HOLOGIC, INC. CAUTIONARY STATEMENT Some of the statements contained in this report and documents incorporated by reference herein are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements may include, but are not limited to, statements regarding: •the ongoing and possible future effects of the global COVID-19 pandemic and associated economic disruptions on our business, financial condition, results of operations and cash flows and our ability to further draw down our revolver; •the ongoing and possible future effects of the global COVID-19 pandemic on our customers and suppliers; •continued demand for our COVID-19 assays; •the timing, scope and effect of furtherU.S. and international governmental, regulatory, fiscal, monetary and public health responses to the COVID-19 pandemic; •our ability to manufacture, on a scale necessary to meet demand, our COVID-19 assays as well as the systems on which the assays run; •our ability to predict accurately the demand for our products, and products under development and to develop strategies to address markets successfully; •the effect of the continuing worldwide macroeconomic uncertainty, including theUK's decision to leave theEuropean Union (known as Brexit), on our business and results of operations; •the effect of the current trade war between theU.S. and other nations, most notablyChina , and the impending impact of tariffs on the sale of our products in those countries and potential increased costs we may incur to purchase materials from our suppliers to manufacture our products; •the development of new competitive technologies and products, and the impact and anticipated benefits of completed acquisitions; •the ability to consolidate certain of our manufacturing and other operations on a timely basis and within budget, without disrupting our business and to achieve anticipated cost synergies related to such actions; •the ability to successfully manage ongoing organizational and strategic changes, including our ability to attract, motivate and retain key employees and maintain engagement and efficiency in remote work environments; •our ability to obtain regulatory approvals and clearances for our products, including the implementation of the new European Union Medical Device Regulations, and maintain compliance with complex and evolving regulations; •potential cybersecurity threats and targeted computer crime; •the coverage and reimbursement decisions of third-party payors; •the uncertainty of the impact of cost containment efforts and federal healthcare reform legislation on our business and results of operations; •the guidelines, recommendations, and studies published by various organizations relating to the use of our products; •the effect of consolidation in the healthcare industry; •the possibility of interruptions or delays at our manufacturing facilities, or the failure to secure alternative suppliers if any of our sole source third-party manufacturers fail to supply us; •our ability to meet production and delivery schedules for our products; •our ability to protect our intellectual property rights; •the possibility that products may contain undetected errors or defects or otherwise not perform as anticipated; •strategic alliances and the ability of the Company to realize anticipated benefits of those alliances; •the anticipated development of markets we sell our products into and the success of our products in these markets; •the anticipated performance and benefits of our products; •business strategies; •estimated asset and liability values; •conducting business internationally; •the impact and costs and expenses of any litigation we may be subject to now or in the future; •our compliance with covenants contained in our debt agreements; 30 -------------------------------------------------------------------------------- Table of Contents •anticipated trends relating to our financial condition or results of operations, including the impact of interest rate and foreign currency exchange fluctuations, including the potential impact of the proposed phase out of LIBOR by the end of 2023; and •our liquidity, capital resources and the adequacy thereof. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "intends," "anticipates," "believes," "estimates," "projects," "predicts," "likely," "future," "strategy." "potential," "seeks," "goal" and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences in our future financial results include the cautionary statements set forth herein and in our other filings with theSecurities and Exchange Commission , including those set forth under "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report, as well as those described in our Annual Report on Form 10-K for the fiscal year endedSeptember 26, 2020 . We qualify all of our forward-looking statements by these cautionary statements. OVERVIEW We are a developer, manufacturer and supplier of premium diagnostics products, medical imaging systems, and surgical products focused on women's health and well-being through early detection and treatment. We sell and service our products through a combination of direct sales and service personnel and a network of independent distributors and sales representatives. We operate in four segments: Diagnostics,Breast Health ,GYN Surgical and Skeletal Health . UntilDecember 30, 2019 , our product portfolio included aesthetic and medical treatments systems sold by our former Medical Aesthetic business. We completed the sale of our Medical Aesthetics segment onDecember 30, 2019 (the first day of the second quarter of fiscal 2020). Through our Diagnostics segment, we offer a wide range of diagnostics products, which are used primarily to aid in the screening and diagnosis of human diseases. Our primary Diagnostics products include our molecular diagnostic assays, which run on our advanced instrumentation systems (Panther, Panther Fusion and Tigris), our ThinPrep cytology system, and the Rapid Fetal Fibronectin Test. OurAptima family of molecular diagnostic assays is used to detect, among other things, the infectious microorganisms that cause the common sexually transmitted diseases, or STDs, such as chlamydia and gonorrhea, certain high-risk strains of human papillomavirus, or HPV, and Trichomonas vaginalis, the parasite that causes trichomoniasis. In addition, in 2017 and 2018 we introduced theAptima quantitative viral load tests for HIV, Hepatitis C and Hepatitis B. Our assay portfolio also includes diagnostic tests for a range of acute respiratory infections, including SARS-Cov-2, as well as a test for the detection of Group B Streptococcus, or GBS, that are run on the Panther Fusion system, a field upgradeable instrument addition to the base Panther system. In 2020, in response to the COVID-19 global pandemic, we developed and launched the Aptima SARS-CoV-2 assay (which runs on our standard Panther system) and the Panther Fusion SARS-CoV-2 assay (which runs on our Panther Fusion system). The Panther Fusion SARS-CoV-2 assay and the Aptima SARS-CoV-2 assay were launched at the end of our second quarter and in the third quarter of fiscal 2020, respectively. The ThinPrep System is primarily used in cytology applications, such as cervical cancer screening, and the Rapid Fetal Fibronectin Test assists physicians in assessing the risk of pre-term birth. OurBreast Health segment offers a broad portfolio of solutions for breast cancer care for radiology, pathology and surgery. These solutions include breast imaging and analytics, such as our 2D and 3D digital mammography systems and reading workstations, minimally invasive breast biopsy guidance systems and devices, breast biopsy site markers and localization, specimen radiology, ultrasound and connectivity solutions and breast conserving surgery products. Our most advanced breast imaging platforms, Selenia Dimensions and 3Dimensions, utilize a technology called tomosynthesis to produce 3D images that show multiple contiguous slice images of the breast, which we refer to as the Genius 3D Mammography exam, as well as conventional 2D full field digital mammography images. With the acquisition of SuperSonic Imagine in the first quarter of fiscal 2020, we now offer premium ultrasound imaging, further connecting Hologic capabilities across the continuum of breast care from screening to diagnosis and treatment. Our GYN Surgical products include our NovaSure Endometrial Ablation System, or NovaSure, and our MyoSure Hysteroscopic Tissue Removal System, or MyoSure, as well as our Fluent Fluid Management system, or Fluent. The NovaSure portfolio is comprised of the NovaSure CLASSIC and NovaSure ADVANCED devices and involves a trans-cervical procedure for the treatment of abnormal uterine bleeding. The MyoSure suite of devices offers four options to provide incision-less 31 -------------------------------------------------------------------------------- removal of fibroids, polyps, and other pathology within the uterus. The Fluent system is a fluid management system that provides liquid distention during diagnostic and operative hysteroscopic procedures. OurSkeletal Health segment's products includes the Horizon DXA, a dual energy x-ray system, which evaluates bone density and performs body composition assessments, and the Fluoroscan Insight FD mini C-arm, which assists in performing minimally invasive orthopedic surgical procedures on a patient's extremities, such as the hand, wrist, knee, foot, and ankle. Unless the context otherwise requires, references to we, us, Hologic or our company refer toHologic, Inc. and its consolidated subsidiaries. COVID-19 Considerations The global COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption in the markets we sell our products into, primarily theU.S. ,Europe andAsia-Pacific . Starting in the second quarter of fiscal 2020, the spread of COVID-19 negatively impacted business and healthcare activity globally. In particular, due to government measures, elective procedures and exams were delayed or cancelled, there were significant reductions in physician office visits, and hospitals postponed or canceled capital purchases as well as limited or eliminated services; however, in the second half of the third quarter of fiscal 2020, we started to see a recovery of elective procedures and exams as economies were opened back up and restrictions eased, which has continued through the first quarter of fiscal 2021. The reductions in testing and procedures had a negative impact on our operating results and cash flows in fiscal 2020, however, the impact of the commercial release of our COVID-19 assays more than offset those negative impacts as we generated significant revenue from the sales of these assays starting in the third quarter of fiscal 2020. While our results of operations and cash flows since the third quarter of fiscal 2020 have been positively impacted by the sale of our COVID-19 assays as well the continued recovery of our other primary product lines and businesses to pre-COVID levels, the COVID-19 pandemic could have an adverse impact on our operating results, cash flows and financial condition in the future. The factors that could create such adverse impact include: the severity and duration of the COVID-19 pandemic; the emergence of new COVID strain variants; continued demand for COVID-19 testing; competition from existing and new COVID-19 testing technologies and products as well as the timing and effectiveness of distributing vaccines; the COVID-19 pandemic's impact on theU.S. and international healthcare systems, theU.S. economy and worldwide economy; and the timing, scope and effectiveness ofU.S. and international governmental, regulatory, fiscal, monetary and public health responses to the COVID-19 pandemic and associated economic disruptions. We expect that, if and when the current COVID-19 pandemic subsides, there may be a significantly reduced demand for ongoing testing, and thus, for our COVID-19 assays. In response to the negative impact of COVID-19 on our business, inApril 2020 , we initiated cost-cutting measures, which included not only reducing discretionary and variable spend, such as travel, marketing programs and the use of contractors, consultants and temporary help, but we also implemented employee furloughs, salary cuts primarily in theU.S. , reduced hours and in certain instances, employee terminations. Further inApril 2020 , we shut down certain manufacturing facilities temporarily and implemented reduced work-week schedules in response to lower near-term demand for many of our products. As of the end of the third quarter of fiscal 2020, substantially all of the Company's employee cost-cutting measures ceased, and the majority of the impacted manufacturing facilities were back to pre-COVID-19 pandemic levels. We have also taken and continue to take measures to ensure the safety of our employees and to comply with governmental orders. These measures could require that our employees continue to work remotely or otherwise refrain from reporting to their normal workplace for extended periods of time, which in turn could result in a decrease in our commercial and marketing activities. Trademark Notice Hologic is a trademark ofHologic, Inc. Other trademarks, logos, and slogans registered or used by Hologic and its divisions and subsidiaries inthe United States and other countries include, but are not limited to, the following: 3Dimensions, 3D Mammography, Acessa,Acessa Health , Acessa Pro Vu, Affirm, Affirm Prone, Alpha Imaging,Aptima , ATEC, Brevera, Clarity HD,Eviva , Fluent, Fluoroscan, Genius 3D, Genius 3D Mammography, Health Beacons, Hologic, Horizon DXA, Insight, Intelligent 2D, LOCalizer, MyoSure, NovaSure, Panther, Panther Fusion, Rapid fFN, Selenia, Selenia Dimensions, SmartCurve, SuperSonic Imagine, ThinPrep, Tigris, and Tumark. All other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Hologic's use or display of other parties' trademarks, trade dress or products in this offering circular does not imply that Hologic has a relationship with, or endorsement or sponsorship of, the trademark or trade dress owners. 32 --------------------------------------------------------------------------------
ACQUISITIONS
The following sets forth descriptions of acquisitions and dispositions we have completed in fiscal 2020 and the first quarter of fiscal 2021.
NXC Imaging
On
OnAugust 23, 2020 , we completed the acquisition ofAcessa Health, Inc. , or Acessa, for a purchase price of$161.3 million , which included a hold-back of$3.0 million that was paid inJanuary 2021 , and contingent consideration, which we estimated at$81.8 million as of the measurement date. Acessa, located inAustin, Texas , manufactures and markets its Acessa ProVu system, a laparoscopic radio frequency ablation system for use in treatment of uterine fibroids. Acessa's results of operations are included in our GYN Surgical segment. The contingent consideration is based on annual incremental revenue growth over a three-year period ending annually in December. The contingent consideration is payable after each annual measurement period. In the first quarter of fiscal 2021, we remeasured the contingent consideration liability and recorded a charge of$4.6 million to record the liability at fair value.
Health Beacons
OnFebruary 3, 2020 , we completed the acquisition ofHealth Beacons, Inc. , or 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. Health Beacons results of operations are included in ourBreast Health segment.
Alpha Imaging
OnDecember 30, 2019 , we completed the acquisition of assets fromAlpha Imaging, LLC , or Alpha Imaging, for a purchase price of$18.0 million , which included a hold-back of$1.0 million and contingent consideration, which we estimated at$0.9 million . The contingent consideration is payable upon shipment of backlog orders entered into by Alpha Imaging prior to the acquisition. Alpha Imaging was a long-standing distributor of ourBreast and Skeletal Health products in theU.S. SuperSonic Imagine OnAugust 1, 2019 , we acquired approximately 46% of the outstanding shares of SuperSonic Imagine S. A., or SSI, which is headquartered inFrance . SSI specializes in ultrasound imaging and designs, and develops and markets an ultrasound platform used in the non-invasive care path for the characterization of breast, liver or prostate diseases. We initially accounted for this investment as an equity method investment. OnNovember 21, 2019 , we acquired an additional 7.6 million shares of SSI for$12.6 million . As a result, we owned approximately 78% of the outstanding shares of SSI atNovember 21, 2019 and controlled SSI's voting interest and operations. We performed purchase accounting as ofNovember 21, 2019 and beginning on that date the financial results of SSI are included within our consolidated financial statements within ourBreast Health segment. We 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 in Other income (expense), net in the first quarter of fiscal 2020. As ofDecember 26, 2020 , we owned approximately 81% of SSI, and accordingly we have recorded an adjustment to our net income for the non-controlling interest we do not own of$1.0 million and$0.3 million for the three months endedDecember 26, 2020 andDecember 28, 2019 , respectively.
Disposition
OnDecember 30, 2019 , we completed the sale of our Medical Aesthetics business. At the closing, we received cash proceeds of$153.4 million . The sales price was finalized in the fourth quarter of fiscal 2020, and we paid$3.4 million , resulting in a final sales price of$150.0 million . As a result of the sale, we recorded a$30.2 million impairment charge in the first quarter of fiscal 2020 to record the asset group at fair value less costs to dispose as it met the assets held-for-sale criteria. For additional 33 --------------------------------------------------------------------------------
information, see Note 7 to our consolidated financial statements included herein. Following the sale of our Medical Aesthetics business, we have not received any further product revenue related to this business, although additional expenses will be incurred primarily in connection with the indemnification of legal and tax matters that existed as of the date of disposition. In addition, we agreed to provide transition services for a period of up to 15 months.
RESULTS OF OPERATIONS
All dollar amounts in tables are presented in millions.
Product Revenues
Three Months Ended
December 26, 2020 December 28, 2019 Change
% of % of
Total Total
Amount Revenue Amount Revenue Amount %
Product Revenues
Diagnostics $ 1,113.0 69.1 % $ 306.5 36.0 % $ 806.5 263.1 %
Breast Health 200.2 12.4 % 208.0 24.5 % (7.8) (3.8) %
GYN Surgical 123.9 7.7 % 118.6 14.0 % 5.3 4.5 %
Skeletal Health 18.3 1.1 % 16.5 1.9 % 1.8 10.9 %
Medical Aesthetics - - % 49.7 5.8 % (49.7) (100.0) %
$ 1,455.4 90.3 % $ 699.3 82.2 % $ 756.1 108.1 %
We generated an increase in product revenues of 108.1% compared to the
corresponding period in the prior year primarily due to the significant increase
in revenues in the Diagnostics business principally from sales of our two
COVID-19 assays, one of which was launched near the end of the second quarter of
fiscal 2020 and the other in the third quarter of fiscal 2020, partially offset
by no revenues from the Medical Aesthetics business as we disposed of this
business segment on December 30, 2019 , the beginning of our second quarter of
fiscal 2020.
Diagnostics product revenues increased $806.5 million or 263.1% in the current
quarter compared to the corresponding period in the prior year primarily due to
increases in Molecular Diagnostics of $805.6 million and Cytology & Perinatal of
$3.5 million , partially offset by a decrease of $2.6 million in blood screening.
While we divested our blood screening business in the second quarter of fiscal
2017, we continue to provide long-term access to Panther instrumentation and
certain supplies to the purchaser of that business. Molecular Diagnostics
product revenue was $982.2 million in the current quarter compared to $176.6
million in the corresponding period in the prior year. The increase was
primarily attributable to revenues of $745.3 million from our two SARS-CoV-2
assays (primarily the Aptima SARS-CoV-2 assay and to a lesser extent the Panther
Fusion SARS-CoV-2 assay), an increase in collection kits primarily related to
our SARS-CoV-2 assays and an increase in Panther and Panther Fusion instrument
sales due to demand for increased testing capacity for COVID-19. We are actively
working to increase capacity production to meet worldwide demand of these
assays. Our Aptima assays (exclusive of our Aptima SARS-CoV-2 assay) increased
$4.9 million in the current quarter compared to the corresponding period in the
prior year primarily due to an increase in HPV assays driven by co-testing in
Germany and to a lesser extent in the UK . In addition, we had an increase in our
Fusion flu assays. Cytology & Perinatal product revenue increased in the current
quarter compared to the corresponding period in the prior year primarily due to
higher ThinPrep test volumes in the U.S. , which we primarily attribute to the
recovery of wellness office visits that had previously been delayed or cancelled
in response to the COVID-19 pandemic, partially offset by lower Perinatal
product volumes. We also experienced an increase in revenue from the favorable
foreign currency exchange impact of the weakened U.S. dollar against a number of
currencies.
Breast Health product revenues decreased $7.8 million or 3.8%, respectively, in
the current quarter compared to the corresponding period in the prior year
primarily due to a decrease in sales volume and average selling prices of our
digital mammography systems and related workflow products (primarily Intelligent
2D, Clarity HD and SmartCurve) and Affirm Prone breast biopsy tables. While
these sales have declined moderately compared to the prior year comparable
period, they have increased sequentially from the fourth quarter of fiscal 2020
as we believe many of our customers were purchasing to fulfill their budgets and
demand has increased in the sequential quarters, which we primarily attribute to
a recovery of elective procedures and exams as elective procedures and wellness
visits have begun to recover from the initial cancellation and deferrals due to
the COVID-19 pandemic earlier in fiscal 2020. However, we continue to believe
that such visits continue to be adversely affect by the ongoing pandemic. These
decreases in revenue were partially offset by increases in our interventional
breast solutions products, primarily our Brevera system and disposables as we
relaunched this product line in the fourth quarter
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of fiscal 2020 as well as our ATEC and Eviva devices, and our breast conserving
surgery products in the current quarter compared to the corresponding period in
the prior year primarily due to increased biopsy procedures, which we attribute
to recovery of elective procedures and exams that had been previously delayed or
cancelled in response to the COVID-19 pandemic. We also experienced an increase
in revenue from the favorable foreign currency exchange impact of the weakened
U.S. dollar against a number of currencies.
GYN Surgical product revenues increased $5.3 million or 4.5%, respectively, in
the current quarter compared to the corresponding period in the prior year
primarily due to increases in the volume of MyoSure systems and Fluent Fluid
Management systems. We primarily attribute the increases in the current quarter
to recovery of elective medical procedures that had previously been delayed or
cancelled in response to the COVID-19 pandemic. These increases were partially
offset by decreases in NovaSure system sales in the current quarter compared to
the corresponding period in the prior year. We also experienced an increase in
revenue from the favorable foreign currency exchange impact of the weakened U.S.
dollar against a number of currencies.
Skeletal Health product revenues increased $1.8 million or 10.9% in the current
quarter compared to the corresponding period in the prior year primarily due to
an increase in sales volume of our Insight FD mini C-arm system. We also
experienced an increase in revenue from the favorable foreign currency exchange
impact of the weakened U.S. dollar against a number of currencies.
We divested the Medical Aesthetics segment on December 30, 2019 , the beginning
of our second quarter of fiscal 2020.
Product revenues by geography as a percentage of total product revenues were as
follows:
Three Months Ended
December 26, 2020 December 28, 2019
United States 70.2 % 73.6 %
Europe 21.4 % 13.3 %
Asia-Pacific 5.5 % 8.4 %
Rest of World 2.9 % 4.7 %
100.0 % 100.0 %
In the current quarter compared to the corresponding period in the prior year,
the percentage of product revenue derived from the U.S. decreased while Europe
increased which we primarily attributed to strong sales of our SARS-CoV-2 assays
in Europe and growth in our Aptima assays in Europe as we expanded our customer
base and increased sales from the adoption of co-testing for cervical cancer
screening in Germany . Asia-Pacific product revenue as a percentage of total
product revenue decreased primarily due to lower sales of our SARS-CoV-2 assays
in the Asia-Pacific region compared to the U.S. and Europe . Rest of world
decline due to lower sales in Latin America .
Service and Other Revenues
Three Months Ended
December 26, 2020 December 28, 2019 Change
% of % of
Total Total
Amount Revenue Amount Revenue Amount %
Service and Other Revenues $ 154.4 9.6 % $ 151.2 17.8 % $ 3.2 2.1 %
Service and other revenues consist primarily of revenue generated from our field
service organization to provide ongoing service, installation and repair of our
products. The majority of these revenues are generated within our Breast Health
segment, and to a lesser extent, the Medical Aesthetics business prior to its
disposition in the beginning of the second quarter of fiscal 2020. The increase
in service and other revenue in the current quarter compared to the
corresponding period in the prior year is primarily due to an increase in Breast
Health service contract revenue as the Breast Health business continues to
convert a high percentage of our installed base of digital mammography systems
to service contracts upon expiration of the warranty period, an increase in
spare parts revenue in the current quarter for services that had previously been
delayed or cancelled due to the COVID-19 pandemic and additional royalty revenue
from Grifols related to licensing intellectual property related to our COVID-19
assays for their sale in Spain . These increases were partially offset by the
disposition of Medical Aesthetics which contributed $15.6 million of revenue in
the prior year quarter.
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Cost of Product Revenues
Three Months Ended
December 26, 2020 December 28, 2019 Change
% of % of
Product Product
Amount Revenue Amount Revenue Amount %
Cost of Product Revenues $ 284.5 19.5 % $ 237.5 34.0 % $ 47.0 19.8 %
Amortization of Intangible Assets 61.6 4.2 % 63.6 9.1 % (2.0) (3.1) %
Impairment of Intangible Assets and
Equipment - - % 25.8 3.7 % (25.8) - %
$ 346.1 23.7 % $ 326.9 46.8 % $ 19.2 5.9 %
Cost of Product Revenues. The cost of product revenues as a percentage of
product revenues was 19.5% in the current quarter compared to 34.0% in the
corresponding period in the prior year. Cost of product revenues as a percentage
of revenue decreased in the current quarter primarily due to sales of our
SARS-CoV-2 assays, which have higher gross margins compared to our other
diagnostic products, and comprised 51.2% of total product revenue in the current
quarter. Also benefiting the gross margin was the disposition of Medical
Aesthetics, which had lower gross margins compared to our remaining businesses.
Partially offsetting these decreases was higher field service costs for the
instrument installed base for the Diagnostics business and higher freight costs.
Diagnostics' product costs as a percentage of revenue decreased in the current
quarter compared to the corresponding period in the prior year primarily due to
sales of our SARS-CoV-2 assays and higher overall production reducing fixed
overhead on a unit basis, and increased volumes of our ThinPrep Pap Test,
partially offset by higher field service costs for the instrument installed base
and freight charges internationally.
Breast Health's product costs as a percentage of revenue decreased slightly in
the current quarter compared to the corresponding period in the prior year
primarily due an increase in sales volume of our breast biopsy and breast
conserving surgery disposable products and favorable manufacturing variances,
partially offset by a decline in average selling prices of our 3D systems and
related components.
GYN Surgical's product costs as a percentage of revenue increased in the current
quarter compared to the corresponding period in the prior year primarily due to
the product mix of higher volumes of MyoSure devices and lower volumes of
NovaSure devices, which have higher margins compared to MyoSure, higher sales of
Fluent fluid management systems, which is a lower-margin product.
Skeletal Health's product costs as a percentage of revenue increased in the
current quarter compared to the corresponding period in the prior year due to
unfavorable manufacturing variances.
We divested the Medical Aesthetics segment on December 30, 2019 , the beginning
of our second quarter of fiscal 2020.
Amortization of Intangible Assets. Amortization of intangible assets relates to
acquired developed technology, which is generally amortized over its estimated
useful life of between 5 and 15 years using a straight-line method or, if
reliably determinable, based on the pattern in which the economic benefits of
the assets are expected to be consumed. Amortization expense decreased in the
current quarter compared to the corresponding period in the prior year primarily
due to no amortization from intangible assets acquired in the Cynosure
acquisition in the current quarter as a result of the disposition of Cynosure on
December 30, 2019 and lower amortization of intangible assets acquired in the
Cytyc acquisition which reduce over time. These decreases were partially offset
by amortization expense in the current quarter related to intangible assets
acquired in the Acessa and SSI acquisitions.
Impairment of Intangible Assets and Equipment. As discussed in Note 7 to the
consolidated financial statements, we recorded an aggregate impairment charge of
$30.2 million during the first quarter of fiscal 2020. The impairment charge was
allocated to the Medical Aesthetics long-lived assets, of which $25.8 million
was allocated to developed technology assets and written off to cost of
revenues.
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Cost of Service and Other Revenues
Three Months Ended
December 26, 2020 December 28, 2019 Change
% of % of
Service Service
Amount Revenue Amount Revenue Amount %
Cost of Service and Other Revenue $ 83.3 53.9 % $ 89.8 59.4 % $ (6.5) (7.2) %
Service and other revenues gross margin increased to 46.1% in the current
quarter compared to 40.6% in the corresponding period in the prior year. The
increase in the current quarter compared to the corresponding period in the
prior year is primarily due to the disposition of Medical Aesthetics as service
margins for Medical Aesthetics were lower compared to the Breast Health
business, which generates the majority of our service revenues. In addition, in
the current quarter the Breast Health business had an increase in service
contract revenue which benefited gross margin as service contract revenue has
higher margins compared to revenue from spare parts, installation and training.
In addition, Diagnostics had higher royalty revenue.
Operating Expenses
Three Months Ended
December 26, 2020 December 28, 2019 Change
% of % of
Total Total
Amount Revenue Amount Revenue Amount %Operating Expenses Research and development$ 59.3 3.7 %$ 61.2 7.2 %$ (1.9) (3.1) % Selling and marketing 128.0 8.0 % 144.9 17.0 % (16.9) (11.7) % General and administrative 91.5 5.7 % 87.6 10.3 % 3.9 4.5 % Amortization of intangible assets 10.1 0.6 % 9.1 1.1 % 1.0 11.0 % Impairment of intangible assets and equipment - - % 4.4 0.5 % (4.4) (100.0) % Contingent consideration - fair value adjustment 4.6 0.3 % 0.9 0.1 % 3.7 411.1 % Restructuring and Divestiture charges 1.4 0.1 % 0.9 0.1 % 0.5 55.6 %$ 294.9 18.3 %$ 309.0 36.3 %$ (14.1) (4.6) % Research and Development Expenses. Research and development expenses decreased 3.1% in the current quarter compared to the corresponding period in the prior year primarily due to the disposition of the Medical Aesthetics business which contributed$7.3 million of expense in the prior year quarter. In addition, during the current quarter, we recorded a reduction to research and development expenses of$6.4 million from theBiomedical Advanced Research and Development Authority (BARDA) in connection with a grant to expand manufacturing capacity and obtain FDA approval of our SARS-CoV-2 assays. Partially offsetting these decreases was higher R&D project spend in Surgical, higher compensation and benefits, the inclusion of expenses from the Acessa acquisition, a full quarter of SSI expenses and increased spending to implement the European Medical Device Regulation (MDR) and In Vitro Diagnostic Regulation (IVDR) requirements. At any point in time, we have a number of different research projects and clinical trials being conducted and the timing of these projects and related costs can vary from period to period. Selling and Marketing Expenses. Selling and marketing expenses decreased 11.7% in the current quarter compared to the corresponding period in the prior year primarily due to the disposition of the Medical Aesthetics which contributed$23.7 million of expense in the prior year quarter and to decreases related to our national sales meeting, travel and trade shows primarily in response to the COVID pandemic. Partially offsetting these decreases was an increase in commissions in theBreast Health , Surgical and Diagnostics from higher revenues, an increase in marketing initiatives spending, and the inclusion of expenses from the Acessa acquisition and a full quarter of SSI expenses. General and Administrative Expenses. General and administrative expenses increased 4.5% in the current quarter compared to the corresponding period in the prior year primarily due to a charitable donation of$5.0 million , higher compensation and benefits, primarily from our deferred compensation plan, an increase in bad debt expense, higher consulting spend primarily from information system implementation projects, and the inclusion of expenses from the Acessa acquisition and a full quarter of SSI expenses. Partially offsetting these increases was the disposition of the Medical Aesthetics business 37 -------------------------------------------------------------------------------- Table of Contents which contributed$5.5 million of expenses in the prior year quarter, and in the current quarter we recorded a credit related to services provided under the transition services agreement with Cynosure and lower travel. Amortization of Intangible Assets. Amortization of intangible assets results from customer relationships, trade names, distributor relationships and business licenses related to our acquisitions. These intangible assets are generally amortized over their estimated useful lives of between 2 and 30 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic benefits of the assets are expected to be consumed utilizing expected undiscounted future cash flows. Amortization expense increased$1.0 million in the current quarter compared to the corresponding period in the prior year primarily due to the Alpha Imaging acquisition. Contingent Consideration Fair Value Adjustments. In connection with the acquisition of Acessa, we are obligated to make contingent earn-out payments. The payments are based on achieving incremental revenue growth over a three-year period ending annually in December. As of the acquisition date for Acessa, we recorded a contingent consideration liability for the estimated fair value of the amount we expect to pay to the former shareholders of the acquired business. This liability is not contingent on future employment and we recorded our 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. Increases or decreases in the fair value of contingent consideration liabilities can result from the passage of time, changes in discount rates, and changes in the timing, probabilities and amount of revenue estimates. Impairment of Intangible Assets. As discussed in Note 7 to the consolidated financial statements, we recorded an aggregate impairment charge of$30.2 million during the first quarter of fiscal 2020. The impairment charge was allocated to the Medical Aesthetics long-lived assets of which$4.4 million was written off to operating expenses. Restructuring and Divestiture Charges. We have implemented various cost reduction initiatives to align our cost structure with our operations and related integration activities. These actions have primarily resulted in the termination of employees. As a result, we recorded charges of$1.4 million in the current quarter, respectively, and$0.9 million in the prior year period, respectively, primarily related to severance benefits. Interest Expense Three Months Ended December 26, December 28, 2020 2019 Change Amount Amount Amount % Interest Expense$ (28.1) $ (32.8) $ 4.7 (14.3) % Interest expense consists primarily of the cash interest costs and the related amortization of the debt discount and deferred issuance costs on our outstanding debt. Interest expense in the current quarter decreased primarily due to a decrease in LIBOR year over year, the basis for determining interest expense under our 2018 Credit Agreement, and lower interest rates on our Senior Notes due to issuing our 2029 Senior Notes and paying off our 2025 Senior Notes, partially offset by issuance costs expensed from the issuance of the 2029 Senior Notes. Debt Extinguishment Loss Three Months Ended December 26, December 28, 2020 2019 Change Amount Amount Amount % Debt Extinguishment Loss (21.6) -$ (21.6) 100.0 % In the current quarter, we completed private placement of$950 million aggregate principal amount of the 2029 Senior Notes. The proceeds under the 2029 Senior Notes offering, together with available cash, were used to redeem the 2025 Senior Notes in the same principal amount. In connection with this transaction, we recorded a debt extinguishment loss of$21.6 million in the current quarter. 38 --------------------------------------------------------------------------------
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Other Income (Expense), net
Three Months Ended
December 26, December 28,
2020 2019 Change
Amount Amount Amount %
Other Income (Expense), net
For the current quarter, this account primarily consisted of net foreign currency exchange losses of$9.9 million , primarily from the mark-to-market of outstanding forward foreign currency exchange and foreign currency option contracts, partially offset by a gain of$6.2 million on the cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market gains. The first quarter of fiscal 2020, this account primarily consisted of a gain of$2.9 million on the cash surrender value of life insurance contracts related to our deferred compensation plan and a net gain of$3.2 million to reflect an adjustment to remeasure our initial investment in SSI in connection with purchase accounting, partially offset by net foreign currency exchange losses of$1.7 million primarily from mark-to-market of outstanding forward foreign currency exchange contracts, which were partially offset by realized gains from settling forward foreign currency contracts. Provision (Benefit) for Income Taxes Three Months Ended December 26, December 28, 2020 2019 Change Amount Amount Amount %
Provision (Benefit) for Income Taxes
Our effective tax rate for the three months endedDecember 26, 2020 was a provision of 21.5% compared to a net benefit of 296.1% for the corresponding period in the prior year. For the three months endedDecember 26, 2020 , the effective tax rate differed from theU.S. statutory tax rate primarily due to state income taxes, the global intangible low-taxed income inclusion, and unbenefited foreign losses, partially offset by the impact of theU.S. deduction for foreign derived intangible income, the geographic mix of income earned by our international subsidiaries which are taxed at rates lower than theU.S. statutory tax rate, and federal and state tax credits. For the three months endedDecember 28, 2019 , the effective tax rate differed from theU.S. statutory tax rate primarily due to a$312.2 million discrete tax benefit related to the Medical Aesthetics business outside basis difference, partially offset by an increase in the Medical Aesthetics business valuation allowance. The outside basis difference is the difference between the carrying amount of an entity's investment for financial reporting purposes, and the underlying tax basis in that investment. An outside tax-over-book basis difference for an investment in a subsidiary results in the recognition of a deferred tax asset only when it becomes apparent that the reversal of the temporary difference will occur in the foreseeable future. As the Medical Aesthetics business met the assets held for sale criteria during the three months endedDecember 28, 2019 , the requirement for recognition of the deferred tax asset for the outside basis difference was also met. Segment Results of Operations Until the divestiture of our Medical Aesthetics segment, we reported our business as five segments: Diagnostics,Breast Health , GYN Surgical,Skeletal Health and Medical Aesthetics. We completed the disposition of the Medical Aesthetics segment onDecember 30, 2019 (the first day of the second quarter of fiscal 2020). The accounting policies of the segments are the same as those described in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedSeptember 26, 2020 . We measure segment performance based on total revenues and operating income (loss). Revenues from product sales of each of these segments are described in further detail above. The discussion that follows is a summary analysis of total revenues and the primary changes in operating income or loss by segment. 39 --------------------------------------------------------------------------------
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Diagnostics
Three Months Ended
December 26, December 28,
2020 2019 Change
Amount Amount Amount %
Total Revenues $ 1,128.2 $ 311.5 $ 816.7 262.2 %
Operating Income $ 784.5 $ 49.5 $ 735.0 1,484.8 %
Operating Income as a % of Segment
Revenue 69.5 % 15.9 %
Diagnostics revenues increased in the current quarter compared to the
corresponding period in the prior year primarily due to the increase in product
revenues associated with the introduction of our SARS-CoV-2 assays discussed
above and an increase in royalty revenue from Grifols related to licensing
intellectual property related to our COVID-19 assays for their sale in Spain .
Operating income for this business segment increased in the current quarter
compared to the corresponding period in the prior year due to an increase in
gross profit from higher revenues with higher gross margins, partially offset by
an increase in operating expenses. Gross margin was 79.9% in the current quarter
compared to 49.0% in the corresponding period in the prior year. The increase in
gross profit was primarily due to sales of our SARS-CoV-2 assays partially
offset by an increase in freight costs to ship product internationally.
Operating expenses increased in the current quarter compared to the
corresponding period in the prior year primarily due to higher compensation and
benefits driven by an increase in headcount in the operations and sales
departments, an increase in marketing initiatives, an increase in bad debt
expense and an allocated portion of the charitable donation. These increases
were partially offset by the BARDA $6.4 million credit and a decrease in
spending for travel, consulting and trade shows.
Breast Health
Three Months Ended
December 26, December 28,
2020 2019 Change
Amount Amount Amount %
Total Revenues $ 332.7 $ 331.1 $ 1.6 0.5 %
Operating Income $ 86.3 $ 93.9 $ (7.6) (8.1) %
Operating Income as a % of Segment Revenue 25.9 % 28.4 %
Breast Health revenues increased in the current quarter compared to the corresponding period in the prior year primarily due to an increase of$9.5 million in service revenue, partially offset by a decrease of$7.8 million in product revenue, discussed above. The increase in service revenue in the current quarter is primarily due to an increase in service contract revenue as theBreast Health business continues to convert a high percentage of our installed base of digital mammography systems to service contracts upon expiration of the warranty period and an increase in spare parts revenue.
Operating income for this business segment decreased in the current quarter compared to the corresponding period in the prior year primarily due to an increase in operating expenses partially offset by an increase in gross profit from higher service revenues. Gross margin was 57.8% in the current quarter compared to 57.4% in the corresponding period in the prior year.
Operating expenses increased in the current quarter compared to the corresponding period in the prior year primarily due to higher third-party commissions, an increase in bad debt expense, an allocated portion of the charitable donation and an increase in the current quarter of SSI expenses of$2.8 million . These increases were partially offset by a decrease in travel expenses, trade show expenses and R&D project spend. The increase in the current quarter is also a result of the prior year period including a benefit from the reversal of acquisition related accruals and a holdback. GYN Surgical 40
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Three Months Ended
December 26, December 28,
2020 2019 Change
Amount Amount Amount %
Total Revenues $ 124.0 $ 119.1 $ 4.9 4.1 %
Operating Income $ 13.7 $ 31.5 $ (17.8) (56.5) %
Operating Income as a % of Segment
Revenue 11.0 % 26.4 %
GYN Surgical revenues increased in the current quarter compared to the
corresponding period in the prior year primarily due to the increase in product
revenues discussed above.
Operating income for this business segment decreased in the current quarter
compared to the corresponding period in the prior year due to an increase in
operating expenses and a decrease in gross profit. Gross margin was 62.7% in the
current quarter compared to 66.3% in the corresponding period in the prior year.
The decrease in gross margin was primarily due to a decrease in product margins
related to product mix discussed above, higher amortization expense from
intangible assets due to the Acessa acquisition and a charge of $1.0 million
related to the impact of stepping-up the acquired inventory to fair value in
purchase accounting for the Acessa acquisition.
Operating expenses increased in the current quarter compared to the
corresponding period in the prior year primarily due to inclusion in the current
quarter of Acessa expenses of $4.2 million , recording a charge of $4.6 million
in the current quarter to record the Acessa contingent consideration liability
at fair value, increased spending on research and development projects, higher
marketing initiative spend, higher consulting spend, higher commissions from the
increase in sales and an allocated portion of the charitable donation, partially
offset by a decrease in travel and trade show expenses.
Skeletal Health
Three Months Ended
December 26, December 28,
2020 2019 Change
Amount Amount Amount %
Total Revenues $ 24.9 $ 23.5 $ 1.4 6.0 %
Operating Income $ 1.0 $ 0.9 $ 0.1 11.1 %
Operating Income as a % of Segment Revenue 4.0 % 3.8 %
Skeletal Health revenues increased in the current quarter compared to the corresponding period in the prior year primarily due to the increase in product revenues discussed above. Operating income for this business segment increased in the current quarter compared to the corresponding period in the prior year primarily due to a decrease in operating expenses, partially offset by a decrease in gross profit from lower gross margins. Gross margin was 35.6% in the current quarter compared to 42.0% in the corresponding period in the prior year. The decrease in gross margin was primarily due to unfavorable manufacturing variances and lower service margins. Operating expenses decreased in the current quarter compared to the corresponding period in the prior year primarily due to lower research and development expenses due to lower headcount and lower commission, partially offset by higher marketing initiative spend. Medical Aesthetics 41
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Three Months Ended
December 26, December 28,
2020 2019 Change
Amount Amount Amount %
Total Revenues $ - $ 65.3 $ (65.3) (100.0) %
Operating Loss $ - $ (51.0) $ 51.0 (100.0) %
Operating Loss as a % of Segment
Revenue - % (78.1) %
Medical Aesthetics revenue and operating loss decreased in the current quarter
compared to the corresponding period in the prior year due to the divestiture of
the Medical Aesthetics segment on December 30, 2019 , the first day of our second
quarter of fiscal 2020. We will continue to incur expenses related to legal and
tax matters that we have agreed to retain. These expenses were not significant
in the first quarter of fiscal 2021. The operating loss in the first quarter of
fiscal 2020 included an intangible assets and equipment impairment charges of
$30.2 million .
LIQUIDITY AND CAPITAL RESOURCES
At December 26, 2020 , we had $1,540.3 million of working capital and our cash
and cash equivalents totaled $868.7 million . Our cash and cash equivalents
balance increased by $167.7 million during the first three months of fiscal 2021
primarily due to cash generated from operating activities, partially offset by
cash used in investing and financing activities.
In the first three months of fiscal 2021, our operating activities provided cash
of $650.0 million , primarily due to net income of $653.4 million , non-cash
charges for depreciation and amortization aggregating $92.8 million , stock-based
compensation expense of $18.6 million , and a debt extinguishment loss of $21.6
million . Cash provided by operations was negatively impacted by a net cash
outflow of $153.9 million from changes in our operating assets and liabilities.
The net cash outflow was primarily driven by a $175.5 million increase in
accounts receivable primarily due to an increase in our COVID-19 assay sales in
our Diagnostics division and an increase in inventory of $21.2 million primarily
due to an increase in Diagnostics inventory to support the SARS-CoV-2 assay
demand and production. These cash outflows were partially offset by an increase
in accrued expenses of $58.1 primarily due to an increase in accrued income
taxes as a result of higher profits, partially offset by a decrease in accrued
compensation due to the payment of the annual bonuses.
In the first three months of fiscal 2021, our investing activities used cash of
$49.9 million primarily related to capital expenditures of $44.8 million , which
primarily consisted of the placement of equipment under customer usage
agreements and purchases of manufacturing equipment to expand capacity of our
molecular diagnostics manufacturing facilities.
In the first three months of fiscal 2021, our financing activities used cash of
$428.2 million primarily related to $970.8 million for the repayment of our 2025
Senior Notes, $250.0 million for the net repayment of amounts borrowed under the
revolving credit line, payment of $101.3 million for repurchases of our common
stock, $46.4 million for the payment of employee taxes withheld for the net
share settlement of vested restricted stock units and $18.8 million for
scheduled principal payments under our 2018 Credit Agreement. Partially
offsetting these uses of cash were net proceeds of $950.0 million under our 2029
Senior Notes and $23.3 million from our equity plans, primarily from the
exercise of stock options.
Debt
We had total recorded debt outstanding of $2.76 billion at December 26, 2020 ,
which was comprised of amounts outstanding under our 2018 Credit Agreement of
$1.44 billion (principal of $1.44 billion ), 2029 Senior Notes of $932.9 million
(principal of $950.0 million ), and 2028 Senior Notes of $394.8 million
(principal of $400.0 million ).
2018 Credit Agreement
On December 17, 2018 , we refinanced our 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, amended and restated as of
October 3, 2017 ("2017 Credit Agreement").
The credit facilities under the 2018 Credit Agreement consisted of:
•A$1.5 billion secured term loan ("2018 Amended Term Loan") with a maturity date ofDecember 17, 2023 ; and •A secured revolving credit facility (the "2018 Amended Revolver") under which the Company may borrow up to$1.5 billion , subject to certain sublimits, with a maturity date ofDecember 17, 2023 . 42 -------------------------------------------------------------------------------- The borrowings of the 2018 Amended Term Loan bear interest at an annual rate equal to the Eurocurrency Rate (i.e., the LIBOR rate) plus an Applicable Rate, which was equal to 1.0% as ofDecember 26, 2020 . The borrowings of the 2018 Amended Revolver bear interest at a rate equal to the LIBOR Daily Floating Rate plus an Applicable Rate equal to 1.0% as ofDecember 26, 2020 . AtDecember 26, 2020 , borrowings under the 2018 Amended Term Loan were subject to an interest rate of 1.15%. We are required to make scheduled principal payments under the 2018 Amended Term Loan in increasing amounts ranging from$9.375 million per three-month period commencing with the three-month period ending onDecember 27, 2019 to$28.125 million per three-month period commencing with the three-month period ending onDecember 29, 2022 and ending onSeptember 29, 2023 . The remaining balance of the 2018 Amended Term Loan after the scheduled principal payments, which was$1.4 billion as ofDecember 26, 2020 , and any amount outstanding under the 2018 Amended Revolver, which was$0.0 million atDecember 26, 2020 , are due at maturity. In addition, subject to the terms and conditions set forth in the 2018 Credit Agreement, we may be required to make certain mandatory prepayments from the net proceeds of specified types of asset sales (subject to certain reinvestment rights), debt issuances and insurance recoveries (subject to certain reinvestment rights). These mandatory prepayments are required to be applied by us, first, to the 2018 Amended Term Loan, second, to any outstanding amount under any Swing Line Loans, third, to the 2018 Amended Revolver, fourth to prepay any outstanding reimbursement obligations with respect to Letters of Credit and fifth, to cash collateralize any Letters of Credit. Subject to certain limitations, the Company may voluntarily prepay any of the 2018 Credit Facilities without premium or penalty. Borrowings are secured by first-priority liens on, and a first-priority security interest in, substantially all of the assets of the Company and itsU.S. subsidiaries, with certain exceptions. For example, borrowings under the 2018 Credit Agreement are not secured by those accounts receivable that are transferred to the special purpose entity under the Company's Accounts Receivable Securitization program (discussed below). The 2018 Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants restricting our ability, subject to negotiated exceptions, to incur additional indebtedness and grant additional liens on its assets, engage in mergers or acquisitions or dispose of assets, enter into sale-leaseback transactions, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the 2018 Credit Agreement requires us to maintain certain financial ratios. The 2018 Credit Agreement also contains customary representations and warranties and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross defaults and an event of default upon a change of control of the company. The 2018 Credit Agreement contains two financial covenants (a total net leverage ratio and an interest coverage ratio) measured as of the last day of each fiscal quarter. As ofDecember 26, 2020 , we were in compliance with these covenants.The UK Financial Conduct Authority announced in 2017 that it intended to phase out LIBOR by the end of 2021, which has been extended to the end of 2023. If changes are made to the method of calculating LIBOR or LIBOR ceases to exist, we may need to amend certain contracts, including our 2018 Credit Agreement, and we cannot predict what alternative rate or benchmark would be negotiated or the extent to which this would adversely affect our interest rate and the effectiveness of our interest rate hedging activity.
2028 Senior Notes
The total aggregate principal balance of the 2028 Senior Notes is$400.0 million . The 2028 Senior Notes are general senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by certain of the Company's domestic subsidiaries. The 2028 Senior Notes were issued pursuant to an indenture, dated as ofJanuary 19, 2018 , among the Company, the guarantors andWells Fargo Bank, National Association , as trustee. The 2028 Senior Notes mature onFebruary 1, 2028 and bear interest at the rate of 4.625% per year, payable semi-annually onFebruary 1 andAugust 1 of each year. We may redeem the 2028 Senior Notes at any time prior toFebruary 1, 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. We may also redeem up to 35% of the aggregate principal amount of the 2028 Senior Notes with the net cash proceeds of certain equity offerings at any time and from time to time beforeFebruary 1, 2021 , at a redemption price equal to 104.625% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date. We also have the option to redeem the 2028 Senior Notes on or after:February 1, 2023 throughFebruary 1, 2024 at 102.312% of par;February 1, 2024 throughFebruary 1, 2025 at 101.541% of par;February 1, 2025 throughFebruary 1, 2026 at 100.770% of par; andFebruary 1, 2026 and thereafter at 100% of par. In addition, if there is a change of control coupled with a decline in ratings, as provided in the indenture, we will be required to make an offer to purchase each holder's 2028 Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. 43 --------------------------------------------------------------------------------
2029 Senior Notes
The total aggregate principal balance of the 2029 Senior Notes is$950.0 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 onFebruary 15, 2029 and bear interest at the rate of 3.250% per year, payable semi-annually onFebruary 15 andAugust 15 of each year, commencing onFebruary 15, 2021 . We may redeem the 2029 Senior Notes at any time prior toSeptember 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. We 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 beforeSeptember 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. We have the option to redeem the 2029 Senior Notes on or after:September 28, 2023 throughSeptember 27, 2024 at 101.625% of par;September 28, 2024 throughSeptember 27, 2025 at 100.813% of par; andSeptember 28, 2025 and thereafter at 100% of par. In addition, if there is a change of control coupled with a decline in ratings, as provided in the indenture, we 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.
Acquisitions
Following the end of our first fiscal quarter of 2021, onDecember 30, 2020 , we completed the acquisition ofSomatex Medical Technologies GmbH , or Somatex, for a purchase price of approximately$64.0 million . Somatex, located inGermany , is a manufacturer of biopsy site markers, including the Tumark product line of tissue markers, which were distributed by the Company in theU.S. prior to the acquisition. Additionally, onJanuary 5, 2021 , we announced that we entered into an agreement to acquireBiotheranostics, Inc. , orBiotheranostics , for a purchase price of approximately$230.0 million . The closing is subject to certain regulatory approvals.Biotheranostics , located inSan Diego, California , manufactures molecular diagnostic tests for breast and metastatic cancers.
Contingent Consideration Earn-Out Payments
In connection with certain of our acquisitions, we have incurred the obligation to make contingent earn-out payments tied to performance criteria, principally revenue growth of the acquired business over a specified period. In addition, contractual provisions relating to these contingent earn-out obligations may result in the risk of litigation relating to the calculation of the amount due or our operation of the acquired business. Such litigation could be expensive and divert management attention and resources. Our obligation to make contingent payments may also result in significant operating expenses. Our contingent consideration arrangements are recorded as either additional purchase price or compensation expense if continuing employment is required to receive such payments. Pursuant to ASC 805, contingent consideration that is deemed to be part of the purchase price is recorded as a liability based on the estimated fair value of the consideration we expect to pay to the former shareholders of the acquired business as of the acquisition date. This liability is re-measured each reporting period with the change in fair value recorded through a separate line item within our Consolidated Statements of Income. Increases or decreases in the fair value of contingent consideration liabilities can result from changes in discount rates, changes in the timing, probabilities and amount of revenue estimates, and accretion of the liability for the passage of time. Our primary contingent consideration liability is from our acquisition of Acessa. We have an obligation to the former Acessa shareholders to make contingent payments 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, the contingent consideration was deemed to be part of the purchase price and we recorded our estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of the business, comparable companies revenue growth rates, implied volatility and applying a risk adjusted discount rate. AtDecember 26, 2020 this liability was$86.4 million and no contingent payments have been earned or made. Stock Repurchase Program OnDecember 11, 2019 , the Board of Directors authorized a new share repurchase plan to repurchase up to$500.0 million of our outstanding common stock, effective at the beginning of the third quarter of fiscal 2020. OnMarch 2, 2020 , the Board of Directors approved accelerating the effective date of the new share repurchase plan fromMarch 27, 2020 toMarch 2, 2020 . During the first quarter of fiscal 2021, we repurchased 1.5 million shares of our common stock for a total consideration of$101.3 million . 44 -------------------------------------------------------------------------------- OnDecember 9, 2020 , the Board of Directors authorized a new share repurchase plan, which is effective to five years, to repurchase up to$1.0 billion of our outstanding common stock effectiveDecember 11, 2020 . In connection with this authorization, the prior plan was terminated. As ofDecember 26, 2020 , we had not repurchased any shares under this new plan. Legal Contingencies We are currently involved in several legal proceedings and claims. In connection with these legal proceedings and claims, management periodically reviews estimates of potential costs to be incurred by us in connection with the adjudication or settlement, if any, of these proceedings. These estimates are developed, as applicable in consultation with outside counsel, and are based on an analysis of potential litigation outcomes and settlement strategies. In accordance with ASC 450, Contingencies, loss contingencies are accrued if, in the opinion of management, an adverse outcome is probable and such financial outcome can be reasonably estimated. It is possible that future results for any particular quarter or annual period may be materially affected by changes in our assumptions or the effectiveness of our strategies relating to these proceedings. Information with respect to this disclosure may be found in Note 10 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
Future Liquidity Considerations
We expect to continue to review and evaluate potential strategic transactions and alliances that we believe will complement our current or future business. Subject to the "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report, if any, as well as those described in our Annual Report on Form 10-K for the fiscal year endedSeptember 26, 2020 or any other of our subsequently filed reports, and the general disclaimers set forth in our Special Note Regarding Forward-Looking Statements at the outset of this MD&A, we believe that our cash and cash equivalents, cash flows from operations, and the cash available under our 2018 Amended Revolver will provide us with sufficient funds in order to fund our expected normal operations and debt payments over the next twelve months. Our longer-term liquidity is contingent upon future operating performance. We may also require additional capital in the future to fund capital expenditures, repayment of debt, acquisitions, strategic transactions or other investments. As described above, we have significant indebtedness outstanding under our 2018 Credit Agreement, 2028 Senior Notes, and 2029 Senior Notes. These capital requirements could be substantial. For a description of risks to our operating performance and our indebtedness, see "Risk Factors" in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year endedSeptember 26, 2020 . CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our interim consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition for multiple element arrangements, allowance for doubtful accounts, reserves for excess and obsolete inventories, valuations, purchase price allocations and contingent consideration related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, restructuring and other related charges, stock-based compensation, contingent liabilities, tax reserves and recoverability of our net deferred tax assets and related valuation allowances. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates if past experience or other assumptions do not turn out to be substantially accurate. Any differences may have a material impact on our financial condition and results of operations. For a discussion of how these and other factors may affect our business, see the "Cautionary Statement" above and "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report as well as those described in our Annual Report on Form 10-K for the fiscal year endedSeptember 26, 2020 or any other of our subsequently filed reports. The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedSeptember 26, 2020 . There have been no material changes to our critical accounting policies or estimates from those set forth in our Annual Report on Form 10-K for the fiscal year endedSeptember 26, 2020 . 45
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