021 and December 29, 2019, respectively, and are included in Selling, marketing and administrative expenses on the consolidated statements of operations.

(e) Research and development

Research and development expense incurred in the normal course of business is expensed as incurred. Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval. Payments made to third parties at or subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangibles, net of accumulated amortization.

The Company enters into collaborative arrangements to develop and commercialize intellectual property. These arrangements typically involve two (or more) parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the commercial success of the activities. These collaborations usually involve various activities by one or more parties, including research and development, marketing and selling and distribution. Often, these collaborations require upfront, milestone and royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development. Amounts

due from collaborative partners related to development activities are generally reflected as a reduction of research and development expense because the performance of contract development services is not central to the Company’s operations.

In general, the income statement presentation for these collaborations is as follows:


Nature / type of collaboration		Statement of operations presentation
Third party sale of product		Net revenue
Royalties received from collaborative partner		Net revenue
Royalties/milestones paid to collaborative partner (post-regulatory approval)		Amortization of intangible assets
Upfront payments and milestones paid to collaborative partner (pre-regulatory approval)		Research and development expense
Research and development payments to collaborative partner		Research and development expense
Research and development payments received from collaborative partner		Reduction to research and development expense

(f) Advertising

Advertising costs, which are not material to the Company, are expensed as incurred and included in Selling, marketing and administrative expenses on the consolidated statements of operations.

(g) Employee benefits

The Company has defined benefit plans in certain countries and a retiree health care reimbursement plan for certain U.S. employees. Defined benefit plans specify an amount of pension benefit that an employee will receive on retirement, usually dependent on factors such as age, years of service and compensation. The net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of the future benefits that employees have earned in return for their service in the current and prior periods. These benefits are then discounted to determine the present value of the obligations and are then adjusted for the impact of any unamortized prior service costs. The net obligation is then determined with reference to the fair value of the plan assets (if any). The discount rate used is the yield on bonds that are denominated in the currency in which the benefits will be paid and that have maturity dates approximating the terms of the obligations. The calculations are performed by qualified actuaries using the projected unit credit method.

(h) Stock-based compensation

Stock-based compensation, comprised of stock options and restricted stock awards to employees and directors, is measured at fair value on the grant date or date of modification, as applicable. Compensation expense is recognized over the requisite service period, which is generally the vesting period, and includes an estimate of the awards that will be forfeited, and an estimate of the level of performance the Company will achieve for performance-based awards.

(i) Income taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for operating losses and tax credit carryforwards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the period that includes the enactment date.

The Company does not intend to permanently reinvest earnings of foreign subsidiaries at this time. As such, the Company provides for income taxes and foreign withholding taxes, where applicable, on undistributed earnings. Any repatriation of undistributed earnings would be done at little or no tax cost.

The Company recognizes the benefit of an income tax position only if it is “more likely than not” that the tax position will be sustained. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized. Additionally, the Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of Provision for (benefit from) income taxes. The Acquisition Agreement includes indemnification provisions with respect to tax liabilities, including reserves for unrecognized tax benefits, as of the date of the Acquisition.

(j) Net loss per ordinary share

Basic net loss per share attributable to the Company’s ordinary shareholders is based upon the weighted-average number of ordinary shares outstanding during the period. Diluted net loss per share attributable to the Company’s ordinary shareholders is based upon the weighted-average number of ordinary shares and share equivalents outstanding during the period. Potential ordinary share equivalents are calculated using the treasury stock method. The Company excludes potential ordinary share equivalents from the calculation if the effect would be anti-dilutive. For each period below, the Company incurred a Net loss. The following potential ordinary share equivalents outstanding were excluded from the calculation of diluted net loss per share for the periods presented because including them was anti-dilutive:


(In Millions)	January 2, 2022		January 3, 2021		December 29, 2019
Stock options		13.0		16.1		15.2
Unvested restricted shares and restricted stock units		0.6		1.0		0.2
		13.6		17.1		15.6

(k) Fair value measurements

Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. U.S. GAAP defines a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The following valuation techniques are used to measure fair value for assets and liabilities:

Level 1—Quoted market prices in active markets for identical assets or liabilities;

Level 2—Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); and

Level 3—Unobservable inputs for the asset or liability, which are valued based on management’s estimates of assumptions that market participants would use in pricing the asset or liability.

(l) Derivatives and hedging

The Company utilizes derivatives to manage exposures to risk and not for speculative or trading purposes. The fair values of derivatives are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these instruments are reported in current earnings or other comprehensive income (“OCI”), depending on the use of the derivative and whether it qualifies for hedge accounting treatment. Cash flows from derivatives are recognized in the consolidated statement of cash flows in a manner consistent with the underlying transactions.

Unrealized gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in OCI, to the extent the hedges are effective, until the underlying transactions settle, and the remaining gain or loss is recognized to the corresponding account in income from operations.

Derivatives not designated as hedging instruments are marked-to-market at the end of each accounting period with the results recorded in Other expense, net.

(m) Other comprehensive income (loss)

Other comprehensive income (loss) is recorded directly to a separate section of shareholder’s equity in accumulated other comprehensive income (loss) and primarily includes unrealized gains and losses excluded from the consolidated statement of operations. These unrealized gains and losses consist of changes in foreign currency translation; changes in unamortized pension, postretirement and postemployment actuarial gains and losses and prior service cost; and changes in the fair value of interest derivatives and foreign currency derivatives that are designated and qualify as cash flow hedging instruments.

(n) Cash and cash equivalents

Cash equivalents represent investments with original maturities of three months or less from time of purchase. They are carried at cost plus accrued interest, which approximates fair value because of the short-term maturity of these instruments. As of January 2, 2022 and January 3, 2021, the Company did not hold any cash equivalents. Cash balances may exceed government insured limits in certain jurisdictions.

(o) Accounts receivable and allowance for credit losses and concentration of credit risk

Accounts receivable are recognized net of an allowance for credit losses. The Company maintains an allowance for doubtful accounts for expected credit losses resulting from the collectability of customer accounts. The Company establishes a reserve based on historical losses, the age of receivables, customer mix and credit policies, current economic conditions in customers’ country or industry, and expectations associated with reasonable and supportable forecasts, and specific allowances for large or risky accounts. Receivables from federal and state government customers as well as large corporate customers have historically been less susceptible to collectability risk. Amounts later determined to be uncollectible are charged or written off against this allowance. No single customer accounted for 10% or more of total Accounts receivable or revenue for all periods presented.

(p) Inventories

Inventories are stated at the lower of cost and net realizable value on a first-in, first-out method. Elements of cost include raw materials, direct labor and manufacturing overhead.

Equipment inventory can either be sold or leased to customers. When leased, the equipment is transferred to Property, plant and equipment and depreciation commences.

(q) Customer leased instruments

Determining the economic life of leased instruments requires significant judgment based on the Company’s historical experience. The Company estimates the economic life for leased equipment to be ten years. The Company believes these lives represent the periods during which the instruments are expected to be economically usable, with normal repairs and maintenance, for the purposes for which they are intended. The Company regularly evaluates the economic life of existing and new products for purposes of this determination.

(r) Property, plant and equipment and depreciation

Property, plant and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:


Asset type		Useful life
Leasehold improvements		Up to 30 years
Building and building improvements		7-55 years
Machinery and equipment		3-30 years
Customer leased instruments		5-8 years
Computer software		3-8 years

The Company capitalizes certain computer software and development costs when incurred in connection with developing or obtaining computer software for internal use. Software developed for use in the Company’s products is expensed as incurred to research and development expense until technological feasibility is achieved. Costs incurred subsequent to the achievement of technological feasibility are capitalized. As of both January 2, 2022 and January 3, 2021, capitalized costs related to software for use in the Company’s products amounted to $13.2 million.

When assets are surrendered, retired, sold or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the accounts and included in determining gain or loss on such disposals. Maintenance and repairs are expensed as incurred; major replacements and improvements that extend the useful life are capitalized.

(s) Goodwill

Goodwill represents the excess of purchase price over the fair values of underlying net assets acquired in an acquisition. The Company assesses goodwill for impairment at the reporting unit level on an annual basis in the Company’s fiscal fourth quarter and whenever events or changes in circumstances occur that indicate that the fair value of a reporting unit is below its carrying amount.

When testing goodwill for impairment, the Company first has an option to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that impairment exists. The Company is also required to perform a qualitative assessment if the carrying value of the reporting unit is zero or negative. Such qualitative factors may include the following: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other relevant entity-specific events. In the event the qualitative assessment indicates that an impairment is more likely than not, the Company would be required to perform a quantitative impairment test, otherwise no further analysis is required. Under the quantitative goodwill impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. The Company estimates the fair value of its reporting units by using forecasts of discounted future cash flows and peer market multiples. Estimates of discounted future cash flows for each reporting unit require assumptions related to assumed revenue growth rates, long term growth rates and discount rates. The Company also considers revenue and earnings trading multiples of the peer companies that have similar financial characteristics to the reporting units. If the fair value of a reporting unit is less than its carrying value, impairment will be recognized in the amount by which the carrying value exceeds the fair value.

For the fiscal year ended January 2, 2022, the Company performed a qualitative goodwill impairment assessment as of the beginning of the fiscal fourth quarter to assess for potential impairment. Based upon the qualitative impairment assessment performed by the Company, it was concluded that it is not more likely than not that the fair value of the Company’s reporting units is less than their carrying amounts, and therefore no further impairment testing was necessary.

(t) Impairment of long-lived assets

The process of evaluating the potential impairment of other long-lived assets, such as property, plant and equipment, technology, tradenames, customer relationships and capitalized milestone payments, is subjective and requires judgment. The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. This impairment test may be triggered by a decrease in the market price of a long-lived asset, an adverse change in the extent or manner in which the asset is being used, or a forecast of continuing losses associated with the use of the asset. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset group to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. If the fair value is less than the asset’s carrying amount, a loss is recognized for the difference. The fair value methodology used is an estimate of fair value and is based on the discounted future cash flows of the asset or quoted market prices of similar assets. Based on these assumptions and estimates, the Company determines whether a need for an impairment charge exists to reduce the value of the asset stated on the balance sheet to reflect its estimated fair value.

(u) Equity investments

The Company’s equity investments in publicly-traded equity securities are recorded using the equity method of accounting, under which the Company records its share of the equity affiliates results of operations based on its percentage of ownership. Dividends declared are recorded as a reduction to the equity investment value. The Company records its investments in held to maturity debt securities at cost plus accretion to redemption value. The Company monitors these investments to determine whether any decline in their fair value is considered other-than-temporary and to determine any estimate of expected credit loss.

(v) Litigation

The Company accrues for loss contingencies related to litigation matters when available information indicates that the liability is probable and the amount can be reasonably estimated. Legal costs, such as outside counsel fees and expenses, are charged to expense in the period incurred.

(w) Foreign currency translation

The Company’s reporting currency is the U.S. dollar. In most cases, non-U.S. based subsidiaries use their local currency as the functional currency for their respective business operations. Assets and liabilities of these operations are translated into U.S. dollars at end-of-period exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Resulting cumulative translation adjustments are recorded in Foreign currency translation in the consolidated statements of comprehensive income (loss).

Gains and losses from transactions denominated in foreign currencies other than the functional currency of the respective entity are included in the consolidated statements of operations in Other expense, net.

(x) Government grants

From time to time, the Company may receive grants from government institutions for various matters. The Company evaluates the terms and conditions of each grant to determine the proper accounting treatment. The Company recognizes revenue under these arrangements when milestone conditions in the contract have been substantially met. During fiscal years 2020 and 2021, the Company received grants from the U.S. government’s Biomedical Advanced Research and Development Authority (“BARDA”). For more information related to the Company’s BARDA grants, see Note 4–Revenue.

(y) New accounting guidance

Accounting pronouncements adopted during the fiscal year ended January 2, 2022

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance related to intra-period tax allocations, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim period tax accounting. The guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted this guidance on January 4, 2021. The adoption did not have a material impact on the Company’s consolidated financial statements.

Recent accounting pronouncements not yet adopted

In May 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments. This ASU addresses an issue related to a lessor’s accounting for certain leases with variable lease payments. The amendments in this ASU affect lessors with lease contracts that have variable lease payments that do not depend on a reference index or a rate and would have resulted in the recognition of a selling loss at lease commencement if classified as a sales-type lease or a direct financing lease. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. This guidance is effective for the Company beginning January 3, 2022. The Company does not expect that the adoption of this standard will have a material impact on the Company’s consolidated financial statements.