REVVITY, INC. 10-K

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 January 1, 2023 (“fiscal year 2022”) and January 2, 2022 (“fiscal year 2021”) included 52 weeks. The fiscal year ended January 3, 2021 (“fiscal year 2020”) included 53 weeks. The fiscal year ending December 31, 2023 (“fiscal year 2023”) will include 52 weeks. Overview of Fiscal Year 2022 During fiscal year 2022, we continued to see strong returns from our acquisitions as well as our organic investments across technology, marketing and people. Our overall revenue in fiscal year 2022 decreased by $516.0 million, or 13%, as compared to fiscal year 2021, reflecting a decrease of $913.0 million, or 31%, in our Diagnostics segment revenue, partially offset by an increase of $395.2 million, or 44%, in our Discovery & Analytical Solutions segment revenue. Revenue from our 2021 acquisitions contributed $366.9 million to our overall revenue during fiscal year 2022. The decrease in our Diagnostics segment revenue during fiscal year 2022 was primarily driven by decreased demand for our COVID-19 product offerings, partially offset by an increase in our core product offerings resulting in a decrease of $689.0 million in our immunodiagnostics revenue and a decrease of $225.8 million in our applied genomics revenue. Revenue from our 2021 acquisitions contributed $58.1 million to our Diagnostics segment revenue during fiscal year 2022 . The increase in our Discovery & Analytical Solutions segment revenue during fiscal year 2022 was driven by an increase of $395.2 million in our life sciences market revenue. Revenu e from our 2021 acquisitions contributed $308.7 million to the increase in our Discovery & Analytical Solutions segment revenue during fiscal year 2022. In our Diagnostics segment, we experienced a global decline in demand for our COVID-19 product offerings due to the cancellation of our service contracts for the State of California and the United Kingdom, and lower COVID-19 testing volumes compared to fiscal year 2021. We saw strong growth in our core immunodiagnostics business in the Americas and Europe, partially offset by the impact of extensive shutdowns in China. In our reproductive health business, an expanded range of product offerings and increased geographic reach more than offset the impact of declining birthrates. In our Discovery & Analytical Solutions segment, the increase in our life sciences market revenue was the result of an increase in revenue in our pharmaceutical and biotechnology markets across all regions. Instruments, reagents and software experienced strong growth and we saw a positive impact from pricing actions we took in early 2022. Our consolidated gross margins decreased 350 basis points in fiscal year 2022, as compared to fiscal year 2021, primarily due to increased amortization of acquired intangible assets and lower revenue from our COVID-19 product offerings, partially offset by a favorable shift in product mix and service productivity. Our consolidated operating margin decreased 1,045 basis points in fiscal year 2022, as compared to fiscal year 2021, primarily due to lower revenue from our COVID-19 product offerings, increased costs related to amortization of acquired intangible assets, and investments in new product development and growth initiatives. During fiscal year 2022, supply chain disruptions and inflation did not materially impact our results of operations as compared to fiscal year 2021 as the effects of our initiatives to reduce transportation costs more than offset the impact of inflation on our raw materials purchases. During fiscal year 2022, supply chain disruptions and inflation increased our cost of goods sold by less than $10.0 million as compared to fiscal year 2021. Overall, we believe that our strategic priorities and recent portfolio transformations, coupled with our expanded range of product offerings, leading market positions, global scale and financial strength provides us with a foundation for continued revenue growth, strong margins and cash flows, and long-term earnings per share growth. 31 Table of Contents Consolidated Results of Operations Fiscal Year 2022 Compared to Fiscal Year 2021 Revenue Revenue for fiscal year 2022 was $3.3 billion, as compared to $3.8 billion for fiscal year 2021, a decrease of $0.5 billion, or 13%, w hich includes an approximate 4% decrease in revenue attributable to unfavorable changes in foreign exchange rates, partially offset by an approximate 9% increase in revenue attributable to acquisitions . Revenue from our 2021 acquisitions contributed $366.9 million to our overall revenue during fiscal year 2022. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2022 as compared to fiscal year 2021 and includes the effect of foreign exchange rate fluctuations, and acquisitions and divestitures. The decrease in total revenue reflects a decrease in our Diagnostics segment revenue of $913.0 million, or 31%, due to decreased demand for our COVID-19 product offerings, partially offset by an increase in our core product offerings resulting in a decrease of $689.0 million in our immunodiagnostics revenue and a decrease of $225.8 million in our applied genomics revenue. Our Discovery & Analytical Solutions segment revenue increased by $395.2 million, or 44%, due to increase in revenue in our life sciences market, particularly in the pharmaceutical and biotechnology markets. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $0.8 million and $2.6 million of revenue for fiscal years 2022 and 2021, respectively, that otherwise would have been recorded by the acquired businesses during each of the respective periods. Cost of Revenue Cost of revenue for fiscal year 2022 was $1.3 billion, as compared to $1.4 billion for fiscal year 2021, a decrease of approximately $71.8 million, or 5%. As a percentage of revenue, cost of revenue increased to 40% in fiscal year 2022 from 36% in fiscal year 2021, resulting in a decrease in gross margin of approximately 350 basis points to 60% in fiscal year 2022 from 64% in fiscal year 2021. Amortization of intangible assets increased to $141.6 million for fiscal year 2022, as compared to $100.7 million for fiscal year 2021. Amortization of intangible assets from our 2021 acquisitions amounted to $88.5 million for fiscal year 2022. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $45.3 million for fiscal year 2022, as compared to $35.2 million for fiscal year 2021. Other purchase accounting adjustments added an incremental expense of $6.2 million for fiscal year 2022, of which $5.6 million was acquisition-related stock compensation and $0.6 million was increased depreciation on property, plant and equipme nt. The overall decrease in gross margin was partially offset by a favorable shift in product mix, pricing actions and service productivity. Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal year 2022 were $1,025.5 million, as compared to $975.2 million for fiscal year 2021, an increase of approximately $50.3 million, or 5%. As a percentage of revenue, selling, general and administrative expenses increased to 31% in fiscal year 2022 from 25% in fiscal year 2021. Amortization of intangible assets increased to $229.1 million for fiscal year 2022, as compared to $155.9 million for fiscal year 2021. Amortization of intangible assets from our 2021 acquisitions amounted to $135.3 million for fiscal year 2022. Acquisition and divestiture-related expenses added an incremental expense of $28.9 million for fiscal year 2022, of which $15.6 million was acquisition-related stock compensation, as compared to acquisition and divestiture-related expenses increasing expenses by $59.7 million for fiscal year 2021, of which $3.9 million was acquisition-related stock compensation. Purchase accounting adjustments decreased expenses by $1.2 million for fiscal year 2022, resulting from a $1.4 million change in contingent consideration, partially offset by $0.2 million in increased depreciation on property, plant and equipment, as compared to purchase accounting adjustments increasing expenses by $2.9 million for fiscal year 2021, which was attributable to change in contingent consideration. Asset impairment costs added an incremental expense of $3.9 million for fiscal year 2021. Legal costs for significant litigation matters and settlements, net of reversals, decreased expenses by $0.6 million for fiscal year 2022. In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to investments in people, digital capabilities, innovation, and recent acquisitions. Research and Development Expenses Research and development expenses for fiscal year 2022 were $221.6 million, as compared to $200.3 million for fiscal year 2021, an increase of $21.3 million, or 11%. As a percentage of revenue, research and development expenses increased to 7% in fiscal year 2022 from 5% in fiscal year 2021. Stock compensation related to our acquisitions added an incremental expense of $5.4 million in fiscal year 2022, as compared to $1.4 million for fiscal year 2021. Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of $0.2 million in fiscal year 2022, as compared to $0.1 million for fiscal year 2021. Excluding the factors above, the net increase in research and development 32 Table of Contents expenses was due to timing of investments in new non-COVID-19 product development, partially offset by a decrease in COVID-19 related research and development expenses. Interest and Other Expense, Net Interest and other expense, net, consisted of the following for the fiscal years ended: January 1, 2023 January 2, 2022 (in thousands) Interest income $ (3,589) $ (2,241) Interest expense including costs of bridge financing 103,955 102,128 Change in fair value of financial securities 15,754 (10,985) Other components of net periodic pension credit (33,158) (37,385) Other expense, net 7,900 3,358 Total interest and other expense, net $ 90,862 $ 54,875 The increase of $36.0 million in interest and other expense, net, in fiscal year 2022 as compared to fiscal year 2021 was largely due to a change in fair value of financial securities of $15.8 million in fiscal year 2022 as compared to $(11.0) million in fiscal year 2021, an increase of $1.8 million in interest expense and $4.5 million in other expense, net in fiscal year 2022 and a lower net pension credit of $33.2 million in fiscal year 2022 as compared to $37.4 million in fiscal year 2021. A more complete discussion of our liquidity is set forth below under the heading “Liquidity and Capital Resources.” Provision for Income Taxes The effective tax rates on continuing operations were 21.3% and 26.1% for fiscal years 2022 and 2021, 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 statutory 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: January 1, 2023 January 2, 2022 (In thousands) Tax at statutory rate $ 136,886 $ 252,752 Non-U.S. rate differential, net (5,221) (33,847) U.S. taxation of multinational operations 22,102 7,964 State income taxes, net 7,820 36,832 Prior year tax matters (10,160) 1,850 Effect of stock compensation 845 (2,187) General business tax credits (7,132) (2,715) Change in valuation allowance 4,964 (179) Rate change on long term intangibles — 14,031 Effect of foreign repatriations (4,940) 37,147 Other, net (6,003) 2,498 Total $ 139,161 $ 314,146 The variation in our effective tax rate for fiscal year 2022 is primarily affected by the accrual of $20.5 million related to a change in tax status of a certain foreign subsidiary. During fiscal year 2021, we also recognized $37.1 million in U.S. federal, U.S. state and non-U.S. taxes related to foreign earnings that we no longer considered indefinitely reinvested. During fiscal year 2022, we adjusted these estimates and recognized a net benefit of $4.9 million relative to our position to permanently reinvest those foreign earnings. We also recognized $1.1 million of benefit in fiscal year 2022 derived from the tax holiday in Singapore. We recognized $18.2 million in fiscal year 2021 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 2022 was $0.01 and $0.01, respectively, and for fiscal year 2021 was $0.16 and $0.16, respectively. The tax holiday in China is renewed every three years. We expect to renew the tax holiday for one of our subsidiaries in China that is set to expire in fiscal year 2023. 33 Table of Contents Fiscal Year 2021 Compared to Fiscal Year 2020 Revenue Revenue for fiscal year 2021 was $3.8 billion, as compared to $2.7 billion for fiscal year 2020, an increase of $1.2 billion, or 44%, w hich includes an approximate 11% increase in revenue attributable to acquisitions, and a 1% increase in revenue attributable to favorable changes in foreign exchange rates. The analysis in the remainder of this paragraph compares segment revenue for fiscal year 2021 as compared to fiscal year 2020 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 $865.0 million, or 42%, due to increased demand for our COVID-19 product offerings resulting in an increase of $748.0 million in our immunodiagnostics revenue. Our Diagnostics segment revenue also increase d during fiscal year 2021 due to growth in our core product offerings resulting in an increase of $58.0 million in our reproductive health revenue and an increase of $59.0 million in our applied genomics revenue. Our Discovery & Analytical Solutions segment revenue increased by $301.1 million , or 50%, due to an increase in revenue in our life sciences market, particularly in the pharmaceutical and biotechnology markets. As a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules, we did not recognize $2.6 million and $1.1 million of revenue for fiscal years 2021 and 2020, respectively, that otherwise would have been recorded by the acquired businesses during each of the respective periods. Cost of Revenue Cost of revenue for fiscal year 2021 was $1.4 billion, as compared to $933.1 million for fiscal year 2020, an increase of approximately $460.8 million, or 49%. As a percentage of revenue, cost of revenue increased to 36% in fiscal year 2021 from 35% in fiscal year 2020, resulting in a decrease in gross margin of approximately 138 basis points to 64% in fiscal year 2021 from 65% in fiscal year 2020. Amortization of intangible assets increased and was $100.7 million for fiscal year 2021, as compared to $51.4 million for fiscal year 2020. Amortization of intangible assets from our 2021 acquisitions amounted to $34.0 million for fiscal year 2021. The amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $35.2 million for fiscal year 2021, as compared to $1.8 million for fiscal year 2020. Other purchase accounting adjustments added an incremental expense of $1.8 million in fiscal year 2021, of which $1.6 million was acquisition-related stock compensation and $0.2 million was increased depreciation on property, plant and equipment. Asset impairment was $7.9 million for fiscal year 2020. The overall decrease in gross margin was partially offset by a favorable shift in product mix and service productivity. Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal year 2021 were $975.2 million, as compared to $716.5 million for fiscal year 2020, an increase of approximately $258.7 million, or 36%. As a percentage of revenue, selling, general and administrative expenses decreased to 25% in fiscal year 2021 from 27% in fiscal year 2020. Amortization of intangible assets increased to $155.9 million for fiscal year 2021, as compared to $109.6 million for fiscal year 2020. Amortization of intangible assets from our 2021 acquisitions amounted to $37.2 million for fiscal year 2021. Acquisition and divestiture-related expenses added an incremental expense of $59.7 million for fiscal year 2021, of which $3.9 million was acquisition-related stock compensation, as compared to acquisition and divestiture-related expenses increasing expenses by $4.3 million for fiscal year 2020. Purchase accounting adjustments added an incremental expense of $2.9 million for fiscal year 2021, of which $2.8 million was change in contingent consideration and $0.1 million was increased depreciation on property, plant and equipment, as compared to purchase accounting adjustments increasing expenses by $3.5 million for fiscal year 2020, which was attributable to change in contingent consideration. Asset impairment costs added an incremental expense of $3.9 million for fiscal year 2021. Legal costs for significant litigation matters and settlements were $5.9 million for fiscal year 2020. Costs for significant environmental matters were $5.2 million for fiscal year 2020. In addition to the above items, the increase in selling, general and administrative expenses was primarily the result of costs related to investments in people, digital capabilities and innovation, and recent acquisitions amplified by pandemic-related cost controls and disruptions in the prior year. Research and Development Expenses Research and development expenses for fiscal year 2021 were $200.3 million, as compared to $146.4 million for fiscal year 2020, an increase of $53.9 million, or 36.8%. Research and development expenses from our 2021 acquisitions were $24.0 million. As a percentage of revenue, research and development expenses decreased and were 5.2% for fiscal year 2021, as compared to 5.5% for fiscal year 2020. Stock compensation related to our acquisitions added an incremental expense of $1.4 million in fiscal year 2021. Purchase accounting adjustments for depreciation on property, plant and equipment added an incremental expense of $0.1 million in fiscal year 2021. The increase in research and development expenses was driven by our investments in new product development. 34 Table of Contents Interest and Other Expense, Net Interest and other expense, net, consisted of the following for the fiscal years ended: January 2, 2022 January 3, 2021 (in thousands) Interest income $ (2,241) $ (1,010) Interest expense including costs of bridge financing 102,128 49,712 Change in fair value of financial securities (10,985) (35) Other components of net periodic pension (credit) cost (37,385) 13,819 Other expense, net 3,358 4,715 Total interest and other expense, net $ 54,875 $ 67,201 The decrease of $12.3 million in interest and other expense, net, in fiscal year 2021 as compared to fiscal year 2020 was largely due to a net pension credit of $37.4 million in fiscal year 2021 as compared to a net pension cost of $13.8 million in fiscal year 2020, a decrease in other expense, net of $1.4 million and a change in fair value of financial securities of $11.0 million, partially offset by an increase of $52.4 million in interest expense in fiscal year 2021. The increase of $52.4 million in interest expense in fiscal year 2021 was the result of $23.4 million of costs of bridge financing and debt pre-issuance hedges that were recognized in fiscal year 2021 and interest expense from new debt in fiscal year 2021. A more complete discussion of our liquidity is set forth below under the heading “Liquidity and Capital Resources.” Provision for Income Taxes The effective tax rates on continuing operations were 26.1% and 21.2% for fiscal years 2021 and 2020, 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 statutory 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: January 2, 2022 January 3, 2021 (In thousands) Tax at statutory rate $ 252,752 $ 168,015 Non-U.S. rate differential, net (33,847) (29,155) U.S. taxation of multinational operations 7,964 11,468 State income taxes, net 36,832 13,249 Prior year tax matters 1,850 5,532 Effect of stock compensation (2,187) (8,148) General business tax credits (2,715) (2,145) Change in valuation allowance (179) (369) Rate change on long term intangibles 14,031 — Effect of foreign operations 37,147 — Foreign consolidations — 15,222 Other, net 2,498 (4,157) Total $ 314,146 $ 169,512 The variation in our effective tax rate for fiscal year 2021 is primarily affected by the recognition of $37.1 million in U.S. federal, U.S. state and non-U.S. taxes related to foreign earnings that we no longer considered indefinitely reinvested. We also recognized $18.2 million in fiscal year 2021 and $12.7 million in fiscal year 2020 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 2021 was $0.16 and $0.16, respectively, and for fiscal year 2020 was $0.11 and $0.11, respectively. 35 Table of Contents Business Combinations Acquisitions in fiscal year 2022 During fiscal year 2022, we completed the acquisition of two businesses for aggregate consideration of $13.3 million. Identifiable definite-lived intangible assets, such as core technology, acquired as part of these acquisitions had a weighted average amortization period of 5 years. Acquisitions in fiscal year 2021 Acquisition of BioLegend, Inc. In fiscal year 2021, we completed the acquisition of BioLegend, Inc. ( “ BioLegend ” ) for an aggregate consideration of $5.7 billion. BioLegend’s revenue and net loss for the period from the acquisition date to January 2, 2022 were $91.7 million and $25.8 million, respectively. Other acquisitions in 2021. During fiscal year 2021, we also completed the acquisition of seven other businesses for aggregate consideration of $1.2 billion. The acquired businesses include Oxford Immunotec Global PLC for a total consideration of $590.9 million and Nexcelom Bioscience Holdings, LLC for a total consideration of $267.3 million, and five other businesses, which were acquired for a total consideration of $318.6 million. See Note 3, Business Combinations, in the Notes to Consolidated Financial Statements for a detailed discussion of our acquisitions. Reporting Segment Results of Continuing Operations Discovery & Analytical Solutions Fiscal Year 2022 Compared to Fiscal Year 2021 Revenue for fiscal year 2022 was $1,292.9 million, as compared to $897.7 million for fiscal year 2021, an increase of $395.2 million, or 44%, which includes an approximate 32% increase in revenue attributable to acquisitions and a 4% decrease in revenue attributable to unfavorable changes in foreign exchange rates. Revenue from our 2021 acquisitions contributed $308.7 million to the Discovery & Analytical Solutions segment revenue during fiscal year 2022. The increase in revenue in our Discovery & Analytical Solutions segment was a result of an increase in revenue in our life sciences market, particularly in the pharmaceutical and biotechnology markets. Segment operating income for fiscal year 2022 was $503.2 million, as compared to $281.6 million for fiscal year 2021, an increase of $221.6 million, or 79%. Segment operating margin increased 750 basis points in fiscal year 2022, as compared to fiscal year 2021, primarily due to pricing actions, product mix and higher sales volume. Fiscal Year 2021 Compared to Fiscal Year 2020 Revenue for fiscal year 2021 was $897.7 million, as compared to $596.6 million for fiscal year 2020, an increase of $301.1 million, or 50%, which includes an approximate 33% increase in revenue attributable to acquisitions and a 1% increase in revenue attributable to favorable changes in foreign exchange rates. The increase in revenue in our Discovery & Analytical Solutions segment was a result of an increase in revenue in our life sciences market, particularly in the pharmaceutical and biotechnology markets. Segment operating income for fiscal year 2021 was $281.6 million, as compared to $129.2 million for fiscal year 2020, an increase of $152.4 million, or 118%. Segment operating margin increased 970 basis points in fiscal year 2021, as compared to fiscal year 2020, primarily due to higher sales volume, partially offset by investments in new product development and growth initiatives. 36 Table of Contents Diagnostics Fiscal Year 2022 Compared to Fiscal Year 2021 Revenue for fiscal year 2022 was $2,019.7 million, as compared to $2,932.7 million for fiscal year 2021, a decrease of $913.0 million, or 31%, which includes an appro ximate 2% increase in revenue attributable to acquisitions and a 4% decrease in revenue attributable to unfavorable changes in foreign exchange rates. Revenue from our 2021 acquisitions contribute d $58.1 million to our Dia gnostics segment revenue during fiscal year 2022. The decrease in our Diagnostics segment revenue during fiscal year 2022 was primarily driven by decreased demand for our COVID-19 product offerings, partially offset by an increase in our core product offerings resulting in a decrease of $689.0 million in our immunodiagnostics revenue, a decrease of $225.8 million in our applied genomics revenue, and an increase of $1.7 million in our reproductive health revenue. Segment operating income from continuing operations for fiscal year 2022 was $782.0 million, as compared to $1,432.8 million for fiscal year 2021, a decrease of $650.8 million, or 45%. Segment operating margin decreased 1,020 basis points in fiscal year 2022, as compared to fiscal year 2021, primarily due to lower sales volume and product mix, partially offset by cost controls. Fiscal Year 2021 Compared to Fiscal Year 2020 Revenue for fiscal year 2021 was $2,932.7 million , as compared to $2,067.7 million for fiscal year 2020, an increase of $865.0 million, or 42%, which includes an approximate 5% increase in revenue attributable to acquisitions and a 2% increase in revenue attributable to favorable changes in foreign exchange rates. The increase in our Diagnostics segment revenue during fiscal year 2021 was primarily driven by increased demand for our COVID-19 product offerings resulting in an increase of $748.0 million in our immunodiagnostics revenue. Our Diagnostics segment revenue also increased during fiscal year 2021 due to growth in our core product offerings resulting in an increase of $58.0 million in our reproductive health revenue and an increase of $59.0 million in our applied genomics revenue. Segment operating income for fiscal year 2021 was $1,432.8 million, as compared to $1,010.4 million for fiscal year 2020, an increase of $422.4 million, or 42%. Segment operating margin was flat in fiscal year 2021, as compared to fiscal year 2020, primarily due to higher sales volume and favorable product mix, offset by increased investments in new product development and growth initiatives. Discontinued Operations In August 2022, we entered into a Master Purchase and Sale Agreement (the “Purchase Agreement”) with Polaris Purchaser, L.P. (the “Purchaser”), a Delaware limited partnership owned by funds managed by affiliates of New Mountain Capital L.L.C. (the “Sponsor”), under which we agreed to sell to the Purchaser certain assets and the equity interests of certain entities constituting our Analytical, Food and Enterprise Services businesses (the “Business”) (as further defined in the Purchase Agreement), for cash consideration of up to approximately $2.45 billion and the Purchaser’s assumption of certain liabilities relating to the Business (collectively, the “Transaction”). Approximately $2.30 billion of the purchase price will be payable at closing, subject to certain customary adjustments, which includes $75.0 million in deferred payments tied to the transfer of the PerkinElmer brand and related trademarks to the Purchaser (which may be completed within 24 months following the date of the closing at our election). The Purchase Agreement also provides for potential post-closing payments totaling up to $150.0 million, which are contingent on the exit valuation the Sponsor and its affiliated funds receive on a sale or other capital events related to the Business. The Transaction is expected to close in the first quarter of fiscal year 2023, subject to regulatory approvals and other customary closing conditions. The Business had been recorded in the Discovery & Analytical Solutions segment. The sale of the Business represents a strategic shift that will have a major effect on our operations and financial statements. Accordingly, we have classified the assets and liabilities related to the Business as assets and liabilities of discontinued operations in our consolidated balance sheets and its results of operations are classified as income from discontinued operations in our consolidated statements of operations. Financial information in this report relating to the fiscal years ended January 2, 2022 and January 3, 2021 has been retrospectively adjusted to reflect this discontinued operation. The summary pre-tax operating results of the discontinued operations, were as follows: 37 Table of Contents January 1, 2023 January 2, 2022 January 3, 2021 (In thousands) Revenue $ 1,298,376 $ 1,239,361 $ 1,119,515 Cost of revenue 859,330 822,048 739,817 Selling, general and administrative expenses 306,032 268,760 209,442 Research and development expenses 64,605 74,632 58,948 Operating income 68,409 73,921 111,308 Other expense (income), net (5,195) (2,383) 5,016 Income from discontinued operations before income taxes $ 73,604 $ 76,304 $ 106,292 During fiscal year 2022, we recognized $69.4 million of divestiture-related costs in selling, general and administrative expenses in discontinued operations, as compared to $7.5 million during fiscal year 2021, an increase of $61.9 million. The increase in selling, general and administrative expenses was partially offset by decreased amortization expense and acquisition-related costs. During fiscal year 2022, we recognized $8.2 million of amortization expense in selling, general and administrative expenses in discontinued operations, as compared to $19.3 million during fiscal year 2021, a decrease of $11.1 million, as we suspended the amortization of the intangible assets related to the Business during fiscal year 2022 when it was reclassified into discontinued operations. During fiscal year 2022, we recognized $6.4 million of incentive award associated with one of the Company’s acquisitions in discontinued operations, as compared to $14.3 million during fiscal year 2021, a decrease of $7.8 million. During fiscal year 2021, divestiture-related costs in selling, general and administrative expenses in discontinued operations increased by $7.5 million as compared to fiscal year 2020. In addition, payroll and employee benefits and acquisition-related costs pertaining to an incentive award associated with one of the Company’s acquisitions increased by $20.4 million and $9.6 million, respectively, as compared to fiscal year 2020. 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 cash flows from our operations, borrowing capacity available under our senior unsecured credit facility and access to 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. The proposed sale of the Business classified as discontinued operations is expected to close in the first quarter of fiscal year 2023, which we expect will generate approximately $2.2 billion of proceeds to us. We expect to use these proceeds for funding upcoming debt maturities, opportunistic share repurchases and continued strategic and value-creating acquisitions. We and our subsidiaries and affiliates may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt securities (including any publicly issued debt securities), in privately negotiated or open market transactions, by tender offer or otherwise, or extend or refinance any of our outstanding indebtedness. Principal factors that could affect the availability of our internally generated funds include: • changes in sales due to weakness in markets in which we sell our products and services, and • changes in our working capital requirements. 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, 38 Table of Contents • 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. Cash Flows Fiscal Year 2022 Compared to Fiscal Year 2021 Operating Activities. Net cash provided by continuing operations was $672.5 million for fiscal year 2022, as compared to $1,330.2 million for fiscal year 2021, a decrease of $657.7 million. The cash provided by operating activities for fiscal year 2022 was principally a result of income from continuing operations of $512.7 million, adjustments for non-cash charges aggregating to $422.8 million, including depreciation and amortization of $427.0 million, and a net cash decrease in working capital of $263.0 million. During fiscal year 2022, we contributed $6.6 million, in the aggregate, to pension plans outside of the United States. Investing Activities. Net cash used in the investing activities of our continuing operations was $116.9 million for fiscal year 2022, as compared to $4,089.8 million for fiscal year 2021, a decrease of $3,972.9 million. For fiscal year 2022, we used $7.5 million of net cash for acquisitions, as compared to $3,982.2 million used in fiscal year 2021. Capital expenditures for fiscal year 2022 were $85.6 million, primarily for manufacturing equipment and other capital equipment purchases, as compared to $86.0 million for fiscal year 2021. During fiscal year 2022, we purchased investments amounting to $47.2 million as compared to $23.1 million in fiscal year 2021. These items were partially offset by $14.5 million in proceeds from disposition of businesses and assets in fiscal year 2022, as compared to $1.5 million in fiscal year 2021. In addition, proceeds from notes receivable were $8.9 million in fiscal year 2022 . Proceeds from surrender of life insurance policies were $0.1 million in fiscal year 2021. Financing Activities. Net cash used in the financing activities of our continuing operations was $661.8 million for fiscal year 2022, as compared to net cash provided by the financing activities of our continuing operations of $2,941.7 million for fiscal year 2021, an increase of $3,603.5 million in net cash used in financing activities. The cash used in financing activities during fiscal year 2022 was primarily a result of payments of borrowings, repurchases of our common stock, payments of dividends and settlement of cash flow hedges. During fiscal year 2022, we made net payments on our borrowings of $559.2 million, as compared to net proceeds from borrowin gs of $3,043.0 million duri ng fiscal year 2021. The changes reflect financing transactions in fiscal year 2021 to finance acquisitions and to refinance borrowings as compared to paying down debt in fiscal year 2022, which we expect to continue throughout fiscal year 2023. During fiscal year 2022, we repurchased shares of our common stock for a total cost of $80.6 million, as compared to $73.1 million in fiscal year 2021. During fiscal year 2022, we paid $35.3 million in dividends as compared to $32.4 million for fiscal year 2021. We paid $0.8 million in settlement of hedges during fiscal year 2022 as compared to $4.5 million for fiscal year 2021. In addition, we paid $14.3 million for settlement of a swap and $2.2 million for acquisition-related contingent consideration in fiscal year 2021. The cash used in financing activities during fiscal year 2022 was partially offset by proceeds from the issuance of common stock under our stock plans of $14.1 million during fiscal year 2022, as compared to $25.1 million for fiscal year 2021. Fiscal Year 2021 Compared to Fiscal Year 2020 Operating Activities. Net cash provided by continuing operations was $1,330.2 million for fiscal year 2021, as compared to $704.7 million for fiscal year 2020, an increase of $625.5 million. The cash provided by operating activities for fiscal year 2021 was principally a result of income from continuing operations of $889.4 million, adjustments for non-cash charges aggregating to $307.8 million, including depreciation and amortization of $311.4 million, and a net cash increase in working capital of $133.0 million. During fiscal year 2021, $1.7 million of contingent consideration payments were included in operating activities. During fiscal year 2021, we contributed $6.9 million, in the aggregate, to pension plans outside of the United States and $20.0 million to our defined benefit pension plan in the United States. Investing Activities. Net cash used in the investing activities of our continuing operations was $4,089.8 million for fiscal year 2021, as compared to $490.6 million for fiscal year 2020, an increase of $3,599.2 million. For fiscal year 2021, we used $3,982.2 million of net cash for acquisitions, as compared to $411.5 million used in fiscal year 2020. Capital expenditures for fiscal year 2021 were $86.0 million, primarily for manufacturing equipment and other capital equipment purchases, as compared to $63.6 million for fiscal year 2020. During fiscal year 2021, we purchased investments amounting to $23.1 million as compared to $20.1 million in fiscal year 2020. These items were partially offset by $1.5 million in proceeds from disposition of businesses and assets in fiscal year 2021, as compared to $4.3 million in fiscal year 2020, and by proceeds from surrender of life insurance policies of $0.1 million in fiscal year 2021, as compared to $0.3 million in fiscal year 2020. 39 Table of Contents Financing Activities. Net cash provided by the financing activities of our continuing operations was $2,941.7 million for fiscal year 2021, as compared to net cash used in the financing activities of our continuing operations of $202.9 million for fiscal year 2020, an increase of $3,144.5 million in net cash provided by financing activities. The cash provided by financing activities during fiscal year 2021 was primarily a result of net proceeds from borrowings and proceeds from the issuance of common stock under stock plans. During fiscal year 2021 , we had net proceeds from borrowings of $3,043.0 million, as compared to net payments on borrowings of $187.5 million duri ng fiscal year 2020 . The changes reflect financing transactions in fiscal year 2021 to finance acquisitions and to refinance borrowings as compared to paying down debt in fiscal year 2020. Proceeds from the issuance of common stock under our stock plans were $25.1 million during fiscal year 2021, as compared to $37.7 million for fiscal year 2020. The cash provided by financing activities during fiscal year 2021 was partially offset by repurchases of our common stock, payments of dividends, settlement of swaps, settlement of cash flow hedges and payments for acquisition-related contingent consideration. During fiscal year 2021, we repurchased shares of common stock for a total cost of $73.1 million, as compared to $6.9 million in fiscal year 2020. During fiscal year 2021, we paid $32.4 million in dividends as compared to $31.2 million for fiscal year 2020. During fiscal year 2021, we paid $14.3 million for settlement of a swap. We paid $4.5 million in settlement of hedges during fiscal year 2021 as compared to $4.6 million for fiscal year 2020. During fiscal year 2021, we paid $2.2 million for acquisition-related contingent consideration as compared to $10.4 million in fiscal year 2020. Borrowing Arrangements During fiscal year 2022, we repaid the full $500.0 million principal amount of the term loan facility. Since the beginning of the third quarter of fiscal year 2022, we have repurchased $32.9 million and $78.8 million in aggregate principal amount of our 0.550% senior unsecured notes due in September 2023 (the “2023 Notes” ) and 0.850% senior unsecured notes due in September 2024 (the “2024 Notes” ), respectively, in open market transactions. We expect to complete the repayment of the $467.1 million in outstanding 2023 Notes in fiscal year 2023. We expect to continue repurchasing outstanding 2024 Notes from time to time, subject to market conditions. See Note 13, Debt, in the Notes to Consolidated Financial Statements for a detailed discussion of our borrowing arrangements. Dividends Our Board of Directors (our “Board”) declared a regular quarterly cash dividend of $0.07 per share in each quarter of fiscal years 2022, 2021 and 2020, resulting in an annual dividend rate of $0.28 per share. At January 1, 2023, we had accrued $8.8 million for a dividend declared in October 2022 for the fourth quarter of fiscal year 2022 that was paid in February 2023. On January 26, 2023, we announced that our Board had declared a quarterly dividend of $0.07 per share for the first quarter of fiscal year 2023 that will be payable in May 2023. In the future, our Board may determine to reduce or eliminate our common stock dividend in order to fund investments for growth, repurchase shares or conserve capital resources. Capital Expenditures During fiscal year 2023, we expect to invest an amount for capital expenditures similar to that in fiscal year 2022, primarily to introduce new products, to improve our operating processes, to shift the production capacity to lower cost locations, and to develop information technology. We expect to use our available cash and internally generated funds to fund these expenditures. Other Potential Liquidity Considerations At January 1, 2023, we had cash and cash equivalents of $454.4 million, of which $385.4 million was held by our non-U.S. subsidiaries, and we had $1.5 billion of additional borrowing capacity available under a senior unsecured revolving credit facility. We had no other liquid investments at January 1, 2023. We utilize a variety of tax planning and financing strategies to ensure that our worldwide cash is available in the locations in which it is needed. We use our non-U.S. cash for needs outside of the United States including foreign operations, capital investments, acquisitions and repayment of debt. In addition, we transfer cash to the United States using nontaxable returns of capital, distributions of previously taxed income, as well as dividends, where the related income tax cost is managed efficiently. We have accrued tax expense on the unremitted earnings of foreign subsidiaries as required by the Tax Cuts and Jobs Act of 2017 (the “ Tax Act ” ) and where the foreign earnings are not considered permanently reinvested. In accordance with the Tax Act, we are making scheduled annual cash payments on our accrued transition tax. As of January 1, 2023, we evaluated our undistributed foreign earnings and identified approximately $879.0 million in earnings that we do not consider to be permanently reinvested. We have recorded a provision of approximately $15.8 million for taxes that would fall due when such earnings are repatriated. We began repatriating foreign earnings to the United States in the first quarter of fiscal year 2022 and expect to continue the repatriation in fiscal year 2023. There are no other undistributed 40 Table of Contents foreign earnings and outside basis differences for which we have not provided for any taxes as these amounts continue to be indefinitely reinvested, and it is not practicable to estimate the amount of deferred tax liability that would be incurred. On July 31, 2020, our Board authorized us to repurchase shares of common stock for an aggregate amount up to $250.0 million under a stock repurchase program (the “Repurchase Program”). On July 22, 2022, the Repurchase Program was terminated by our Board and the Board authorized us to repurchase shares of common stock for an aggregate amount up to $300.0 million under a new stock repurchase program (the “ New Repurchase Program ” ). No shares remain available for repurchase under the Repurchase Program due to its termination. The New Repurchase Pro gram will expire on July 22, 2024 unless terminated earlier by our Board and may be suspended or discontinued at any time. During fiscal year 2022 , we repurchased 240,000 shares of common stock under the Repurchase Program for an aggregate cost of $43.4 million. During fiscal year 2022 , we repurchased 138,025 shares of common stock under the New Repurchase Program for an aggregate cost of $19.1 million . As of January 1, 2023, $280.9 million remained available for aggregate repurchases of shares under the New Repurchase Program. In addition, 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 fiscal year 2022, we repurchased 115,247 shares of common stock for this purpose at an aggregate cost of $18.1 million. During fiscal year 2021, we repurchased 71,248 shares of common stock for this purpose at an aggregate cost of $10.5 million. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value. Any repurchased shares will be available for use in connection with corporate programs. If we continue to repurchase shares, the New Repurchase Program will be funded using our existing financial resources, including cash and cash equivalents, and our existing senior unsecured revolving credit facility. As of January 1, 2023, we may have to pay contingent consideration, related to acquisitions with open contingency periods, of up to $106.2 million. As of January 1, 2023, we have recorded contingent consideration obligations of $46.6 million, of which $3.6 million was recorded in accrued expenses and other current liabilities, and $43.0 million was recorded in long-term liabilities. The expected maximum earnout period for acquisitions with open contingency periods is 5.9 years from January 1, 2023, and the remaining weighted average expected earnout period at January 1, 2023 was 4.9 years. Distressed global financial markets could adversely impact general economic conditions by reducing liquidity and credit availability, creating increased volatility in security prices, widening credit spreads and decreasing valuations of certain investments. The widening of credit spreads may create a less favorable environment for certain of our businesses and may affect the fair value of financial instruments that we issue or hold. Increases in credit spreads, as well as limitations on the availability of credit at rates we consider to be reasonable, could affect our ability to borrow under future potential facilities on a secured or unsecured basis, which may adversely affect our liquidity and results of operations. In difficult global financial markets, we may be forced to fund our operations at a higher cost, or we may be unable to raise as much funding as we need to support our business activities. Our pension plans have not experienced a material impact on liquidity or counterparty exposure due to the volatility and uncertainty in the credit markets. With respect to plans outside of the United States, we expect to contribute $6.8 million in the aggregate during fiscal year 2023. During fiscal year 2023, we contributed $10.0 million to our defined benefit pension plan in the United States for the plan year 2022. During fiscal years 2022, 2021 and 2020, we contributed $6.6 million, $6.9 million and $7.5 million in the aggregate, respectively, to pension plans outside of the United States. During fiscal year 2021, we contributed $20.0 million to our defined benefit pension plan in the United States. We could potentially have to make additional funding payments in future periods for all pension plans. We expect to use existing cash and external sources to satisfy future contributions to our pension plans. We are conducting a number of environmental investigations and remedial actions at our current and former locations, and 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 January 1, 2023 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. See “Business—Environmental Matters ” above and Note 16, Contingencies, in the Notes to Consolidated Financial Statements for a discussion of these matters and proceedings. 41 Table of Contents Effects of Recently Issued and Adopted Accounting Pronouncements See Note 1, Nature of Operations and Accounting Policies, in the Notes to Consolidated Financial Statements for a summary of recently issued accounting pronouncements. We did not adopt any new accounting pronouncements during the fiscal year 2022. We do not believe that any recently issued accounting pronouncements that have not yet been adopted will have a material impact on our consolidated financial statements. Application of Critical Accounting Policies and Estimates The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to accounting for business combinations, long-lived assets, including goodwill and other intangibles and employee compensation and benefits. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements. Business combinations. Business combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses; restructuring costs associated with a business combination are expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. Measurement period adjustments are made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. All changes that do not qualify as measurement period adjustments are also included in current period earnings. The accounting for business combinations requires estimates and judgment 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 value for assets acquired and liabilities as sumed. 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. For intangible assets, we normally utilize the “ income method ” which incorporates the forecast of all the expected future net cash flows attributable to the subject intangible asset, adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, (5) customer attrition rates, and (6) discount rates. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, require acceleration of the amortization expense of finite-lived intangible assets, or the recognition of additional consideration which would be expensed. The fair value of contingent consideration is remeasured each period based on relevant information and changes to the fair value are included in the operating results for the period. Value of long-lived assets, including goodwill and other intangibles. We carry a variety of long-lived assets on our consolidated balance sheets including property and equipment, operating lease right of use assets, investments, identifiable intangible assets, and goodwill. We periodically review the carrying value of all of these assets based, in part, upon current estimates of fair values and our projections of anticipated future cash flows. We undertake this review (i) on an annual basis for assets such as goodwill and non-amortizing intangible assets and (ii) on a periodic basis for other long-lived assets when facts and circumstances suggest that cash flows related to those assets may be diminished. Any impairment charge that we record reduces our earnings. For goodwill, the test consists of the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value. If the carrying value of the reporting unit exceeds its fair value, an impairment loss in an amount equal to that excess is recognized up to the amount of goodwill. We perform the annual impairment assessment on the later of January 1 or the first day of each fiscal year. This same impairment test will be performed at other times during the course of the year should an event occur which suggests that the recoverability of goodwill should be reconsidered. We completed the annual goodwill impairment test using a measurement date of January 3, 2022, and concluded that there was no goodwill impairment. At January 3, 2022, the fair value exceeded the carrying value by more than 20.0% for each reporting unit. The range of the long-term terminal growth rates for the reporting units was 2.0% to 5.0% for the fiscal year 2022 impairment analysis. The range for the discount rates for the reporting units was 7.0% to 11.5%. Keeping all other variables 42 Table of Contents constant, a 10.0% change in any one of these input assumptions for the vari ous reporting units would still allow us to conclude that there was no impairment of goodwill. In connection with the fiscal year 2023 impairment test performed as of January 2, 2023, the Tulip and EUROIMMUN reporting units, which had goodwill balances of $74.4 million and $572.0 million, respectively, at January 1, 2023, had fair values that exceeded their carrying values by less than 20%. These reporting units are at increased risk of an impairment charge given the higher discount rates, competition and, to some extent, the recent impacts of the COVID-19 pandemic. Despite the increased impairment risk associated with these reporting units, we do not believe there will be a significant change in the key estimates or assumptions driving the fair value of these reporting units that would lead to a material impairment charge. We consistently emplo y 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 rates 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 our historical long-term terminal growth rates, as the current economic trends are not expected to affect our long-term terminal growth rates. We corroborate the income approach with a market approach. While we believe that our estimates of current value are reasonable, if actual results differ from the estimates and judgments used including such items as future cash flows and the volatility inherent in markets which we serve, impairment charges against the carrying value of those assets could be required in the future. Employee compensation and benefits. We sponsor both funded and unfunded U.S. and non-U.S. defined benefit pension plans and other postretirement benefits. Retirement and postretirement benefit plans are a significant cost of doing business, and represent obligations that will be ultimately settled far in the future, and therefore are subject to estimation. Retirement and postretirement benefit plan expenses are allocated to cost of revenue, research and development, and selling, general and administrative expenses, in our consolidated statements of operations. We immediately recognize actuarial gains and losses in operating results in the year in which the gains and losses occur. Actuarial gains and losses are measured annually as of the calendar month-end that is closest to our fiscal year end and accordingly will be recorded in the fourth quarter, unless we are required to perform an interim remeasurement. We recognized gains of $28.3 million and $30.9 million in fiscal years 2022 and 2021, respectively, for our retirement and postretirement benefit plans, which include the gains from the immediate recognition of the actuarial gains and losses for the benefit plans, which were recorded in the fourth quarter of each fiscal year. The loss or income related to the immediate recognition of the actuarial gains and losses on benefit plans were pre-tax gains of $28.9 million and $24.7 million fiscal years 2022 and 2021, respectively. We expect an expense of approximately $13.3 million in fiscal year 2023 for our retirement and postretirement benefit plans, excluding any actuarial gains and losses. It is difficult to reliably calculate and predict the amount of any actuarial gains and losses in fiscal year 2023 as these gains and losses are primarily driven by events and circumstances beyond our control, including changes in interest rates, the performance of the financial markets and mortality assumptions. To the extent the discount rates decrease or the value of our pension and postretirement investments decrease, actuarial losses will impact our operating results. Conversely, to the extent the discount rates increase or the value of our pension and postretirement investments increase more than expected, actuarial gains will favorably impact our operating results. Pension accounting is intended to reflect the recognition of future benefit costs over the employee’s approximate service period based on the terms of the plans and the investment and funding decisions made. We are required to make assumptions regarding such variables as the expected long-term rate of return on assets, the discount rate applied and mortality assumptions, to determine service cost and interest cost, in order to arrive at expected pension income or expense for the year. We use discount rates for each individual plan based upon the expected cash flows using the applicable spot rates derived from a yield curve over the projected cash flow period. If any of our assumptions were to change as of January 1, 2023, our pension plan expenses would also change as follows: Increase (Decrease) at January 1, 2023 Percentage Point Change Non-U.S. U.S. Pension plans discount rate +0.25 $ (6,847) $ (4,763) -0.25 7,229 4,946 43 Table of Contents