HOLX_Q1-2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
FORM 10-Q
__________________________________________________________
(Mark One)
|
| |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 27, 2014
or |
| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-36214
__________________________________________________________
Hologic, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________________________
|
| | |
Delaware | | 04-2902449 |
(State of incorporation) | | (I.R.S. Employer Identification No.) |
35 Crosby Drive, Bedford, Massachusetts | | 01730 |
(Address of principal executive offices) | | (Zip Code) |
(781) 999-7300
(Registrant’s telephone number, including area code)
__________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
|
| | | | | | |
Large accelerated filer | | ý | | Accelerated filer | | ¨ |
Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No ý
As of January 23, 2015, 279,950,539 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.
HOLOGIC, INC.
INDEX
|
| | |
| Page |
| |
| |
| |
Item 1. | | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
| | |
| |
Item 2. | | |
| |
Item 3. | | |
| |
Item 4. | | |
| |
| |
| | |
Item 1. | | |
| | |
Item 1A. | | |
| | |
Item 2. | | |
| | |
Item 6. | | |
| |
| |
| |
EXHIBITS | |
PART I – FINANCIAL INFORMATION
| |
Item 1. | Financial Statements (unaudited) |
HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and per share data)
|
| | | | | | | |
| Three Months Ended |
| December 27,
2014 | | December 28,
2013 |
Revenues: | | | |
Product | $ | 546.6 |
| | $ | 512.4 |
|
Service and other | 106.2 |
| | 100.1 |
|
| 652.8 |
| | 612.5 |
|
Costs of revenues: | | | |
Product | 186.7 |
| | 176.9 |
|
Amortization of intangible assets | 73.9 |
| | 76.7 |
|
Service and other | 53.6 |
| | 53.3 |
|
Gross Profit | 338.6 |
| | 305.6 |
|
Operating expenses: | | | |
Research and development | 52.0 |
| | 48.7 |
|
Selling and marketing | 86.0 |
| | 83.3 |
|
General and administrative | 61.3 |
| | 67.8 |
|
Amortization of intangible assets | 27.8 |
| | 26.2 |
|
Restructuring and divestiture charges | 8.0 |
| | 18.3 |
|
| 235.1 |
| | 244.3 |
|
Income from operations | 103.5 |
| | 61.3 |
|
Interest income | 0.4 |
| | 0.3 |
|
Interest expense | (52.5 | ) | | (61.3 | ) |
Debt extinguishment loss | (6.7 | ) | | (2.9 | ) |
Other (expense) income, net | (0.6 | ) | | 1.2 |
|
Income (loss) before income taxes | 44.1 |
| | (1.4 | ) |
Provision for income taxes | 14.9 |
| | 3.9 |
|
Net income (loss) | $ | 29.2 |
| | $ | (5.3 | ) |
Net income (loss) per common share: | | | |
Basic | $ | 0.10 |
| | $ | (0.02 | ) |
Diluted | $ | 0.10 |
| | $ | (0.02 | ) |
Weighted average number of shares outstanding: | | | |
Basic | 278,671 |
| | 272,708 |
|
Diluted | 283,176 |
| | 272,708 |
|
See accompanying notes.
HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In millions)
|
| | | | | | | |
| Three Months Ended |
| December 27,
2014 | | December 28,
2013 |
Net income (loss) | $ | 29.2 |
| | $ | (5.3 | ) |
Changes in foreign currency translation adjustment | (9.0 | ) | | (1.2 | ) |
Changes in unrealized holding gains and losses on available-for-sale securities | 5.1 |
| | (1.2 | ) |
Changes in pension plans, net of taxes of $0.2 in fiscal 2014 | 0.1 |
| | (0.6 | ) |
Other comprehensive loss | (3.8 | ) | | (3.0 | ) |
Comprehensive income (loss) | $ | 25.4 |
| | $ | (8.3 | ) |
See accompanying notes.
HOLOGIC, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and par value)
|
| | | | | | | |
| December 27,
2014 | | September 27,
2014 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 544.0 |
| | $ | 736.1 |
|
Restricted cash | 5.1 |
| | 5.5 |
|
Accounts receivable, less reserves of $11.9 and $12.0, respectively | 400.5 |
| | 396.0 |
|
Inventories | 310.3 |
| | 330.6 |
|
Deferred income tax assets | 39.0 |
| | 39.4 |
|
Prepaid income taxes | — |
| | 22.4 |
|
Prepaid expenses and other current assets | 37.7 |
| | 35.8 |
|
Total current assets | 1,336.6 |
| | 1,565.8 |
|
Property, plant and equipment, net | 458.2 |
| | 461.9 |
|
Intangible assets, net | 3,332.1 |
| | 3,433.6 |
|
Goodwill | 2,809.9 |
| | 2,810.8 |
|
Other assets | 141.3 |
| | 142.6 |
|
Total assets | $ | 8,078.1 |
| | $ | 8,414.7 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Current portion of long-term debt | $ | 139.4 |
| | $ | 114.5 |
|
Accounts payable | 67.0 |
| | 92.1 |
|
Accrued expenses | 253.0 |
| | 262.1 |
|
Deferred revenue | 148.4 |
| | 150.9 |
|
Total current liabilities | 607.8 |
| | 619.6 |
|
Long-term debt, net of current portion | 3,815.4 |
| | 4,153.2 |
|
Deferred income tax liabilities | 1,345.7 |
| | 1,375.4 |
|
Deferred service obligations – long-term | 19.8 |
| | 20.1 |
|
Other long-term liabilities | 187.0 |
| | 183.4 |
|
Commitments and contingencies (Note 5) |
| |
|
Stockholders’ equity: | | | |
Preferred stock, $0.01 par value – 1,623 shares authorized; 0 shares issued | — |
| | — |
|
Common stock, $0.01 par value – 750,000 shares authorized; 279,466 and 277,972 shares issued, respectively | 2.8 |
| | 2.8 |
|
Additional paid-in-capital | 5,672.1 |
| | 5,658.2 |
|
Accumulated deficit | (3,571.3 | ) | | (3,600.6 | ) |
Accumulated other comprehensive income (loss) | (1.2 | ) | | 2.6 |
|
Total stockholders’ equity | 2,102.4 |
| | 2,063.0 |
|
Total liabilities and stockholders’ equity | $ | 8,078.1 |
| | $ | 8,414.7 |
|
See accompanying notes.
HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
|
| | | | | | | |
| Three Months Ended |
| December 27,
2014 | | December 28,
2013 |
OPERATING ACTIVITIES | | | |
Net income (loss) | $ | 29.2 |
| | $ | (5.3 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation | 20.3 |
| | 24.9 |
|
Amortization | 101.7 |
| | 102.9 |
|
Non-cash interest expense | 16.7 |
| | 19.7 |
|
Stock-based compensation expense | 12.1 |
| | 13.7 |
|
Excess tax benefit related to equity awards | (3.0 | ) | | (3.0 | ) |
Deferred income taxes | (30.5 | ) | | (125.1 | ) |
Asset impairment charges | — |
| | 3.1 |
|
Debt extinguishment loss | 6.7 |
| | 2.9 |
|
Loss on disposal of property and equipment | 1.7 |
| | 1.4 |
|
Other | 1.2 |
| | (0.9 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (9.7 | ) | | 15.6 |
|
Inventories | 18.7 |
| | (14.1 | ) |
Prepaid income taxes | 22.4 |
| | 44.7 |
|
Prepaid expenses and other assets | (3.0 | ) | | 2.1 |
|
Accounts payable | (24.8 | ) | | 10.4 |
|
Accrued expenses and other liabilities | (5.0 | ) | | 53.7 |
|
Deferred revenue | (1.2 | ) | | 2.6 |
|
Net cash provided by operating activities | 153.5 |
| | 149.3 |
|
INVESTING ACTIVITIES | | | |
Net proceeds from sale of business | — |
| | 2.4 |
|
Purchase of property and equipment | (10.8 | ) | | (8.4 | ) |
Increase in equipment under customer usage agreements | (10.3 | ) | | (8.0 | ) |
Net (purchases) sales of insurance contracts | (6.4 | ) | | 13.8 |
|
Purchases of mutual funds | — |
| | (29.7 | ) |
Sales of mutual funds | 6.4 |
| | 15.9 |
|
Increase in other assets | (0.9 | ) | | (0.4 | ) |
Net cash used in investing activities | (22.0 | ) | | (14.4 | ) |
FINANCING ACTIVITIES | | | |
Repayment of long-term debt | (328.8 | ) | | (521.3 | ) |
Net proceeds from issuance of common stock pursuant to employee stock plans | 15.2 |
| | 12.9 |
|
Excess tax benefit related to equity awards | 3.0 |
| | 3.0 |
|
Payment of minimum tax withholdings on net share settlements of equity awards | (10.6 | ) | | (9.1 | ) |
Net cash used in financing activities | (321.2 | ) | | (514.5 | ) |
Effect of exchange rate changes on cash and cash equivalents | (2.4 | ) | | (0.4 | ) |
Net decrease in cash and cash equivalents | (192.1 | ) | | (380.0 | ) |
Cash and cash equivalents, beginning of period | 736.1 |
| | 822.5 |
|
Cash and cash equivalents, end of period | $ | 544.0 |
| | $ | 442.5 |
|
See accompanying notes.
HOLOGIC, INC.
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 (“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”). These financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended September 27, 2014 included in the Company’s Form 10-K filed with the SEC on November 20, 2014. In the opinion of management, the financial statements and notes contain all adjustments (consisting of normal recurring accruals) 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 U.S. 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 months ended December 27, 2014 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending September 26, 2015.
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 require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events recorded in the unaudited consolidated financial statements as of and for the three months ended December 27, 2014.
(2) Fair Value Measurements
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The Company has investments in publicly-traded companies and mutual funds, both of which are valued using quoted market prices, representing Level 1 assets. The Company has a payment obligation to the participants under its Nonqualified Deferred Compensation Plan (“DCP”). This liability is recorded at fair value based on the underlying value of certain hypothetical investments under the DCP as designated by each participant for their benefit. Since the value of the DCP obligation is based on market prices, the liability is classified within Level 1.
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following at December 27, 2014: |
| | | | | | | | | | | | | | | |
| | | Fair Value at Reporting Date Using |
| Balance as of December 27, 2014 | | Quoted Prices in Active Market for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Marketable securities: | | | | | | | |
Equity securities | $ | 29.5 |
| | $ | 29.5 |
| | $ | — |
| | $ | — |
|
Mutual funds | 9.4 |
| | 9.4 |
| | — |
| | — |
|
Total | $ | 38.9 |
| | $ | 38.9 |
| | $ | — |
| | $ | — |
|
Liabilities: | | | | | | | |
Deferred compensation liabilities | $ | 37.1 |
| | $ | 37.1 |
| | $ | — |
| | $ | — |
|
Total | $ | 37.1 |
| | $ | 37.1 |
| | $ | — |
| | $ | — |
|
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 cost-method equity investments and long-lived assets, including property, plant and equipment, intangible assets and goodwill.
In the first quarter of fiscal 2014, the Company recorded a $3.1 million impairment charge to record certain of its buildings at fair value related to the Hitec-Imaging organic photoconductor manufacturing line shutdown (see Note 3). The Company believes this adjustment falls within Level 3 of the fair value hierarchy.
The Company holds certain cost-method equity investments in non-publicly traded securities aggregating $5.2 million at each of December 27, 2014 and September 27, 2014, which are included in other long-term assets on the Company’s Consolidated Balance Sheets. These investments are generally carried at cost, less any write-downs for other-than-temporary impairment charges. To determine the fair value of these investments, the Company uses all available financial information related to the entities, including information based on recent or pending third-party equity investments in these entities. In certain instances, a cost method investment’s fair value is not estimated as there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and to do so would be impractical. In the first quarter of fiscal 2014, the Company recorded an other-than-temporary impairment charge of $0.7 million related to one of its cost-method equity investments.
Disclosure of Fair Value of Financial Instruments
The Company’s financial instruments mainly consist of cash and cash equivalents, accounts receivable, marketable securities, cost-method equity investments, insurance contracts, DCP liability, accounts payable and debt obligations. The carrying amounts of the Company’s cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. The Company’s marketable securities are recorded at fair value. The carrying amount of the insurance contracts are recorded at the cash surrender value, as required by U.S. GAAP, which approximates fair value, and the related DCP liability is recorded at fair value. The Company believes the carrying amounts of its cost-method equity investments approximate fair value.
Amounts outstanding under the Company’s Credit Agreement of $1.72 billion aggregate principal as of December 27, 2014 are subject to variable 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 Senior Notes had a fair value of approximately $1.04 billion as of December 27, 2014 based on their trading price, representing a Level 1 measurement. The fair value of the Company’s Convertible Notes is based on the trading prices of the respective notes and represents a Level 1 measurement. Refer to Note 4 for the carrying amounts of the various components of the Company’s debt.
The estimated fair values of the Company’s Convertible Notes at December 27, 2014 were as follows:
|
| | | |
2010 Notes | $ | 566.9 |
|
2012 Notes | 555.6 |
|
2013 Notes | 408.3 |
|
| $ | 1,530.8 |
|
(3) Restructuring and Divestiture Charges
The Company evaluates its operations for opportunities to improve operational effectiveness and efficiency, including facility and operations consolidation, and to better align expenses with revenues. In addition, it is continually assessing its management structure. As a result of these assessments, the Company has undertaken various restructuring actions, which are described below. The following table displays charges taken in fiscal 2015 and 2014 related to these actions and a rollforward of the accrued balances from September 27, 2014 to December 27, 2014:
|
| | | | | | | | | | | | | | | | | | | |
| Consolidation of Diagnostics Operations | | Fiscal 2015 Actions | | Fiscal 2014 Actions | | Other Operating Cost Reductions | | Total |
Fiscal 2014 charges: | | | | | | | | | |
Workforce reductions | $ | 2.9 |
| | $ | — |
| | $ | 29.5 |
| | $ | 9.8 |
| | $ | 42.2 |
|
Non-cash impairment charge | — |
| | — |
| | — |
| | 3.1 |
| | $ | 3.1 |
|
Facility closure costs | — |
| | — |
| | — |
| | 0.6 |
| | 0.6 |
|
Other | 0.1 |
| | — |
| | — |
| | 0.2 |
| | 0.3 |
|
Fiscal 2014 restructuring charges | $ | 3.0 |
| | $ | — |
| | $ | 29.5 |
| | $ | 13.7 |
| | $ | 46.2 |
|
Divestiture net charges | | | | | | | | | 5.5 |
|
Fiscal 2014 restructuring and divestiture charges | | | | | | | | | $ | 51.7 |
|
Fiscal 2015 charges: | | | | | | | | |
|
Workforce reductions | $ | 0.1 |
| | $ | 2.5 |
| | $ | 4.5 |
| | $ | 0.2 |
| | $ | 7.3 |
|
Facility closure costs | 0.4 |
| | — |
| | 0.2 |
| | 0.1 |
| | 0.7 |
|
Fiscal 2015 restructuring and divestiture charges | $ | 0.5 |
| | $ | 2.5 |
| | $ | 4.7 |
| | $ | 0.3 |
| | $ | 8.0 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Consolidation of Diagnostics Operations | | Fiscal 2015 Actions | | Fiscal 2014 Actions | | Other Operating Cost Reductions | | Total |
Rollforward of Accrued Restructuring | | | | | | | | | |
Balance as of September 27, 2014 | $ | 3.0 |
| | $ | — |
| | $ | 12.0 |
| | $ | 1.9 |
| | $ | 16.9 |
|
| | | | | | | | | |
Fiscal 2015 restructuring charges | 0.5 |
| | 2.5 |
| | 4.7 |
| | 0.3 |
| | 8.0 |
|
Stock-based compensation | — |
| | (0.1 | ) | | — |
| | — |
| | (0.1 | ) |
Severance payments | (2.4 | ) | | (0.4 | ) | | (6.5 | ) | | (0.7 | ) | | (10.0 | ) |
Other payments | (0.4 | ) | | — |
| | (0.4 | ) | | (0.2 | ) | | (1.0 | ) |
Balance as of December 27, 2014 | $ | 0.7 |
| | $ | 2.0 |
| | $ | 9.8 |
| | $ | 1.3 |
| | $ | 13.8 |
|
Consolidation of Diagnostics Operations
In connection with its acquisition of Gen-Probe Incorporated (“Gen-Probe”) in August 2012, the Company implemented restructuring actions to consolidate its Diagnostics operations, including streamlining product development initiatives, reducing overlapping functional areas in sales, marketing and general and administrative functions, and consolidating manufacturing resources, field services and support. As a result, the Company terminated certain employees from Gen-Probe and its legacy diagnostics business in research and development, sales, marketing, and general and administrative functions. The Company also decided to move its legacy molecular diagnostics operations from Madison, Wisconsin to Gen-Probe’s facilities in San Diego, California. This transfer was completed at the end of fiscal 2014 and, as a result, many of the employees in Madison were terminated. The Company recorded severance and benefit charges pursuant to ASC 420, Exit or Disposal Cost Obligations (ASC 420), beginning in fiscal 2012 and through fiscal 2015. The Company recorded $3.0 million for severance and benefits in fiscal 2014. The Company recorded $0.5 million for facility closure costs and severance and benefits in the first quarter of fiscal 2015, and $0.8 million for severance and benefits in the first quarter of fiscal 2014.
Fiscal 2015 Actions
In the first quarter of fiscal 2015, the Company continued to make executive management changes resulting in the termination of certain executives and employees on a worldwide basis. In addition, the Company continued to consolidate and close certain international offices. Severance and benefit charges under these actions have been recorded pursuant to ASC 712, Compensation-Nonretirement Postemployment Benefits (ASC 720), and ASC 420 depending on the circumstances, and the Company recorded severance and benefit charges of $2.5 million in the first quarter of fiscal 2015. Included in the charge is $0.1 million of stock-based compensation for the acceleration of certain equity awards pursuant to their original terms.
Fiscal 2014 Actions
During the first quarter of fiscal 2014, the Company implemented a cost reduction initiative comprised of reducing headcount and evaluating research projects and operating costs. In connection with this plan, the Company terminated certain employees on a worldwide basis. The Company recorded the severance and benefit charges pursuant to ASC 420 and ASC 712, depending on the circumstances. The Company recorded $6.3 million of severance and benefit charges in the first quarter of fiscal 2014, which included $0.4 million of stock-based compensation.
On December 6, 2013, Stephen P. MacMillan was appointed as President, Chief Executive Officer and a director of the Company. The employment of John W. Cumming, the Company’s prior President and Chief Executive Officer, terminated upon Mr. MacMillan’s appointment. The Company provided separation benefits to Mr. Cumming pursuant to his employment letter dated July 18, 2013 resulting in a charge of $6.6 million in the first quarter of fiscal 2014, which included $4.4 million of stock-based compensation related to the acceleration of all of Mr. Cumming’s outstanding equity awards in accordance with the existing terms of Mr. Cumming’s stock-based payment arrangements.
In the second, third, and fourth quarters of fiscal 2014, the Company continued to make executive management changes and implemented additional cost reduction initiatives resulting in the termination of certain executives and employees on a worldwide basis. In addition, in the fourth quarter of fiscal 2014 the Company decided to consolidate and close certain international offices. Severance and benefit charges under these actions have been recorded pursuant to ASC 420 and ASC 712 depending on the circumstances, and the Company recorded severance and benefit charges of $16.6 million in fiscal 2014. Included in the charge is $1.8 million of stock-based compensation for the modification of the terms of equity awards to certain employees. The Company recorded $4.5 million for severance and benefits and $0.2 million for facility closure costs in the first quarter of fiscal 2015 related to this action. Since a portion of the charges are pursuant to ASC 420, the Company expects to incur approximately $1.8 million of additional charges in the remainder of fiscal 2015 as the severance benefits are recorded ratably over the required service period. Charges related to lease obligations will be recorded upon either the cease-use date or execution of a termination contract.
Other Operating Cost Reductions:
Hitec-Imaging Organic Photoconductor Manufacturing Line Shut-down
In the fourth quarter of fiscal 2013, in connection with the Company’s cost reduction initiatives, the Company decided to shut-down its Hitec-Imaging organic photoconductor manufacturing line located in Germany. This production line is included within the Breast Health segment. As a result, the Company terminated certain employees, primarily in manufacturing, in fiscal 2014. During the first quarter of fiscal 2014, the Company completed its negotiations with the local Works Council to determine severance benefits for the approximately 95 affected employees. The Company recorded severance and benefit charges pursuant to ASC 420 and estimates the total severance and related charges related to this action will be approximately
$9.5 million. The Company began notifying the affected employees in the second quarter of fiscal 2014, and as such no charges were recorded in the first quarter of fiscal 2014. The Company recorded charges of $8.7 million in fiscal 2014 in connection with terminating these employees. In the first quarter of fiscal 2015, the Company recorded $0.3 million for severance and benefits and facility closure costs. The Company also recorded an impairment charge of $3.1 million in the first quarter of fiscal 2014 to record certain buildings at this location to their estimated fair value.
Divestitures
In the fourth quarter of fiscal 2014, the Company completed the sale of its MRI breast coils product line and recorded a loss on disposal of $5.3 million. The Company is providing certain transition services, including the manufacturing and sale of inventory to the buyer, over a six-month period through March 2015.
(4) Borrowings and Credit Arrangements
The Company’s borrowings consisted of the following:
|
| | | | | | | |
| December 27,
2014 | | September 27,
2014 |
Current debt obligations, net of debt discount: |
| |
|
Term Loan A | $ | 124.5 |
| | $ | 99.6 |
|
Term Loan B | 14.9 |
| | 14.9 |
|
Total current debt obligations | 139.4 |
| | 114.5 |
|
Long-term debt obligations, net of debt discount: | | | |
Term Loan A | 747.1 |
| | 796.7 |
|
Term Loan B | 820.0 |
| | 1,120.9 |
|
Senior Notes | 1,000.0 |
| | 1,000.0 |
|
Convertible Notes | 1,248.3 |
| | 1,235.6 |
|
Total long-term debt obligations | 3,815.4 |
| | 4,153.2 |
|
Total debt obligations | $ | 3,954.8 |
| | $ | 4,267.7 |
|
Credit Agreement
On December 24, 2014, the Company voluntarily pre-paid $300.0 million of its Term Loan B facility. Pursuant to ASC 470, Debt (ASC 470), the Company recorded a debt extinguishment loss of $6.7 million in the first quarter of fiscal 2015 to write-off the pro-rata amount of unamortized debt discount and deferred issuance costs related to this voluntary prepayment.
On October 31, 2013, the Company voluntarily pre-paid $100.0 million of its Term Loan B facility, which was reflected in current debt obligations as of September 28, 2013. Pursuant to ASC 470, the Company recorded a debt extinguishment loss of $2.9 million in the first quarter of fiscal 2014 to write-off the pro-rata amount of unamortized debt discount and deferred issuance costs related to this voluntary prepayment.
Borrowings outstanding under the Credit Agreement for the three months ended December 27, 2014 and December 28, 2013 had weighted-average interest rates of 2.77% and 3.06%, respectively. The interest rates on the outstanding Term Loan A and Term Loan B borrowings at December 27, 2014 were 2.16% and 3.25%, respectively. Interest expense under the Credit Agreement totaled $17.6 million and $20.4 million for the three months ended December 27, 2014 and December 28, 2013, respectively, which includes non-cash interest expense of $3.1 million and $3.3 million related to the amortization of the deferred issuance costs and accretion of the debt discount, respectively.
The credit facilities contain two financial ratio covenants measured as of the last day of each fiscal quarter: a total net leverage ratio and an interest coverage ratio. As of December 27, 2014, the Company was in compliance with these covenants.
Senior Notes
The Company’s 6.25% senior notes due 2020 (the “Senior Notes”) mature on August 1, 2020 and bear interest at the rate of 6.25% per year, payable semi-annually on February 1 and August 1 of each year, commencing on February 1, 2013. The Company recorded interest expense of $16.0 million in the three month periods ended December 27, 2014 and December 28,
2013, which includes non-cash interest expense of $0.4 million in the three month periods ended December 27, 2014 and December 28, 2013 related to the amortization of the deferred issuance costs.
Convertible Notes
Interest expense under the Convertible Notes is as follows:
|
| | | | | | | |
| Three Months Ended |
| December 27,
2014 | | December 28,
2013 |
Amortization of debt discount | $ | 8.8 |
| | $ | 11.5 |
|
Amortization of deferred financing costs | 0.4 |
| | 0.7 |
|
Principal accretion | 3.9 |
| | 3.8 |
|
Non-cash interest expense | 13.1 |
| | 16.0 |
|
2.00% accrued interest (cash) | 4.8 |
| | 8.1 |
|
| $ | 17.9 |
| | $ | 24.1 |
|
(5) Commitments and Contingencies
Litigation and Related Matters
On June 9, 2010, Smith & Nephew, Inc. ("Smith & Nephew") filed suit against Interlace Medical, Inc. ("Interlace"), which the Company acquired on January 6, 2011, in the United States District Court for the District of Massachusetts. The complaint alleged that the Interlace MyoSure hysteroscopic tissue removal device infringed U.S. patent 7,226,459. On November 22, 2011, Smith & Nephew filed suit against the Company in the United States District Court for the District of Massachusetts. The complaint alleged that use of the MyoSure hysteroscopic tissue removal system infringed U.S. patent 8,061,359. Both complaints sought permanent injunctive relief and unspecified damages. On September 4, 2012, following a two week trial, the jury returned a verdict of infringement of both the ‘459 and ‘359 patents and assessed damages of $4.0 million. A bench trial regarding the Company’s assertion of inequitable conduct on the part of Smith & Nephew with regard to the ‘359 patent was held on December 9, 2012 and oral arguments on the issue of inequitable conduct were presented on February 27, 2013. On June 27, 2013, the Court denied the Company’s motions related to inequitable conduct and allowed Smith & Nephew’s request for injunction, but ordered that enforcement of the injunction be stayed until final resolution, including appeal, of the current re-examinations of both patents at the United States Patent and Trademark Office (“USPTO”). The Court also rejected the jury’s damage award and ordered the parties to identify a mechanism for resolving the damages issue. On September 12, 2013, a status conference was held, and the Court invited the parties to submit briefs on the relevance of recent activity in the re-examinations at the USPTO. A hearing on this topic was held on October 29, 2013, and the parties are awaiting the Court’s ruling. The Company intends to file post-trial motions seeking to reverse the jury’s verdict. On January 14, 2014, the USPTO issued a final decision that the claims of the ‘459 patent asserted as part of the litigation are not patentable. On February 13, 2014, Smith & Nephew appealed this decision to the U.S. Patent Trial and Appeal Board. The re-examination of the ‘359 patent is on-going. It is expected that patentability decisions made by the USPTO for both patents will proceed to appeal. 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.
On March 6, 2012, Enzo Life Sciences, Inc. (“Enzo”) filed suit against the Company in the United States District Court for the District of Delaware. The complaint alleged that certain of the Company’s molecular diagnostics products, including without limitation products based on its proprietary Invader chemistry, such as Cervista HPV HR and Cervista HPV 16/18, infringe Enzo’s U.S. patent 6,992,180. The complaint seeks permanent injunctive relief and unspecified damages. The Company was formally served with the complaint on July 3, 2012, and a trial is tentatively scheduled for the fall of 2015. In January 2012, Enzo filed suit against Gen-Probe in the United States District Court for the District of Delaware. The Gen-Probe complaint alleged that certain of Gen-Probe’s diagnostics products, including products that incorporate Gen-Probe’s patented hybridization protection assay technology, such as the Aptima Combo 2 and Aptima HPV assays, infringe Enzo’s U.S. patent 6,992,180. On September 30, 2013, Enzo amended its list of accused products to include Prodesse, MilliPROBE, PACE and Procleix assays. The complaint seeks permanent injunctive relief and unspecified damages. Enzo has asserted the ‘180 patent claims against six other companies. The defendant companies are jointly arguing issues related to claim construction, and the trials are tentatively scheduled to begin in the fall of 2015. 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.
On October 29, 2013, the Interlace stockholder representatives filed a complaint in the Delaware Court of Chancery alleging breach of contract for issues related to the payment of contingent consideration under the Interlace acquisition agreement, and sought $14.7 million in additional payments. On October 20, 2014, a trial was held in Delaware. The parties executed a settlement agreement in January 2015 for an amount less than that sought. The Company had accrued certain amounts to settle this litigation as of September 27, 2014 and the effect of this settlement was not material to the Company's financial statements.
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 described above there are no other proceedings or claims pending against it of which the ultimate resolution would 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.
(6) Marketable Securities
The following reconciles the cost basis to the fair market value of the Company’s equity securities that are classified as available-for-sale:
|
| | | | | | | | | | | | | | | |
Period Ended: | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
December 27, 2014 | $ | 15.5 |
| | $ | 19.7 |
| | $ | (5.7 | ) | | $ | 29.5 |
|
September 27, 2014 | $ | 15.5 |
| | $ | 10.2 |
| | $ | (1.3 | ) | | $ | 24.4 |
|
(7) Net Income (Loss) Per Share
A reconciliation of basic and diluted share amounts is as follows:
|
| | | | | |
| Three Months Ended |
| December 27,
2014 | | December 28,
2013 |
Basic weighted average common shares outstanding | 278,671 |
| | 272,708 |
|
Weighted average common stock equivalents from assumed exercise of stock options and stock units | 2,464 |
| | — |
|
Incremental shares from assumed conversion of the Convertible Notes premium | 2,041 |
| | — |
|
Diluted weighted average common shares outstanding | 283,176 |
| | 272,708 |
|
Weighted-average anti-dilutive shares related to: | | | |
Outstanding stock options | 3,782 |
| | 7,199 |
|
Stock units | 140 |
| | 950 |
|
The Company has outstanding Convertible Notes, and the principal balance and any conversion premium may be satisfied, at the Company’s option, by issuing shares of common stock, cash or a combination of shares and cash. The Company's policy is that it will settle the principal balance of the Convertible Notes in cash. As such, the Company applies the treasury stock method to these securities and the dilution related to the conversion premium of the 2010 Notes is included in the calculation of diluted weighted-average shares outstanding for the three months ended December 27, 2014 as the average stock price during the quarter was greater than the conversion price of the 2010 Notes.
(8) Stock-Based Compensation
The following presents stock-based compensation expense in the Company’s Consolidated Statements of Operations:
|
| | | | | | | |
| Three Months Ended |
| December 27,
2014 | | December 28,
2013 |
Cost of revenues | $ | 2.0 |
| | $ | 1.5 |
|
Research and development | 1.9 |
| | 1.9 |
|
Selling and marketing | 2.0 |
| | 1.7 |
|
General and administrative | 6.1 |
| | 3.8 |
|
Restructuring and divestiture | 0.1 |
| | 4.8 |
|
| $ | 12.1 |
| | $ | 13.7 |
|
The Company granted approximately 1.0 million and 2.0 million stock options during the three months ended December 27, 2014 and December 28, 2013, respectively, with weighted-average exercise prices of $26.12 and $21.82, respectively. There were 9.2 million options outstanding at December 27, 2014 with a weighted-average exercise price of $21.34.
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 |
| December 27,
2014 | | December 28,
2013 |
Risk-free interest rate | 1.7 | % | | 1.2 | % |
Expected volatility | 38.6 | % | | 41.4 | % |
Expected life (in years) | 5.3 |
| | 4.4 |
|
Dividend yield | — |
| | — |
|
Weighted average fair value of options granted | $ | 9.44 |
| | $ | 7.64 |
|
The Company granted approximately 1.3 million and 2.0 million restricted stock units (RSUs) during the three months ended December 27, 2014 and December 28, 2013, respectively, with weighted-average grant date fair values of $26.17 and $21.51, respectively. As of December 27, 2014, there were 4.0 million unvested RSUs outstanding with a weighted-average grant date fair value of $22.95. In addition, consistent with the Company's annual grant in fiscal 2014, the Company granted approximately 0.3 million performance stock units (PSUs) in the first quarter of fiscal 2015 to members of its senior management team, which have a weighted-average grant date fair value of $26.21. 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 is recognizing compensation expense ratably over the required service period based on its estimate that it is probable the targeted number of shares will vest. 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.
At December 27, 2014, there was $29.4 million and $90.5 million of unrecognized compensation expense related to stock options and stock units (comprised of RSUs and PSUs), respectively, to be recognized over a weighted-average period of 3.7 years and 3.0 years, respectively.
(9) Other Balance Sheet Information
|
| | | | | | | |
| December 27,
2014 | | September 27,
2014 |
Inventories | | | |
Raw materials | $ | 112.0 |
| | $ | 115.6 |
|
Work-in-process | 53.0 |
| | 57.1 |
|
Finished goods | 145.3 |
| | 157.9 |
|
| $ | 310.3 |
| | $ | 330.6 |
|
|
| | | | | | | |
Property, plant and equipment | | | |
Equipment and software | $ | 345.4 |
| | $ | 342.5 |
|
Equipment under customer usage agreements | 288.6 |
| | 285.2 |
|
Building and improvements | 179.5 |
| | 176.9 |
|
Leasehold improvements | 59.7 |
| | 63.2 |
|
Land | 51.5 |
| | 51.6 |
|
Furniture and fixtures | 16.4 |
| | 16.3 |
|
| 941.1 |
| | 935.7 |
|
Less – accumulated depreciation and amortization | (482.9 | ) | | (473.8 | ) |
| $ | 458.2 |
| | $ | 461.9 |
|
(10) Business Segments and Geographic Information
The Company has four reportable segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health. Certain reportable segments represent an aggregation of operating units within each segment. 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, acquisition related fair value adjustments and integration expenses, restructuring and divestiture charges and other one-time or unusual items.
Identifiable assets for the four principal operating segments consist of inventories, intangible assets, goodwill, and property, plant and equipment. The Company fully allocates depreciation expense to its four reportable segments. The Company has presented all other identifiable assets as corporate assets. There were no intersegment revenues during the three months ended December 27, 2014 and December 28, 2013. Segment information is as follows:
|
| | | | | | | |
| Three Months Ended |
| December 27,
2014 | | December 28,
2013 |
Total revenues: | | | |
Diagnostics | $ | 304.1 |
| | $ | 285.7 |
|
Breast Health | 242.0 |
| | 226.5 |
|
GYN Surgical | 84.4 |
| | 78.9 |
|
Skeletal Health | 22.3 |
| | 21.4 |
|
| $ | 652.8 |
|
| $ | 612.5 |
|
Operating income: | | | |
Diagnostics | $ | 28.2 |
| | $ | 4.8 |
|
Breast Health | 60.6 |
| | 43.8 |
|
GYN Surgical | 13.1 |
| | 11.1 |
|
Skeletal Health | 1.6 |
| | 1.6 |
|
| $ | 103.5 |
|
| $ | 61.3 |
|
Depreciation and amortization: | | | |
Diagnostics | $ | 88.6 |
| | $ | 92.2 |
|
Breast Health | 7.6 |
| | 9.4 |
|
GYN Surgical | 25.6 |
| | 26.0 |
|
Skeletal Health | 0.2 |
| | 0.2 |
|
| $ | 122.0 |
|
| $ | 127.8 |
|
Capital expenditures: | | | |
Diagnostics | $ | 14.8 |
| | $ | 10.3 |
|
Breast Health | 2.6 |
| | 1.8 |
|
GYN Surgical | 2.0 |
| | 1.8 |
|
Skeletal Health | 0.2 |
| | 0.1 |
|
Corporate | 1.5 |
| | 2.4 |
|
| $ | 21.1 |
|
| $ | 16.4 |
|
|
| | | | | | | |
| December 27,
2014 | | September 27,
2014 |
Identifiable assets: | | | |
Diagnostics | $ | 4,294.5 |
| | $ | 4,383.5 |
|
Breast Health | 847.3 |
| | 859.8 |
|
GYN Surgical | 1,726.8 |
| | 1,748.2 |
|
Skeletal Health | 25.1 |
| | 26.1 |
|
Corporate | 1,184.4 |
| | 1,397.1 |
|
| $ | 8,078.1 |
| | $ | 8,414.7 |
|
The Company had no customers with balances greater than 10% of accounts receivable as of December 27, 2014 or September 27, 2014, or any customer that represented greater than 10% of consolidated revenues during the three months ended December 27, 2014 and December 28, 2013.
The Company operates in the following major geographic areas as 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, Germany and the United Kingdom. The Company’s sales in Asia-Pacific are predominantly derived from China, Australia and Japan. The “All others” designation includes Canada, Latin America and the Middle East.
Revenues by geography as a percentage of total revenues were as follows:
|
| | | | | |
| Three Months Ended |
| December 27,
2014 | | December 28,
2013 |
United States | 74 | % | | 75 | % |
Europe | 13 | % | | 14 | % |
Asia-Pacific | 9 | % | | 7 | % |
All others | 4 | % | | 4 | % |
| 100 | % | | 100 | % |
(11) 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 month period ended December 27, 2014 was 33.8% compared to a provision of 277.1% on a pre-tax loss for the corresponding period in the prior year. For the current three month period, the effective tax rate differed from the statutory rate primarily due to the domestic production activities deduction. For the three months ended December 28, 2013, the tax rate was higher than the statutory rate primarily due to unbenefited foreign losses.
(12) Intangible Assets
Intangible assets consisted of the following:
|
| | | | | | | | | | | | | | | |
Description | As of December 27, 2014 | | As of September 27, 2014 |
Gross Carrying Value | | Accumulated Amortization | | Gross Carrying Value | | Accumulated Amortization |
Developed technology | $ | 3,965.2 |
| | $ | 1,464.2 |
| | $ | 3,951.1 |
| | $ | 1,390.5 |
|
In-process research and development | 3.7 |
| | — |
| | 17.9 |
| | — |
|
Customer relationships and contracts | 1,102.3 |
| | 405.7 |
| | 1,102.4 |
| | 384.7 |
|
Trade names | 236.4 |
| | 111.8 |
| | 236.5 |
| | 105.3 |
|
Patents | 14.6 |
| | 9.0 |
| | 14.5 |
| | 8.9 |
|
Business licenses | 2.6 |
| | 2.0 |
| | 2.6 |
| | 2.0 |
|
| $ | 5,324.8 |
|
| $ | 1,992.7 |
|
| $ | 5,325.0 |
|
| $ | 1,891.4 |
|
During the first quarter of fiscal 2015, the Company received regulatory approval for one of its in-process research and development projects acquired in the Gen-Probe acquisition and reclassified this asset of $14.2 million to developed technology.
The estimated remaining amortization expense as of December 27, 2014 for each of the five succeeding fiscal years is as follows:
|
| | | |
Remainder of Fiscal 2015 | $ | 302.6 |
|
Fiscal 2016 | $ | 375.9 |
|
Fiscal 2017 | $ | 366.8 |
|
Fiscal 2018 | $ | 356.3 |
|
Fiscal 2019 | $ | 344.4 |
|
(13) Product Warranties
Product warranty activity was as follows:
|
| | | | | | | | | | | | | | | |
| Balance at Beginning of Period | | Provisions | | Settlements/ Adjustments | | Balance at End of Period |
Three Months Ended: | | | | | | | |
December 27, 2014 | $ | 6.3 |
| | $ | 1.5 |
| | $ | (1.8 | ) | | $ | 6.0 |
|
December 28, 2013 | $ | 9.3 |
| | $ | 2.0 |
| | $ | (2.4 | ) | | $ | 8.9 |
|
(14) New Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and earlier application is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on the Company's consolidated financial statements or disclosures.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 660), which provides guidance for revenue recognition. This ASU is applicable to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 will supersede the revenue recognition requirements in Topic 605, Revenue Recognition , and most industry-specific guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to receive in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current U.S. GAAP. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016, which is fiscal 2018 for the Company. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial position and results of operations.
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exist. ASU 2013-11 amends the presentation requirements of ASC 740 and requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. To the extent the tax benefit is not available at the reporting date under the governing tax law or if the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and not combined with deferred tax assets. The ASU is effective for annual periods, and interim periods within those years, beginning after December 15, 2013, which is fiscal 2015 for the Company. The amendments are to be applied to all unrecognized tax benefits that exist as of the effective date and may be applied retrospectively to each prior reporting period presented. The adoption of ASU 2013-11 did not have a material impact on the Company's consolidated financial position or results of operations.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income. The ASU is effective for annual periods, and interim periods within those years, beginning after December 15, 2013, which is fiscal 2015 for the Company. The adoption of ASU 2013-05 did not have a material impact on the Company's consolidated financial position or results of operations.
(15) Supplemental Guarantor Condensed Consolidating Financials
The Company’s Senior Notes are fully and unconditionally and jointly and severally guaranteed by Hologic, Inc. (“Parent/Issuer”) and certain of its domestic subsidiaries, which are 100% owned by Hologic, Inc. The following represents the supplemental condensed financial information of Hologic, Inc. and its guarantor and non-guarantor subsidiaries, as of December 27, 2014 and September 27, 2014 and for the three months ended December 27, 2014 and December 28, 2013, as applicable.
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended December 27, 2014
|
| | | | | | | | | | | | | | | | | | | |
| Parent/Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | |
Product | $ | 131.6 |
| | $ | 425.8 |
| | $ | 120.0 |
| | $ | (130.8 | ) | | $ | 546.6 |
|
Service and other | 91.0 |
| | 15.6 |
| | 12.1 |
| | (12.5 | ) | | 106.2 |
|
| 222.6 |
| | 441.4 |
| | 132.1 |
| | (143.3 | ) | | 652.8 |
|
Costs of revenues: | | | | | | | | | |
Product | 58.3 |
| | 170.9 |
| | 88.3 |
| | (130.8 | ) | | 186.7 |
|
Amortization of intangible assets | 1.6 |
| | 72.2 |
| | 0.1 |
| | — |
| | 73.9 |
|
Service and other | 35.2 |
| | 16.1 |
| | 14.8 |
| | (12.5 | ) | | 53.6 |
|
Gross Profit | 127.5 |
| | 182.2 |
| | 28.9 |
| | — |
| | 338.6 |
|
Operating expenses: | | | | | | | | | |
Research and development | 8.4 |
| | 42.0 |
| | 1.6 |
| | — |
| | 52.0 |
|
Selling and marketing | 24.4 |
| | 40.5 |
| | 21.1 |
| | — |
| | 86.0 |
|
General and administrative | 17.4 |
| | 35.2 |
| | 8.7 |
| | — |
| | 61.3 |
|
Amortization of intangible assets | 0.6 |
| | 26.2 |
| | 1.0 |
| | — |
| | 27.8 |
|
Restructuring and divestiture charges | 1.8 |
| | 0.5 |
| | 5.7 |
| | — |
| | 8.0 |
|
| 52.6 |
| | 144.4 |
| | 38.1 |
| | — |
| | 235.1 |
|
Income (loss) from operations | 74.9 |
| | 37.8 |
| | (9.2 | ) | | — |
| | 103.5 |
|
Interest income | (0.7 | ) | | 1.1 |
| | 0.2 |
| | (0.2 | ) | | 0.4 |
|
Interest expense | (51.8 | ) | | (0.3 | ) | | (0.6 | ) | | 0.2 |
| | (52.5 | ) |
Debt extinguishment loss | (6.7 | ) | | — |
| | — |
| | — |
| | (6.7 | ) |
Other (expense) income, net | 50.7 |
| | (51.3 | ) | | 0.1 |
| | (0.1 | ) | | (0.6 | ) |
Income (loss) before income taxes | 66.4 |
| | (12.7 | ) | | (9.5 | ) | | (0.1 | ) | | 44.1 |
|
Provision for income taxes | 1.4 |
| | 12.3 |
| | 1.2 |
| | — |
| | 14.9 |
|
Equity in earnings (losses) of subsidiaries | (35.8 | ) | | 2.0 |
| | — |
| | 33.8 |
| | — |
|
Net income (loss) | $ | 29.2 |
| | $ | (23.0 | ) | | $ | (10.7 | ) | | $ | 33.7 |
| | $ | 29.2 |
|
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended December 28, 2013
|
| | | | | | | | | | | | | | | | | | | |
| Parent/Issuer | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | |
Product | $ | 105.5 |
| | $ | 381.5 |
| | $ | 126.4 |
| | $ | (101.0 | ) | | $ | 512.4 |
|
Service and other | 85.9 |
| | 15.9 |
| | 11.8 |
| | (13.5 | ) | | 100.1 |
|
| 191.4 |
| | 397.4 |
| | 138.2 |
| | (114.5 | ) | | 612.5 |
|
Costs of revenues: | | | | | | | | | |
Product | 52.9 |
| | 138.8 |
| | 86.3 |
| | (101.1 | ) | | 176.9 |
|
Amortization of intangible assets | 1.4 |
| | 74.1 |
| | 1.2 |
| | — |
| | 76.7 |
|
Service and other | 42.3 |
| | 7.6 |
| | 16.8 |
| | (13.4 | ) | | 53.3 |
|
Gross profit | 94.8 |
| | 176.9 |
| | 33.9 |
| | — |
| | 305.6 |
|
Operating expenses: | | | | | | | | | |
Research and development | 7.5 |
| | 38.9 |
| | 2.3 |
| | — |
| | 48.7 |
|
Selling and marketing | 17.9 |
| | 42.8 |
| | 22.6 |
| | — |
| | 83.3 |
|
General and administrative | 14.7 |
| | 41.5 |
| | 11.6 |
| | — |
| | 67.8 |
|
Amortization of intangible assets | 0.8 |
| | 24.1 |
| | 1.3 |
| | — |
| | 26.2 |
|
Restructuring and divestiture charges | 5.0 |
| | 9.7 |
| | 3.6 |
| | — |
| | 18.3 |
|
| 45.9 |
| | 157.0 |
| | 41.4 |
| | — |
| | 244.3 |
|
Income from operations | 48.9 |
| | 19.9 |
| | (7.5 | ) | | — |
| | 61.3 |
|
Interest income | 0.1 |
| | 0.3 |
| | 0.1 |
| | (0.2 | ) | | 0.3 |
|
Interest expense | (60.7 | ) | | (0.3 | ) | | (0.5 | ) | | 0.2 |
| | (61.3 | ) |
Debt extinguishment loss | (2.9 | ) | | — |
| | — |
| | — |
| | (2.9 | ) |
Other (expense) income, net | 9.6 |
| | (9.3 | ) | | 0.9 |
| | — |
| | 1.2 |
|
(Loss) income before income taxes | (5.0 | ) | | 10.6 |
| | (7.0 | ) | | — |
| | (1.4 | ) |
Provision (benefit) for income taxes | (0.1 | ) | | 1.6 |
| | 2.4 |
| | — |
| | 3.9 |
|
Equity in earnings (losses) of subsidiaries | (0.4 | ) | | 10.1 |
| | — |
| | (9.7 | ) | | — |
|
Net income (loss) | $ | (5.3 | ) | | $ | 19.1 |
| | $ | (9.4 | ) | | $ | (9.7 | ) | | $ | (5.3 | ) |
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended December 27, 2014
|
| | | | | | | | | | | | | | | | | | | |
| Parent/Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Net income (loss) | $ | 29.2 |
| | $ | (23.0 | ) | | $ | (10.7 | ) | | $ | 33.7 |
| | $ | 29.2 |
|
Changes in foreign currency translation adjustment | — |
| | (0.3 | ) | | (8.7 | ) | | — |
| | (9.0 | ) |
Changes in unrealized holding gain on available-for-sale securities | — |
| | 5.1 |
| | — |
| | — |
| | 5.1 |
|
Changes in pension plans, net of taxes | — |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
Comprehensive income (loss) | $ | 29.2 |
| | $ | (18.2 | ) | | $ | (19.3 | ) | | $ | 33.7 |
| | $ | 25.4 |
|
For the Three Months Ended December 28, 2013
|
| | | | | | | | | | | | | | | | | | | |
| Parent/Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Net income (loss) | $ | (5.3 | ) | | $ | 19.1 |
| | $ | (9.4 | ) | | $ | (9.7 | ) | | $ | (5.3 | ) |
Changes in foreign currency translation adjustment | — |
| | 0.1 |
| | (1.3 | ) | | — |
| | (1.2 | ) |
Changes in unrealized holding loss on available-for-sale securities | — |
| | (1.2 | ) | | — |
| | — |
| | (1.2 | ) |
Changes in pension plans, net of taxes | — |
| | — |
| | (0.6 | ) | | — |
| | (0.6 | ) |
Comprehensive income (loss) | $ | (5.3 | ) | | $ | 18.0 |
| | $ | (11.3 | ) | | $ | (9.7 | ) | | $ | (8.3 | ) |
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
December 27, 2014
|
| | | | | | | | | | | | | | | | | | | |
| Parent/ Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 150.6 |
| | $ | 249.4 |
| | $ | 144.0 |
| | $ | — |
| | $ | 544.0 |
|
Restricted cash | — |
| | — |
| | 5.1 |
| | — |
| | 5.1 |
|
Accounts receivable, net | 116.2 |
| | 198.2 |
| | 86.1 |
| | — |
| | 400.5 |
|
Inventories | 88.0 |
| | 174.6 |
| | 47.7 |
| | — |
| | 310.3 |
|
Deferred income tax assets | 26.3 |
| | 11.7 |
| | 1.0 |
| | — |
| | 39.0 |
|
Prepaid income taxes | — |
| | 3.1 |
| | — |
| | (3.1 | ) | | — |
|
Prepaid expenses and other current assets | 18.5 |
| | 10.0 |
| | 9.2 |
| | — |
| | 37.7 |
|
Intercompany receivables | — |
| | 2,787.9 |
| | 19.0 |
| | (2,806.9 | ) | | — |
|
Total current assets | 399.6 |
| | 3,434.9 |
| | 312.1 |
| | (2,810.0 | ) | | 1,336.6 |
|
Property, plant and equipment, net | 27.8 |
| | 337.7 |
| | 92.7 |
| | — |
| | 458.2 |
|
Intangible assets, net | 23.6 |
| | 3,279.0 |
| | 40.1 |
| | (10.6 | ) | | 3,332.1 |
|
Goodwill | 327.8 |
| | 2,390.8 |
| | 91.3 |
| | — |
| | 2,809.9 |
|
Other assets | 82.7 |
| | 57.3 |
| | 1.3 |
| | — |
| | 141.3 |
|
Long term intercompany receivables | — |
| | — |
| | 13.0 |
| | (13.0 | ) | | — |
|
Investment in subsidiaries | 8,490.0 |
| | 216.6 |
| | — |
| | (8,706.6 | ) | | — |
|
Total assets | $ | 9,351.5 |
| | $ | 9,716.3 |
| | $ | 550.5 |
| | $ | (11,540.2 | ) | | $ | 8,078.1 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Current portion of long-term debt | $ | 139.4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 139.4 |
|
Accounts payable | 26.9 |
| | 32.7 |
| | 7.4 |
| | — |
| | 67.0 |
|
Accrued expenses | 156.3 |
| | 48.4 |
| | 51.4 |
| | (3.1 | ) | | 253.0 |
|
Deferred revenue | 111.0 |
| | 8.3 |
| | 29.1 |
| | — |
| | 148.4 |
|
Intercompany payables | 2,763.9 |
| | — |
| | 43.2 |
| | (2,807.1 | ) | | — |
|
Total current liabilities | 3,197.5 |
| | 89.4 |
| | 131.1 |
| | (2,810.2 | ) | | 607.8 |
|
Long-term debt, net of current portion | 3,815.4 |
| | — |
| | — |
| | — |
| | 3,815.4 |
|
Deferred income tax liabilities | 97.3 |
| | 1,244.4 |
| | 4.0 |
| | — |
| | 1,345.7 |
|
Deferred service obligations – long-term | 8.6 |
| | 3.9 |
| | 7.3 |
| | — |
| | 19.8 |
|
Long-term intercompany payables | 13.0 |
| | — |
| | — |
| | (13.0 | ) | | — |
|
Other long-term liabilities | 117.3 |
| | 33.0 |
| | 36.7 |
| | — |
| | 187.0 |
|
Total stockholders’ equity | 2,102.4 |
| | 8,345.6 |
| | 371.4 |
| | (8,717.0 | ) | | 2,102.4 |
|
Total liabilities and stockholders’ equity | $ | 9,351.5 |
| | $ | 9,716.3 |
| | $ | 550.5 |
| | $ | (11,540.2 | ) | | $ | 8,078.1 |
|
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
September 27, 2014
|
| | | | | | | | | | | | | | | | | | | |
| Parent/ Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 288.1 |
| | $ | 287.8 |
| | $ | 160.2 |
| | $ | — |
| | $ | 736.1 |
|
Restricted cash | — |
| | — |
| | 5.5 |
| | — |
| | 5.5 |
|
Accounts receivable, net | 128.4 |
| | 182.5 |
| | 85.1 |
| | — |
| | 396.0 |
|
Inventories | 88.6 |
| | 190.1 |
| | 51.9 |
| | — |
| | 330.6 |
|
Deferred income tax assets | 26.2 |
| | 12.1 |
| | 1.1 |
| | — |
| | 39.4 |
|
Prepaid income taxes | 20.3 |
| | 3.2 |
| | — |
| | (1.1 | ) | | 22.4 |
|
Prepaid expenses and other current assets | 16.2 |
| | 11.0 |
| | 8.6 |
| | — |
| | 35.8 |
|
Intercompany receivables | — |
| | 2,702.1 |
| | 18.1 |
| | (2,720.2 | ) | | — |
|
Total current assets | 567.8 |
| | 3,388.8 |
| | 330.5 |
| | (2,721.3 | ) | | 1,565.8 |
|
Property, plant and equipment, net | 29.7 |
| | 337.1 |
| | 95.1 |
| | — |
| | 461.9 |
|
Intangible assets, net | 25.1 |
| | 3,377.3 |
| | 41.9 |
| | (10.7 | ) | | 3,433.6 |
|
Goodwill | 282.4 |
| | 2,390.9 |
| | 137.5 |
| | — |
| | 2,810.8 |
|
Other assets | 88.4 |
| | 52.7 |
| | 1.5 |
| | — |
| | 142.6 |
|
Long term intercompany receivables | — |
| | — |
| | 13.0 |
| | (13.0 | ) | | — |
|
Investments in subsidiaries | 8,526.0 |
| | 221.7 |
| | — |
| | (8,747.7 | ) | | — |
|
Total assets | $ | 9,519.4 |
| | $ | 9,768.5 |
| | $ | 619.5 |
| | $ | (11,492.7 | ) | | $ | 8,414.7 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Current portion of long-term debt | $ | 114.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 114.5 |
|
Accounts payable | 34.8 |
| | 46.1 |
| | 11.2 |
| | — |
| | 92.1 |
|
Accrued expenses | 139.4 |
| | 69.5 |
| | 54.3 |
| | (1.1 | ) | | 262.1 |
|
Deferred revenue | 113.5 |
| | 7.4 |
| | 30.0 |
| | — |
| | 150.9 |
|
Intercompany payables | 2,676.2 |
| | — |
| | 44.2 |
| | (2,720.4 | ) | | — |
|
Total current liabilities | 3,078.4 |
| | 123.0 |
| | 139.7 |
| | (2,721.5 | ) | | 619.6 |
|
Long-term debt, net of current portion | 4,153.2 |
| | — |
| | — |
| | — |
| | 4,153.2 |
|
Deferred income tax liabilities | 90.9 |
| | 1,279.1 |
| | 5.4 |
| | — |
| | 1,375.4 |
|
Deferred service obligations – long-term | 8.3 |
| | 3.6 |
| | 8.2 |
| | — |
| | 20.1 |
|
Long-term intercompany payables | 13.0 |
| | — |
| | — |
| | (13.0 | ) | | — |
|
Other long-term liabilities | 112.6 |
| | 34.3 |
| | 36.5 |
| | — |
| | 183.4 |
|
Total stockholders’ equity | 2,063.0 |
| | 8,328.5 |
| | 429.7 |
| | (8,758.2 | ) | | 2,063.0 |
|
Total liabilities and stockholders’ equity | $ | 9,519.4 |
| | $ | 9,768.5 |
| | $ | 619.5 |
| | $ | (11,492.7 | ) | | $ | 8,414.7 |
|
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended December 27, 2014
|
| | | | | | | | | | | | | | | | | | | |
| Parent/ Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
OPERATING ACTIVITIES | | | | | | | | | |
Net cash provided by (used in) operating activities | $ | 186.9 |
| | $ | (25.9 | ) | | $ | (7.5 | ) | | $ | — |
| | $ | 153.5 |
|
INVESTING ACTIVITIES | | | | | | | | |