NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(all tabular amounts in millions, except number of shares, which are reflected in thousands, and per share data)
(1) Basis of Presentation
The consolidated financial statements of Hologic, Inc. (“Hologic” or the “Company”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and disclosures required by U.S. generally accepted accounting principles (“GAAP”) for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related notes for the fiscal year ended September 26, 2020 included in the Company’s Form 10-K filed with the SEC on November 17, 2020. In the opinion of management, the financial statements and notes contain all adjustments (consisting of normal recurring accruals and all other necessary adjustments) considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate. Operating results for the three and nine months ended June 26, 2021 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending September 25, 2021.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The purpose of ASU 2016-13 is to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses over the lifetime of the financial asset. As a result, credit losses are recorded when financial assets are established if credit losses are expected over the asset's contractual life. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company adopted the standard during the first quarter of fiscal 2021. The adoption of ASU 2016-13 did not have a material effect on the Company's consolidated financial statements. See Note 8 for additional information.
In November 2019, the FASB issued ASU No. 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606). This ASU identifies, evaluates, and improves areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided. The amendments in this Update expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted this ASU in the first quarter of fiscal 2021, which did not have a material effect on the Company's financial statements.
Subsequent Events Consideration
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that may require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events affecting the unaudited consolidated financial statements as of and for the three and nine months ended June 26, 2021.
(2) Revenue
The Company accounts for revenue pursuant to ASC Update No. 2014-09, Revenue from Contracts with Customer (ASC 606) and generates revenue from the sale of its products, primarily medical imaging systems and related components and software, diagnostic tests and assays and surgical disposable products, and related services, which are primarily support and maintenance services on its medical imaging systems, and to a lesser extent installation training and repairs. Prior to the Cynosure divestiture, the Company also generated revenue from the sale and service of medical aesthetic treatment systems. The Company's products are sold primarily through a direct sales force, and within international markets, there is more reliance on distributors and resellers. Revenue is recorded net of sales tax. The following tables provide revenue from contracts with customers by business and geographic region on a disaggregated basis:
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Three Months Ended June 26, 2021
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Three Months Ended June 27, 2020
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Business (in millions)
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United States
|
International
|
Total
|
|
United States
|
International
|
Total
|
|
Diagnostics:
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|
|
|
|
|
|
|
|
|
Cytology & Perinatal
|
$
|
73.9
|
|
$
|
42.0
|
|
$
|
115.9
|
|
|
$
|
40.3
|
|
$
|
23.8
|
|
$
|
64.1
|
|
|
|
Molecular Diagnostics
|
270.1
|
|
266.3
|
|
536.4
|
|
|
391.0
|
|
69.3
|
|
460.3
|
|
|
|
Blood Screening
|
13.2
|
|
—
|
|
13.2
|
|
|
7.8
|
|
—
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|
7.8
|
|
|
Total
|
$
|
357.2
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|
$
|
308.3
|
|
$
|
665.5
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|
|
$
|
439.1
|
|
$
|
93.1
|
|
$
|
532.2
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Breast Health:
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Breast Imaging
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$
|
218.4
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|
$
|
61.9
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|
$
|
280.3
|
|
|
$
|
145.6
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|
$
|
47.6
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|
$
|
193.2
|
|
|
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Interventional Breast Solutions
|
54.8
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|
13.9
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|
68.7
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|
|
25.0
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5.8
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|
30.8
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|
|
|
|
|
|
|
|
|
|
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Total
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$
|
273.2
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|
$
|
75.8
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|
$
|
349.0
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|
|
$
|
170.6
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|
$
|
53.4
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|
$
|
224.0
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|
|
|
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|
|
|
|
|
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GYN Surgical
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$
|
103.9
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|
$
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24.0
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|
$
|
127.9
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|
|
$
|
42.1
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|
$
|
9.4
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|
$
|
51.5
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|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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Skeletal Health
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$
|
15.6
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|
$
|
10.3
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|
$
|
25.9
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|
|
$
|
9.0
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|
$
|
6.2
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|
$
|
15.2
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|
|
|
|
$
|
749.9
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|
$
|
418.4
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|
$
|
1,168.3
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|
|
$
|
660.8
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|
$
|
162.1
|
|
$
|
822.9
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Nine Months Ended June 26, 2021
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Nine Months Ended June 27, 2020
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Business (in millions)
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United States
|
International
|
Total
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|
United States
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International
|
Total
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|
Diagnostics:
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|
|
|
|
|
|
|
|
|
Cytology & Perinatal
|
$
|
230.8
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|
$
|
127.1
|
|
$
|
357.9
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|
|
$
|
191.1
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|
$
|
107.6
|
|
$
|
298.7
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|
|
|
Molecular Diagnostics
|
1,561.7
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|
905.3
|
|
2,467.0
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|
|
683.0
|
|
146.5
|
|
829.5
|
|
|
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Blood Screening
|
33.3
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|
—
|
|
33.3
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|
|
35.0
|
|
—
|
|
35.0
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|
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Total
|
$
|
1,825.8
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|
$
|
1,032.4
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|
$
|
2,858.2
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|
|
$
|
909.1
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|
$
|
254.1
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|
$
|
1,163.2
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|
|
|
|
|
|
|
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Breast Health:
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|
|
|
|
|
|
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Breast Imaging
|
$
|
619.5
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|
$
|
198.3
|
|
$
|
817.8
|
|
|
$
|
541.1
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|
$
|
177.1
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|
$
|
718.2
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|
|
|
Interventional Breast Solutions
|
164.9
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|
35.3
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|
200.2
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|
|
120.4
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|
24.2
|
|
144.6
|
|
|
|
|
|
|
|
|
|
|
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|
Total
|
$
|
784.4
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|
$
|
233.6
|
|
$
|
1,018.0
|
|
|
$
|
661.5
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|
$
|
201.3
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|
$
|
862.8
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|
|
|
|
|
|
|
|
|
|
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GYN Surgical
|
$
|
296.8
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|
$
|
69.4
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|
$
|
366.2
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|
|
$
|
227.6
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|
$
|
48.3
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|
$
|
275.9
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|
|
|
|
|
|
|
|
|
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Medical Aesthetics
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$
|
—
|
|
$
|
—
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|
$
|
—
|
|
|
$
|
30.9
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|
$
|
34.4
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|
$
|
65.3
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|
|
|
|
|
|
|
|
|
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Skeletal Health
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$
|
44.7
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|
$
|
28.6
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|
$
|
73.3
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|
|
$
|
39.4
|
|
$
|
22.9
|
|
$
|
62.3
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|
|
|
|
$
|
2,951.7
|
|
$
|
1,364.0
|
|
$
|
4,315.7
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|
|
$
|
1,868.5
|
|
$
|
561.0
|
|
$
|
2,429.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
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|
Nine Months Ended
|
|
Geographic Regions (in millions)
|
|
June 26, 2021
|
June 27, 2020
|
|
June 26, 2021
|
June 27, 2020
|
|
United States
|
|
$
|
749.9
|
|
$
|
660.8
|
|
|
$
|
2,951.7
|
|
$
|
1,868.5
|
|
|
Europe
|
|
289.0
|
|
101.7
|
|
|
963.9
|
|
322.9
|
|
|
Asia-Pacific
|
|
89.6
|
|
43.7
|
|
|
268.1
|
|
155.5
|
|
|
Rest of World
|
|
39.8
|
|
16.7
|
|
|
132.0
|
|
82.6
|
|
|
|
|
$
|
1,168.3
|
|
$
|
822.9
|
|
|
$
|
4,315.7
|
|
$
|
2,429.5
|
|
The following table provides revenue recognized by source:
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|
Three Months Ended
|
|
Nine Months Ended
|
|
Revenue by type (in millions)
|
|
June 26, 2021
|
June 27, 2020
|
|
June 26, 2021
|
June 27, 2020
|
|
Disposables
|
|
$
|
797.7
|
|
$
|
588.1
|
|
|
$
|
3,239.2
|
|
$
|
1,511.4
|
|
|
Capital equipment, components and software
|
|
197.5
|
|
113.5
|
|
|
590.2
|
|
513.1
|
|
|
Service
|
|
158.4
|
|
116.4
|
|
|
437.2
|
|
388.6
|
|
|
Other
|
|
14.7
|
|
4.9
|
|
|
49.1
|
|
16.4
|
|
|
|
|
$
|
1,168.3
|
|
$
|
822.9
|
|
|
$
|
4,315.7
|
|
$
|
2,429.5
|
|
The Company considers revenue to be earned when all of the following criteria are met: the Company has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount the Company expects to receive, including an estimate of uncertain amounts subject to a constraint to ensure revenue is not recognized in an amount that would result in a significant reversal upon resolution of the uncertainty, is determinable; and the Company has transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration the Company expects to receive in exchange for the goods and services expected to be transferred. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control of the distinct good or service is transferred. Transfer of control for the Company's products is generally at shipment or delivery, depending on contractual terms, but occurs when title and risk of loss transfers to the customer which represents the point in time when the customer obtains the use of and substantially all of the benefits of the product. As such, the Company's performance obligation related to product sales is satisfied at a point in time. Revenue from support and maintenance contracts, extended warranty and professional services for installation, training and repairs is recognized over time based on the period contracted or as the services are performed as these methods represent a faithful depiction of the transfer of goods and services.
The Company recognizes a receivable when it has an unconditional right to payment, which represents the amount the Company expects to collect in a transaction and is most often equal to the transaction price in the contract. Payment terms are typically 30 days in the U.S. but may be longer in international markets. The Company treats shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and records these costs within costs of product revenue when the corresponding revenue is recognized.
The Company also places instruments (or equipment) at customer sites but retains title to the instrument. The customer has the right to use the instrument for a period of time, and the Company recovers the cost of providing the instrument through the sales of disposables, namely tests and assays in Diagnostics and handpieces in GYN Surgical. These types of agreements include an embedded lease, which is generally an operating lease, for the right to use an instrument and no instrument revenue is recognized at the time of instrument delivery. The Company recognizes a portion of the revenue allocated to the embedded lease concurrent with the sale of disposables over the term of the agreement.
Some of the Company's contracts have multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract. The Company determines its best estimate of standalone selling price using average selling prices over three to twelve month periods of data depending on the products or nature of the services coupled with current market considerations. If the product or service does not have a history of sales or if sales volume is not sufficient, the Company relies on prices set by its pricing committees or applicable marketing department adjusted for expected discounts.
Variable Consideration
The Company exercises judgment in estimating variable consideration, which includes volume discounts, sales rebates, product returns and other adjustments. These amounts are recorded as a reduction to revenue and classified as a current liability. The Company bases its estimates for volume discounts and sales rebates on historical information to the extent it is reasonable to be used as a predictive tool of expected future rebates. To the extent the transaction price includes variable consideration, the Company applies judgment in constraining the estimated variable consideration due to factors that could cause reversal of revenue. The Company evaluates constraints based on its historical and projected experience with similar customer contracts.
The Company's contracts typically do not provide the right to return product. In general, estimates of variable consideration and constraints are not material to the Company's financial statements.
Remaining Performance Obligations
As of June 26, 2021, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was approximately $804.4 million. These remaining performance obligations primarily relate to extended warranty and support and maintenance obligations in the Company's Breast Health and Skeletal Health reportable segments. The Company expects to recognize approximately 11% of this amount as revenue in 2021, 36% in 2022, 25% in 2023, 16% in 2024, and 12% thereafter. The Company has applied the practical expedient to not include remaining performance obligations related to contracts with original expected durations of one year or less in the amounts above.
Contract Assets and Liabilities
The Company discloses accounts receivable separately in the Consolidated Balance Sheets at their net realizable value. Contract assets primarily relate to the Company's conditional right to consideration for work completed but not billed at the reporting date. Contract assets at the beginning and end of the reporting period, as well as the changes in the balance, were immaterial.
Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. The Company records a contract liability, or deferred revenue, when it has an obligation to provide service, and to a much lesser extent product, to the customer and payment is received or due in advance of performance. Deferred revenue primarily relates to support and maintenance contracts and extended warranty obligations within the Company's Breast Health and Skeletal Health reportable segments and, until December 30, 2019, the divested Medical Aesthetics segment. Contract liabilities are classified as other current liabilities and other long-term liabilities on the Consolidated Balance Sheets. The Company recognized revenue of $20.1 million and $100.9 million for the three and nine months ended June 26, 2021, respectively, that was included in the contract liability balance at September 26, 2020. The Company recognized $18.0 million and $95.5 million for the three and nine months ended June 27, 2020, respectively, that was included in the contract liability balance at September 28, 2019.
(3) Leases
Lessor Activity - Leases where Hologic is the Lessor
Certain assets, primarily diagnostics instruments, are leased to customers under contractual arrangements that typically include an operating lease and performance obligations for disposables, reagents and other consumables. These contractual arrangements are subject to termination provisions which are evaluated in determining the lease term for lease accounting purposes. Contract terms vary by customer and may include options to terminate the contract or options to extend the contract. Where instruments are provided under operating lease arrangements, some portion or the entire lease revenue may be variable and subject to subsequent non-lease component (e.g., reagent) sales. Sales-type leases are immaterial. The allocation of revenue between the lease and non-lease components is based on stand-alone selling prices. Lease revenue represented less than 5% of the Company's consolidated revenue for all periods presented.
(4) Fair Value Measurements
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The Company has investments in derivative instruments comprised of an interest rate swap, forward foreign currency contracts and foreign currency option contracts, which are valued using analyses obtained from independent third party valuation specialists based on market observable inputs, representing Level 2 measurements. The fair values of these derivative
contracts represent the estimated amounts the Company would receive or pay to terminate the contracts. Refer to Note 9 for further discussion and information on derivative instruments.
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following at June 26, 2021:
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Fair Value at Reporting Date Using
|
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|
Balance as of June 26, 2021
|
|
Quoted Prices in
Active Market for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
71.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
71.7
|
|
|
Interest rate swap
|
21.0
|
|
|
—
|
|
|
21.0
|
|
|
—
|
|
|
Forward foreign currency contracts
|
1.7
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
Total
|
$
|
94.4
|
|
|
$
|
—
|
|
|
$
|
22.7
|
|
|
$
|
71.7
|
|
Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3), which solely consisted of contingent consideration liabilities, during the three and nine month periods ended June 26, 2021 and June 27, 2020 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month Ended
|
|
Nine Months Ended
|
|
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Balance at beginning of period
|
$
|
71.7
|
|
|
$
|
0.8
|
|
|
$
|
81.8
|
|
|
$
|
9.1
|
|
|
|
Contingent consideration recorded at acquisition
|
—
|
|
|
—
|
|
|
—
|
|
|
0.9
|
|
|
|
Fair value adjustments
|
—
|
|
|
—
|
|
|
(10.1)
|
|
|
0.4
|
|
|
|
Payments
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.6)
|
|
|
Balance at end of period
|
$
|
71.7
|
|
|
$
|
0.8
|
|
|
$
|
71.7
|
|
|
$
|
0.8
|
|
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
The Company remeasures the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets are comprised of equity investments and long-lived assets, including property, plant and equipment, intangible assets and goodwill. There were no such remeasurements to equity investments in the three and nine months ended June 26, 2021 and June 27, 2020. During the first quarter of fiscal 2020, the Company's Medical Aesthetics division met the criteria to be classified as assets-held-for sale, and the Company recorded a $30.2 million loss to record the asset group at its fair value less costs to sell. This was a level 1 measurement. See Note 6 for additional information.
Disclosure of Fair Value of Financial Instruments
The Company’s financial instruments mainly consist of cash and cash equivalents, accounts receivable, equity investments, an interest rate swap, forward foreign currency contracts, foreign currency option contracts, insurance contracts, accounts payable and debt obligations. The carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. The Company’s interest rate swap, forward foreign currency contracts and foreign currency option contracts are recorded at fair value. The carrying amount of the insurance contracts are recorded at the cash surrender value, as required by GAAP, which approximates fair value. The Company believes the carrying amounts of its cost-method equity investments approximate fair value.
Amounts outstanding under the Company’s 2018 Credit Agreement (as defined below) of $1.4 billion aggregate principal as of June 26, 2021 are subject to variable interest rates of interest based on current market rates, and as such, the Company believes the carrying amount of these obligations approximates fair value. The Company’s 2028 Senior Notes and 2029 Senior Notes had fair values of $420.8 million and $940.0 million, respectively, as of June 26, 2021 based on their trading prices, representing Level 1 measurements. Refer to Note 7 for the carrying amounts of the various components of the Company’s debt.
(5) Business Combinations
Fiscal 2021 Acquisitions
Mobidiag Oy
On June 17, 2021, the Company completed the acquisition of Mobidiag Oy ("Mobidiag"), for a purchase price of $729.6 million. Mobidiag, located in Finland, manufactures molecular diagnostic solutions for gastrointestinal infections, antimicrobial resistance management and other infections. Mobidiag's results of operations are reported in the Company's Diagnostics reportable segment from the date of acquisition.
The total purchase price was allocated to Mobidiag's preliminary tangible and identifiable intangible assets and liabilities based on the estimated fair values as of June 17, 2021, as set forth below.
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6.8
|
|
|
Accounts receivable
|
8.7
|
|
|
Inventory
|
11.9
|
|
|
|
|
|
Other assets
|
26.6
|
|
|
Accounts payable and accrued expenses
|
(18.2)
|
|
|
Other liabilities
|
(7.9)
|
|
|
|
|
|
Identifiable intangible assets:
|
|
|
|
Developed technology
|
284.0
|
|
|
|
In-process research and development
|
103.0
|
|
|
|
Customer relationships
|
26.3
|
|
|
|
Trade names
|
21.0
|
|
|
|
|
|
Long-term debt
|
(66.0)
|
|
|
Deferred income taxes, net
|
(72.8)
|
|
|
Goodwill
|
406.2
|
|
|
Purchase Price
|
$
|
729.6
|
|
In performing the preliminary purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of Mobidiag's business. The allocation of the purchase price is preliminary as the Company continues to gather information supporting the acquired assets and liabilities, including but not limited to the estimation of the fair value of the identifiable intangible assets, long-term debt, and deferred income taxes.
As part of the preliminary purchase price allocation, the Company determined the identifiable intangible assets are development technology, in-process research and development ("IPR&D"), customer relationships and trade names. The preliminary fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using rates ranging from 14.5% to 16.0%. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.
The developed technology assets are comprised of know-how, patents and technologies embedded in Mobidiag's products and relate to currently marketed products. The developed technology assets comprise the primary product families under the Novodiag and Amplidiag technology platforms.
IPR&D projects relate to in-process projects that have not reached technological feasibility as of the acquisition date and have no alternative future use. The primary basis for determining technological feasibility of these projects is obtaining regulatory approval to market the underlying project or expected commercial release depending on the project. The Company recorded, on a preliminary basis, $103.0 million of IPR&D related to three projects. The Company expects to complete these three projects over the next three years. Given the uncertainties inherent with product development and introduction, there can be no assurance that any of the Company's product development efforts will be successful, completed on a timely basis or within budget, if at all. All of the IPR&D assets were valued using the income approach.
The preliminary estimate of the weighted average life for the developed technology assets range from 10 to 12 years, customer relationships range from 5 to 11 years, and tradenames range from 10 to 12 years. The preliminary calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the preliminary amount of goodwill were primarily based on anticipated strategic and synergistic benefits that are expected to be realized from the Mobidiag acquisition. These benefits include expanding the Company's molecular diagnostics portfolio into the near-patient testing market and utilizing Diagnostic's sales and regulatory expertise to drive adoption and revenue growth. None of the goodwill is expected to be deductible for income tax purposes.
Biotheranostics
On February 22, 2021, the Company completed the acquisition of Biotheranostics, Inc. ("Biotheranostics"), for a purchase price of $231.3 million. Biotheranostics, located in San Diego, California, manufactures molecular diagnostic tests for breast and metastatic cancers and performs the lab testing procedures at its facility. Biotheranostics' results of operations are reported in the Company's Diagnostics reportable segment from the date of acquisition and its revenues are reported within Service and other revenue in the Company's Consolidated Statements of Income and within service revenue in our disclosure of disaggregated revenue in Note 2.
The total purchase price was allocated to Biotheranostics' preliminary tangible and identifiable intangible assets and liabilities based on the estimated fair values as of February 22, 2021, as set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9.6
|
|
|
Accounts receivable
|
2.9
|
|
|
|
|
|
|
|
|
Other assets
|
6.5
|
|
|
Accounts payable and accrued expenses
|
(8.2)
|
|
|
Other liabilities
|
(8.1)
|
|
|
Identifiable intangible assets:
|
|
|
|
Developed technology
|
160.3
|
|
|
|
|
|
|
|
Trade names
|
2.1
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
(18.4)
|
|
|
Goodwill
|
84.6
|
|
|
Purchase Price
|
$
|
231.3
|
|
In performing the preliminary purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of Biotheranostics' business. The allocation of the purchase price is preliminary as the Company continues to gather information supporting the acquired assets and liabilities, the estimation of the fair value of the identifiable intangible assets, and income taxes.
As part of the preliminary purchase price allocation, the Company determined the identifiable intangible assets are developed technology and trade names. The preliminary fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a 18.0% rate. The cash flows were based on estimates used to price the transaction, and the discount rate applied was benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The weighted average life of developed technology and trade names is 10 years. The preliminary calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the preliminary amount of goodwill were primarily based on anticipated synergistic benefits of adding Biotheranostics' CLIA (Clinical
Laboratory Improvement Amendments) lab to the Company's portfolio of offerings and utilizing Diagnostic's marketing and regulatory expertise to drive adoption and revenue growth. None of the goodwill is expected to be deductible for income tax purposes.
Diagenode
On March 1, 2021, the Company completed the acquisition of Diagenode SA ("Diagenode") for a purchase price of $155.1 million. Diagenode, located in Belgium, is a developer and manufacturer of molecular diagnostic assays based on PCR (polymerase chain reaction) technology to detect infectious diseases of bacterial, viral or parasite origin. Diagenode's results of operations are reported in the Company's Diagnostics reportable segment from the date of acquisition.
The total purchase price was allocated to Diagenode's preliminary tangible and identifiable intangible assets and liabilities based on the estimated fair values as of March 1, 2021, as set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5.6
|
|
|
Accounts receivable
|
9.3
|
|
|
Inventory
|
9.0
|
|
|
|
|
|
Other assets
|
13.9
|
|
|
Accounts payable and accrued expenses
|
(12.8)
|
|
|
Other liabilities
|
(9.2)
|
|
|
Identifiable intangible assets:
|
|
|
|
Developed technology
|
69.8
|
|
|
|
|
|
|
|
Customer relationships
|
9.2
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
(19.3)
|
|
|
Goodwill
|
79.6
|
|
|
Purchase Price
|
$
|
155.1
|
|
In performing the preliminary purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of Diagenode's business. The allocation of the purchase price is preliminary as the Company continues to gather information supporting the acquired assets and liabilities, the estimation of the fair value of the identifiable intangible assets, and income taxes.
As part of the preliminary purchase price allocation, the Company determined the identifiable intangible assets are developed technology and customer relationships. The preliminary fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a 14.5% rate for developed technology and a 13.5% rate for customer relationships. The cash flows were based on estimates used to price the transaction, and the discount rate applied was benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The weighted average life of developed technology and customer relationships is 10 years. The preliminary calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the preliminary amount of goodwill were based on anticipated synergistic benefits of Diagenode's products broadening the Diagnostics portfolio of molecular diagnostics products primarily in the transplant and acute care gastrointestinal and respiratory space as customers seek a broader menu of tests, utilizing Diagnostic's sales force to drive menu expansion and revenue growth and gaining additional PCR assay development expertise. None of the goodwill is expected to be deductible for income tax purposes.
Somatex Medical Technologies
On December 30, 2020, the Company completed the acquisition of Somatex Medical Technologies GmbH ("Somatex") for a purchase price of $62.9 million. Somatex, located in Germany, is a manufacturer of biopsy site markers, including the Tumark product line of tissue markers, which were distributed by the Company in the U.S. prior to the acquisition. The allocation of the purchase price is based on the Company's preliminary valuation, and it allocated $38.0 million to the preliminary value of developed technology, $1.2 million to customer relationships, $0.9 million to trade names and $32.4 million to goodwill. The remaining $9.6 million of the purchase price was allocated to the net acquired tangible assets and liabilities. The allocation of the purchase price is preliminary as the Company continues to gather information supporting
the acquired assets and liabilities. Somatex' results of operations are reported in the Company's Breast Health reportable segment from the date of acquisition.
NXC Imaging
On September 28, 2020, the Company completed the acquisition of assets from NXC Imaging, for a purchase price of $5.6 million. NXC Imaging was a long-standing distributor of the Company's Breast and Skeletal products in the U.S. Based on the Company's preliminary valuation, the majority of the purchase price was allocated to a customer relationships intangible asset with a useful life of 5 years. The allocation of the purchase price is preliminary as the Company continues to gather information supporting the acquired assets and liabilities.
Fiscal 2020 Acquisitions
Acessa Health
On August 23, 2020, the Company completed the acquisition of Acessa Health, Inc. ("Acessa") for a purchase price of
$161.3 million, which included a hold-back of $3.0 million that was paid in January 2021, and contingent consideration, which the Company estimated the fair value to be $81.8 million as of the measurement date. Acessa, located in Austin, Texas, manufactures and markets its ProVu system, a laparoscopic radio frequency ablation system for use in treatment of uterine fibroids. Acessa's results of operations are reported in the Company's GYN Surgical reportable segment from the date of acquisition.
The contingent payments are based on a multiple of annual incremental revenue growth over a three-year period ending annually in December. There is no maximum earnout. Pursuant to ASC 805, Business Combinations, the Company recorded its estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of Acessa, comparable companies revenue growth rates, implied volatility and applying a risk adjusted discount rate. Each quarter the Company will be required to remeasure the fair value of the liability as assumptions change and such adjustments will be recorded in operating expenses. This fair value measurement was based on significant inputs not observable in the market and thus represented a Level 3 measurement as defined in ASC 820, Fair Value Measurements. This fair value measurement is directly impacted by the Company's estimate of future incremental revenue growth of the business. Accordingly, if actual revenue growth is higher or lower than the estimates within the fair value measurement, the Company would record additional charges or benefits, respectively. There was no remeasurement for the three months ended June 26, 2021. For the nine months ended June 26, 2021, the Company remeasured the contingent consideration liability and recorded a gain of $10.1 million to record the liability at fair value. The reduction in fair value was primarily due to a decrease in forecasted revenues over the measurement period.
The total purchase price was allocated to Acessa's preliminary tangible and identifiable intangible assets and liabilities based on the estimated fair values as of August 23, 2020, as set forth below.
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1.2
|
|
|
Inventory
|
4.0
|
|
|
Other assets
|
4.4
|
|
|
Accounts payable and accrued expenses
|
(4.7)
|
|
|
Identifiable intangible assets:
|
|
|
|
Developed technology
|
127.0
|
|
|
|
|
|
|
|
Trade names
|
1.2
|
|
|
Deferred income taxes, net
|
(20.2)
|
|
|
Goodwill
|
48.4
|
|
|
Purchase Price
|
$
|
161.3
|
|
In performing the preliminary purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of Acessa's business. The allocation of the purchase price is preliminary as the Company continues to gather information supporting the acquired assets and liabilities, primarily taxes.
As part of the preliminary purchase price allocation, the Company determined the identifiable intangible assets were developed technology and trade names. The preliminary fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using an 18.0% rate. The cash flows were based on estimates used to price the transaction, and the discount rate applied was benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The weighted average life of developed technology and trade names was 10 years. The preliminary calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the preliminary amount of goodwill were based on anticipated synergistic benefits of Acessa's products being complementary to the GYN Surgical portfolio of products and utilizing the GYN Surgical sales force to drive adoption and revenue growth. None of the goodwill is expected to be deductible for income tax purposes.
Health Beacons
On February 3, 2020, the Company completed the acquisition of Health Beacons, Inc. ("Health Beacons"), for a purchase price of $19.7 million, which included hold-backs of $2.3 million that are payable up to eighteen months from the date of acquisition. Health Beacons manufactures the LOCalizer product. Based on the Company's valuation, it allocated $10.7 million to developed technology and $6.2 million to goodwill. The remaining $2.8 million of the purchase price was allocated to acquired tangible assets and liabilities. Health Beacons' results of operations are reported in the Company's Breast Health reportable segment from the date of acquisition.
Alpha Imaging
On December 30, 2019, the Company completed the acquisition of assets from Alpha Imaging, LLC ("Alpha Imaging"), for a purchase price of $18.0 million, which included a hold-back of $1.0 million and contingent consideration, which the Company has estimated at $0.9 million. The contingent consideration was payable upon shipment of backlog orders entered into by Alpha Imaging prior to the acquisition. Alpha Imaging was a long-standing distributor of the Company's Breast and Skeletal products in the U.S. The majority of the purchase price was allocated to a customer relationships intangible asset with a useful life of 5 years.
SuperSonic Imagine
On August 1, 2019, the Company purchased 46% of the outstanding shares of SuperSonic Imagine ("SSI") for $18.2 million. SSI was a public company located in Aix-en-Provence, France that manufactures and markets ultrasound medical imaging equipment. In September 2019, the Company launched a cash tender offer to acquire the remaining outstanding shares for a price of €1.50 per share in cash. The Company determined that SSI was a Variable Interest Entity (“VIE”) but it was not the primary beneficiary as it was not a party to the initial design of the entity nor did it have control over SSI's operations until November 21, 2019 when the Company's ownership of SSI's voting stock exceeded 50%. Accordingly, the Company initially accounted for this investment under the equity method of accounting.
On November 21, 2019, the Company acquired an additional 7.6 million shares of SSI for $12.6 million. As a result, the Company's ownership interest increased to approximately 78% of the outstanding common shares of SSI at November 21, 2019, and it now controlled SSI's voting interest and operations. The Company performed purchase accounting as of November 21, 2019 and beginning on that date the financial results of SSI are included within the Company's consolidated financial statements, specifically the Breast Health reportable segment. The Company remeasured the initial investment of 46% of the outstanding shares of SSI to its fair value at the acquisition date, resulting in a gain of $3.2 million recorded to other income (expense), net in the first quarter of fiscal 2020. The total accounting purchase price was $69.3 million, which consisted of $17.9 million for the equity method investment in SSI, $12.6 million for shares acquired on November 21, 2019, $30.2 million for loans the Company provided to SSI prior to the acquisition to pay-off pre-existing loans and fund operations that are considered forgiven, and $8.6 million representing the fair value of the noncontrolling interest as of November 21, 2019. The Company purchased an additional 1.1 million outstanding shares in fiscal 2020 for $1.8 million. In the third quarter of fiscal 2021, the Company purchased the remaining 4.8 million shares outstanding for $8.5 million, and as of June 26, 2021, the Company owned 100% of the outstanding shares of SSI.
The total purchase price was allocated to SSI's tangible and identifiable intangible assets and liabilities based on the estimated fair values of those assets as of November 21, 2019, as set forth below.
|
|
|
|
|
|
|
|
Cash
|
$
|
2.6
|
|
|
Accounts receivable
|
7.1
|
|
|
Inventory
|
10.0
|
|
|
Property, plant and equipment
|
6.5
|
|
|
Other assets
|
4.3
|
|
|
Accounts payable and accrued expenses
|
(24.5)
|
|
|
Deferred revenue
|
(1.8)
|
|
|
Short and long-term debt
|
(8.8)
|
|
|
Other liabilities
|
(3.8)
|
|
|
Identifiable intangible assets:
|
|
|
Developed technology
|
38.3
|
|
|
Customer relationships
|
4.0
|
|
|
Trade names
|
3.0
|
|
|
Deferred income taxes, net
|
(1.9)
|
|
|
Goodwill
|
34.3
|
|
|
Purchase Price
|
$
|
69.3
|
|
In performing the purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of SSI's business. As part of the purchase price allocation, the Company determined the identifiable intangible assets were developed technology, customer relationships, and trade names. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a 12.0% rate. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The weighted average life for the developed technology is 9 years, customer relationships is 9 years and trade names is 8.6 years. The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the amount of goodwill were based on anticipated synergistic benefits of SSI's products being complementary to Breast Health's 3D mammography systems and using the Company's existing U.S. sales force as SSI's presence in the U.S. is limited. None of the goodwill is expected to be deductible for income tax purposes.
(6) Disposition - Sale of Medical Aesthetics
On November 20, 2019, the Company entered into a definitive agreement to sell its Medical Aesthetics business to Clayton Dubilier & Rice ("CD&R") for a sales price of $205.0 million in cash, less certain adjustments. The sale was completed on December 30, 2019, and the Company received cash proceeds of $153.4 million in the second quarter of fiscal 2020. The sale price was subject to adjustment pursuant to the terms of the definitive agreement, and the parties agreed to a final sales price of $150.0 million in the fourth quarter of fiscal 2020. The Company agreed to provide certain transition services for three to fifteen months, depending on the nature of the service. The Company also agreed to indemnify CD&R for certain legal and tax matters that existed as of the date of disposition. In connection with its accounting for the sale, the Company recorded indemnification liabilities of $10.9 million within accrued expenses associated with its obligations under the sale agreement.
As a result of this transaction, the Medical Aesthetics asset group was designated as assets held-for-sale in the first quarter of fiscal 2020. Pursuant to ASC 360, Impairment and Disposal of Long-Lived Assets, asset groups under this designation are required to be recorded at fair value less costs to sell. The Company determined that this disposal did not qualify as a discontinued operation as the sale of the Medical Aesthetics business was deemed to not be a strategic shift having or will have a major effect on the Company's operations and financial results. Based on the terms in the agreement of the sales price and formula for net working capital and related adjustments, its estimate of the fair value for transition services and the amount that must be carved out of the sale proceeds, and liabilities the Company will retain or for which it has agreed to indemnify CD&R, the Company recorded an impairment charge of $30.2 million in the first quarter of fiscal 2020. The impairment charge was allocated to Medical Aesthetics long-lived assets, of which $25.8 million was allocated to cost of product revenues and $4.4 million to operating expenses.
In the first quarter of fiscal 2020, this business incurred a loss from operations of $46.5 million, which excludes corporate allocations. The operating expenses include only those that were incurred directly by and were retained by the
disposed business. The Company will continue to incur expenses related to this business under the indemnification provisions primarily related to legal and tax matters that existed as of the date of disposition. These expenses were not significant in the first, second and third quarters of fiscal 2021.
(7) Borrowings and Credit Arrangements
The Company’s borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26,
2021
|
|
September 26,
2020
|
|
Current debt obligations, net of debt discount and deferred issuance costs:
|
|
|
|
|
Term Loan
|
$
|
74.8
|
|
|
$
|
74.9
|
|
|
Revolver
|
—
|
|
|
250.0
|
|
|
Securitization Program
|
320.0
|
|
|
—
|
|
|
|
|
|
|
|
Other
|
65.8
|
|
|
—
|
|
|
Total current debt obligations
|
$
|
460.6
|
|
|
$
|
324.9
|
|
|
Long-term debt obligations, net of debt discount and issuance costs:
|
|
|
|
|
Term Loan
|
1,325.5
|
|
|
1,379.9
|
|
|
|
|
|
|
|
2025 Senior Notes
|
—
|
|
|
939.4
|
|
|
2028 Senior Notes
|
395.2
|
|
|
394.6
|
|
|
2029 Senior Notes
|
934.0
|
|
|
—
|
|
|
|
|
|
|
|
Total long-term debt obligations
|
$
|
2,654.7
|
|
|
$
|
2,713.9
|
|
|
Total debt obligations
|
$
|
3,115.3
|
|
|
$
|
3,038.8
|
|
2018 Amended and Restated Credit Agreement
On December 17, 2018, the Company and certain of its subsidiaries refinanced its term loan and revolving credit facility by entering into an Amended and Restated Credit and Guaranty Agreement as of December 17, 2018 (the "2018 Credit Agreement") with Bank of America, N.A. in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, and certain other lenders. The 2018 Credit Agreement amended and restated the Company's prior credit and guaranty agreement dated as of October 3, 2017 (the "2017 Credit Agreement"). As of June 26, 2021, the principal amount outstanding of the term loan under the 2018 Credit Agreement (the "Term Loan") was $1.4 billion. The Term Loan bears interest at an annual rate equal to the Eurocurrency Rate (i.e., the LIBOR rate) plus an Applicable Rate, which was 1.00% as of June 26, 2021.
The Company also has a $1.5 billion revolving credit facility (the "Revolver") under the 2018 Credit Agreement. The borrowings of the Revolver bear interest at a rate equal to the LIBOR Daily Floating Rate plus an Applicable Rate, which was 1.00% as of June 26, 2021. In response to the market uncertainties created by the COVID-19 pandemic in March 2020, the Company borrowed $750.0 million under the Revolver, $250.0 million of which, at the time, was used to pay off amounts outstanding under the asset securitization agreement, in order to have sufficient cash on hand. During the first quarter of fiscal 2021, the Company paid off the remaining outstanding balance of $250.0 million. As of June 26, 2021, the full amount of the Revolver was available to borrow by the Company.
Interest expense, weighted average interest rates, and the interest rate at the end of period under the Credit Agreements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Interest expense
|
$
|
5.1
|
|
|
$
|
11.4
|
|
|
$
|
17.0
|
|
|
$
|
38.0
|
|
|
Weighted average interest rate
|
1.10
|
%
|
|
1.68
|
%
|
|
1.15
|
%
|
|
2.52
|
%
|
|
Interest rate at end of period
|
1.09
|
%
|
|
1.55
|
%
|
|
1.09
|
%
|
|
1.55
|
%
|
The 2018 Credit Agreement contains two financial covenants; a total leverage ratio and an interest coverage ratio, both of which are measured as of the last day of each fiscal quarter. These terms, and calculations thereof, are defined in further detail in the 2018 Credit Agreement. As of June 26, 2021, the Company was in compliance with these covenants.
Senior Notes
On September 28, 2020, the Company completed a private placement of $950 million aggregate principal amount of its 3.250% Senior Notes due 2029 (the "2029 Senior Notes") at an offering price of 100% of the aggregate principal amount of the 2029 Senior Notes. The Company used the net proceeds of the 2029 Senior Notes offering and cash on hand to redeem in full its 4.375% Senior Notes due 2025 (the "2025 Senior Notes") in the aggregate principal amount of $950.0 million on October 15, 2020 at an aggregate redemption price of $970.8 million, which included a premium payment $20.8 million.
2025 Senior Notes
Immediately prior to redemption in full of the 2025 Senior Notes on October 15, 2020, the total aggregate principal balance of 2025 Senior Notes was $950.0 million. As the Company planned to use the proceeds from the 2029 Senior Notes offering to redeem the 2025 Senior Notes, the Company evaluated the accounting for this transaction under ASC 470, Debt, to determine modification versus extinguishment accounting on a creditor-by-creditor basis. Certain 2025 Senior Note holders either did not participate in this refinancing transaction or reduced their holdings, and these transactions were accounted for as extinguishments. As a result, the Company recorded a debt extinguishment loss in the first quarter of fiscal 2021 of $21.6 million. For the remaining 2025 Senior Notes holders who participated in the refinancing, these transactions were accounted for as modifications because on a creditor-by-creditor basis the present value of the cash flows between the debt instruments before and after the transaction was less than 10%. The Company recorded a portion of the transaction expenses of $5.8 million to interest expense pursuant to ASC 470, subtopic 50-40. The remaining debt issuance costs of $7.9 million and debt discount of $6.4 million related to the modified debt will be amortized over the new term of the 2029 Senior Notes using the effective interest method.
2028 Senior Notes
As of June 26, 2021, the Company had 4.625% Senior Notes due 2028 (the "2028 Senior Notes") outstanding in the aggregate principal balance of $400 million. The 2028 Senior Notes are general senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by certain domestic subsidiaries and mature on February 1, 2028.
2029 Senior Notes
As of June 26, 2021, the Company had 2029 Senior Notes outstanding in the aggregate principal balance of $950 million. The 2029 Senior Notes are general senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by certain domestic subsidiaries. The 2029 Senior Notes mature on February 15, 2029 and bear interest at the rate of 3.250% per year, payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2021.
The Company may redeem the 2029 Senior Notes at any time prior to September 28, 2023 at a price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date and a make-whole premium set forth in the indenture. The Company may also redeem up to 40% of the aggregate principal amount of the 2029 Senior Notes with the net cash proceeds of certain equity offerings at any time and from time to time before September 28, 2023, at a redemption price equal to 103.250% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date. The Company also has the option to redeem the 2029 Senior Notes on or after: September 28, 2023 through September 27, 2024 at 101.625% of par; September 28, 2024 through September 27, 2025 at 100.813% of par; and September 28, 2025 and thereafter at 100% of par. In addition, if the Company undergoes a change of control coupled with a decline in ratings, as provided in the indenture, the Company will be required to make an offer to purchase each holder’s 2029 Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
The Company evaluated the 2029 Senior Notes for derivatives pursuant to ASC 815, Derivatives and Hedging, and did not identify any embedded derivatives that require bifurcation. All features were deemed to be clearly and closely related to the host instrument.
Interest expense for the 2029 Senior Notes, 2028 Senior Notes and 2025 Senior Notes was as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
|
Interest Rate
|
|
Interest Expense
|
|
Interest Expense
|
|
Interest Expense
|
|
Interest Expense
|
|
2025 Senior Notes
|
4.375
|
%
|
|
$
|
—
|
|
|
$
|
10.9
|
|
|
$
|
—
|
|
|
$
|
32.7
|
|
|
2028 Senior Notes
|
4.625
|
%
|
|
4.8
|
|
|
4.8
|
|
|
14.4
|
|
|
14.4
|
|
|
2029 Senior Notes
|
3.250
|
%
|
|
8.2
|
|
|
—
|
|
|
24.5
|
|
|
—
|
|
|
Total
|
|
|
$
|
13.0
|
|
|
$
|
15.7
|
|
|
$
|
38.9
|
|
|
$
|
47.1
|
|
Accounts Receivable Securitization Program
In response to the market uncertainties created by the COVID-19 pandemic, on March 26, 2020, the Company paid-off the total amount outstanding of $250.0 million previously borrowed under the Accounts Receivable Securitization Program (the "Securitization Program"). On April 13, 2020, the Company amended the Credit and Security agreement with the lenders, temporarily suspending the ability to borrow and the need to comply with covenants for up to a year. On June 11, 2021, the Company amended and restated the Credit and Security agreement to restart the Securitization Program and increase the maximum borrowing amount to $320.0 million. Loans outstanding under the Securitization Program bear interest at LIBOR plus an applicable margin for defined tranches. As of June 26, 2021, there was $320.0 million outstanding under this program. The weighted average interest rate under the Securitization Program was 0.78% as of June 26, 2021.
Other
Other represents debt acquired in the Mobidiag acquisition, which is primarily with the European Investment Bank ("EIB"). Multiple tranches were withdrawn under the agreement and were primarily used to fund research and development projects and expansion efforts. The debt agreement contains change-in-control provisions allowing the EIB to call the debt at any time after a change-in-control, which occurred as a result of Hologic acquiring Mobidiag. Accordingly, the Company has classified the debt as current. The tranches withdrawn under this agreement have interest rates ranging from 6.0% to 7.0%. The debt agreement includes additional payments to the EIB based on revenues generated by products developed under the funding as well as prepayment penalties.
(8) Trade Receivables and Allowance for Credit Losses
Effective September 27, 2020, the Company adopted Topic 326, which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The expected credit losses are developed using an estimated loss rate method that considers historical collection experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The estimated loss rates are applied to trade receivables with similar risk characteristics such as the length of time the balance has been outstanding and the location of the customer. In certain instances, the Company may identify individual trade receivable assets that do not share risk characteristics with other trade receivables, in which case the Company records its expected credit losses on an individual asset basis. For example, potential adverse changes to customer liquidity from new macroeconomic events, such as the COVID-19 pandemic, must be taken into consideration. To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns as a result of the pandemic. In connection with assessing credit losses for individual trade receivable assets, the Company considers significant factors relevant to collectability including those specific to the customer such as bankruptcy, length of time an account is outstanding, and the liquidity and financial position of the customer. If a trade receivable asset is evaluated on an individual basis, the Company excludes those assets from the portfolios of trade receivables evaluated on a collective basis.
The following is a rollforward of the allowance for credit losses as of June 26, 2021 compared to June 27, 2020:
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Period
|
|
Credit Loss
|
|
Divested
|
|
Write-
offs and
Payments
|
|
Balance at
End of
Period
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2021
|
|
$
|
31.6
|
|
|
$
|
11.6
|
|
|
$
|
—
|
|
|
$
|
(3.4)
|
|
|
$
|
39.8
|
|
|
June 27, 2020
|
|
$
|
17.8
|
|
|
$
|
19.1
|
|
|
$
|
(5.8)
|
|
|
$
|
(3.9)
|
|
|
$
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9) Derivatives
Interest Rate Cap - Cash Flow Hedge
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposure to some of its interest rate risk through the use of interest rate caps, which are derivative financial instruments. The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive income ("AOCI") to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in other income (expense), net in the Consolidated Statements of Income.
During fiscal 2018, the Company entered into separate interest rate cap agreements with multiple counter-parties to mitigate the interest rate volatility associated with the variable interest rate on amounts borrowed under the term loan feature of its credit facilities (see Note 7). Interest rate cap agreements provide the right to receive cash if the reference interest rate rises above a contractual rate. The aggregate premium paid for these interest rate cap agreements was $3.7 million, which was the initial fair value of the instruments recorded in the Company's financial statements.
During fiscal 2019, the Company entered into additional separate interest rate cap agreements with multiple counter-parties to extend the expiration date of its hedges by an additional year. The aggregate premium paid for these interest cap agreements was $1.5 million, which was the initial fair value of the instruments recorded in the Company’s financial statements.
The critical terms of the interest rate caps were designed to mirror the terms of the Company’s LIBOR-based borrowings under its Credit Agreement, that has been amended multiple times, and therefore are highly effective at offsetting the cash flows being hedged. The Company designated these derivatives as cash flow hedges of the variability of the LIBOR-based interest payments on $1.0 billion of principal, which ended on December 27, 2019 (the first quarter of fiscal 2020) for the contracts entered into in fiscal 2018, and on December 23, 2020 (the first quarter of fiscal 2021) for the interest rate cap agreements entered into in fiscal 2019.
The interest rate cap agreements matured as of December 26, 2020.
Interest Rate Swap - Cash Flow Hedge
In fiscal 2019, in order to hedge a portion of its variable rate debt beyond the contracted period under interest cap agreements, the Company entered into an interest rate swap contract with an effective date of December 23, 2020 and a termination date of December 17, 2023. The notional amount of this swap is $1.0 billion. The interest rate swap effectively fixes the LIBOR component of the variable interest rate on $1.0 billion of the notional amount under the 2018 Credit Agreement at 1.23%. The critical terms of the interest rate swap are designed to mirror the terms of the Company’s LIBOR-based borrowings under its credit agreement and therefore are highly effective at offsetting the cash flows being hedged. The Company designated this derivative as a cash flow hedge of the variability of the LIBOR-based interest payments on $1.0 billion of principal. Therefore, changes in the fair value of the swap are recorded in AOCI. The fair value of this derivative was in a liability position of $21.0 million as of June 26, 2021.
Forward Foreign Currency Contracts and Foreign Currency Option Contracts
The Company enters into forward foreign currency exchange contracts and foreign currency option contracts to mitigate a portion of its cash balances and certain operational exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company's cash and operations that are denominated in currencies other than the U.S. dollar, primarily the Euro, the UK Pound, the Australian dollar, the Canadian dollar, the Chinese Yuan and the Japanese Yen. These foreign currency exchange contracts are entered into to support transactions made in the ordinary course of business and are not speculative in nature. The contracts are generally for periods of one year or less. The Company did not elect hedge accounting for these contracts; however, the Company may seek to apply hedge accounting in future scenarios. The change in the fair value of these contracts is recognized directly in earnings as a component of other income (expense), net.
Realized and unrealized gains and losses from these contracts, which were the only derivative contracts not designated for hedge accounting, for the three and nine months ended June 26, 2021 and June 27, 2020, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Amount of realized gain (loss) recognized in income
|
|
|
|
|
|
|
|
|
Forward foreign currency contracts
|
$
|
(7.0)
|
|
|
$
|
0.5
|
|
|
$
|
(6.5)
|
|
|
$
|
0.6
|
|
|
Foreign currency option contracts
|
(1.4)
|
|
|
(0.5)
|
|
|
(4.4)
|
|
|
(1.3)
|
|
|
|
$
|
(8.4)
|
|
|
$
|
—
|
|
|
$
|
(10.9)
|
|
|
$
|
(0.7)
|
|
|
Amount of unrealized gain (loss) recognized in income
|
|
|
|
|
|
|
|
|
Forward foreign currency contracts
|
$
|
1.5
|
|
|
$
|
(1.8)
|
|
|
$
|
(2.0)
|
|
|
$
|
(0.6)
|
|
|
Foreign currency option contracts
|
0.4
|
|
|
(0.2)
|
|
|
(5.5)
|
|
|
(0.5)
|
|
|
|
$
|
1.9
|
|
|
$
|
(2.0)
|
|
|
$
|
(7.5)
|
|
|
$
|
(1.1)
|
|
|
Amount of gain (loss) recognized in income
|
|
|
|
|
|
|
|
|
Total
|
$
|
(6.5)
|
|
|
$
|
(2.0)
|
|
|
$
|
(18.4)
|
|
|
$
|
(1.8)
|
|
As of June 26, 2021, the Company had outstanding forward foreign currency contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar of certain of our cash balances denominated in the Euro and UK pound, as well as forecasted transactions denominated in the Euro, UK pound, Australian Dollar, Canadian Dollar, Chinese Yuan and Japanese Yen with an aggregate notional amount of $253.8 million. As of June 26, 2021, the Company had outstanding foreign currency option contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar of forecasted transactions denominated in the Euro and UK Pound with a notional amount of $65.0 million.
Financial Instrument Presentation
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the balance sheet as of June 26, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
June 26, 2021
|
|
September 26, 2020
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Forward foreign currency contracts
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
Foreign currency option contracts
|
Prepaid expenses and other current assets
|
|
0.1
|
|
|
10.1
|
|
|
|
|
|
$
|
0.1
|
|
|
$
|
11.2
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Derivative instruments designated as a cash flow hedge:
|
|
|
|
|
|
|
Interest rate swap contract
|
Accrued expenses
|
|
$
|
11.1
|
|
|
$
|
8.2
|
|
|
Interest rate swap contract
|
Other long-term liabilities
|
|
9.9
|
|
|
23.0
|
|
|
Total
|
|
|
$
|
21.0
|
|
|
$
|
31.2
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Forward foreign currency contracts
|
Accrued expenses
|
|
$
|
1.7
|
|
|
$
|
—
|
|
The following table presents the unrealized gain (loss) recognized in AOCI related to the interest rate caps and interest rate swap for the following reporting periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Amount of gain (loss) recognized in other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
3.0
|
|
|
$
|
(4.6)
|
|
|
$
|
8.2
|
|
|
$
|
(25.4)
|
|
|
Interest rate cap agreements
|
—
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
(0.5)
|
|
|
Total
|
$
|
3.0
|
|
|
$
|
(4.7)
|
|
|
$
|
8.0
|
|
|
$
|
(25.9)
|
|
(10) Commitments and Contingencies
Litigation and Related Matters
On November 6, 2015, the Company filed a suit against Minerva Surgical, Inc. (“Minerva”) in the United States District Court for the District of Delaware, alleging that Minerva’s endometrial ablation device infringes U.S. Patent 6,872,183 (the '183 patent), U.S. Patent 8,998,898 and U.S. Patent 9,095,348 (the '348 patent). On January 25, 2016, the Company amended the complaint to include claims against Minerva for unfair competition, deceptive trade practices and tortious interference with business relationships. On February 5, 2016, the Company filed a second amended complaint to additionally allege that Minerva’s endometrial ablation device infringes U.S. Patent 9,247,989 (the '989 patent). On March 4, 2016, Minerva filed an answer and counterclaims against the Company, seeking declaratory judgment on the Company’s claims and asserting claims against the Company for unfair competition, deceptive trade practices, interference with contractual relationships, breach of contract and trade libel. On June 2, 2016, the Court denied the Company’s motion for a preliminary injunction on its patent claims and denied Minerva’s request for preliminary injunction related to the Company’s alleged false and deceptive statements regarding the Minerva product. On June 28, 2018, the Court granted the Company's summary judgment motions on infringement and no invalidity with respect to the ‘183 and ‘348 patents. The Court also granted the Company’s motion for summary judgment on assignor estoppel, which bars Minerva’s invalidity defenses or any reliance on collateral findings regarding invalidity from inter partes review proceedings. The Court also denied all of Minerva’s defenses, including its motions for summary judgment on invalidity, non-infringement, no willfulness, and no unfair competition. On July 27, 2018, after a two-week trial, a jury returned a verdict that: (1) awarded the Company $4.8 million in damages for Minerva’s infringement; (2) found that Minerva’s infringement was not willful; and (3) found for the Company regarding Minerva’s counterclaims. Damages continued to accrue as Minerva continues its infringing conduct. On May 2, 2019, the Court issued rulings that denied the parties' post-trial motions, including the Company's motion for a permanent injunction seeking to prohibit Minerva from selling infringing devices. Both parties appealed the Court's rulings regarding the post-trial motions. On March 4, 2016, Minerva filed two petitions at the USPTO for inter partes review of the '348 patent. On September 12, 2016, the PTAB declined both petitions to review patentability of the '348 patent. On April 11, 2016, Minerva filed a petition for inter partes review of the '183 patent. On October 6, 2016, the PTAB granted the petition and instituted a review of the '183 patent. On December 15, 2017, the PTAB issued a final written decision invalidating all claims of the ‘183 patent. On February 9, 2018 the Company appealed this decision to the United States Court of Appeals for the Federal Circuit ("Court of Appeals"). On April 19, 2019, the Court of Appeals affirmed the PTAB's final written decision regarding the '183 patent. On July 16, 2019, the Court of Appeals denied the Company’s petition for rehearing in the appeal regarding the '183 patent. On April 22, 2020, the Court of Appeals affirmed the district court’s summary judgment ruling in favor of the Company of no invalidity and infringement, and summary judgment that assignor estoppel bars Minerva from challenging the validity of the ‘348 patent. The Court of Appeals also denied the Company’s motion for a permanent injunction and ongoing royalties for infringement of the ‘183 patent. The Court of Appeals denied Minerva’s arguments for no damages or, alternatively, a new trial. On May 22, 2020 both parties petitioned for en banc review of the Court of Appeals decision. On July 22, 2020, the Court of Appeals denied both parties' petitions for en banc review. On August 28, 2020, the district court entered final judgment against Minerva but stayed execution pending resolution of Minerva’s petition for Supreme Court review. On September 30, 2020, Minerva filed a petition requesting Supreme Court review on the issue of assignor estoppel. On November 5, 2020, Hologic filed a cross-petition requesting Supreme Court review on the issue of assignor estoppel. On January 8, 2021, the Supreme Court granted Minerva’s petition to address the issue of assignor estoppel and denied Hologic's petition. Oral argument before the Supreme Court was held on April 21, 2021. On June 29, 2021, the Supreme Court ruled 5-4 to uphold but narrow assignor estoppel but limited its application to situations in which an assignor’s claim of invalidity contradicts a prior representation the assignor made in assigning the patent. The Court also vacated the ruling of the Court of Appeals and remanded the case for further proceedings consistent with its opinion.
On April 11, 2017, Minerva filed suit against the Company and Cytyc Surgical Products, LLC (“Cytyc”) in the United States District Court for the Northern District of California alleging that the Company’s and Cytyc’s NovaSure ADVANCED endometrial ablation device infringes Minerva’s U.S. patent 9,186,208. Minerva is seeking a preliminary and permanent injunction against the Company and Cytyc from selling this NovaSure device as well as enhanced damages and interest, including lost profits, price erosion and/or royalty. On January 5, 2018, the Court denied Minerva's motion for a preliminary injunction. On February 2, 2018, at the parties’ joint request, this action was transferred to the District of Delaware. On March
26, 2019, the Magistrate Judge issued a claims construction ruling regarding the disputed terms in the patent, which the District Court Judge adopted in all respects on October 21, 2019. The original trial date of July 20, 2020 was vacated. On October 21, 2020, the trial court scheduled a 10-day trial beginning on August 9, 2021. At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses.
As described in Note 6, the Company has agreed to indemnify CD&R for certain legal matters related to the Medical Aesthetics business that existed at the date of disposition. The Company currently has $8.5 million accrued for such matters as of June 26, 2021. While the Company believes the estimated amounts accrued are reasonable, certain matters are still ongoing and additional accruals could be recorded in the future.
The Company is a party to various other legal proceedings and claims arising out of the ordinary course of its business. The Company believes that except for those matters described above there are no other proceedings or claims pending against it the ultimate resolution of which could have a material adverse effect on its financial condition or results of operations. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal costs are expensed as incurred.
(11) Net Income Per Share
A reconciliation of basic and diluted share amounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 26,
2021
|
|
June 27,
2020
|
|
June 26,
2021
|
|
June 27,
2020
|
|
Basic weighted average common shares outstanding
|
256,230
|
|
|
259,870
|
|
|
257,769
|
|
|
263,667
|
|
|
Weighted average common stock equivalents from assumed exercise of stock options and issuance of stock units
|
2,351
|
|
|
1,177
|
|
|
2,602
|
|
|
1,425
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
258,581
|
|
|
261,047
|
|
|
260,371
|
|
|
265,092
|
|
|
Weighted-average anti-dilutive shares related to:
|
|
|
|
|
|
|
|
|
Outstanding stock options
|
648
|
|
|
1,597
|
|
|
513
|
|
|
1,521
|
|
|
Stock Units
|
5
|
|
|
3
|
|
|
2
|
|
|
5
|
|
(12) Stock-Based Compensation
The following presents stock-based compensation expense in the Company’s Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 26,
2021
|
|
June 27,
2020
|
|
June 26,
2021
|
|
June 27,
2020
|
|
Cost of revenues
|
$
|
1.9
|
|
|
$
|
1.4
|
|
|
$
|
6.4
|
|
|
$
|
5.2
|
|
|
Research and development
|
1.4
|
|
|
1.7
|
|
|
6.2
|
|
|
6.3
|
|
|
Selling and marketing
|
2.3
|
|
|
2.3
|
|
|
7.7
|
|
|
7.9
|
|
|
General and administrative
|
8.9
|
|
|
14.5
|
|
|
29.8
|
|
|
31.9
|
|
|
Restructuring
|
0.9
|
|
|
—
|
|
|
0.9
|
|
|
2.4
|
|
|
|
$
|
15.4
|
|
|
$
|
19.9
|
|
|
$
|
51.0
|
|
|
$
|
53.7
|
|
The Company granted options to purchase 0.6 million and 0.9 million shares of the Company's common stock during the nine months ended June 26, 2021 and June 27, 2020, respectively, with weighted-average exercise prices of $68.62 and $45.54, respectively. There were 4.4 million options outstanding at June 26, 2021 with a weighted-average exercise price of $44.51.
The Company uses a binomial model to determine the fair value of its stock options. The weighted-average assumptions utilized to value these stock options are indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 26,
2021
|
|
June 27,
2020
|
|
June 26,
2021
|
|
June 27,
2020
|
|
Risk-free interest rate
|
0.4
|
%
|
|
1.7
|
%
|
|
0.4
|
%
|
|
1.7
|
%
|
|
Expected volatility
|
35.0
|
%
|
|
33.6
|
%
|
|
35.0
|
%
|
|
33.6
|
%
|
|
Expected life (in years)
|
4.8
|
|
4.8
|
|
4.8
|
|
4.8
|
|
Dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Weighted average fair value of options granted
|
$
|
19.17
|
|
|
$
|
9.90
|
|
|
$
|
20.07
|
|
|
$
|
13.79
|
|
The Company granted 0.5 million and 0.8 million restricted stock units (RSUs) during the nine months ended June 26, 2021 and June 27, 2020, respectively, with weighted-average grant date fair values of $68.45 and $45.67 per unit, respectively. In addition, the Company granted 0.1 million and 0.1 million performance stock units (PSUs) during the nine months ended June 26, 2021 and June 27, 2020, respectively, to members of its senior management team, which have a weighted-average grant date fair value of $68.51 and $45.38 per unit, respectively. Each recipient of PSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of three years provided the Company’s defined Return on Invested Capital metrics are achieved. The Company also granted 0.1 million and 0.1 million of PSUs based on a one-year free cash flow measure (FCF) to its senior management team, which had a grant date fair value of $68.51 and $45.38 per unit during the nine months ended June 26, 2021 and June 27, 2020, respectively. Each recipient of FCF PSUs is eligible to receive between zero and 200% of the target number of shares of the Company's common stock at the end of the one-year measurement period, but the FCF PSUs vest at the end of the three year service period. The PSUs and FCF PSUs cliff-vest three years from the date of grant, and the Company recognizes compensation expense ratably over the required service period based on its estimate of the number of shares that will vest upon achieving the measurement criteria. If there is a change in the estimate of the number of shares that are probable of vesting, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made. The Company also granted 0.1 million and 0.1 million market-based awards (MSUs) to its senior management team during the nine months ended June 26, 2021 and June 27, 2020, respectively. Each recipient of MSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of three years based upon achieving a certain total shareholder return relative to a defined peer group. The MSUs were valued at $82.51 and $43.54 per share using the Monte Carlo simulation model. These awards cliff-vest three years from the date of grant, and the Company recognizes compensation expense for the MSUs ratably over the service period. At June 26, 2021, there was 3.0 million in aggregate RSUs, PSUs, FCF PSUs and MSUs outstanding.
At June 26, 2021, there was $19.4 million and $61.1 million of unrecognized compensation expense related to stock options and stock units (comprised of RSUs, PSUs, FCF PSUs and MSUs), respectively, to be recognized over a weighted-average period of 2.4 and 2.0 years, respectively.
(13) Other Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26,
2021
|
|
September 26,
2020
|
|
Inventories
|
|
|
|
|
Raw materials
|
$
|
159.4
|
|
|
$
|
152.3
|
|
|
Work-in-process
|
58.5
|
|
|
46.5
|
|
|
Finished goods
|
285.0
|
|
|
196.3
|
|
|
|
$
|
502.9
|
|
|
$
|
395.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
Equipment
|
$
|
541.5
|
|
|
$
|
460.7
|
|
|
Equipment under customer usage agreements
|
446.0
|
|
|
456.8
|
|
|
Building and improvements
|
187.9
|
|
|
167.3
|
|
|
Leasehold improvements
|
48.0
|
|
|
44.3
|
|
|
Land
|
41.4
|
|
|
40.7
|
|
|
Furniture and fixtures
|
16.9
|
|
|
16.1
|
|
|
Right of use assets
|
8.5
|
|
|
—
|
|
|
|
$
|
1,290.2
|
|
|
$
|
1,185.9
|
|
|
Less – accumulated depreciation and amortization
|
(739.1)
|
|
|
(694.4)
|
|
|
|
$
|
551.1
|
|
|
$
|
491.5
|
|
In September 2020 and October 2020, the Company received grants of $7.6 million and $119.3 million, respectively, from the Department of Defense Joint Acquisition Task Force ("DOD") to expand production capacity for the Company's two SARS-CoV-2 assays. These grants are specifically to fund the capital equipment and labor investments needed to increase manufacturing capacity to enable the Company to provide a certain amount of COVID-19 tests per month for the U.S. market. The Company is accounting for the funds received under these grants as a reimbursement of the purchased capital equipment. The DOD retains title to assets purchased under the agreement, and title is transferred to the Company upon meeting certain milestones of the manufacturing efforts. In the current three and nine month periods, the Company received $8.3 million and $19.4 million, respectively, from the DOD under these grants which has been recorded as a reduction of the cost basis of the purchased equipment.
(14) Business Segments and Geographic Information
During fiscal 2021, the Company had four reportable segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health. During fiscal 2020, the Company had five reportable segments that included Medical Aesthetics. The Company completed the sale of its Medical Aesthetics business on December 30, 2019. The Company measures and evaluates its reportable segments based on segment revenues and operating income adjusted to exclude the effect of non-cash charges, such as intangible asset amortization expense, intangible asset and goodwill impairment charges, transaction and integration expenses for acquisitions, restructuring, consolidation and divestiture charges, litigation charges, and other one-time or unusual items.
Identifiable assets for the reportable segments consist of inventories, intangible assets, goodwill, and property, plant and equipment. The Company fully allocates depreciation expense to its reportable segments. The Company has presented all other identifiable assets as corporate assets. There were no inter-segment revenues during the three and nine months ended June 26, 2021 and June 27, 2020. Segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 26,
2021
|
|
June 27,
2020
|
|
June 26,
2021
|
|
June 27,
2020
|
|
Total revenues:
|
|
|
|
|
|
|
|
|
Diagnostics
|
$
|
665.5
|
|
|
$
|
532.2
|
|
|
$
|
2,858.2
|
|
|
$
|
1,163.2
|
|
|
Breast Health
|
349.0
|
|
|
224.0
|
|
|
1,018.0
|
|
|
862.8
|
|
|
GYN Surgical
|
127.9
|
|
|
51.5
|
|
|
366.2
|
|
|
275.9
|
|
|
Skeletal Health
|
25.9
|
|
|
15.2
|
|
|
73.3
|
|
|
62.3
|
|
|
Medical Aesthetics
|
—
|
|
|
—
|
|
|
—
|
|
|
65.3
|
|
|
|
$
|
1,168.3
|
|
|
$
|
822.9
|
|
|
$
|
4,315.7
|
|
|
$
|
2,429.5
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
Diagnostics
|
$
|
260.1
|
|
|
$
|
233.9
|
|
|
$
|
1,745.1
|
|
|
$
|
340.7
|
|
|
Breast Health
|
81.0
|
|
|
(11.1)
|
|
|
235.1
|
|
|
158.6
|
|
|
GYN Surgical
|
18.2
|
|
|
(23.4)
|
|
|
60.5
|
|
|
32.0
|
|
|
Skeletal Health
|
(0.7)
|
|
|
(7.4)
|
|
|
0.1
|
|
|
(4.8)
|
|
|
Medical Aesthetics
|
—
|
|
|
(1.0)
|
|
|
—
|
|
|
(54.3)
|
|
|
|
$
|
358.6
|
|
|
$
|
191.0
|
|
|
$
|
2,040.8
|
|
|
$
|
472.2
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Diagnostics
|
$
|
63.9
|
|
|
$
|
59.4
|
|
|
$
|
179.4
|
|
|
$
|
177.8
|
|
|
Breast Health
|
13.6
|
|
|
13.0
|
|
|
39.7
|
|
|
36.2
|
|
|
GYN Surgical
|
23.2
|
|
|
21.0
|
|
|
69.5
|
|
|
63.1
|
|
|
Skeletal Health
|
0.2
|
|
|
0.2
|
|
|
0.5
|
|
|
0.5
|
|
|
Medical Aesthetics
|
—
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
|
$
|
100.9
|
|
|
$
|
93.6
|
|
|
$
|
289.1
|
|
|
$
|
281.7
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Diagnostics
|
$
|
27.4
|
|
|
$
|
28.4
|
|
|
$
|
93.8
|
|
|
$
|
63.7
|
|
|
Breast Health
|
4.5
|
|
|
3.0
|
|
|
10.1
|
|
|
17.5
|
|
|
GYN Surgical
|
3.0
|
|
|
2.4
|
|
|
9.5
|
|
|
12.9
|
|
|
Skeletal Health
|
0.2
|
|
|
0.1
|
|
|
0.2
|
|
|
0.3
|
|
|
Medical Aesthetics
|
—
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
Corporate
|
—
|
|
|
1.1
|
|
|
1.0
|
|
|
2.2
|
|
|
|
$
|
35.1
|
|
|
$
|
35.0
|
|
|
$
|
114.6
|
|
|
$
|
98.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26,
2021
|
|
September 26,
2020
|
|
Identifiable assets:
|
|
|
|
|
Diagnostics
|
$
|
3,440.9
|
|
|
$
|
2,161.4
|
|
|
Breast Health
|
1,253.4
|
|
|
1,200.9
|
|
|
GYN Surgical
|
1,383.8
|
|
|
1,438.7
|
|
|
|
|
|
|
|
Skeletal Health
|
31.4
|
|
|
38.9
|
|
|
Corporate
|
2,481.1
|
|
|
2,355.9
|
|
|
|
$
|
8,590.6
|
|
|
$
|
7,195.8
|
|
The Company had no customers that represented greater than 10% of consolidated revenues during the three and nine months ended June 26, 2021 and June 27, 2020.
The Company operates in the following major geographic areas noted in the below chart. Revenue data is based upon customer location. Other than the United States, no single country accounted for more than 10% of consolidated revenues. The Company’s sales in Europe are predominantly derived from France, the United Kingdom and Germany. The Company’s sales in Asia-Pacific are predominantly derived from China, Australia and Japan. The “Rest of world” designation includes Canada, Latin America and the Middle East.
Revenues by geography as a percentage of total revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 26,
2021
|
|
June 27,
2020
|
|
June 26,
2021
|
|
June 27,
2020
|
|
United States
|
64.2
|
%
|
|
80.3
|
%
|
|
68.4
|
%
|
|
76.9
|
%
|
|
Europe
|
24.7
|
%
|
|
12.4
|
%
|
|
22.3
|
%
|
|
13.3
|
%
|
|
Asia-Pacific
|
7.7
|
%
|
|
5.3
|
%
|
|
6.2
|
%
|
|
6.4
|
%
|
|
Rest of World
|
3.4
|
%
|
|
2.0
|
%
|
|
3.1
|
%
|
|
3.4
|
%
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
(15) Income Taxes
In accordance with ASC 740, Income Taxes (ASC 740), each interim period is considered integral to the annual period, and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.
The Company’s effective tax rate for the three and nine months ended June 26, 2021 was a provision of 20.6% and 21.0%, respectively, compared to a provision of 19.0% and a net benefit of 60.3%, respectively, for the corresponding periods in the prior year.
The effective tax rate for the three months ended June 26, 2021 was lower than the U.S. statutory tax rate primarily due to the impact of the U.S. deduction for foreign derived intangible income and the geographic mix of income earned by our international subsidiaries, which are taxed at rates lower than the U.S. statutory tax rate, and federal and state tax credits, partially offset by state income taxes. The effective tax rate for the nine months ended June 26, 2021 was equal to the U.S. statutory tax rate as the impact of the U.S. deduction for foreign derived intangible income and the geographic mix of income earned by our international subsidiaries, which are taxed at rates lower than the U.S. statutory tax rate, were offset by state income taxes.
The effective tax rate for the three months ended June 27, 2020 was lower than the U.S. statutory tax rate primarily due to the geographic mix of income earned by our international subsidiaries which are taxed at rates lower than the U.S. statutory tax rate, including the impact of the U.S. tax imposed on global intangible low-taxed income and the U.S. deduction for foreign derived intangible income, and reserve releases resulting from statute of limitations expirations, partially offset by unbenefited foreign losses. The effective tax rate for the nine months ended June 27, 2020 differed from the statutory tax rate primarily due to a $312.8 million discrete net tax benefit related to the loss on the sale of the Medical Aesthetics business.
Non-Income Tax Matters
The Company is subject to tax examinations for value-added, sales-based, payroll, and other non-income tax items. A number of these examinations are ongoing in various jurisdictions. The Company takes certain non-income tax positions in the jurisdictions in which it operates. In the normal course of business, the Company's positions and conclusions related to its non-income tax positions could be challenged, resulting in assessments by governmental authorities. Pursuant to ASC 450, the Company has recorded loss contingencies with respect to some of these positions. While the Company believes estimated losses previously recorded are reasonable, certain audits are still ongoing and additional charges could be recorded in the future.
(16) Intangible Assets
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
As of June 26, 2021
|
|
As of September 26, 2020
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Acquired intangible assets:
|
|
|
|
|
|
|
|
|
Developed technology
|
$
|
4,604.5
|
|
|
$
|
3,102.4
|
|
|
$
|
4,054.0
|
|
|
$
|
2,907.2
|
|
|
In-process research and development
|
102.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Customer relationships
|
598.0
|
|
|
502.1
|
|
|
549.1
|
|
|
477.8
|
|
|
Trade names
|
269.6
|
|
|
188.8
|
|
|
245.5
|
|
|
181.2
|
|
|
|
|
|
|
|
|
|
|
|
Non-competition agreements
|
1.6
|
|
|
1.6
|
|
|
1.5
|
|
|
1.3
|
|
|
Business licenses
|
2.5
|
|
|
2.5
|
|
|
2.4
|
|
|
2.3
|
|
|
Total acquired intangible assets
|
$
|
5,578.7
|
|
|
$
|
3,797.4
|
|
|
$
|
4,852.5
|
|
|
$
|
3,569.8
|
|
|
|
|
|
|
|
|
|
|
|
Internal-use software
|
55.4
|
|
|
47.6
|
|
|
51.8
|
|
|
43.2
|
|
|
Capitalized software embedded in products
|
25.9
|
|
|
14.2
|
|
|
26.8
|
|
|
10.6
|
|
|
Total intangible assets
|
$
|
5,660.0
|
|
|
$
|
3,859.2
|
|
|
$
|
4,931.1
|
|
|
$
|
3,623.6
|
|
The estimated remaining amortization expense of the Company's acquired intangible assets as of June 26, 2021 for each of the five succeeding fiscal years is as follows:
|
|
|
|
|
|
|
|
Remainder of Fiscal 2021
|
$
|
86.3
|
|
|
Fiscal 2022
|
$
|
332.3
|
|
|
Fiscal 2023
|
$
|
235.9
|
|
|
Fiscal 2024
|
$
|
223.6
|
|
|
Fiscal 2025
|
$
|
210.1
|
|
(17) Product Warranties
Product warranty activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning of
Period
|
|
Provisions
|
|
Acquired
|
|
Divested
|
|
Settlements/
Adjustments
|
|
Balance at
End of Period
|
|
Nine Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2021
|
$
|
9.9
|
|
|
$
|
6.1
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
(6.7)
|
|
|
$
|
9.6
|
|
|
June 27, 2020
|
$
|
13.9
|
|
|
$
|
8.0
|
|
|
$
|
0.5
|
|
|
$
|
(6.1)
|
|
|
$
|
(7.2)
|
|
|
$
|
9.1
|
|
(18) Accumulated Other Comprehensive Loss
The following tables summarize the changes in accumulated balances of other comprehensive loss for the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 26, 2021
|
|
Nine Months Ended June 26, 2021
|
|
|
Foreign Currency Translation
|
|
Pension Plans
|
|
|
|
Hedged Interest Rate Swaps
|
|
Total
|
|
Foreign Currency Translation
|
|
Pension Plans
|
|
Hedged Interest Rate Caps
|
|
Hedged Interest Rate Swaps
|
Total
|
|
Beginning Balance
|
$
|
(14.5)
|
|
|
$
|
(1.8)
|
|
|
|
|
$
|
(19.5)
|
|
|
$
|
(35.8)
|
|
|
$
|
(22.9)
|
|
|
$
|
(1.8)
|
|
|
$
|
(0.9)
|
|
|
$
|
(24.1)
|
|
$
|
(49.7)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(9.4)
|
|
|
—
|
|
|
|
|
3.0
|
|
|
(6.4)
|
|
|
(1.0)
|
|
|
—
|
|
|
0.4
|
|
|
7.6
|
|
7.0
|
|
|
Amounts reclassified to statement of income
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
$
|
(23.9)
|
|
|
$
|
(1.8)
|
|
|
|
|
$
|
(16.5)
|
|
|
$
|
(42.2)
|
|
|
$
|
(23.9)
|
|
|
$
|
(1.8)
|
|
|
$
|
—
|
|
|
$
|
(16.5)
|
|
$
|
(42.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 27, 2020
|
|
Nine Months Ended June 27, 2020
|
|
|
Foreign Currency Translation
|
|
|
|
Pension Plans
|
|
Hedged Interest Rate Caps
|
|
Hedged Interest Rate Swaps
|
|
Total
|
|
Foreign Currency Translation
|
|
Pension Plans
|
|
Hedged Interest Rate Caps
|
|
Hedged Interest Rate Swaps
|
Total
|
|
Beginning Balance
|
$
|
(38.5)
|
|
|
|
|
$
|
(1.7)
|
|
|
$
|
(1.1)
|
|
|
$
|
(17.6)
|
|
|
$
|
(58.9)
|
|
|
$
|
(41.4)
|
|
|
$
|
(1.7)
|
|
|
$
|
(2.7)
|
|
|
$
|
3.5
|
|
$
|
(42.3)
|
|
|
Other comprehensive income (loss) before reclassifications
|
1.4
|
|
|
|
|
—
|
|
|
(0.1)
|
|
|
(4.6)
|
|
|
(3.3)
|
|
|
4.3
|
|
|
—
|
|
|
(0.2)
|
|
|
(25.7)
|
|
(21.6)
|
|
|
Amounts reclassified to statement of income
|
—
|
|
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
2.0
|
|
|
Ending Balance
|
$
|
(37.1)
|
|
|
|
|
$
|
(1.7)
|
|
|
$
|
(0.9)
|
|
|
$
|
(22.2)
|
|
|
$
|
(61.9)
|
|
|
$
|
(37.1)
|
|
|
$
|
(1.7)
|
|
|
$
|
(0.9)
|
|
|
$
|
(22.2)
|
|
$
|
(61.9)
|
|
(19) Share Repurchase
On December 11, 2019, the Board of Directors authorized a share repurchase plan to purchase up to $500.0 million of the Company's outstanding common stock, effective March 2, 2020. During the first quarter of fiscal 2021, the Company repurchased 1.5 million shares of its common stock under this plan for a total consideration of $101.3 million. On December 9, 2020, the Board of Directors authorized a new five-year share repurchase plan to repurchase up to $1.0 billion of the Company's outstanding common stock. The prior plan was terminated in connection with this new authorization. Under the new authorization, during the three and nine months ended June 26, 2021, the Company repurchased 3.0 million and 4.6 million shares of its common stock for a total consideration of $188.4 million and $308.5 million, respectively. As of June 26, 2021, $691.6 million remained available under this authorization.
(20) New Accounting Pronouncements
See Note 1 for Recently Adopted Accounting Pronouncements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The Board issued this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and is applicable to the Company in fiscal 2022. The Company is currently evaluating the impact of the adoption of ASU 2019-12 on its consolidated financial position and results of operations.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The Board issued this Update to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815. This update could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. For entities that have adopted the amendments in Update 2020-01, the updated guidance is effective for annual periods beginning after December 15, 2020, and is applicable to the Company in fiscal 2022. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2020-01 on its consolidated financial position and results of operations.
In January 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). The Board issued this Update as optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. This update will provide optional expedients and exceptions for applying GAAP to only contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. For entities that have adopted the amendments in Update 2020-04, the updated guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the adoption of ASU 2020-04 on its consolidated financial position and results of operations.
In January 2021, FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) Scope. The board issued this Update in response to stakeholder concerns about potential diversity in practice. The Boards decided to clarify the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. This update provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to only contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. For entities that have adopted the amendments in Update 2021-01, the updated guidance is effective for all entities immediately as of January 2021. The Company is currently evaluating the impact of the adoption of ASU 2021-01 on its consolidated financial position and results of operations.