| |
| Goodwill and Intangible Assets, Net |
The Company tests goodwill and non-amortizing intangible assets at least annually for possible impairment. Accordingly, the Company completes the annual testing of impairment for goodwill and non-amortizing intangible assets on the later of January 1 or the first day of each fiscal year. In addition to its annual test, the Company regularly evaluates whether events or circumstances have occurred that may indicate a potential impairment of goodwill or non-amortizing intangible assets.
As discussed in Note 23, the Company realigned its organization at the beginning of fiscal year 2013, which resulted in a change in the composition of the Company's reporting units and reportable segments. The Company's Informatics business, as well as its field service on products previously sold by the Company's former Bio-discovery business, were moved from the Environmental Health segment into the Human Health segment. The results reported for fiscal year 2013 reflect this new alignment of the Company's operating segments. Financial information relating to fiscal years 2012 and 2011 has been retrospectively adjusted to reflect the changes to the operating segments. As a result of the realignment, the Company reallocated goodwill from the Environmental Health segment to the Human Health segment based on the relative fair value, determined using the income approach, of the businesses within the historical Environmental Health segment. The change resulted in $215.7 million of goodwill being allocated from the Environmental Health segment to the Human Health segment.
The process of testing goodwill for impairment involves the determination of the fair value of the applicable reporting units. The test consists of a two-step process. The first step is the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value. The second step measures the amount of an impairment loss, and is only performed if the carrying value exceeds the fair value of the reporting unit. The Company performed its annual impairment testing for its reporting units as of January 1, 2013, its annual impairment date for fiscal year 2013, which was based on the change in the reporting structure. The Company concluded based on the first step of the process that there was no goodwill impairment, and the fair value exceeded the carrying value by more than 30.0% for each reporting unit.
The Company has consistently employed the income approach to estimate the current fair value when testing for impairment of goodwill. A number of significant assumptions and estimates are involved in the application of the income approach to forecast operating cash flows, including markets and market share, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate and working capital changes. Cash flow forecasts are based on approved business unit operating plans for the early years’ cash flows and historical relationships in later years. The income approach is sensitive to changes in long-term terminal growth rates and the discount rates. The long-term terminal growth rates are consistent with the Company’s historical long-term terminal growth rates, as the current economic trends are not expected to affect the long-term terminal growth rates of the Company. The long-term terminal growth rates for the Company’s reporting units ranged from 4.5% to 6.0% for the fiscal year 2013 impairment analysis. The range for the discount rates for the reporting units was 10.5% to 12.0%. Keeping all other variables constant, a 10.0% change in any one of the input assumptions for the various reporting units would still allow the Company to conclude, based on the first step of the process, that there was no impairment of goodwill.
The Company has consistently employed the relief from royalty model to estimate the current fair value when testing for impairment of non-amortizing intangible assets. The impairment test consists of a comparison of the fair value of the non-amortizing intangible asset with its carrying amount. If the carrying amount of a non-amortizing intangible asset exceeds its fair value, an impairment loss in an amount equal to that excess is recognized. In addition, the Company currently evaluates the remaining useful life of its non-amortizing intangible assets at least annually to determine whether events or circumstances continue to support an indefinite useful life. If events or circumstances indicate that the useful lives of non-amortizing intangible assets are no longer indefinite, the assets will be tested for impairment. These intangible assets will then be amortized prospectively over their estimated remaining useful lives and accounted for in the same manner as other intangible assets that are subject to amortization. The Company performed its annual impairment testing as of January 1, 2013, and concluded that there was no impairment of non-amortizing intangible assets.
As part of integrating the Company's recent acquisitions, in the fourth quarter of fiscal year 2012, the Company decided that prospectively it would primarily focus on the PerkinElmer trade name. Accordingly, the Company undertook a review of certain of its trade names within its portfolio as part of a realignment of its marketing strategy. The process resulted in the Company determining that the lives of certain trade names that it intends to phase out should be shortened, and in certain cases non-amortizing trade names were determined to no longer be indefinite-lived. Accordingly, the Company tested the recoverability of these identified indefinite-lived and definite-lived intangibles and concluded that the fair values of certain trade name intangible assets were less than the carrying amounts of those assets. For non-amortizing trade names the Company compared the fair values, which was determined using a relief from royalty method, to the carrying values, considering the revised useful lives. For amortizing trade names, the Company first determined if the undiscounted cash flows associated with the intangibles exceeded the carrying values. If the undiscounted cash flows did not exceed the carrying values, the Company determined the fair values of the trade names using a relief from royalty method, considering the revised useful lives. As a result, the remaining adjusted fair values of $6.1 million for trade names are being amortized over the period of time until the trade names are expected to be phased out, having weighted average remaining useful lives of 3 years.
Additionally during fiscal year 2012, the Company recorded an intangible asset impairment charge of $74.2 million which was equal to the excess of the carrying amounts of the intangible assets over the fair value of such assets. The Company recognized $73.4 million pre-tax impairment charges in the Human Health segment and also recognized $0.7 million pre-tax impairment charges in the Environmental Health segment.
An assessment of the recoverability of amortizing intangible assets takes place when events have occurred that may give rise to an impairment. During fiscal year 2013, the Company recorded a charge of $6.7 million for the impairment of certain long-lived assets within the Human Health segment, as the carrying amounts of the long-lived assets were not recoverable and exceeded their fair value. The Company recorded a charge of $3.0 million for the impairment of intangible assets during fiscal year 2011 within the Human Health segment for the full impairment of license agreements that the Company no longer intends to use. These non-cash impairments of long-lived assets, including intangible assets, have been recorded as a separate component of operating expenses.
The changes in the carrying amount of goodwill for fiscal years 2013 and 2012 are as follows (the January 1, 2012 and December 30, 2012 balances have been retrospectively adjusted to reflect the realignment of the Company, see Note 23):
|
| | | | | | | | | | | |
| Human Health | | Environmental Health | | Consolidated |
| (In thousands) |
Adjusted balance at January 1, 2012 | $ | 1,606,913 |
| | $ | 487,322 |
| | $ | 2,094,235 |
|
Foreign currency translation | 5,892 |
| | 2,979 |
| | 8,871 |
|
Acquisitions, earnouts and other | 19,682 |
| | — |
| | 19,682 |
|
Adjusted balance at December 30, 2012 | 1,632,487 |
| | 490,301 |
| | 2,122,788 |
|
Foreign currency translation | 12,867 |
| | 2,300 |
| | 15,167 |
|
Acquisitions, earnouts and other | 2,978 |
| | 2,187 |
| | 5,165 |
|
Balance at December 29, 2013 | $ | 1,648,332 |
| | $ | 494,788 |
| | $ | 2,143,120 |
|
Identifiable intangible asset balances at December 29, 2013 by category and by business segment were as follows:
|
| | | | | | | | | | | |
| Human Health | | Environmental Health | | Consolidated |
| (In thousands) |
Patents | $ | 36,791 |
| | $ | 2,800 |
| | $ | 39,591 |
|
Less: Accumulated amortization | (22,205 | ) | | (2,002 | ) | | (24,207 | ) |
Net patents | 14,586 |
| | 798 |
| | 15,384 |
|
Trade names and trademarks | 35,972 |
| | 86 |
| | 36,058 |
|
Less: Accumulated amortization | (16,371 | ) | | (86 | ) | | (16,457 | ) |
Net trade names and trademarks | 19,601 |
| | — |
| | 19,601 |
|
Licenses | 71,580 |
| | 7,600 |
| | 79,180 |
|
Less: Accumulated amortization | (45,835 | ) | | (7,095 | ) | | (52,930 | ) |
Net licenses | 25,745 |
| | 505 |
| | 26,250 |
|
Core technology | 187,387 |
| | 114,683 |
| | 302,070 |
|
Less: Accumulated amortization | (88,811 | ) | | (80,515 | ) | | (169,326 | ) |
Net core technology | 98,576 |
| | 34,168 |
| | 132,744 |
|
Customer relationships | 305,038 |
| | 16,357 |
| | 321,395 |
|
Less: Accumulated amortization | (127,397 | ) | | (5,436 | ) | | (132,833 | ) |
Net customer relationships | 177,641 |
| | 10,921 |
| | 188,562 |
|
IPR&D | 4,257 |
| | 5,226 |
| | 9,483 |
|
Less: Accumulated amortization | (695 | ) | | (1,483 | ) | | (2,178 | ) |
Net IPR&D | 3,562 |
| | 3,743 |
| | 7,305 |
|
Net amortizable intangible assets | 339,711 |
| | 50,135 |
| | 389,846 |
|
Non-amortizable intangible assets: | | | | | |
Trade names and trademarks | — |
| | 70,584 |
| | 70,584 |
|
Total | $ | 339,711 |
| | $ | 120,719 |
| | $ | 460,430 |
|
Identifiable intangible asset balances at December 30, 2012 by category and business segment were as follows:
|
| | | | | | | | | | | |
| Human Health | | Environmental Health | | Consolidated |
| (As adjusted) | | |
| (In thousands) |
Patents | $ | 91,948 |
| | $ | 16,021 |
| | $ | 107,969 |
|
Less: Accumulated amortization | (74,831 | ) | | (15,123 | ) | | (89,954 | ) |
Net patents | 17,117 |
| | 898 |
| | 18,015 |
|
Trade names and trademarks | 37,511 |
| | 183 |
| | 37,694 |
|
Less: Accumulated amortization | (13,707 | ) | | (179 | ) | | (13,886 | ) |
Net trade names and trademarks | 23,804 |
| | 4 |
| | 23,808 |
|
Licenses | 72,674 |
| | 7,933 |
| | 80,607 |
|
Less: Accumulated amortization | (41,493 | ) | | (5,875 | ) | | (47,368 | ) |
Net licenses | 31,181 |
| | 2,058 |
| | 33,239 |
|
Core technology | 268,902 |
| | 138,643 |
| | 407,545 |
|
Less: Accumulated amortization | (146,662 | ) | | (101,848 | ) | | (248,510 | ) |
Net core technology | 122,240 |
| | 36,795 |
| | 159,035 |
|
Customer relationships | 321,732 |
| | 5,905 |
| | 327,637 |
|
Less: Accumulated amortization | (105,764 | ) | | (2,620 | ) | | (108,384 | ) |
Net customer relationships | 215,968 |
| | 3,285 |
| | 219,253 |
|
IPR&D | 4,163 |
| | 3,300 |
| | 7,463 |
|
Less: Accumulated amortization | (376 | ) | | (1,120 | ) | | (1,496 | ) |
Net IPR&D | 3,787 |
| | 2,180 |
| | 5,967 |
|
Net amortizable intangible assets | 414,097 |
| | 45,220 |
| | 459,317 |
|
Non-amortizable intangible assets: | | | | | |
Trade names and trademarks | — |
| | 70,584 |
| | 70,584 |
|
Total | $ | 414,097 |
| | $ | 115,804 |
| | $ | 529,901 |
|
Total amortization expense related to definite-lived intangible assets was $90.4 million in fiscal year 2013, $91.2 million in fiscal year 2012 and $80.0 million in fiscal year 2011. Estimated amortization expense related to definite-lived intangible assets for each of the next five years is $83.2 million in fiscal year 2014, $69.2 million in fiscal year 2015, $60.2 million in fiscal year 2016, $50.7 million in fiscal year 2017, and $39.1 million in fiscal year 2018.
The Company entered into a strategic agreement in fiscal year 2012 under which it acquired certain intangible assets and received a license to certain core technology for an analytics and data discovery platform, as well as the exclusive right to distribute the platform in certain scientific research and development markets. During fiscal year 2012, the Company paid $6.8 million for net intangible assets and $25.0 million for prepaid royalties. During fiscal year 2013, the Company extended the existing agreement for an additional year. In addition, the Company entered into a new agreement to expand the distribution rights to the clinical and other related markets and acquired additional intangible assets. During fiscal year 2013, the Company paid $7.0 million for net intangible assets and $40.3 million for prepaid royalties. The prepaid royalties have been recorded primarily as other long-term assets. The Company does not expect to pay any additional prepaid royalties within the next twelve months. The Company expenses royalties as revenue is recognized. These intangible assets are being amortized over their estimated useful lives. The Company has reported the amortization of these intangible assets within the results of the Company's Human Health segment from the execution date.
