10-K 1 pki1231201710k.htm FORM 10-K Document

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________________________
Form 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2017
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to
     
Commission file number 001-5075
_____________________________________ 
PerkinElmer, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts
 
04-2052042
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
940 Winter Street, Waltham, Massachusetts
 
02451
(Address of Principal Executive Offices)
 
(Zip Code)
(Registrant’s telephone number, including area code): (781) 663-6900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $1 Par Value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ       No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes þ        No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yes þ        No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.        þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o(Do not check if a smaller reporting company)
Smaller reporting company
 
o
 
 
 
 
 
 
Emerging growth company
 
o
 
 
 
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ
The aggregate market value of the common stock, $1 par value per share, held by non-affiliates of the registrant on June 30, 2017, was $7,366,225,026 based upon the last reported sale of $68.14 per share of common stock on June 30, 2017.
As of February 23, 2018, there were outstanding 110,504,347 shares of common stock, $1 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of PerkinElmer, Inc.’s Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 24, 2018 are incorporated by reference into Part III of this Form 10-K.
 

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TABLE OF CONTENTS
 
 
 
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
PART IV
Item 15.
Item 16.

 

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PART I

Item 1.
Business

Overview
We are a leading provider of products, services and solutions for the diagnostics, food, environmental, industrial, life sciences research and laboratory services markets. Through our advanced technologies and differentiated solutions, we address critical issues that help to improve lives and the world around us.
We are a Massachusetts corporation, founded in 1947. Our headquarters are in Waltham, Massachusetts, and we market our products and services in more than 150 countries. As of December 31, 2017, we employed approximately 11,000 employees in our continuing operations. Our common stock is listed on the New York Stock Exchange under the symbol “PKI” and we are a component of the S&P 500 Index.
We maintain a website with the address http://www.perkinelmer.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form 10-K. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission.

Our Strategy
Our strategy is to develop and deliver innovative products, services and solutions in high-growth markets that utilize our knowledge and expertise to address customers’ critical needs and drive scientific breakthroughs. To execute on our strategy and accelerate revenue growth, we focus on broadening our offerings through both the acquisition of innovative technology and investment in research and development. Our strategy includes:
Achieving significant growth in both of our core business segments, Discovery & Analytical Solutions and Diagnostics, through strategic acquisitions and licensing;
Accelerating innovation through both internal research and development and third-party collaborations and alliances;
Strengthening our position within key markets, by expanding our global product and service offerings and maintaining superior product quality;
Utilizing our share repurchase programs to help drive shareholder value; and
Attracting, retaining and developing talented and engaged employees.

Recent Developments
As part of our strategy to grow our core businesses, we have recently taken the following actions:

Acquisitions in Fiscal Year 2017:
We completed the acquisition of three businesses in fiscal year 2017 for total consideration of $1.6 billion. The acquired businesses were EUROIMMUN Medizinische Labordiagnostika AG (“EUROIMMUN”) acquired for total consideration of €1.2 billion, Tulip Diagnostics Private Limited (“Tulip”) acquired for total consideration of $127.3 million, and one other business acquired for total consideration of $14.8 million. We have a potential obligation to pay the former shareholders of Tulip up to INR1.6 billion in additional consideration over a two year period, which is currently equivalent to $25.2 million, and is accounted for as compensation expense in our consolidated financial statements over a two year period and is excluded from the purchase price allocation. We reported the operations of EUROIMMUN and Tulip within the results of our Diagnostics segment and the other acquisition within the results of our Discovery & Analytical Solutions segment from the acquisition dates.

Restructuring:
During fiscal year 2017, we recorded pre-tax restructuring charges of $8.0 million in our Discovery & Analytical Solutions segment and $2.9 million in our Diagnostics segment related to a workforce reduction from restructuring activities. Our management approved these plans to realign resources to emphasize growth initiatives. We also terminated various contractual commitments in connection with certain disposal activities and have recorded charges, to the extent applicable, for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us. We recorded pre-tax charges of $3.6 million, in the Discovery & Analytical Solutions segment and $0.5 million in the Diagnostics segment during fiscal year 2017 as a result of these contract terminations.

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This pre-tax restructuring activity has been reported as restructuring and contract termination charges and is included as a component of income from continuing operations. We expect no significant impact on future operating results or cash flows from the restructuring activities executed in fiscal year 2017.


Business Segments and Products
We report our business in two segments: Discovery & Analytical Solutions and Diagnostics. We realigned our businesses at the beginning of the fourth quarter of fiscal year 2016 to better position us to grow in attractive end markets and expand share with our core product offerings through an improved customer focus, more value-add collaboration and breakthrough innovations.

Discovery & Analytical Solutions Segment
Our comprehensive portfolio of technologies helps life sciences researchers better understand diseases and develop treatments. In addition, we enable scientists to detect, monitor and manage contaminants and toxic chemicals that impact our environment and food supply. Our Discovery & Analytical Solutions segment serves the environmental, food, industrial, life sciences research and laboratory services markets, and generated revenue of $1,578.5 million in fiscal year 2017.

Environmental Market:
For the environmental market, we develop and provide analytical technologies, solutions and services that enable our customers to understand the characterization and health of many aspects of our environment, including air, water and soil.
Our solutions are used to detect and help reduce the impact products and industrial processes have on our environment. For example, our solutions help ensure compliance with regulatory standards that protect the purity of the world's water supply by detecting harmful substances, including trace metals such as lead, and organic pollutants such as pesticides and benzene. We provide the tools needed to test functionality, meet quality specifications and safety standards, and innovate for next generation products.

Food Market:
We offer a variety of solutions that help farmers and food producers provide a growing population with food that is safe, nutritious and appealing, and assist manufacturers with product consistency and maximizing production yield. Our instruments confirm food quality, including the level of moisture in grain or the level of fat in butter, as well as detect the presence of potentially dangerous contaminants, such as lead and mercury in milk. Our solutions can also be used to identify the origin of food products such as olive oil, which helps prevent counterfeiting. Our methods and analyses are transferable throughout the supply chain to enable customers to keep pace with industry standards as well as governmental regulations and certifications.

Industrial Market:
We provide analytical instrumentation for the industrial market which includes the chemical, semiconductor and electronics, energy, lubricant, petrochemical and polymer industries. Our technologies for this market are primarily used by customers focusing on quality assurance standards.

Life Sciences Research Market:
In the life science research market, we provide a broad suite of solutions including reagents, informatics, and detection and imaging technologies that enable scientists to work smarter, make research breakthroughs and transform those breakthroughs to real-world outcomes. These products, solutions and services support pharmaceutical and biotech companies, and academic institutions globally in discovering and developing better treatments and therapeutics to fight disease, faster and more efficiently.

Laboratory Services Market:
We provide services designed to help customers in the laboratory services market increase efficiencies and production time while reducing lab maintenance costs. Our OneSource® laboratory service business is aligned with customers' needs, enabling them to accelerate scientific progress and commercial opportunities.


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Principal Products:
Our principal products and services for Discovery & Analytical Solutions applications include the following:

Environmental, Food & Industrial:
The Clarus® series of gas chromatographs, gas chromatographs/mass spectrometers and the TurboMatrix™ family of sample-handling equipment, which are used to identify and quantify compounds in the environmental, forensics, food and beverage, hydrocarbon processing/biofuels, materials testing, pharmaceutical and semiconductor industries.
The Flexar™ ultra-high performance liquid chromatography (UHPLC) and Flexar advanced liquid chromatography systems, which provide high throughput and resolution chromatographic separations.
The QSight® Triple Quad LC/MS/MS, a flow-based mass spectrometry system that provides high sensitivity and enables high levels of efficiency and productivity to meet both standard and regulatory requirements.
The Torion® T-9 portable GC/MS, a fast person-portable GC/MS system, enabling rapid detection and actionable results to potentially hazardous and emergency environmental conditions.
Our atomic spectroscopy family of instruments, including the PinAAcle® family of atomic absorption spectrometers, the Avio family of inductively coupled plasma (“ICP”) optical emission spectrometers and the NexION® family of ICP mass spectrometers, which are used in the environmental and chemical industries, among others, to determine the elemental content of a sample.
Our infrared spectroscopy (IR) family of instruments, the Spectrum Two™ IR & NIR spectrometers, which are compact and portable and used for high-speed infrared analysis for unknown substance identification, material qualification or concentration determination in fuel and lubricant analysis, polymer analysis and pharmaceutical and environmental applications. This includes the Frontier™ IR and NIR spectrometers designed to provide high sensitivity and flexibility to address a range of sample types. Spotlight™ IR systems are designed for scientists whose samples demand higher sensitivity and simpler analysis and workflows.
The LAMBDA™ UV/Vis, a series of spectrophotometers that provide sampling flexibility to enable measurement of a wide range of sample types, including liquids, powders and solid materials, both in regulated industries as well as QC/QA and research applications.
The 2400 Series II CHNS/O Elemental Analyzer, one of the leading organic elemental analyzers. It is ideal for the rapid determination of carbon, hydrogen, nitrogen, sulfur, and oxygen content in organic and other types of materials.
Our thermal analysis family, including our Differential Scanning Calorimetry (DSC) series that offers exclusive HyperDSC capability for unparalleled sensitivity and new insights into material processes, our Thermogravimetric (TGA) and Simultaneous Thermal Analysis (STA) instruments, which can be coupled to Fourier Transform Infrared (FT-IR), Mass Spectrometry (MS), or Gas Chromatography/Mass Spectrometry (GC/MS) to provide greater analysis power and knowledge.
Perten's Falling Number and Glutomatic instruments, which determine the bread baking quality of wheat and flour, and Perten's DA NIR bench and in process analyzer determine constituent content for use across the food segment from meat to animal feed.
The Delta™ range of milk quality analyzers, which help ensure the quality of dairy products and are used at Central Milk Testing labs as well as dairy processing facilities around the world.
The Bioo Scientific® test kits for detection of toxins, veterinary drug residues and contaminants, which enable rapid and easy testing at different steps in the food value chain.

Life Sciences Research and Laboratory Services:
Phenoptics quantitative pathology research solutions, which provide oncologists and cancer immunologists a new way to visualize and measure tumor cells and multiple immune-cell phenotypes simultaneously in FFPE tissue by combining the power of Opal® multiplexed immunohistochemistry reagents with the Mantra, Vectra® 3 or Vectra® Polaris™ multispectral imaging system and inForm® software, enabling visualization and analysis of complex cell interactions in ways that are difficult to achieve with other methods.
Radiometric detection solutions, including over 1,100 radiochemicals and the Tri-carb® and Quantulus GCT families of liquid scintillation analyzers, Wizard Gamma counters and MicroBeta plate based LSA, which are used for beta, gamma and luminescence counting in microplate and vial formats utilized in research, environmental and drug discovery applications.
The Opera Phenix® high content screening system, which is used for sensitive and high speed phenotypic drug screening of complex cellular models.
The Operetta® CLS high content analysis system, which enables scientists to reveal fine sub-cellular details from everyday assays as well as more complex studies, for example using live cells, 3D and stem cells.

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The EnSight® multimode plate reader benchtop system, offering well plate imaging alongside labeled detection technologies for target-based and phenotypic assays.
The EnVision® multimode plate reader, designed for high-throughput screening laboratories, including those using AlphaScreen®, AlphaLISA® and/or AlphaPlex® technologies.
A wide range of homogeneous biochemical and cell based assay reagents, including LANCE® Ultra and Alpha Technology assay platforms used for the detection of drug discovery targets such as G-protein coupled receptors (“GPCR”), kinases, biomarkers and the modification of epigenetic enzymes.
A broad portfolio of recombinant GPCR and ion channel cell lines, including over 300 products and 120 ready-to-use frozen cell lines for a wide range of disease areas.
AlphaScreen®, AlphaLISA® and AlphaPlex® research assays, including over 500 no-wash biomarker detection kits for both biotherapeutics and small molecule drug discovery and development in a variety of therapeutic areas including cancer, inflammation, metabolic disorders, neurodegeneration and virology.
TSA® Plus biotin kits, which can increase sensitivity of histochemistry and cytochemistry as much as 10 to 20 times.
In vivo imaging technologies and reagents for preclinical research, including the IVIS® Spectrum series for 2D and 3D optical imaging, the FMT® series for 3D optical tomography and the IVIS® Lumina series for 2D imaging, along with a suite of bioluminescent and fluorescent imaging agents, cell lines and dyes. These technologies are designed to provide non-invasive longitudinal monitoring of disease progression, cell trafficking and gene expression patterns in living animals and are complemented by a broad portfolio of fluorescent and bioluminescent in vivo imaging reagents that can be useful for identifying, characterizing and quantifying a range of disease biomarkers and therapeutic efficacy in living animal models.
The G8 PET/CT preclinical imaging system, delivering PET imaging with an intuitive user interface and efficient workflows, ensuring subject monitoring throughout preparation and imaging.
The Quantum GX2, which enables in vivo imaging of multiple species across multiple disease areas by delivering industry leading high resolution imaging. Low dose scanning allows subjects to be imaged over time to evaluate disease progression while minimizing the harmful effects of radiation that could impact the biology of the animal. With Quantum GX2, data from the IVIS® and FMT® imaging platforms can be seamlessly co-registered with microCT to deliver more information on the disease state.
AlphaPlex® reagent technology, a homogeneous, all-in-one-well multiplexing reagent system for performing ultra-sensitive immunoassay analyses.
OneSource® laboratory services, a comprehensive portfolio of multivendor instrument management, QA/QC, lab relocation and regulatory compliance services. OneSource® programs are tailored to the specific needs and goals of individual customers and offer a series of informatics-based consulting, planning and management offerings to assist in laboratory productivity and the optimization of complex Information Technology platforms.
OneSource® Mobile Application software, providing instant mobile access to service activity and equipment data including the ability to open a service call, check service history and view future scheduled events.
OneSource® Dashboard, a TIBCO® Spotfire® technology driven interactive graphical platform, providing visibility to a customer’s global asset population, service event and downtime distribution, as well as key performance indicators to assist in asset operation.
 
New Products:
New products introduced or acquired for Discovery & Analytical Solutions applications in fiscal year 2017 include the following:

 Environmental, Food & Industrial:
The NexION® 1000 ICP-MS, providing exceptional speed, operational simplicity, and improved laboratory efficiency, designed for high-throughput testing labs running routine, multi-elemental, trace-level analyses to meet regulatory standards.
The NexION® 2000, a versatile ICP-MS, offering powerful interference removal, high flexibility regardless of matrix, efficient analysis every time, and operational simplicity.
The Avio® 500, a simultaneous, vertical plasma dual view, and compact ICP-OES engineered to handle even the most difficult samples, delivering productivity, high performance, and fast return on investment.
The Spectrum Two N™, a high-performance, yet robust and transportable FT-NIR system platform enabling simple, reliable NIR analyses, designed for labs that need to combine high-end performance with the ease-of-use features of a portable instrument.
The Clarus® 590 and 690 GC instruments, which include a wide-range flame ionization detector and high-performance capillary injector that enable superior sensitivity, capacity and throughput.

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TurboMatrix™ MultiPrep auto samplers, providing expanded sample handling capabilities for a broad range of workflows, including multiple options for liquid injection, headspace and SPME on one system.
The QSight® LX50 UHPLC system, paired and seamlessly integrated with the QSight® triple quad LC/MS/MS, forming a complete system that delivers high sensitivity and specificity for demanding applications such as pesticide-residue and nutritional-component analysis.

Life Sciences Research and Laboratory Services:
The Vectra® Polaris™ automated quantitative pathology imaging system, which integrates multispectral imaging and automated slide scanning to better visualize, analyze, quantify, and phenotype immune cells in situ in FFPE tissue sections and TMAs.
The VICTOR Nivo™ multimode plate reader, a compact, lightweight, benchtop system, equipped with all popular detection modes, designed for life science research laboratories performing everyday biochemical and cell-based assays at relatively low-throughput, or assay development work, with diverse application requirements.
PerkinElmer SignalsTM notebook, a scientific research data management solution, allowing researchers to record research data and experiments in digital notebooks, drag & drop, store, organize, share, find and filter data easily.
ChemDraw® 17 chemical structure drawing and visualization application, which is now available on the cloud.
PerkinElmer Signals Lead DiscoveryTM software, which enables researchers to quickly gain new insights into chemical and biomolecular research data, featuring guided search and analysis workflows and dynamic data visualizations for on-the-fly exploration.
PerkinElmer Signals Medical ReviewTM software, empowering medical monitors to detect safety signals faster and reduce overall time to submission by combining innovative medical review workflow with advanced analytics.
The IVIS® LuminaTM S5 and IVIS® LuminaTM X5, which allow researchers to explore molecular and anatomical aspects of disease simultaneously with high sensitivity 2D optical and high resolution X-ray (IVIS® LuminaTM X5) in vivo imaging for faster throughput. Improved imaging workflow solutions include unique animal handling accessories, subject recognition technology and radio frequency ID support increase speed, reproducibility and accuracy of data.
The Quantum GX2, which enables high-resolution in vivo imaging of multiple species across many applications from bone to cardio-pulmonary to cancer research. Low dose scanning allows researchers to image subjects over time to evaluate disease progression while minimizing the harmful effects of radiation which could impact the biology of the animal.
OneSource® Insights as a ServiceTM, which leverages comprehensive OneSource® analytics and industry data to develop and deliver customer-need driven recommendations to optimize, integrate and accelerate lab operations.
OneSource® Asset Genius™ solution, which offers a 360° view of PC-driven laboratory instruments regardless of the manufacturer, correlating instrument usage, age and service data, allowing customers to visually pinpoint under-performing, ideally-performing and over-burdened assets, and to make informed decisions.

Brand Names:
Our Discovery & Analytical Solutions segment offers additional products under various brand names, including:

 Environmental, Food & Industrial:
AAnalyst, Altus®, Aquamatic, Avio®, AxION®, Clarus®, DairyGuard, Falling NumberTM, Frontier, Glutomatic, Honigs Regression, HyperDSCTM, Inframatic™, LAMBDA, NexION®, OilExpress, OilPrep, Optima®, Perten®, Perten Instruments®, PinAAcle®, QSight®, Spectrum, Spectrum Two, Spotlight, Supra-clean®, Supra-d, Supra-poly®, Syngistix™, Torion®, TurboMatrix and Ultraspray®.

Life Sciences Research and Laboratory Services:
AlphaLISA®, AlphaPlex, AlphaScreen®, Alpha™ SureFire®, AngioSense®, Annexin-Vivo , Cell carrier®, cell::explorer®, Chem3D®, ChemDraw®, ChemOffice®, ColumbusElements®, EnLite, EnSight®, EnVision®, FMT®, FolateRSense, Geospiza®, High Content Profiler, inForm®, IntegriSense, IVIS®, LANCE®, Living Image®, Lumina™, Mantra, MicroBeta, MMPSense®, NENTM, Nuance®, OneSource®, Opal®, Opera Phenix®, Operetta® CLS™, OsteoSense®, PerkinElmer Signalsfor Translational, Phenoptics, ProSense®, Quantulus GCT, RediJect™, Spectrum™, Transferrin-Vivo, Tri-Carb®, Vectra®, Vectra® PolarisTM, VICTOR Nivo, ViewLux™, VivoTag®, Wizard, and XenoLightTM.
 
Diagnostics Segment
We offer instruments, reagents, assay platforms, and software to hospitals, medical labs, clinicians, and medical research professionals to help improve the health of families. Our Diagnostics segment is especially focused on reproductive

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health, emerging market diagnostics, and applied genomics. Our Diagnostics business generated revenue of $678.5 million in fiscal year 2017.

In December 2017, we completed the acquisition of EUROIMMUN. Headquartered in Lubeck, Germany, EUROIMMUN develops, produces and distributes instruments, software and consumables for in vitro diagnostics. EUROIMMUN focuses on IVD analysis systems, including reagents, disposables and software for diagnosing and detecting allergies, autoimmune disorders and infectious diseases.

Diagnostics Market:
We provide early detection for genetic disorders from pregnancy to early childhood, and infectious disease testing for the diagnostics market. Our screening products are designed to provide early and accurate insights into the health of expectant mothers during pregnancy and into the health of their babies. Our instruments, reagents and software test and screen for genetic abnormalities, disorders and diseases, including Down syndrome, hypothyroidism, infertility and various metabolic conditions. We also develop the technologies that enable and support genomic workflows using PCR and next-generation DNA sequencing for applications in oncology, genetic testing and drug discovery.

Principal Products:
Our principal products and services for Diagnostics applications include the following:

Diagnostics:
The DELFIA® Xpress screening platform, a complete solution for prenatal and maternal health screening, which includes a fast continuous loading system. It is supported by kits for both first and second trimester analyses for prenatal screening and clinically validated LifeCycle software.
The NeoGram MS/MS AAAC in vitro diagnostic kit, which is used to support detection of metabolic disorders in newborns through tandem mass spectrometry.
The NeoBase non-derivatized MS/MS kit, which analyzes newborn blood samples for measurement of amino acids and other metabolic analytes for specific diseases.
The GSP® Neonatal hTSH, T4 17á-OHP, GALT IRT, BTD, PKU, Total Galactose and G6PD kits, used for screening congenital neonatal conditions from a drop of blood.
The Specimen Gate® informatics data management solution, designed specifically for newborn screening laboratories.
ViaCord® umbilical cord blood banking services for the banking of stem cells harvested from umbilical cord blood and cord tissue, for potential therapeutic application in transplant and regenerative medicine.
An expanded portfolio of molecular-based infectious disease screening technologies for blood bank and clinical laboratory settings in China. The tools include a qualitative 3-in-1 assay for the detection of hepatitis B, hepatitis C and HIV, as well as assays for other communicable diseases.
The EnLite Neonatal TREC System, a screening test for Severe Combined Immunodeficiency, consisting of EnLite Neonatal TREC reagent kits, the Victor EnLite instrument and EnLite workstation software.

Applied Genomics
Automated liquid handling platforms (JANUS®, Sciclone® and Zephyr®) that offer a choice of robotic solutions in genomics, biotherapeutics, high throughput screening and high content analysis to assist life science research from bench to clinic.
JANUS® BioTx workstation for automated small scale purification, offering column, tip and plate based chromatography on a single platform.
The LabChip GXII® TouchTM platform, which provides a means of characterizing multiple protein product attributes for research labs through QC.
The explorer® automated workstation, which allows integration of multiple laboratory instrumentation using a centralized robotic interface, allowing high throughput and turnkey-application focused solutions.

New Products:
Significant new products introduced or acquired for Diagnostics applications in fiscal year 2017 include the following:


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Diagnostics:
NeoLSDTM MSMS kit, the first commercial IVD kit for screening of Pompe, MPS-I, Fabry, Gaucher, Niemann-Pick A/B and Krabbe disorders from a single DBS sample.
QSight® Triple Quad MSMS instrument which is used for newborn screening.
TRF based Anti HBs/HCV/TP kits for infectious disease testing.
The chemagic™ Prime™ instrument, a fully automated, LIMS-compatible solution for primary sample transfer, DNA and RNA isolation, optional normalization, and the setup of PCR and NGS applications.

EUROIMMUN
Immune fluorescence testing (IFT), enzyme-linked immunosorbent assay (ELISA), chemiluminescence-based immunotesting, immunoblots, molecular microarrays, PCR, liquid handlers and software solutions.
Autoimmune testing covering rheumatology, hepatology, gastroenterology, endocrinology, neurology, nephrology, dermatology and infertility.
Infectious disease testing covering bacteria, viruses and parasites.
IFT, ELISA and EUROLINETM for veterinary medical diagnostics.

Brand Names:
Our Diagnostics segment offers additional products under various brand names, including AutoDELFIA®, BACS-on-Beads®, BIOCHIPs, Bioo Scientific®, BoBs®, chemagic™, Datalytix, DELFIA® Xpress, EuroImmun®, EUROLINETM, Evolution, explorer™, FragilEase®, Genoglyphix®, GSP®, iLab, JANUS®, LabChip®, LifeCycle, LimsLink, MultiPROBE®, NEXTFLEX®, NextPrep™, Pannoramic, QSight®, Sciclone®, Specimen Gate®, SymbioTM, Twister®, VanadisTM, VariSpec, ViaCord®, and Zephyr®.


Marketing
All of our businesses market their products and services primarily through their own specialized sales forces. As of December 31, 2017, we employed approximately 4,000 sales and service representatives operating in approximately 35 countries and marketing products and services in more than 150 countries. In geographic regions where we do not have a sales and service presence, we utilize distributors to sell our products.

 
Raw Materials, Key Components and Supplies
Each of our businesses uses a wide variety of raw materials, key components and supplies that are generally available from alternate sources of supply and in adequate quantities from domestic and foreign sources. We generally have multi-year contracts, with no minimum purchase requirements, with our suppliers. For certain critical raw materials, key components and supplies required for the production of some of our principal products, we have qualified only a limited or a single source of supply. We periodically purchase quantities of some of these critical raw materials in excess of current requirements, in anticipation of future manufacturing needs. With sufficient lead times, we believe we would be able to qualify alternative suppliers for each of these raw materials and key components. See the applicable risk factor in “Item 1A. Risk Factors” for an additional description of this risk.
 

Intellectual Property
We own numerous United States and foreign patents and have patent applications pending in the United States and abroad. We also license intellectual property rights to and from third parties, some of which bear royalties and are terminable in specified circumstances. In addition to our patent portfolio, we possess a wide array of unpatented proprietary technology and know-how. We also own numerous United States and foreign trademarks and trade names for a variety of our product names, and have applications for the registration of trademarks and trade names pending in the United States and abroad. We believe that patents and other proprietary rights are important to the development of both of our reporting segments, but we also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain the competitive position of both of our reporting segments. We do not believe that the loss of any one patent or other proprietary right would have a material adverse effect on our overall business or on any of our reporting segments.
 
In some cases, we may participate in litigation or other proceedings to defend against or assert claims of infringement, to enforce our patents or our licensors’ patents, to protect our trade secrets, know-how or other intellectual property rights, or to determine the scope and validity of our or third parties’ intellectual property rights. Litigation of this type could result in substantial cost to us and diversion of our resources. An adverse outcome in any litigation or proceeding could subject us to

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significant liabilities or expenses, require us to cease using disputed intellectual property or cease the sale of a product, or require us to license the disputed intellectual property from third parties.
 

Backlog
We believe that backlog is not a meaningful indicator of future business prospects for either of our business segments due to the short lead time required for a majority of our sales. Therefore, we believe that backlog information is not material to an understanding of our business.
 

Competition
Due to the range and diversity of our products and services, we face many different types of competition and competitors. Our competitors range from foreign and domestic organizations, which produce a comprehensive array of goods and services and that may have greater financial and other resources than we do, to more narrowly focused firms producing a limited number of goods or services for specialized market segments.
 
We compete on the basis of service level, price, technological innovation, operational efficiency, product differentiation, product availability, quality and reliability. Competitors range from multinational organizations with a wide range of products to specialized firms that in some cases have well-established market positions. We expect the proportion of large competitors to increase through the continued consolidation of competitors.
 

Research and Development
Research and development expenditures were $139.4 million during fiscal year 2017, $124.3 million during fiscal year 2016, and $112.5 million during fiscal year 2015.
 
We have a broad product base, and we do not expect any single research and development project to have significant costs. To accelerate our growth initiatives, we directed our research and development efforts in fiscal years 2017, 2016 and 2015 primarily toward our Diagnostics segment, and the environmental, food, life sciences research and laboratory services markets within our Discovery & Analytical Solutions segment. We expect to continue our strong investments in research and development to drive growth during fiscal year 2018, and to continue to emphasize the Diagnostics segment, and the environmental, food, life sciences research and laboratory services markets within our Discovery & Analytical Solutions segment.


Environmental Matters
Our operations are subject to various foreign, federal, state and local environmental and safety laws and regulations. These requirements include those governing uses, emissions and discharges of hazardous substances, the remediation of contaminated soil and groundwater, the regulation of radioactive materials, and the health and safety of our employees.
 
We may have liability under the Comprehensive Environmental Response Compensation and Liability Act and comparable state statutes that impose liability for investigation and remediation of contamination without regard to fault, in connection with materials that we or our former businesses sent to various third-party sites. We have incurred, and expect to incur, costs pursuant to these statutes.
 
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 $9.4 million and $9.9 million as of December 31, 2017 and January 1, 2017, 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. Our environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on our consolidated financial statements. While it is possible that a loss exceeding

10


the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
 
We may become subject to new or unforeseen environmental costs or liabilities. Compliance with new or more stringent laws or regulations, stricter interpretations of existing laws, or the discovery of new contamination could cause us to incur additional costs.
 

Employees
As of December 31, 2017, we employed approximately 11,000 employees in our continuing operations. Several of our subsidiaries are parties to contracts with labor unions and workers’ councils. As of December 31, 2017, we estimate that we employed an aggregate of approximately 1,700 union and workers’ council employees. We consider our relations with our employees to be satisfactory.


Financial Information About Business Segments
We have included the expenses for our corporate headquarters, such as legal, tax, audit, human resources, information technology, and other management and compliance costs, as well as the activity related to the mark-to-market adjustment on postretirement benefit plans, as “Corporate” below. We have a process to allocate and recharge expenses to the reportable segments when these costs are administered or paid by the corporate headquarters based on the extent to which the segment benefited from the expenses. These amounts have been calculated in a consistent manner and are included in our calculations of segment results to internally plan and assess the performance of each segment for all purposes, including determining the compensation of the business leaders for each of our operating segments.
 
The table below sets forth revenue and operating income (loss) from continuing operations by operating segment for the fiscal years ended:
 
 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
(In thousands)
Discovery & Analytical Solutions
 
 
 
 
 
Product revenue
$
941,328

 
$
934,098

 
$
968,034

Service revenue
637,131

 
578,886

 
560,385

Total revenue
1,578,459

 
1,512,984

 
1,528,419

Operating income from continuing operations(1)
206,688

 
196,819

 
162,762

Diagnostics
 
 
 
 
 
Product revenue
536,086

 
462,798

 
427,068

Service revenue
142,437

 
139,735

 
149,336

Total revenue
678,523

 
602,533

 
576,404

Operating income from continuing operations
149,636

 
149,577

 
146,478

Corporate
 
 
 
 
 
Operating loss from continuing operations(2)
(51,521
)
 
(63,330
)
 
(58,314
)
Continuing Operations
 
 
 
 
 
Product revenue
$
1,477,414

 
$
1,396,896

 
$
1,395,102

Service revenue
779,568

 
718,621

 
709,721

Total revenue
2,256,982

 
2,115,517

 
2,104,823

Operating income from continuing operations
304,803

 
283,066

 
250,926

Interest and other expense, net
8,085

 
38,998

 
42,119

Income from continuing operations before income taxes
$
296,718

 
$
244,068

 
$
208,807

____________________________
(1) 
Legal costs for a particular case in our Discovery & Analytical Solutions segment were $2.7 million for fiscal year 2017.
(2) 
Activity related to the mark-to-market adjustment on postretirement benefit plans has been included in the Corporate operating loss from continuing operations, and in the aggregate constituted a pre-tax gain of $2.1 million in fiscal year 2017, a pre-tax loss of $15.3 million in fiscal year 2016, and pre-tax loss of $12.4 million in fiscal year 2015.

Discontinued operations have not been included in the preceding table.

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Additional information relating to our reporting segments is as follows for the fiscal years ended:
 
 
Depreciation and Amortization Expense
 
Capital Expenditures
 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
(In thousands)
 
(In thousands)
Discovery & Analytical Solutions
$
72,590

 
$
72,484

 
$
74,177

 
$
26,200

 
$
21,486

 
$
18,175

Diagnostics
31,204

 
25,339

 
29,728

 
11,262

 
8,556

 
6,854

Corporate
1,206

 
2,149

 
1,459

 
1,627

 
1,660

 
3,189

Continuing operations
$
105,000

 
$
99,972

 
$
105,364

 
$
39,089

 
$
31,702

 
$
28,218

Discontinued operations
$
929

 
$
6,266

 
$
6,643

 
$
182

 
$
1,302

 
$
1,414

 
 
Total Assets
 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
(In thousands)
Discovery & Analytical Solutions
$
2,744,370

 
$
2,612,757

 
$
2,546,583

Diagnostics
3,314,804

 
1,505,381

 
1,459,854

Corporate
32,289

 
31,171

 
28,497

Current and long-term assets of discontinued operations

 
127,374

 
131,361

Total assets
$
6,091,463

 
$
4,276,683

 
$
4,166,295



Financial Information About Geographic Areas
Both of our reporting segments conduct business in, and derive substantial revenue from, various countries outside the United States. During fiscal year 2017, we had $1,420.0 million in sales from our international operations, representing approximately 60% of our total sales. During fiscal year 2017, we derived approximately 70% of our international sales from our Discovery & Analytical Solutions segment and approximately 30% of our international sales from our Diagnostics segment. We anticipate that sales from international operations will continue to represent a substantial portion of our total sales in the future.
 
We are exposed to the risks associated with international operations, including exchange rate fluctuations, regional and country-specific political and economic conditions, foreign receivables collection concerns, trade protection measures and import or export licensing requirements, tax risks, staffing and labor law concerns, intellectual property protection risks, and differing regulatory requirements. Additional geographic information is discussed in Note 23 to our consolidated financial statements included in this annual report on Form 10-K.
 
Item 1A.
Risk Factors
The following important factors affect our business and operations generally or affect multiple segments of our business and operations:
If the markets into which we sell our products decline or do not grow as anticipated due to a decline in general economic conditions, or there are uncertainties surrounding the approval of government or industrial funding proposals, or there are unfavorable changes in government regulations, we may see an adverse effect on the results of our business operations.
Our customers include pharmaceutical and biotechnology companies, laboratories, academic and research institutions, public health authorities, private healthcare organizations, doctors and government agencies. Our quarterly revenue and results of operations are highly dependent on the volume and timing of orders received during the quarter. In addition, our revenues and earnings forecasts for future quarters are often based on the expected trends in our markets. However, the markets we serve do not always experience the trends that we may expect. Negative fluctuations in our customers’ markets, the inability of our customers to secure credit or funding, restrictions in capital expenditures, general economic conditions, cuts in government funding or unfavorable changes in government regulations would likely result in a reduction in demand for our products and services. In addition, government funding is subject to economic conditions and the political process, which is inherently fluid and unpredictable. Our revenues may be adversely affected if our customers delay or reduce purchases as a result of uncertainties surrounding the approval of government or industrial funding proposals. Such declines could harm our

12


consolidated financial position, results of operations, cash flows and trading price of our common stock, and could limit our ability to sustain profitability.
Our growth is subject to global economic and political conditions, and operational disruptions at our facilities.
Our business is affected by global economic and political conditions as well as the state of the financial markets, particularly as the United States and other countries balance concerns around debt, inflation, growth and budget allocations in their policy initiatives. There can be no assurance that global economic conditions and financial markets will not worsen and that we will not experience any adverse effects that may be material to our consolidated cash flows, results of operations, financial position or our ability to access capital, such as the adverse effects resulting from a prolonged shutdown in government operations both in the United States and internationally. Our business is also affected by local economic environments, including inflation, recession, financial liquidity and currency volatility or devaluation. Political changes, some of which may be disruptive, could interfere with our supply chain, our customers and all of our activities in a particular location.
While we take precautions to prevent production or service interruptions at our global facilities, a major earthquake, fire, flood, power loss or other catastrophic event that results in the destruction or delay of any of our critical business operations could result in our incurring significant liability to customers or other third parties, cause significant reputational damage or have a material adverse effect on our business, operating results or financial condition.
Certain of these risks can be hedged to a limited degree using financial instruments, or other measures, and some of these risks are insurable, but any such mitigation efforts are costly and may not always be fully successful. Our ability to engage in such mitigation efforts has decreased or become even more costly as a result of recent market developments.
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions, and evolving customer needs and industry standards. Many of the businesses competing with us in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities, and established distribution channels to deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technology that does not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend upon several factors, including our ability to:
accurately anticipate customer needs,
innovate and develop new reliable technologies and applications,
successfully commercialize new technologies in a timely manner,
price our products competitively, and manufacture and deliver our products in sufficient volumes and on time, and
differentiate our offerings from our competitors’ offerings.
Many of our products are used by our customers to develop, test and manufacture their products. We must anticipate industry trends and consistently develop new products to meet our customers’ expectations. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant revenue. We may also suffer a loss in market share and potential revenue if we are unable to commercialize our technology in a timely and efficient manner.
In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications.

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We may not be able to successfully execute acquisitions or divestitures, license technologies, integrate acquired businesses or licensed technologies into our existing businesses, or make acquired businesses or licensed technologies profitable.
We have in the past supplemented, and may in the future supplement, our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our acquisitions of EUROIMMUN and Tulip during fiscal year 2017. However, we may be unable to identify or complete promising acquisitions or license transactions for many reasons, such as:
competition among buyers and licensees,
the high valuations of businesses and technologies,
the need for regulatory and other approval, and
our inability to raise capital to fund these acquisitions.
Some of the businesses we acquire may be unprofitable or marginally profitable, or may increase the variability of our revenue recognition. If, for example, we are unable to successfully commercialize products and services related to significant in-process research and development that we have capitalized, we may have to impair the value of such assets. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we would have to improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations, such as incompatible management, information or other systems, cultural differences, loss of key personnel, unforeseen regulatory requirements, previously undisclosed liabilities or difficulties in predicting financial results. Additionally, if we are not successful in selling businesses we seek to divest, the activity of such businesses may dilute our earnings and we may not be able to achieve the expected benefits of such divestitures. As a result, our financial results may differ from our forecasts or the expectations of the investment community in a given quarter or over the long term.
To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us. We may also incur expenses related to completing acquisitions or licensing technologies, or in evaluating potential acquisitions or technologies, which may adversely impact our profitability.
We may not be successful in adequately protecting our intellectual property.
Patent and trade secret protection is important to us because developing new products, processes and technologies gives us a competitive advantage, although it is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents. Patent applications we file, however, may not result in issued patents or, if they do, the claims allowed in the patents may be narrower than what is needed to protect fully our products, processes and technologies. The expiration of our previously issued patents may cause us to lose a competitive advantage in certain of the products and services we provide. Similarly, applications to register our trademarks may not be granted in all countries in which they are filed. For our intellectual property that is protected by keeping it secret, such as trade secrets and know-how, we may not use adequate measures to protect this intellectual property.
Third parties may also challenge the validity of our issued patents, may circumvent or “design around” our patents and patent applications, or may claim that our products, processes or technologies infringe their patents. In addition, third parties may assert that our product names infringe their trademarks. We may incur significant expense in legal proceedings to protect our intellectual property against infringement by third parties or to defend against claims of infringement by third parties. Claims by third parties in pending or future lawsuits could result in awards of substantial damages against us or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or other countries.
If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage.
We may not be able to renew our existing licenses, or licenses we may obtain in the future, on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.
Our licenses typically subject us to various economic and commercialization obligations. If we fail to comply with these obligations, we could lose important rights under a license, such as the right to exclusivity in a market, or incur losses for

14


failing to comply with our contractual obligations. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out of our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third-party could obtain a patent that curtails our freedom to operate under one or more licenses.
If we do not compete effectively, our business will be harmed.
We encounter aggressive competition from numerous competitors in many areas of our business. We may not be able to compete effectively with all of these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjust the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.
Our quarterly operating results could be subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate, which could increase the volatility of our stock price and potentially cause losses to our shareholders.
Given the nature of the markets in which we participate, we cannot reliably predict future revenue and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we may not be able to make those adjustments or make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed, due in part to our research and development and manufacturing costs. As a result, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:
demand for and market acceptance of our products,
competitive pressures resulting in lower selling prices,
changes in the level of economic activity in regions in which we do business,
changes in general economic conditions or government funding,
settlements of income tax audits,
expenses incurred in connection with claims related to environmental conditions at locations where we conduct or formerly conducted operations,
contract termination and litigation costs,
differing tax laws and changes in those laws, or changes in the countries in which we are subject to taxation,
changes in our effective tax rate,
changes in industries, such as pharmaceutical and biomedical,
changes in the portions of our revenue represented by our various products and customers,
our ability to introduce new products,
our competitors’ announcement or introduction of new products, services or technological innovations,
costs of raw materials, energy or supplies,
changes in healthcare or other reimbursement rates paid by government agencies and other third parties for certain of our products and services,
our ability to realize the benefit of ongoing productivity initiatives,
changes in the volume or timing of product orders,
fluctuation in the expense related to the mark-to-market adjustment on postretirement benefit plans,
changes in our assumptions underlying future funding of pension obligations,
changes in assumptions used to determine contingent consideration in acquisitions, and
changes in foreign currency exchange rates.

15


A significant disruption in third-party package delivery and import/export services, or significant increases in prices for those services, could interfere with our ability to ship products, increase our costs and lower our profitability.
We ship a significant portion of our products to our customers through independent package delivery and import/export companies, including UPS and Federal Express in the United States; TNT, UPS and DHL in Europe; and UPS in Asia. We also ship our products through other carriers, including national trucking firms, overnight carrier services and the United States Postal Service. If one or more of the package delivery or import/export providers experiences a significant disruption in services or institutes a significant price increase, we may have to seek alternative providers and the delivery of our products could be prevented or delayed. Such events could cause us to incur increased shipping costs that could not be passed on to our customers, negatively impacting our profitability and our relationships with certain of our customers.
Disruptions in the supply of raw materials, certain key components and other goods from our limited or single source suppliers could have an adverse effect on the results of our business operations, and could damage our relationships with customers.
The production of our products requires a wide variety of raw materials, key components and other goods that are generally available from alternate sources of supply. However, certain critical raw materials, key components and other goods required for the production and sale of some of our principal products are available from limited or single sources of supply. We generally have multi-year contracts with no minimum purchase requirements with these suppliers, but those contracts may not fully protect us from a failure by certain suppliers to supply critical materials or from the delays inherent in being required to change suppliers and, in some cases, validate new raw materials. Such raw materials, key components and other goods can usually be obtained from alternative sources with the potential for an increase in price, decline in quality or delay in delivery. A prolonged inability to obtain certain raw materials, key components or other goods is possible and could have an adverse effect on our business operations, and could damage our relationships with customers.
We are subject to the rules of the Securities and Exchange Commission requiring disclosure as to whether certain materials known as conflict minerals (tantalum, tin, gold, tungsten and their derivatives) that may be contained in our products are mined from the Democratic Republic of the Congo and adjoining countries. As a result of these rules, we may incur additional costs in complying with the disclosure requirements and in satisfying those customers who require that the components used in our products be certified as conflict-free, and the potential lack of availability of these materials at competitive prices could increase our production costs.
The manufacture and sale of products and services may expose us to product and other liability claims for which we could have substantial liability.
We face an inherent business risk of exposure to product and other liability claims if our products, services or product candidates are alleged or found to have caused injury, damage or loss. We may be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms of any insurance policy that we obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies in the United States and abroad, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil, criminal or monetary penalties.
Our operations are subject to regulation by different state and federal government agencies in the United States and other countries, as well as to the standards established by international standards bodies. If we fail to comply with those regulations or standards, we could be subject to fines, penalties, criminal prosecution or other sanctions. Some of our products are subject to regulation by the United States Food and Drug Administration and similar foreign and domestic agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with those regulations or standards, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution.
We are also subject to a variety of laws, regulations and standards that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of toxic or hazardous substances, and our business practices in the United States and abroad such as anti-bribery, anti-corruption and competition laws. This requires that we devote substantial resources to maintaining our compliance with those laws, regulations and standards. A failure to do so could result in the imposition of civil, criminal or monetary penalties having a material adverse effect on our operations.

16


Changes in governmental regulations may reduce demand for our products or increase our expenses.
We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The healthcare industry is highly regulated and if we fail to comply with its extensive system of laws and regulations, we could suffer fines and penalties or be required to make significant changes to our operations which could have a significant adverse effect on the results of our business operations.
The healthcare industry, including the genetic screening market, is subject to extensive and frequently changing international and United States federal, state and local laws and regulations. In addition, legislative provisions relating to healthcare fraud and abuse, patient privacy violations and misconduct involving government insurance programs provide federal enforcement personnel with substantial powers and remedies to pursue suspected violations. We believe that our business will continue to be subject to increasing regulation as the federal government continues to strengthen its position on healthcare matters, the scope and effect of which we cannot predict. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal damages, fines and penalties, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur liabilities from third-party claims, all of which could have a significant adverse effect on our business.
Economic, political and other risks associated with foreign operations could adversely affect our international sales and profitability.
Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented the majority of our total revenue in fiscal year 2017. We anticipate that sales from international operations will continue to represent a substantial portion of our total revenue. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results of operations could be harmed by a variety of factors, including:
changes in actual, or from projected, foreign currency exchange rates,
changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets,
longer payment cycles of foreign customers and timing of collections in foreign jurisdictions,
embargoes, trade protection measures and import or export licensing requirements,
policies in foreign countries benefiting domestic manufacturers or other policies detrimental to companies headquartered in the United States,
differing tax laws and changes in those laws, or changes in the countries in which we are subject to tax,
adverse income tax audit settlements or loss of previously negotiated tax incentives,
differing business practices associated with foreign operations,
difficulty in transferring cash between international operations and the United States,
difficulty in staffing and managing widespread operations,
differing labor laws and changes in those laws,
differing protection of intellectual property and changes in that protection,
expanded enforcement of laws related to data protection and personal privacy,
increasing global enforcement of anti-bribery and anti-corruption laws, and
differing regulatory requirements and changes in those requirements.
If we do not retain our key personnel, our ability to execute our business strategy will be limited.
Our success depends to a significant extent upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers and scientists, and on our ability to continue to attract, retain, and motivate qualified personnel. The competition for these employees is intense. The loss of the services of key personnel could have a material adverse effect on our operating results. In addition, there could be a material adverse effect on us should the

17


turnover rates for key personnel increase significantly or if we are unable to continue to attract qualified personnel. We do not maintain any key person life insurance policies on any of our officers or employees.
Our success also depends on our ability to execute leadership succession plans. The inability to successfully transition key management roles could have a material adverse effect on our operating results.
If we experience a significant disruption in, or breach in security of, our information technology systems or those of our customers, suppliers or other third parties, allowing inappropriate access to or inadvertent transfer of information, or if we fail to implement new systems, software and technologies successfully, our business could be adversely affected.
We rely on several centralized information technology systems throughout our company to develop, manufacture and provide products and services, keep financial records, process orders, manage inventory, process shipments to customers and operate other critical functions. Our information technology systems may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophes or other unforeseen events. If we were to experience a prolonged system disruption in the information technology systems that involve our interactions with customers, suppliers or other third parties, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. In addition, security breaches of our information technology systems, allowing inappropriate access to or inadvertent transfer of information could result in the misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in our suffering significant financial or reputational damage.
We have a substantial amount of outstanding debt, which could impact our ability to obtain future financing and limit our ability to make other expenditures in the conduct of our business.
    
We have a substantial amount of debt and other financial obligations. Our debt level and related debt service obligations could have negative consequences, including:
requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes, such as acquisitions and stock repurchases;
reducing our flexibility in planning for or reacting to changes in our business and market conditions; and
exposing us to interest rate risk since a portion of our debt obligations are at variable rates.
In addition, we may incur additional indebtedness in the future to meet future financing needs. If we add new debt, the risks described above could increase.
Restrictions in our senior unsecured revolving credit facility, senior unsecured term loan credit facility and other debt instruments may limit our activities.
Our senior unsecured revolving credit facility, senior unsecured term loan credit facility, senior unsecured notes due in 2021 ("2021 Notes") and senior unsecured notes due in 2026 ("2026 Notes") include restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company. These include restrictions on our ability and the ability of our subsidiaries to:
pay dividends on, redeem or repurchase our capital stock,
sell assets,
incur obligations that restrict our subsidiaries’ ability to make dividend or other payments to us,
guarantee or secure indebtedness,
enter into transactions with affiliates, and
consolidate, merge or transfer all, or substantially all, of our assets and the assets of our subsidiaries on a consolidated basis.
We are also required to meet specified financial ratios under the terms of certain of our existing debt instruments. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control, such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition. In addition, if we are unable to maintain our investment grade credit rating, our borrowing costs would increase and we would be subject to different and potentially more restrictive financial covenants under some of our existing debt instruments.

18


Any future indebtedness that we incur may include similar or more restrictive covenants. Our failure to comply with any of the restrictions in our senior unsecured revolving credit facility, senior unsecured term loan credit facility, the 2021 Notes, the 2026 Notes or any future indebtedness may result in an event of default under those debt instruments, which could permit acceleration of the debt under those debt instruments, and require us to prepay that debt before its scheduled due date under certain circumstances.
The United Kingdom's vote in favor of withdrawing from the European Union could adversely impact our results of operations.
Nearly 3% of our net sales from continuing operations in fiscal year 2017 came from the United Kingdom. Following the referendum vote in the United Kingdom in June 2016 in favor of leaving the European Union (commonly referred to as “Brexit”), on March 29, 2017, the country formally notified the European Union of its intention to withdraw. It appears likely that this withdrawal will involve a process of lengthy negotiations between the United Kingdom and European Union member states to determine the future terms of the United Kingdom’s relationship with the European Union. This could lead to a period of considerable uncertainty and volatility, particularly in relation to United Kingdom financial and banking markets. Weakening of economic conditions or economic uncertainties tend to harm our business, and if such conditions emerge in the United Kingdom or in the rest of Europe, it may have a material adverse effect on our operations and sales.
Any significant weakening of the British pound sterling to the U.S. dollar will have an adverse impact on our European revenues due to the importance of our sales in the United Kingdom. Currency exchange rates in the pound sterling and the euro with respect to each other and the U.S. dollar have already been adversely affected by Brexit and that may continue to be the case. In addition, depending on the terms of Brexit, the United Kingdom could lose the benefits of global trade agreements negotiated by the European Union on behalf of its members, which may result in increased trade barriers which could make our doing business in Europe more difficult.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.
As of December 31, 2017, our total assets included $4.3 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights, customer relationships, core technology and technology licenses and in-process research and development, net of accumulated amortization. We test certain of these items—specifically all of those that are considered “non-amortizing”—at least annually for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned. All of our amortizing intangible assets are also evaluated for impairment should events occur that call into question the value of the intangible assets.
Adverse changes in our business, adverse changes in the assumptions used to determine the fair value of our reporting units, or the failure to grow our Discovery & Analytical Solutions and Diagnostics segments may result in impairment of our intangible assets, which could adversely affect our results of operations.
Our share price will fluctuate.
Over the last several years, stock markets in general and our common stock in particular have experienced significant price and volume volatility. Both the market price and the daily trading volume of our common stock may continue to be subject to significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations and business prospects. In addition to the risk factors discussed above, the price and volume volatility of our common stock may be affected by:
operating results that vary from our financial guidance or the expectations of securities analysts and investors,
the financial performance of the major end markets that we target,
the operating and securities price performance of companies that investors consider to be comparable to us,
announcements of strategic developments, acquisitions and other material events by us or our competitors, and
changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, commodity and equity prices and the value of financial assets.
Dividends on our common stock could be reduced or eliminated in the future.
On October 27, 2017, we announced that our Board had declared a quarterly dividend of $0.07 per share for the fourth quarter of fiscal year 2017 that was paid in February 2018. On January 25, 2018, we announced that our Board had declared a quarterly dividend of $0.07 per share for the first quarter of fiscal year 2018 that will be payable in May 2018. In the future, our

19


Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources.
 
Item 1B.
Unresolved Staff Comments
 
Not applicable.
 

20


Item 2.
Properties
 
As of December 31, 2017, our continuing operations occupied 3,651,434 square feet in over 210 locations. We own 911,085 square feet of this space, and lease the balance. We conduct our operations in manufacturing and assembly plants, research laboratories, administrative offices and other facilities located in 14 states and 33 foreign countries.
 
Facilities outside of the United States account for approximately 2,426,445 square feet of our owned and leased property, or approximately 66% of our total occupied space.
 
Our real property leases are both short-term and long-term. We believe that our properties are well-maintained and are adequate for our present requirements.
 
The following table indicates the approximate square footage of real property owned and leased attributable to the continuing operations of our reporting segments as of December 31, 2017:
 
 
Owned
 
Leased
 
Total
 
(In square feet)
Discovery & Analytical Solutions
105,020

 
1,669,941

 
1,774,961

Diagnostics
806,065

 
950,099

 
1,756,164

Corporate offices

 
120,309

 
120,309

Continuing operations
911,085

 
2,740,349

 
3,651,434

 
Item 3.
Legal Proceedings
 
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 the opinion of our management, based on its review of the information available at this time, the total cost of resolving these contingencies at December 31, 2017 should not have a material adverse effect on our consolidated financial statements included in this annual report on Form 10-K. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us.

Item 4.
Mine Safety Disclosures
 
Not applicable.
 

21


EXECUTIVE OFFICERS OF THE REGISTRANT
 
Listed below are our executive officers as of February 27, 2018. No family relationship exists between any one of these executive officers and any of the other executive officers or directors.
 
Name
 
Position
 
Age
Robert F. Friel
 
Chairman, Chief Executive Officer and President
 
62
Frank A. Wilson
 
Senior Vice President and Chief Financial Officer
 
59
Joel S. Goldberg
 
Senior Vice President, Administration, General Counsel and Secretary
 
49
James Corbett
 
Executive Vice President and President, Discovery & Analytical Solutions
 
55
Prahlad Singh
 
Senior Vice President and President, Diagnostics
 
53
Daniel R. Tereau
 
Senior Vice President, Strategy and Business Development
 
51
Deborah Butters
 
Senior Vice President, Chief Human Resources Officer
 
48
Tajinder Vohra
 
Senior Vice President, Global Operations
 
52
Andrew Okun
 
Vice President and Chief Accounting Officer
 
48
 
Robert F. Friel, 62. Mr. Friel currently serves as our Chairman, Chief Executive Officer and President. Prior to being appointed President and Chief Executive Officer in February 2008 and Chairman in April 2009, Mr. Friel had served as President and Chief Operating Officer since August 2007, and as Vice Chairman and President of our Life and Analytical Sciences unit since January 2006. Mr. Friel was our Executive Vice President and Chief Financial Officer, with responsibility for business development and information technology in addition to his oversight of the finance functions, from October 2004 until January 2006. Mr. Friel joined PerkinElmer in February 1999 as our Senior Vice President and Chief Financial Officer. Prior to joining PerkinElmer, he held several senior management positions with AlliedSignal, Inc., now Honeywell International. He received a Bachelor of Arts degree in economics from Lafayette College and a Master of Science degree in taxation from Fairleigh Dickinson University. Mr. Friel is currently a director of NuVasive, Inc. and Xylem Inc., and previously served as a director of CareFusion Corporation until its acquisition by Becton, Dickinson and Company in March 2015. He also previously served on the national board of trustees for the March of Dimes Foundation.
 
Frank A. Wilson, 59. Mr. Wilson joined us in May 2009 as our Senior Vice President and Chief Financial Officer. Prior to joining us, Mr. Wilson held key financial and business management roles over 12 years at the Danaher Corporation, including Corporate Vice President of Investor Relations; Group Vice President of Business Development; Group Vice President of Finance for Danaher Motion Group; President of Gems Sensors; and Group Vice President of Finance for the Industrial Controls Group. Mr. Wilson is currently a director of Sparton Corporation. Previously, Mr. Wilson worked for several years at AlliedSignal Inc., now Honeywell International, where he last served as Vice President of Finance and Chief Financial Officer for Commercial Aviation Systems. His earlier experience includes PepsiCo Inc. in financial and controllership positions of increasing responsibility, E.F. Hutton and Company, and KPMG Peat Marwick. Mr. Wilson received a Bachelor’s degree in business administration from Baylor University and is also a Certified Public Accountant.
 
Joel S. Goldberg, 49. Mr. Goldberg currently serves as our Senior Vice President, Administration, General Counsel and Secretary, having joined as our Senior Vice President, General Counsel and Secretary in July 2008. Prior to joining us, Mr. Goldberg spent seven years at Millennium Pharmaceuticals, Inc., where he most recently served as Vice President, Chief Compliance Officer and Secretary. During his seven years with Millennium, he focused in the areas of mergers and acquisitions, strategic alliances, investment and financing transactions, securities and healthcare related compliance, and employment law. Previously, he was an associate of the law firm Edwards & Angell, LLP. Mr. Goldberg graduated from the Northeastern University School of Law and also holds a Master of Business Administration from Northeastern University. He completed his undergraduate degree at the University of Wisconsin-Madison.
 
James Corbett, 55. Mr. Corbett was appointed President of our Discovery & Analytical Solutions business and Executive Vice President of PerkinElmer in October 2016. Mr. Corbett was appointed President of our Human Health business in March 2014 and a Senior Vice President and officer of PerkinElmer in February 2012. Mr. Corbett was previously appointed President of the Diagnostics business in May 2010 and President of the Life Sciences and Technology business in May 2013. Mr. Corbett joined the Company in October of 2007 through our acquisition of ViaCord, where he served as President. Prior to joining ViaCord, he co-founded CADx Systems, a company focused on the oncology market, where he held the position of Executive Vice President and Director with responsibility for worldwide sales and marketing, technical support and business development. Following the 2004 acquisition of CADx by iCAD, Inc., he was named Chief Commercial Officer. In addition, Mr. Corbett worked for Abbott Laboratories for 14 years in a variety of sales and marketing positions including Worldwide Marketing Manager for Abbott Diagnostics Immunoassay Systems and Region Manager for Abbott Diagnostics. Mr. Corbett holds a Bachelor of Science degree

22


in business from the University of Massachusetts. Mr. Corbett also serves on the national board of trustees for the March of Dimes Foundation and on the board of directors for the Analytical, Life Science & Diagnostics Association.

Prahlad Singh, 53. Mr. Singh joined PerkinElmer as the President of our Diagnostics business in May 2014. He has been a Senior Vice President and officer of PerkinElmer since September 2016. Prior to joining PerkinElmer, Mr. Singh was General Manager of GE Healthcare’s Women’s Health Business from 2012 to 2014. In this role, he had worldwide responsibility for GE Healthcare’s Mammography and Bone Densitometry businesses. Before that, Mr. Singh held senior executive level roles in Strategy, Business Development and Mergers & Acquisitions at both GE Healthcare from 2011 to 2012 and Philips Healthcare from 2007 to 2011. From 1995 to 2007, he held leadership roles of increasing responsibility at DuPont Pharmaceuticals and subsequently Bristol Myers Squibb Medical Imaging which included managing the Asia Pacific and Middle East region. Mr. Singh holds a doctoral degree in chemistry from the University of Missouri-Columbia and a Master of Business Administration from Northeastern University. His research work has resulted in several issued patents and publications in peer reviewed journals.

Daniel R. Tereau, 51. Mr. Tereau was appointed Senior Vice President, Strategy and Business Development in January 2016, having joined the Company in April 2014 as Vice President, Strategy and Business Development. He is responsible for leading PerkinElmer’s overall strategic planning, business development, and corporate marketing activities. Prior to joining PerkinElmer, Mr. Tereau served on Novartis’ leadership team as Senior Vice President and Global Head of Strategy, Business Development and Licensing from 2011 to 2014, where he was responsible for global strategy and business development for the Consumer Health division. Prior to 2011, Mr. Tereau held similar roles at Thermo Fisher Scientific and GE Healthcare. Mr. Tereau holds a Bachelor of Science degree in finance from Ferris State University, a Juris Doctorate from Wayne State University, and earned his Master of Business Administration from Yale University.  He also serves on the board of directors for SeraCare Life Sciences, Inc.

Deborah Butters, 48. Ms. Butters joined PerkinElmer in July 2016 as Senior Vice President, Chief Human Resources Officer. Prior to joining us, she served as Head of North America Human Resources at IBM, where she led all aspects of the Human Resource function for IBM’s largest geography, which included 35,000 employees and was responsible for over $30B of IBM’s revenue. During her 17 year career there, she significantly helped shape IBM’s HR programs and practices, including leading its enterprise-wide, people transformation strategy to optimize employee engagement and business performance. Ms. Butters was with Lotus Development for eight years prior to its acquisition by IBM. Ms. Butters’ experiences working in the United Kingdom and Germany for Lotus Development, and in Switzerland and the United States for IBM, ranged from leading functional roles across workforce planning and talent management, to serving in five HR business partner roles in both software and consulting within IBM and Lotus Development, with the largest being IBM’s North America Consulting business. Ms. Butters holds a Bachelor of Science degree from the University of Bath and a diploma in Human Resources from London University.

Tajinder Vohra, 52. Mr. Vohra joined PerkinElmer in October 2015 as Vice President of Global Operations and was appointed Senior Vice President in January 2018. He oversees all of PerkinElmer’s global operations, including manufacturing, supply chain, customer care and distribution. Prior to joining PerkinElmer, Mr. Vohra served at ABB as a Country Operations Leader from 2011 to 2015, where he was responsible for India-wide operations and Supply Chains for India, Middle East and Africa. Prior to 2011, Mr. Vohra was a Senior Vice President with Genpact, managing Supply Chain and IT businesses, and held a number of global management operational positions with GE Healthcare. Mr. Vohra received his Bachelor’s degree in Mechanical Engineering from the University of Delhi, Master’s degree in Industrial Engineering from the University of Alabama and Master’s degree in Manufacturing Engineering from Lehigh University. Mr. Vohra is a certified Six Sigma Black Belt, and was trained in lean manufacturing at the Shingijitsu Training Institute in Japan.

Andrew Okun, 48. Mr. Okun serves as our Vice President and Chief Accounting Officer, a position in which he has served since April 2011. Mr. Okun joined us in 2001 and has served in financial and controllership positions of increasing responsibility, including Director of Finance for the Optoelectronics business from 2001 through 2005, Vice President of Finance from 2005 through 2009 and Vice President and Corporate Controller from 2009 through 2011. Prior to joining us, Mr. Okun most recently worked for Honeywell International as a Site Controller as well as for Coopers & Lybrand. Mr. Okun is a Certified Public Accountant and earned his Master of Business Administration from the University of Virginia. He completed his undergraduate degree at the University of Santa Barbara.


23


PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of Common Stock
Our common stock is listed and traded on the New York Stock Exchange. The following table sets forth the high and low per share closing sale prices for our common stock on that exchange for each quarter in fiscal years 2017 and 2016.
 
 
2017 Fiscal Quarters
 
First
 
Second
 
Third
 
Fourth
High

$58.06

 

$68.45

 

$69.94

 

$73.84

Low
51.57

 
56.95

 
62.95

 
69.36

 
 
 
 
 
 
 
 
 
2016 Fiscal Quarters
 
First
 
Second
 
Third
 
Fourth
High

$53.01

 

$55.56

 

$56.92

 

$56.43

Low
41.45

 
48.58

 
51.94

 
49.95

 
As of February 23, 2018, we had approximately 3,914 holders of record of our common stock.
 
Stock Repurchases
The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated.
 
Issuer Repurchases of Equity Securities
Period
Total Number
of Shares
Purchased(1)
 
Average Price
Paid Per
Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs(2)
 
Maximum Number of
Shares that May Yet
Be Purchased
Under the Plans or
Programs
October 2, 2017 - October 29, 2017
1,636

 
$
71.35

 

 
8,000,000

October 30, 2017 - November 26, 2017
3,219

 
71.19

 

 
8,000,000

November 27, 2017 - December 31, 2017
117

 
71.61

 

 
8,000,000

Activity for quarter ended December 31, 2017
4,972

 
$
71.25

 

 
8,000,000

________________
(1)
Our Board has authorized us to repurchase shares of common stock to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards and restricted stock unit awards granted pursuant to our equity incentive plans and to satisfy obligations related to the exercise of stock options made pursuant to our equity incentive plans. During the fourth quarter of fiscal year 2017, the Company repurchased 4,972 shares of common stock for this purpose at an aggregate cost of $0.4 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.

(2)
On July 27, 2016, our Board authorized us to repurchase up to 8.0 million shares of common stock under a stock repurchase program (the "Repurchase Program"). The Repurchase Program will expire on July 26, 2018 unless terminated earlier by our Board, and may be suspended or discontinued at any time. During the fourth quarter of fiscal year 2017, we had no stock repurchases under the Repurchase Program. As of December 31, 2017, 8.0 million shares remained available for repurchase under the Repurchase Program.
 
 

24


Dividends
During fiscal years 2017 and 2016, we declared regular quarterly cash dividends on our common stock. The table below sets forth the cash dividends per share that we declared on our common stock during each of those fiscal years, by quarter.
 
 
2017 Fiscal Quarters
 
2017 Total
First
 
Second
 
Third
 
Fourth
 
 
Cash dividends declared per common share
$
0.07

 
$
0.07

 
$
0.07

 
$
0.07

 
$
0.28

 
 
 
 
 
 
 
 
 
 
 
2016 Fiscal Quarters
 
2016 Total
 
First
 
Second
 
Third
 
Fourth
 
 
Cash dividends declared per common share
$
0.07

 
$
0.07

 
$
0.07

 
$
0.07

 
$
0.28

 
While it is our current intention to pay regular quarterly cash dividends, any decision to pay future cash dividends will be made by our Board and will depend on our earnings, financial condition and other factors. Our Board may reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources. For further information related to our stockholders’ equity, see Note 19 to our consolidated financial statements included in this annual report on Form 10-K.


25


Stock Performance Graph
Set forth below is a line graph comparing the cumulative total shareholder return on our common stock against the cumulative total return of the S&P Composite-500 Index and a Peer Group Index for the five fiscal years from December 30, 2012 to December 31, 2017. Our Peer Group Index consists of Agilent Technologies Inc., Thermo Fisher Scientific Inc., and Waters Corporation. The peer group is the same as the peer group used in the stock performance graph in our Annual Report on Form 10-K for the fiscal year ended January 1, 2017.

Comparison of Five-Year Cumulative Total Return
Among PerkinElmer, Inc. Common Stock, S&P Composite-500 and
Peer Group Index

TOTAL RETURN TO SHAREHOLDERS
(Includes reinvestment of dividends)

chart-50241aab4200586a9df.jpg
 
30-Dec-12
 
29-Dec-13
 
28-Dec-14
 
3-Jan-16
 
1-Jan-17
 
31-Dec-17
PerkinElmer, Inc.
$
100.00

 
$
133.79

 
$
144.11

 
$
176.20

 
$
172.47

 
$
242.92

S&P 500 Index
$
100.00

 
$
132.39

 
$
150.51

 
$
152.59

 
$
170.84

 
$
208.14

Peer Group
$
100.00

 
$
156.47

 
$
175.06

 
$
193.74

 
$
196.90

 
$
272.88




26


Item 6.
Selected Financial Data
 
The following table sets forth selected historical financial information as of and for each of the fiscal years in the five-year period ended December 31, 2017. We derived the selected historical financial information for the balance sheets for the fiscal years ended December 31, 2017 and January 1, 2017 and the statement of operations for each of the fiscal years in the three-year period ended December 31, 2017 from our audited consolidated financial statements which are included elsewhere in this annual report on Form 10-K. We derived the selected historical financial information for the statements of operations for the fiscal years ended December 28, 2014 and December 29, 2013 from our audited consolidated financial statements which are not included in this annual report on Form 10-K. We derived the selected historical financial information for the balance sheets as of January 3, 2016, December 28, 2014 and December 29, 2013 from our audited consolidated financial statements which are not included in this annual report on Form 10-K.
 
Our historical financial information may not be indicative of our future results of operations or financial position.
 
The following selected historical financial information should be read together with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the related notes, included elsewhere in this annual report on Form 10-K.
 
 
Fiscal Years Ended
 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
December 29,
2013
 
(In thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue
$
2,256,982

 
$
2,115,517

 
$
2,104,823

 
$
2,069,880

 
$
1,996,959

Operating income from continuing
operations(1)(2)
304,803

 
283,066

 
250,926

 
165,007

 
180,791

Interest and other expense, net(3)
8,085

 
38,998

 
42,119

 
41,139

 
64,110

Income from continuing operations before income taxes
296,718

 
244,068

 
208,807

 
123,868

 
116,681

Income from continuing operations, net of income taxes(4)
156,890

 
215,706

 
188,785

 
130,139

 
142,206

Income from discontinued operations and dispositions, net of income taxes(5)
135,743

 
18,593

 
23,640

 
27,639

 
25,006

Net income
$
292,633

 
$
234,299

 
$
212,425

 
$
157,778

 
$
167,212

Basic earnings per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
1.43

 
$
1.97

 
$
1.68

 
$
1.16

 
$
1.27

Discontinued operations
1.24

 
0.17

 
0.21

 
0.25

 
0.22

Net income
$
2.67

 
$
2.14

 
$
1.89

 
$
1.40

 
$
1.49

Diluted earnings per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
1.42

 
$
1.96

 
$
1.67

 
$
1.14

 
$
1.25

Discontinued operations
1.22

 
0.17

 
0.21

 
0.24

 
0.22

Net income
$
2.64

 
$
2.12

 
$
1.87

 
$
1.39

 
$
1.47

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic:
109,857

 
109,478

 
112,507

 
112,593

 
112,254

Diluted:
110,859

 
110,313

 
113,315

 
113,739

 
113,503

Cash dividends declared per common share
$
0.28

 
$
0.28

 
$
0.28

 
$
0.28

 
$
0.28



27


 
As of
 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
December 28,
2014
 
December 29,
2013
 
(In thousands)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets
$
6,091,463

 
$
4,276,683

 
$
4,166,295

 
$
4,127,576

 
$
3,940,882

Short-term debt
217,306

 
1,172

 
1,123

 
1,075

 
2,624

Long-term debt(3)(6)
1,788,803

 
1,045,254

 
1,011,762

 
1,045,393

 
926,274

Stockholders’ equity(1)(7)
2,503,188

 
2,153,570

 
2,110,441

 
2,042,102

 
1,994,487

Common shares outstanding(7)
110,361

 
109,617

 
112,034

 
112,481

 
112,626

____________________________
(1) 
Activity related to the mark-to-market adjustment on postretirement benefit plans was a pre-tax gain of $2.1 million in fiscal year 2017, a pre-tax loss of $15.3 million in fiscal year 2016, a pre-tax loss of $12.4 million in fiscal year 2015, a pre-tax loss of $75.4 million in fiscal year 2014 and a pre-tax income of $17.6 million in fiscal year 2013.
(2) 
We recorded pre-tax restructuring and contract termination charges, net, of $12.7 million in fiscal year 2017, $5.1 million in fiscal year 2016, $13.5 million in fiscal year 2015, $13.3 million in fiscal year 2014 and $33.5 million in fiscal year 2013.
(3) 
In fiscal years 2017, 2016, 2015, 2014 and 2013, interest expense was $43.9 million, $41.5 million, $38.0 million, $36.3 million and $49.9 million, respectively. In fiscal year 2013, we redeemed all of our 6% senior unsecured notes due in 2015 (the “2015 Notes”) that included a prepayment premium of $11.1 million, which is included in other expense, net, the write-off of $2.8 million for the remaining unamortized derivative losses for previously settled cash flow hedges, which is included in interest expense, and the write-off of $0.2 million for the remaining deferred debt issuance costs, which is included in interest expense.
(4) 
In fiscal years 2017 and 2016, provision for income tax on continuing operations was $139.8 million and $28.4 million, respectively. The higher provision for income taxes in fiscal year 2017 compared to that of fiscal year 2016 was primarily due to the $106.5 million discrete tax expense related to the Tax Cuts & Jobs Act of 2017. In fiscal years 2015, 2014 and 2013, tax expense (benefit) on continuing operations was $20.0 million, $(6.3) million and $(25.5) million, respectively. The tax expense in fiscal year 2015 was primarily due to income in high tax rate jurisdictions, partially offset by losses in low tax rate jurisdictions and a tax benefit of $6.4 million related to discrete items. The benefit from income taxes in fiscal year 2014 was primarily due losses in high tax rate jurisdictions and a tax benefit of $7.1 million related to discrete items, partially offset by a provision for income taxes related to profits in low tax rate jurisdictions. The benefit from income taxes in fiscal year 2013 was primarily due to a tax benefit of $24.0 million related to discrete items and losses in high tax rate jurisdictions, partially offset by provision for income taxes related to profits in low tax rate jurisdictions.
(5) 
In May 2017, we completed the sale of our Medical Imaging business. We recorded a pre-tax gain of $179.6 million and income tax expense of $43.1 million in fiscal year 2017. We accounted for this business as discontinued operations beginning in 2016 and the financial information relating to fiscal years 2015, 2014 and 2013 has been retrospectively adjusted to reflect the inclusion of this business in discontinued operations.
(6) 
In July 2016, we issued and sold ten-year senior notes at a rate of 1.875% with a face value of €500.0 million and received €492.3 million of net proceeds from the issuance. The debt, which matures in July 2026, is unsecured.
(7) 
In fiscal year 2017, we did not repurchase any shares of our common stock under the existing stock repurchase program authorized by our Board on July 27, 2016. In fiscal year 2016, we repurchased in the open market 3.2 million shares of our common stock at an aggregate cost of $148.2 million, including commissions under a stock repurchase program originally announced in October 2014 that was terminated in July 2016 (the "October 2014 Repurchase Program"). In fiscal year 2015, we repurchased in the open market 1.5 million shares of our common stock at an aggregate cost of $72.0 million, including commissions, under both the October 2014 Repurchase Program and a stock repurchase program originally announced in October 2012 that expired in October 2014 (the "October 2012 Repurchase Program"). In fiscal year 2014, we repurchased in the open market 1.4 million shares of our common stock at an aggregate cost of $61.3 million, including commissions, under the October 2012 Repurchase Program. In fiscal year 2013, we repurchased in the open market 3.6 million shares of our common stock at an aggregate cost of $123.0 million, including commissions, under the October 2012 Repurchase Program. 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.

28


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This annual report on Form 10-K, including the following management’s discussion and analysis, contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this annual report on Form 10-K. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “plans,” “anticipates,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors above under the heading “Risk Factors” in Item 1A above that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
 
Accounting Period
Our fiscal year ends on the Sunday nearest December 31. We report fiscal years under a 52/53 week format and as a result, certain fiscal years will contain 53 weeks. Each of the fiscal years ended December 31, 2017 ("fiscal year 2017") and January 1, 2017 ("fiscal year 2016") included 52 weeks. The fiscal year ended January 3, 2016 ("fiscal year 2015") included 53 weeks. The additional week in fiscal year 2015 has been reflected in the third quarter of our fiscal year 2015. The fiscal year ending December 30, 2018 will include 52 weeks.
 
Overview of Fiscal Year 2017
During fiscal year 2017, we continued to see good performance from acquisitions, investments in our ongoing technology and sales and marketing initiatives. Our overall revenue in fiscal year 2017 increased $141.5 million, or 7%, as compared to fiscal year 2016, reflecting an increase of $65.5 million, or 4%, in our Discovery & Analytical Solutions segment revenue and an increase of $76.0 million, or 13%, in our Diagnostics segment revenue. The increase in our Discovery & Analytical Solutions segment during fiscal year 2017 was primarily due to an increase of $48.1 million from our laboratory services market revenue and an increase of $21.1 million from our environmental, food and industrial markets revenue, partially offset by a decrease of $3.8 million from our life sciences research market revenue. The increase in our Diagnostics segment revenue during fiscal year 2017 was primarily driven by continued expansion in our newborn, maternal fetal health and infectious diseases screening solutions and applied genomics solutions.
In our Discovery & Analytical Solutions segment, we experienced growth during fiscal year 2017 driven by successful new product introductions and an improving macro-environment. We also experienced strong demand for our laboratory service offerings as well as our environmental and food offerings. In the life sciences research market, we experienced continued decline in sales of radioactive reagents in our radio-nucleotide business.
In our Diagnostics segment, we experienced growth from continued expansion in our newborn and infectious disease screening businesses, particularly in the emerging markets. We also experienced strong growth in our advanced genomics front-end sample preparation business in the Americas. As the rising cost of healthcare continues to be one of the critical issues facing our customers, we anticipate that the benefits of providing earlier detection of disease, which can result in a reduction of long-term health care costs as well as create better outcomes for patients, are increasingly valued and we expect to see continued growth in these markets. During fiscal year 2017, we expanded both the extent and reach of our capabilities to enable earlier treatments and better outcomes, both in terms of diseases and geographies. The acquisition of EUROIMMUN has increased our reagent mix, expanded our technical capabilities and positioned us in more attractive markets.
Our consolidated gross margins decreased 36 basis points in fiscal year 2017, as compared to fiscal year 2016, primarily due to an unfavorable shift in product mix partially offset by benefits from our initiatives to improve our supply chain. Our consolidated operating margin increased 12 basis points in fiscal year 2017, as compared to fiscal year 2016 primarily due to lower costs as a result of cost containment and productivity initiatives, which were partially offset by increased costs related to investments in new product development.
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.
 

29


Consolidated Results of Continuing Operations
 
Revenue
2017 Compared to 2016. Revenue for fiscal year 2017 was $2,257.0 million, as compared to $2,115.5 million for fiscal year 2016, an increase of $141.5 million, or 7%, which includes an approximate 2% increase in revenue attributable to acquisitions and divestitures and a 0.4% increase in revenue attributable to changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2017 as compared to fiscal year 2016 and includes the effect of foreign exchange rate fluctuations, and acquisitions and divestitures. The total increase in revenue reflects an increase in our Diagnostics segment revenue of $76.0 million, or 13%, due to continued expansion in our newborn and infectious disease screening solutions and strong growth in applied genomics. Our new acquisitions, EUROIMMUN and Tulip, contributed $13.5 million and $38.5 million, respectively, in revenues during fiscal year 2017. Our Discovery & Analytical Solutions segment revenue increased by $65.5 million, or 4%, due to an increase of $48.1 million from our laboratory services market revenue and an increase of $21.1 million from our environmental, food and industrial markets revenue, partially offset by a decrease of $3.8 million from our life sciences research market revenue. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.7 million of revenue primarily related to our Diagnostics segment for each of the fiscal years 2017 and 2016 that otherwise would have been recorded by the acquired businesses during each of the respective periods.

2016 Compared to 2015. Revenue for fiscal year 2016 was $2,115.5 million, as compared to $2,104.8 million for fiscal year 2015, an increase of $10.7 million, or 1%, which includes an approximate 1% decrease in revenue attributable to changes in foreign exchange rates with minimal impact from acquisitions and divestitures. In addition, our fiscal year 2015 had an additional week, which consisted of 53 weeks, as compared to fiscal year 2016, which consisted of 52 weeks. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2016 as compared to fiscal year 2015 and includes the effect of foreign exchange rate fluctuations and acquisitions and divestitures. The total increase in revenue reflects an increase in our Diagnostics segment revenue of $26.1 million, or 5%, due to continued expansion in our newborn screening, blood banking and screening businesses. Our Discovery & Analytical Solutions segment revenue decreased by $15.4 million, or 1%, due to a decrease in environmental, food and industrial markets revenue of $20.8 million and life sciences research market revenue of $0.6 million, which was partially offset by an increase in laboratory services market revenue of $6.0 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.7 million of revenue primarily related to our Diagnostics segment for fiscal year 2016 and $0.8 million for fiscal year 2015 that otherwise would have been recorded by the acquired businesses during each of the respective periods.

Cost of Revenue
2017 Compared to 2016. Cost of revenue for fiscal year 2017 was $1,184.0 million, as compared to $1,102.2 million for fiscal year 2016, an increase of approximately $81.8 million, or 7%. As a percentage of revenue, cost of revenue increased to 52.5% in fiscal year 2017 from 52.1% in fiscal year 2016, resulting in a decrease in gross margin of approximately 36 basis points to 47.5% in fiscal year 2017 from 47.9% in fiscal year 2016. Amortization of intangible assets decreased and was $29.3 million for fiscal year 2017, as compared to $30.3 million for fiscal year 2016. The mark-to-market adjustment for postretirement benefit plans was a loss of $0.1 million for fiscal year 2017, as compared to a loss of $0.4 million for fiscal year 2016. Stock-based compensation expense was $1.3 million for fiscal year 2017, as compared to $1.0 million for fiscal year 2016. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $6.2 million for fiscal year 2017, as compared to $0.4 million for fiscal year 2016. Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $0.1 million for each of fiscal years 2017 and 2016. In addition to the factors noted above, the decrease in gross margin was primarily the result of an unfavorable shift in product mix partially offset by benefits from our initiatives to improve our supply chain.

2016 Compared to 2015. Cost of revenue for fiscal year 2016 was $1,102.2 million, as compared to $1,140.6 million for fiscal year 2015, a decrease of approximately $38.4 million, or 3%. As a percentage of revenue, cost of revenue decreased to 52.1% in fiscal year 2016 from 54.2% in fiscal year 2015, resulting in an increase in gross margin of approximately 209 basis points to 47.9% in fiscal year 2016 from 45.8% in fiscal year 2015. Amortization of intangible assets decreased and was $30.3 million for fiscal year 2016, as compared to $42.4 million for fiscal year 2015. The mark-to-market adjustment for postretirement benefit plans was a loss of $0.4 million for fiscal year 2016, as compared to a loss of $1.2 million for fiscal year 2015. Stock-based compensation expense was $1.0 million for fiscal year 2016, as compared to $1.3 million for fiscal year 2015. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $0.4 million for fiscal year 2016, as compared to $7.3 million for fiscal year 2015. Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $0.1 million for each of fiscal years 2016 and 2015. In addition to the factors noted above, the increase in gross margin was primarily the result of favorable changes in product mix, with an increase in sales of higher gross margin product offerings and benefits from our initiatives to improve our supply chain.


30



Selling, General and Administrative Expenses
2017 Compared to 2016. Selling, general and administrative expenses for fiscal year 2017 were $616.2 million, as compared to $600.9 million for fiscal year 2016, an increase of approximately $15.3 million, or 3%. As a percentage of revenue, selling, general and administrative expenses decreased to 27.3% in fiscal year 2017 from 28.4% in fiscal year 2016. Amortization of intangible assets increased and was $44.1 million for fiscal year 2017, as compared to $40.7 million for fiscal year 2016. The mark-to-market adjustment for postretirement benefit plans was an income of $2.2 million for fiscal year 2017, as compared to a loss of $14.9 million for fiscal year 2016. Stock-based compensation expense increased and was $22.8 million for fiscal year 2017, as compared to $15.2 million for fiscal year 2016. During fiscal year 2017, we recorded $2.7 million in legal costs for a particular case. Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $29.0 million for fiscal year 2017 as compared to $17.5 million for fiscal year 2016. 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 was partially offset by the result of lower costs as a result of cost containment and productivity initiatives.

2016 Compared to 2015. Selling, general and administrative expenses for fiscal year 2016 were $600.9 million, as compared to $587.2 million for fiscal year 2015, an increase of approximately $13.7 million, or 2%. As a percentage of revenue, selling, general and administrative expenses increased to 28.4% in fiscal year 2016, compared to 27.9% in fiscal year 2015. Amortization of intangible assets increased and was $40.7 million for fiscal year 2016, as compared to $33.8 million for fiscal year 2015. The mark-to-market adjustment for postretirement benefit plans was a loss of $14.9 million for fiscal year 2016, as compared to a loss of $11.1 million for fiscal year 2015. Stock-based compensation expense decreased and was $15.2 million for fiscal year 2016, as compared to $15.5 million for fiscal year 2015. During fiscal year 2015, we recorded $0.8 million in legal costs for a particular case. Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $17.5 million for fiscal year 2016 as compared to $0.7 million for fiscal year 2015. 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 was partially offset by the result of lower costs as a result of cost containment and productivity initiatives.
 
Research and Development Expenses
2017 Compared to 2016. Research and development expenses for fiscal year 2017 were $139.4 million, as compared to $124.3 million for fiscal year 2016, an increase of $15.1 million, or 12%. As a percentage of revenue, research and development expenses increased to 6.2% in fiscal year 2017, as compared to 5.9% in fiscal year 2016. Amortization of intangible assets was $0.3 million in fiscal year 2017, as compared to $0.5 million in fiscal year 2016. The mark-to-market adjustment for postretirement benefit plans was an income of $0.1 million for fiscal year 2017. Stock-based compensation expense increased and was $1.4 million for fiscal year 2017, as compared to $0.9 million for fiscal year 2016. In addition to the above items, the increase in research and development expenses was largely the result of investments in new product development, primarily from our investments in Vanadis focused on non-invasive prenatal screening. This was partially offset by lower costs as a result of cost containment and productivity initiatives. We directed research and development efforts similarly during fiscal years 2017 and 2016, primarily towards the diagnostics, environmental, food, life sciences research and laboratory services markets in order to help accelerate our growth initiatives. We have a broad product base, and we do not expect any single research and development project to have significant costs.

2016 Compared to 2015. Research and development expenses for fiscal year 2016 were $124.3 million, as compared to $112.5 million for fiscal year 2015, an increase of $11.7 million, or 10%. As a percentage of revenue, research and development expenses increased to 5.9% in fiscal year 2016, as compared to 5.3% in fiscal year 2015. Amortization of intangible assets was $0.5 million for each of fiscal years 2016 and 2015. The mark-to-market adjustment for postretirement benefit plans was a loss of $0.1 million for fiscal year 2015. Stock-based compensation expense increased and was $0.9 million for fiscal year 2016, as compared to $0.5 million for fiscal year 2015. In addition to the above items, the increase in research and development expenses was primarily the result of investments in new product development, primarily the results of our investments in Vanadis focused on non-invasive prenatal screening and ionics mass spectrometry focused on food and environmental safety applications. This was partially offset by lower costs as a result of cost containment and productivity initiatives.

Restructuring and Contract Termination Charges, 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 productivity initiatives. Restructuring and contract termination charges for fiscal year 2017 were $12.7 million, as compared to $5.1 million for fiscal year 2016 and $13.5 million for fiscal year 2015.


31


We implemented a restructuring plan in each of the fourth and third quarters of fiscal year 2017 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q4 2017 Plan and "Q3 2017 Plan", respectively). We implemented a restructuring plan in the first quarter of fiscal year 2017 consisting of workforce reductions and the closure of excess facility space principally intended to focus resources on higher growth end markets (the "Q1 2017 Plan"). We implemented a restructuring plan in the third quarter of fiscal year 2016 consisting of workforce reductions principally intended to focus resources on higher growth product lines (the "Q3 2016 Plan"). We implemented a restructuring plan in the second quarter of fiscal year 2016 consisting of workforce reductions principally intended to focus resources on higher growth end markets (the "Q2 2016 Plan"). We implemented a restructuring plan in the fourth quarter of fiscal year 2015 consisting of workforce reductions and the closure of excess facility space principally intended to focus resources on higher growth end markets (the "Q4 2015 Plan"). We implemented a restructuring plan in the second quarter of fiscal year 2015 consisting of workforce reductions principally intended to realign resources to emphasize growth initiatives (the "Q2 2015 Plan"). All other previous restructuring plans were workforce reductions or closure of excess facility space principally intended to integrate our businesses in order to realign operations, reduce costs, achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with our growth strategy (the "Previous Plans").

The following table summarizes the number of employees reduced, the initial restructuring or contract termination charges by operating segment, and the dates by which payments were substantially completed, or the expected dates by which payments will be substantially completed, for restructuring actions implemented during fiscal years 2017, 2016 and 2015 in continuing operations:
 
Workforce Reductions
 
Closure of Excess Facility
 
Total
 
(Expected) Date Payments Substantially Completed by
 
Headcount Reduction
 
Diagnostics
 
Discovery & Analytical Solutions
 
Diagnostics
 
Discovery & Analytical Solutions
 
 
Severance
 
Excess Facility
 
(In thousands, except headcount data)
 
 
 
 
Q4 2017 Plan

29

 
$
255

 
$
1,680

 
$

 
$

 
$
1,935

 
Q1 FY2019
 
Q3 2017 Plan

27

 
1,021

 
1,321

 

 

 
2,342

 
Q4 FY2018
 
Q1 2017 Plan

90

 
1,631

 
5,000

 
33

 
33

 
6,697

 
Q2 FY2018
 
Q2 FY2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2016 Plan

22

 
41

 
1,779

 

 

 
1,820

 
Q4 FY2017
 
Q2 2016 Plan

72

 
561

 
4,106

 

 

 
4,667

 
Q3 FY2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q4 2015 Plan
174

 
1,315

 
9,980

 

 
285

 
11,580

 
Q1 FY2017
 
Q4 FY2017
Q2 2015 Plan
95

 
673

 
5,290

 

 

 
5,963

 
Q2 FY2016
 

We expect to make payments under the Previous Plans for remaining residual lease obligations, with terms varying in length, through fiscal year 2022.

We also have terminated various contractual commitments in connection with certain disposal activities and have recorded charges, to the extent applicable, for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us. We recorded additional pre-tax charges of $3.6 million, $0.1 million and $0.1 million in the Discovery & Analytical Solutions segment during fiscal years 2017, 2016 and 2015, respectively, and $0.5 million during fiscal year 2017, in the Diagnostics segment as a result of these contract terminations.


32


At December 31, 2017, we had $14.0 million recorded for accrued restructuring and contract termination charges, of which $8.8 million was recorded in short-term accrued restructuring, $2.3 million was recorded in long-term liabilities and $2.9 million was recorded in other reserves. At January 1, 2017, we had $10.5 million recorded for accrued restructuring and contract termination charges, of which $7.5 million was recorded in short-term accrued restructuring and $3.1 million was recorded in long-term liabilities. The following table summarizes our restructuring accrual balances and related activity by restructuring plan, as well as contract termination accrual balances and related activity, during fiscal years 2017, 2016 and 2015 in continuing operations:
 
 
Balance at December 28, 2014
 
2015 Charges and Changes in Estimates, Net
 
2015 Amounts Paid
 
Balance at January 3, 2016
 
2016 Charges and Changes in Estimates, Net
 
2016 Amounts Paid
 
Balance at January 1, 2017
 
2017 Charges and Changes in Estimates, Net
 
2017 Amounts Paid
 
Balance at December 31, 2017
 
(In thousands)
 
 
 
 
 
 
Severance:
 
 
 
 
 
 
 
 
 
 
 
 
Q4 2017 Plan

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
1,935

 
$
(16
)
 
$
1,919

Q3 2017 Plan

 

 

 

 

 

 

 

 
2,342

 
(270
)
 
2,072

Q1 2017 Plan

 

 

 

 

 

 

 

 
6,631

 
(4,133
)
 
2,498

Q3 2016 Plan
 

 

 

 

 
1,820

 
(612
)
 
1,208

 
(202
)
 
(1,006
)
 

Q2 2016 Plan(1)
 

 

 

 

 
4,667

 
(3,231
)
 
1,436

 
(829
)
 
(607
)
 

Q4 2015 Plan(2)
 

 
11,295

 
(925
)
 
10,370

 
(953
)
 
(8,198
)
 
1,219

 
(1,066
)
 
(153
)
 

Q2 2015 Plan
 

 
5,423

 
(4,322
)
 
1,101

 
(533
)
 
(370
)
 
198

 
(198
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
Facility:
 
 
 
 
 


 
 
 
 
 
 
Q1 2017 Plan

 

 

 

 

 

 

 

 
66

 
(33
)
 
33

Q4 2015 Plan
 

 
285

 
(26
)
 
259

 

 
(248
)
 
11

 

 

 
11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Previous Plans(3)
 
23,522

 
(3,539
)
 
(9,695
)
 
10,288

 
35

 
(3,971
)
 
6,352

 
727

 
(2,691
)
 
4,388

Restructuring
 
23,522

 
13,464

 
(14,968
)
 
22,018

 
5,036

 
(16,630
)
 
10,424

 
9,406

 
(8,909
)
 
10,921

Contract Termination
 
304

 
83

 
(255
)
 
132

 
88

 
(103
)
 
117

 
3,251

 
(320
)
 
3,048

Total Restructuring and Contract Termination
 
$
23,826

 
$
13,547

 
$
(15,223
)
 
$
22,150

 
$
5,124

 
$
(16,733
)
 
$
10,541

 
$
12,657

 
$
(9,229
)
 
$
13,969

____________________________
(1) 
During fiscal year 2017, we recognized pre-tax restructuring reversals of $0.4 million each in the Discovery & Analytical Solutions and Diagnostics segments, related to lower than expected costs associated with workforce reductions for the Q2 2016 Plan.
(2) 
During fiscal year 2017, we recognized pre-tax restructuring reversals of $0.5 million each in the Discovery & Analytical Solutions and Diagnostics segments related, to lower than expected costs associated with workforce reductions for the Q4 2015 Plan.
(3) 
During fiscal year 2017, we recognized pre-tax restructuring charges of $0.3 million in the Discovery & Analytical Solutions and $0.4 million in the Diagnostics segments related to change in lease assumptions partially offset by lower than expected costs associated with workforce reductions for the Previous Plans.


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Interest and Other Expense, Net
Interest and other expense, net, consisted of the following:

 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
(In thousands)
Interest income
$
(2,571
)
 
$
(702
)
 
$
(673
)
Interest expense
43,940

 
41,528

 
37,997

Losses (gains) on disposition of businesses and assets, net

309

 
(5,562
)
 

Other (income) expense, net
(33,593
)
 
3,734

 
4,795

Total interest and other expense, net
$
8,085

 
$
38,998

 
$
42,119


2017 Compared to 2016. Interest and other expense, net, for fiscal year 2017 was an expense of $8.1 million, as compared to an expense of $39.0 million for fiscal year 2016, a decrease of $30.9 million. The decrease in interest and other expense, net, in fiscal year 2017 as compared to fiscal year 2016 was largely due to a decrease in other expense, net by $37.3 million which consisted primarily of net foreign exchange gain related to remeasurement and settlement of the acquisition-related hedges of $36.5 million and an increase in interest income of $1.9 million in fiscal year 2017 as compared to fiscal year 2016. Interest income increased primarily due to interest income derived from investing the proceeds from the sale of our Medical Imaging business in money market mutual funds, until these proceeds were redeemed by end of fiscal year 2017 to partially fund the EUROIMMUN purchase price consideration. This was partially offset by a net loss on disposition of businesses and assets of $0.3 million in fiscal year 2017 as compared to a net gain of $5.6 million in fiscal year 2016 and an increase in interest expense of $2.4 million in fiscal year 2017 as compared to fiscal year 2016 due to the impact of four quarters of interest expense on our 2026 Notes in fiscal year 2017 as compared to two quarters of interest expense in fiscal year 2016 as the 2026 Notes were issued in July 2016. A more complete discussion of our liquidity is set forth below under the heading “Liquidity and Capital Resources.”
 
2016 Compared to 2015. Interest and other expense, net, for fiscal year 2016 was an expense of $39.0 million, as compared to an expense of $42.1 million for fiscal year 2015, a decrease of $3.1 million. The decrease in interest and other expense, net, in fiscal year 2016 as compared to fiscal year 2015 was primarily due to a gain on disposition of businesses and assets, net recognized in fiscal year 2016 which was partially offset by an increase in interest expense of $3.5 million for fiscal year 2016 as compared to fiscal year 2015 due to the issuance of the new higher interest rate 2026 Notes, which replaced our lower cost debt outstanding on our previous senior unsecured revolving credit facility. Other expenses for fiscal year 2016 decreased by $1.1 million as compared to fiscal year 2015, primarily due to expenses related to foreign currency transactions and translation of non-functional currency assets and liabilities.

Provision for Income Taxes
The effective tax rates on continuing operations were 47.1%, 11.6% and 9.6% for fiscal years 2017, 2016 and 2015, respectively. Certain of our subsidiaries have, at various times, been granted tax relief in their respective countries, resulting in lower income taxes than would otherwise be the case under ordinary tax rates. A reconciliation of income tax expense at the U.S. federal statutory income tax rate to the recorded tax provision is as follows for the fiscal years ended:
 
 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
 
 
(In thousands)
Tax at statutory rate
$
103,851

 
$
85,424

 
$
73,082

Non-U.S. rate differential, net
(65,836
)
 
(52,648
)
 
(47,994
)
U.S. taxation of multinational operations
5,408

 
6,941

 
1,732

State income taxes, net
1,810

 
1,509

 
80

Prior year tax matters
(7,955
)
 
(9,621
)
 
(6,387
)
Federal tax credits
(8,249
)
 
(7,189
)
 
(2,096
)
Change in valuation allowance
1,951

 
(2,755
)
 
2,593

Non-deductible acquisition expense

 
5,701

 

Impact of federal tax reform
106,538

 

 

Others, net
2,310

 
1,000

 
(988
)
Total
$
139,828

 
$
28,362

 
$
20,022

 

34


The variation in our effective tax rate for each year is primarily a result of the recognition of earnings in foreign jurisdictions, predominantly Singapore, Finland, Netherlands and China, which are taxed at rates lower than the U.S. federal statutory rate, resulting in a benefit from income taxes of $55.9 million in fiscal year 2017, $48.2 million in fiscal year 2016 and $36.1 million in fiscal year 2015. These amounts include $10.1 million in fiscal year 2017, $11.4 million in fiscal year 2016 and $8.3 million in fiscal year 2015 of benefits derived from tax holidays in China and Singapore. The effect of these benefits derived from tax holidays on basic and diluted earnings per share for fiscal year 2017 was $0.09 and $0.09, respectively, for fiscal year 2016 was $0.10 and $0.10, respectively, and for fiscal year 2015 was $0.07 and $0.07, respectively. The tax holiday in one of our subsidiaries in China expired in 2017 and the tax holiday in one other subsidiary in China is scheduled to expire in fiscal year 2019. The tax holiday in one of our subsidiaries in Singapore is scheduled to expire in fiscal year 2018.
On December 22, 2017, the President of the United States signed into law tax reform legislation, known as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. Internal Revenue Code, which includes reducing the corporate income tax rate from 35% to 21% and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.
We have performed a preliminary analysis of the impacts of the Tax Act based on currently available information and recorded a discrete tax expense of $106.5 million during fiscal year 2017, which was comprised of $21.5 million from the remeasurement of certain net deferred tax assets using the lower enacted corporate income tax rate and $85.0 million from the one-time deemed repatriation tax on unremitted earnings of foreign subsidiaries. The impact of the Tax Act may differ from our estimates due to, among other things, changes in interpretations and assumptions we have made, Internal Revenue Service and Treasury Department guidance that may be issued and actions we may take. The effects of the Tax Act provisions are still being evaluated by management, and there could be additional effects of the Tax Act which could have material positive or negative impacts on our current or future tax position.


Disposition of Businesses and Assets
As part of our continuing efforts to focus on higher growth opportunities, we have discontinued certain businesses. When the discontinued operations represented a strategic shift that will have a major effect on our operations and financial statements, we accounted for these businesses as discontinued operations and accordingly, have presented the results of operations and related cash flows as discontinued operations. Any business deemed to be a discontinued operation prior to the adoption of Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of An Entity ("ASU 2014-08"), continues to be reported as a discontinued operation, and the results of operations and related cash flows are presented as discontinued operations for all periods presented. Any remaining assets and liabilities of these businesses have been presented separately, and are reflected within assets and liabilities from discontinued operations in the accompanying consolidated balance sheets as of December 31, 2017 and January 1, 2017.

In August 1999, we sold the assets of our Technical Service business. We recorded pre-tax gains (losses) of $1.8 million in fiscal year 2016 and $(0.03) million in fiscal year 2015 for a contingency related to this business. These gains (losses) were recognized as a gain (loss) on disposition of discontinued operations before income taxes.
During fiscal year 2016, we entered into a letter of intent to contribute certain assets to an academic institution in the United Kingdom. We recognized a pre-tax loss of $1.6 million related to the write-off of assets in the second quarter of 2016 which is included in interest and other expense, net in the consolidated statement of operations.
During fiscal year 2016, we sold PerkinElmer Labs, Inc. for cash consideration of $20.0 million, recognizing a pre-tax gain of $7.1 million. The sale generated a capital loss for tax purposes of $7.3 million, which resulted in an income tax benefit of $2.5 million that was recognized as a discrete benefit during the second quarter of 2016. During fiscal year 2017, we recognized an additional pre-tax gain of $1.1 million relating to the earn-out consideration received from the buyer. PerkinElmer Labs, Inc. was a component of our Diagnostics segment. The pre-tax gain recognized in fiscal years 2017 and 2016 is included in interest and other expense, net in the consolidated statement of operations. The divestiture of PerkinElmer Labs, Inc. has not been classified as a discontinued operation in this Form 10-K because the disposition does not represent a strategic shift that will have a major effect on our operations and financial statements.
During fiscal year 2017, we sold Suzhou PerkinElmer Medical Laboratory Co., Ltd. for aggregate consideration of $2.3 million, recognizing a pre-tax loss of $1.1 million. The pre-tax loss recognized in fiscal year 2017 is included in interest and other expense, net in the consolidated statement of operations. Suzhou PerkinElmer Medical Laboratory Co., Ltd. was a component of our Diagnostics segment. The divestiture of Suzhou PerkinElmer Medical Laboratory Co., Ltd. has not been classified as a discontinued operation in this Form 10-K because the disposition does not represent a strategic shift that will have a major effect on our operations and financial statements.

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On May 1, 2017 (the "Closing Date"), we completed the sale of our Medical Imaging business to Varex Imaging Corporation ("Varex") pursuant to the terms of the Master Purchase and Sale Agreement, dated December 21, 2016 (the “Agreement”), by and between us and Varian Medical Systems, Inc. ("Varian") and the subsequent Assignment and Assumption Agreement, dated January 27, 2017, between Varian and Varex, pursuant to which Varian assigned its rights under the Agreement to Varex. On the Closing Date, we received consideration of approximately $277.4 million for the sale of the Medical Imaging business. During fiscal year 2017, we paid Varex $4.2 million to settle a post-closing working capital adjustment. During fiscal year 2017, we recorded a pre-tax gain of $179.6 million and income tax expense of $43.1 million related to the sale of the Medical Imaging business in discontinued operations and dispositions. The corresponding tax liability was recorded within the other tax liabilities in the consolidated balance sheet, and we expect to utilize tax attributes to minimize the tax liability.
Following the closing, we are providing certain customary transitional services during a period of up to 12 months. Commercial transactions between the parties following the closing of the transaction are not expected to be significant.
We presented our Medical Imaging business as discontinued operations in our consolidated financial statements for the fiscal years 2016 and 2015. The results of discontinued operations during fiscal year 2017 include the results of the Medical Imaging business through April 30, 2017.
The summary pre-tax operating results of the discontinued operations were as follows during the three fiscal years ended:

 
December 31,
2017
 
January 1,
2017
 
January 3,
2016
 
(In thousands)
Revenue
$
44,343

 
$
146,217

 
$
158,128

Cost of revenue
32,933

 
95,395

 
97,777

Selling, general and administrative expenses
5,869

 
13,657

 
11,712

Research and development expenses
4,891

 
14,368

 
13,391

Restructuring and contract termination charges, net

 
568

 
43

Income from discontinued operations before income taxes
$
650

 
$
22,229

 
$
35,205


We recorded a tax provision of $44.5 million, $4.3 million and $11.5 million on discontinued operations and dispositions in fiscal years 2017, 2016 and 2015.

Business Combinations
Acquisitions in fiscal year 2017
Acquisition of EUROIMMUN Medizinische Labordiagnostika AG. During fiscal year 2017, we completed the acquisition of 99.98% of the outstanding stock of EUROIMMUN Medizinische Labordiagnostika AG (“EUROIMMUN”) for aggregate consideration of €1.2 billion. The purchase price was funded by borrowings from our senior unsecured revolving credit facility and senior unsecured term loan credit facility of $710.0 million and $200.0 million, respectively, and available cash on hand of $503.8 million. EUROIMMUN is based in Lübeck, Germany, has approximately 2,400 employees, and is recognized as a global leader in autoimmune testing and an emerging force in infectious disease and allergy testing. EUROIMMUN's technologies and platforms are expected to fill gaps in our existing product lines, broaden our offerings and drive synergies, and also expand our geographic reach. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforce acquired. As a result of the acquisition, we recorded goodwill of $614.8 million, which is not tax deductible, and intangible assets of $897.4 million. We have reported the operations for this acquisition within the results of our Diagnostics segment from the acquisition date. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 16.1 years.
Other acquisitions in 2017. During the fiscal year 2017, we completed the acquisition of two other businesses for aggregate consideration of $142.1 million. The acquired businesses were Tulip Diagnostics Private Limited (“Tulip”), which was acquired for total consideration of $127.3 million in cash and one other business acquired for total consideration of $14.8 million in cash. We have a potential obligation to pay the former shareholders of Tulip up to INR1.6 billion in additional consideration over a two year period, which is currently equivalent to $25.2 million, and is accounted for as compensation expense in our financial statements over a two year period and is excluded from the purchase price allocation shown below. The excess of the purchase prices over the fair values of the acquired businesses' net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforces acquired, and has been

36


allocated to goodwill, which is not tax deductible. We reported the operations of Tulip within the results of our Diagnostics segment and the other acquired business within the results of our Discovery & Analytical Solutions segment from the acquisition date. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 11.8 years.
EUROIMMUN's revenue and net loss for the period from the acquisition date to December 31, 2017 were $13.5 million and $1.0 million, respectively. The following unaudited pro forma information presents the combined financial results for the Company and EUROIMMUN as if the acquisition of EUROIMMUN had been completed at the beginning of fiscal year 2016:
 
 
December 31,
2017
 
January 1,
2017
 
(In thousands, except per share data)
Pro Forma Statement of Operations Information:
 
 
 
Revenue
$
2,562,580

 
$
2,379,176

Income from continuing operations
143,459

 
156,210

Basic earnings per share:
 
 
 
Income from continuing operations
$
1.31

 
$
1.43

Diluted earnings per share:
 
 
 
Income from continuing operations
$
1.29

 
$
1.42


The unaudited pro forma information for fiscal years 2017 and 2016 have been calculated after applying our accounting policies and the impact of acquisition date fair value adjustments. The fiscal year 2017 unaudited pro forma income from continuing operations was adjusted to exclude approximately $9.8 million of acquisition-related transaction costs. The fiscal year 2016 pro forma income from continuing operations was adjusted to include these acquisition-related transaction costs and the nonrecurring expenses related to the fair value adjustments. These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as fair value adjustment to inventory, increased interest expense on debt obtained to finance the transaction, and increased amortization for the fair value of acquired intangible assets.
The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

Acquisitions in fiscal year 2016
During fiscal year 2016, we completed the acquisition of two businesses for total consideration of $72.3 million in cash. The acquired businesses were Bioo Scientific Corporation, which was acquired for total consideration of $63.5 million in cash and one other business acquired for total consideration of $8.8 million in cash. The excess of the purchase prices over the fair values of each of the acquired businesses' net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforces acquired. As a result of the acquisitions, we recorded goodwill of $43.1 million, which is not tax deductible, and intangible assets of $22.1 million. We have reported the operations for these acquisitions within the results of our Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates. Identifiable definite-lived intangible assets, such as core technology, trade names and customer relationships, acquired as part of these acquisitions had a weighted average amortization period of 9.4 years.

Acquisitions in fiscal year 2015
During fiscal year 2015, we completed the acquisition of five businesses for total consideration of $77.1 million in cash. The acquired businesses included Vanadis Diagnostics AB (“Vanadis”), which was acquired for total consideration of $35.1 million in cash, and other acquisitions for aggregate consideration of $42.0 million in cash. At the time of closing, we had a potential obligation to pay the shareholders of Vanadis additional contingent consideration of up to $93.0 million, with an estimated fair value of $56.9 million. The excess of the purchase prices over the fair values of each of the acquired businesses' net assets represents cost and revenue synergies specific to us, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, of which $9.2 million is tax deductible. We have reported the operations for all of these acquisitions within the results of our Diagnostics and Discovery & Analytical Solutions segments from the acquisition dates.

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We do not consider the acquisitions completed during fiscal years 2017, 2016 and 2015, with the exception of the EUROIMMUN acquisition, to be material to our consolidated results of operations; therefore, we are only presenting pro forma financial information of operations for the EUROIMMUN acquisition. The aggregate revenue for the acquisitions, with the exception of EUROIMMUN, completed during fiscal year 2017 for the period from their acquisition dates to December 31, 2017 was $38.5 million and the results of operations were not material. The aggregate revenue and results of operations for the acquisitions completed during fiscal years 2016 and 2015 for the period from their respective acquisition dates to December 31, 2017 and January 1, 2017 were minimal. We have also determined that the presentation of the results of operations for each of those acquisitions, from the date of acquisition, is impracticable due to the integration of the operations upon acquisition.

As of December 31, 2017, the allocations of purchase prices for acquisitions completed in fiscal years 2016 and 2015 were final. The preliminary allocations of the purchase prices for acquisitions completed in fiscal year 2017 were based upon initial valuations. Our estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete our valuations within the measurement periods, which are up to one year from the respective acquisition dates. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, assets and liabilities related to income taxes and related valuation allowances, and residual goodwill. We expect to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. During the measurement periods, we will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have resulted in the recognition of those assets and liabilities as of those dates. With our adoption of Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments ("ASU No. 2015-16") during 2015, these adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. All changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings.

During fiscal year 2017, we obtained information relevant to determining the fair values of certain tangible and intangible assets acquired, and liabilities assumed, related to recent acquisitions and adjusted our purchase price allocations. Based on this information, for the Bioo acquisition, we recognized an increase in intangible assets of $2.2 million, a decrease in deferred tax liabilities of $0.5 million, a decrease in current assets of $0.1 million, and a decrease in goodwill of $2.6 million, and for the Tulip acquisition, we recognized an increase in property and equipment of $1.7 million, with a corresponding decrease in goodwill.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair values for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Contingent consideration is measured at fair value at the acquisition date, based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period, with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash. Increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds or product development milestones during the earnout period.

As of December 31, 2017, we may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to $83.0 million. As of December 31, 2017, we have recorded contingent consideration obligations of $65.3 million, of which $52.2 million was recorded in accrued expenses and other current liabilities, and $13.1 million was recorded in long-term liabilities. As of January 1, 2017, we have recorded contingent consideration obligations of $63.2 million, of which $15.4 million was recorded in accrued expenses and other current liabilities, and $47.8 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods does not exceed 1.75 years from the respective acquisition dates, and the remaining weighted average expected earnout period at December 31, 2017 was 11 months. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of definite-lived intangible assets or the recognition of additional contingent consideration which would be recognized as a component of operating expenses from continuing operations.

In connection with the purchase price allocations for acquisitions, we estimate the fair value of deferred revenue assumed with our acquisitions. The estimated fair value of deferred revenue is determined by the legal performance obligation at the date of acquisition, and is generally based on the nature of the activities to be performed and the related costs to be incurred after the acquisition date. The fair value of an assumed liability related to deferred revenue is estimated based on the current market cost of fulfilling the obligation, plus a normal profit margin thereon. The estimated costs to fulfill the deferred revenue are based on

38


the historical direct costs related to providing the services. We do not include any costs associated with selling effort, research and development, or the related fulfillment margins on these costs. In most acquisitions, profit associated with selling effort is excluded because the acquired businesses would have concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition. The sum of the costs and operating income approximates, in theory, the amount that we would be required to pay a third-party to assume the obligation.

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 $9.4 million and $9.9 million as of December 31, 2017 and January 1, 2017, respectively, in accrued expenses and other current liabilities, 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. Our environmental accrual is not discounted and does not reflect the recovery of any material amounts through insurance or indemnification arrangements. The cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had, or are expected to have, a material adverse effect on our consolidated financial statements. While it is possible that a loss exceeding the amounts recorded in the 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, Italy, Netherlands, Singapore, the United Kingdom 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 December 31, 2017 should not have a material adverse effect on our consolidated financial statements included in this annual report on Form 10-K. However, each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us.

Reporting Segment Results of Continuing Operations
Discovery & Analytical Solutions
2017 Compared to 2016. Revenue for fiscal year 2017 was $1,578.5 million, as compared to $1,513.0 million for fiscal year 2016, an increase of $65.5 million, or 4%, which includes an approximate 0.3% increase in revenue attributable to acquisitions and divestitures and 0.3% increase in revenue attributable to changes in foreign exchange rates. The analysis in the remainder of this paragraph compares selected revenue by product type for fiscal year 2017, as compared to fiscal year 2016, and includes the effect of foreign exchange fluctuations and acquisitions and divestitures. The increase in revenue in our Discovery & Analytical Solutions segment was a result of an increase of $48.1 million from our laboratory services market revenue and an increase of $21.1 million from our environmental, food and industrial markets revenue, partially offset by a decrease of $3.8 million from our life sciences research market revenue. In our laboratory services market, we continued to experience increased demand for our OneSource laboratory service business as our OneSource team continued to drive growth with an expansion of services to existing customers coupled with a number of significant new customers wins. In our environmental, food and industrial markets, we experienced higher growth in our food and inorganic product offerings as a result of increased government regulation of soil and water and increased focus on food safety laws and mandatory testing, particularly in emerging markets such as China, as well as in the Americas. In our life sciences market, we experienced a continued decline in sales of radioactive reagents in our radio-nucleotide business.


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Operating income from continuing operations for fiscal year 2017 was $206.7 million, as compared to $196.8 million for fiscal year 2016, an increase of $9.9 million, or 5%. Amortization of intangible assets decreased and was $50.7 million for fiscal year 2017 as compared to $53.3 million for fiscal year 2016. Restructuring and contract termination charges, net increased and were $10.4 million for fiscal year 2017 as compared to $4.7 million for fiscal year 2016. Acquisition and divestiture-related costs, contingent consideration and other costs added an incremental expense of $0.4 million for fiscal year 2017, as compared to $0.6 million for fiscal year 2016. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $0.4 million in fiscal year 2016. Legal costs for a particular case was $2.7 million for fiscal year 2017. In addition to the factors noted above, operating income increased for fiscal year 2017 as compared to fiscal year 2016, as we continued to see the benefits from our cost containment initiatives partially offset by higher costs in research and development expenses and a shift in product mix, with an increase in sales of lower gross margin product offerings.

2016 Compared to 2015. Revenue for fiscal year 2016 was $1,513.0 million, as compared to $1,528.4 million for fiscal year 2015, a decrease of $15.4 million, or 1%, which includes an approximate 1.0% decrease in revenue attributable to unfavorable changes in foreign exchange rates with minimal impact from acquisitions and divestitures. In addition, fiscal year 2016 consisted of 52 weeks as compared to fiscal year 2015 which consisted of 53 weeks. The analysis in the remainder of this paragraph compares selected revenue by product type for fiscal year 2016, as compared to fiscal year 2015, and includes the effect of foreign exchange fluctuations and acquisitions and divestitures. The decrease in revenue in our Discovery & Analytical Solutions segment was a result of a decrease in environmental, food and industrial revenue of $20.8 million and a decrease in life sciences market revenue of $0.6 million, which was partially offset by an increase in laboratory services market revenue of $6.0 million. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $27 thousand of revenue in our Discovery & Analytical Solutions segment for fiscal year 2015 that otherwise would have been recorded by the acquired businesses during each of the respective periods. In our environmental, food and industrial markets, revenue decreased due to weak harvest conditions. In our life sciences research market, we experienced decreases in revenue from our academic and government product offerings due to reduced government funding. In our laboratory services market, we had increased demand for our OneSource service offerings. Our OneSource laboratory service business offers services designed to enable our customers to increase efficiencies and production time while reducing maintenance costs, all of which continue to be critical for our customers.

Operating income from continuing operations for fiscal year 2016 was $196.8 million, as compared to $162.8 million for fiscal year 2015, an increase of $34.1 million, or 21%. Amortization of intangible assets decreased and was $53.3 million for fiscal year 2016 as compared to $54.6 million for fiscal year 2015. Restructuring and contract termination charges, net decreased and were $4.7 million for fiscal year 2016 as compared to $11.4 million for fiscal year 2015. Acquisition and divestiture-related costs, contingent consideration and other costs added an incremental expense of $0.6 million for fiscal year 2016, as compared to $0.4 million for fiscal year 2015. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $0.4 million in fiscal year 2016 as compared to $7.3 million in fiscal year 2015. In addition to the factors noted above, increased operating income for fiscal year 2016, was primarily due to favorable changes in product mix, with an increase in sales in higher gross margin product offerings, early benefits from our initiatives to improve our supply chain, and lower costs related to cost containment initiatives partially offset by increased costs related to investments in new product development and unfavorable impacts from foreign currency.

Diagnostics
2017 Compared to 2016. Revenue for fiscal year 2017 was $678.5 million, as compared to $602.5 million for fiscal year 2016, an increase of $76.0 million, or 13%, which includes an approximate 6% increase in revenue attributable to acquisitions and divestitures and 0.5% increase in revenue attributable to changes in foreign exchange rates. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.7 million of revenue primarily related to our Diagnostics segment for each of the fiscal years 2017 and 2016 that otherwise would have been recorded by the acquired businesses during each of the respective periods. In our diagnostics market, we experienced growth from continued expansion of our newborn and infectious disease screening solutions in key regions outside the United States, particularly in emerging markets such as China and India, and strong growth in applied genomics. EUROIMMUN and Tulip contributed $13.5 million and $38.5 million, respectively, in revenues during fiscal year 2017.

Operating income from continuing operations for fiscal year 2017 was flat as compared to fiscal year 2016. Amortization of intangible assets increased and was $23.0 million for fiscal year 2017 as compared to $18.1 million for fiscal year 2016. Restructuring and contract termination charges, net increased and were $2.2 million for fiscal year 2017 as compared to $0.4 million for fiscal year 2016. Acquisition and divestiture-related expenses, contingent consideration and other costs added an incremental expense of $29.4 million in fiscal year 2017, as compared to an incremental expense of $17.7 million for fiscal year 2016. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an

40


incremental expense of $6.2 million in fiscal year 2017. Excluding the impact of the above items, operating income increased during fiscal year 2017, as compared to fiscal year 2016, primarily due to strong reproductive health sales and benefits from our initiatives to improve our supply chain.

2016 Compared to 2015. Revenue for fiscal year 2016 was $602.5 million, as compared to $576.4 million for fiscal year 2015, an increase of $26.1 million or 5%, which includes an approximate 1% decrease in revenue attributable to changes in foreign exchange rates, and an approximate 2% decrease in revenue attributable to the impact of prior year acquisitions and divestitures. In addition, fiscal year 2016 consisted of 52 weeks as compared to fiscal year 2015 which consisted of 53 weeks. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.7 million of revenue for fiscal year 2016 and $0.8 million for fiscal year 2015 that otherwise would have been recorded by the acquired businesses during each of the respective periods. In our diagnostics market, we experienced growth from continued expansion of our newborn and infectious disease screening solutions in key regions outside the United States, particularly in emerging markets such as China, as well as in Europe. Birth rates in the United States continue to stabilize and demand for greater access to newborn screening in rural areas outside the United States is also increasing, as evidenced by prenatal trends we saw during fiscal year 2016.

Operating income from continuing operations for fiscal year 2016 was $149.6 million, as compared to $146.5 million for fiscal year 2015, an increase of $3.1 million, or 2%. Amortization of intangible assets decreased and was $18.1 million for fiscal year 2016 as compared to $22.0 million for fiscal year 2015. Restructuring and contract termination charges, net decreased and were $0.4 million for fiscal year 2016 as compared to $2.1 million for fiscal year 2015. Acquisition and divestiture-related expenses and other costs added an incremental expense of $17.7 million in fiscal year 2016, as compared to decreasing expenses by $1.1 million for fiscal year 2015. In addition to the factors noted above, increased operating income for fiscal year 2016, as compared to fiscal year 2015 was primarily due to pricing initiatives and lower costs as a result of cost containment initiatives and benefits from our initiatives to improve our supply chain, which were partially offset by increased costs related to investments in new product development.
.

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, 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.
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.

 

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