Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2013

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: 0-18281

 

 

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  x    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  x    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   x    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  x

As of May 2, 2013, 269,305,920 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

 

 

 


Table of Contents

HOLOGIC, INC.

INDEX

 

     Page  

PART I – FINANCIAL INFORMATION

  

Item 1. Financial Statements (unaudited)

  

Consolidated Statements of Operations for the Three and Six Months Ended March 30, 2013 and March  24, 2012

     3   

Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended March  30, 2013 and March 24, 2012

     4   

Consolidated Balance Sheets as of March 30, 2013 and September 29, 2012

     5   

Consolidated Statements of Cash Flows for the Six Months Ended March 30, 2013 and March 24, 2012

     6   

Notes to Consolidated Financial Statements

     7   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     36   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     51   

Item 4. Controls and Procedures

     52   

PART II – OTHER INFORMATION

     52   

Item 1. Legal Proceedings

     52   

Item 1A. Risk Factors

     53   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     53   

SIGNATURES

     55   

EXHIBITS

  

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited)

HOLOGIC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

     Three Months Ended     Six Months Ended  
     March 30,
2013
    March 24,
2012
    March 30,
2013
    March 24,
2012
 

Revenues:

        

Product sales

   $ 518,014      $ 388,085      $ 1,053,216      $ 780,181   

Service and other revenues

     94,649        83,080        190,809        163,695   
  

 

 

   

 

 

   

 

 

   

 

 

 
     612,663        471,165        1,244,025        943,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Cost of product sales

     208,278        154,423        431,771        286,367   

Cost of product sales – amortization of intangible assets

     75,733        44,341        151,020        90,512   

Cost of service and other revenues

     49,326        46,291        100,235        91,517   

Research and development

     49,621        29,297        101,130        57,639   

Selling and marketing

     88,614        78,539        183,057        155,999   

General and administrative

     64,233        41,843        118,624        88,338   

Amortization of intangible assets

     28,667        16,629        57,193        31,471   

Contingent consideration – compensation expense

     29,388        18,121        58,874        28,562   

Contingent consideration – fair value adjustments

     799        43,188        10,839        48,310   

Gain on sale of intellectual property

     —          (12,424     (53,884     (12,424

Restructuring and divestiture charges

     12,462        783        16,395        692   
  

 

 

   

 

 

   

 

 

   

 

 

 
     607,121        461,031        1,175,254        866,983   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     5,542        10,134        68,771        76,893   

Interest income

     207        590        467        1,252   

Interest expense

     (76,049     (28,512     (148,130     (58,021

Debt extinguishment loss

     (3,247     (42,347     (3,247     (42,347

Other (expense) income, net

     (201     1,527        1,038        3,519   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (73,748     (58,608     (81,101     (18,704

(Benefit) provision for income taxes

     (22,644     (18,335     (33,115     757   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (51,104   $ (40,273   $ (47,986   $ (19,461
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share:

        

Basic

   $ (0.19   $ (0.15   $ (0.18   $ (0.07
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.19   $ (0.15   $ (0.18   $ (0.07
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding:

        

Basic

     268,175        263,900        267,259        263,309   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     268,175        263,900        267,259        263,309   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

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HOLOGIC, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

     Three Months Ended     Six Months Ended  
     March 30,
2013
    March 24,
2012
    March 30,
2013
    March 24,
2012
 

Net loss

   $ (51,104   $ (40,273   $ (47,986   $ (19,461

Foreign currency translation adjustment

     (8,288     5,034        (6,319     4,676   

Unrealized gain on available-for-sale securities

     2,687        —          2,130        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

     (5,601     5,034        (4,189     4,676   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (56,705   $ (35,239   $ (52,175   $ (14,785
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

HOLOGIC, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

 

     March 30,
2013
    September 29,
2012
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 744,996      $ 560,430   

Restricted cash

     7,179        5,696   

Accounts receivable, less reserves of $7,813 and $6,396, respectively

     401,301        409,333   

Inventories

     319,998        367,191   

Deferred income tax assets

     —          11,715   

Prepaid income taxes

     86,545        69,845   

Prepaid expenses and other current assets

     46,606        44,301   

Other current assets – assets held-for-sale

     623        94,503   
  

 

 

   

 

 

 

Total current assets

     1,607,248        1,563,014   
  

 

 

   

 

 

 

Property, plant and equipment, net

     502,639        507,998   

Intangible assets, net

     4,093,116        4,301,250   

Goodwill

     3,941,309        3,942,779   

Other assets

     164,894        162,067   
  

 

 

   

 

 

 

Total assets

   $ 10,309,206      $ 10,477,108   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 75,609      $ 87,223   

Accrued expenses

     314,240        372,381   

Deferred revenue

     125,666        129,688   

Current portion of long-term debt

     453,677        64,435   

Deferred income tax liabilities

     41,099        —    

Other current liabilities – assets held-for-sale

     15        7,622   
  

 

 

   

 

 

 

Total current liabilities

     1,010,306        661,349   
  

 

 

   

 

 

 

Long-term debt, net of current portion

     4,551,019        4,971,179   

Deferred income tax liabilities

     1,582,974        1,771,585   

Deferred service obligations – long-term

     22,271        13,714   

Other long-term liabilities

     152,072        98,250   

Commitments and contingencies (Note 6)

    

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; 269,339 and 265,635 shares issued, respectively

     2,693        2,656   

Additional paid-in-capital

     5,478,328        5,396,657   

Accumulated deficit

     (2,491,540     (2,443,554

Accumulated other comprehensive income

     2,601        6,790   

Treasury stock, at cost – 219 shares

     (1,518     (1,518
  

 

 

   

 

 

 

Total stockholders’ equity

     2,990,564        2,961,031   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 10,309,206      $ 10,477,108   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

HOLOGIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

     Six Months Ended  
     March 30,
2013
    March 24,
2012
 

OPERATING ACTIVITIES

    

Net loss

   $ (47,986   $ (19,461

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation

     46,218        32,181   

Amortization

     208,213        121,983   

Non-cash interest expense

     41,387        38,881   

Stock-based compensation expense

     31,079        17,606   

Excess tax benefit related to equity awards

     (4,437     (2,683

Deferred income taxes

     (92,502     (103,088

Gain on sale of intellectual property

     (53,884     (12,424

Debt extinguishment loss

     3,247        42,347   

Fair value adjustments to contingent consideration

     10,839        48,310   

Fair value write-up of inventory sold

     52,397        —    

Cost method equity investment impairment

     1,733        —    

Non-cash restructuring charges

     47        15,316   

Loss on disposal of property and equipment

     2,198        1,313   

Other

     1,976        (3,143

Changes in operating assets and liabilities:

    

Accounts receivable

     8,627        (7,573

Inventories

     (3,719     (11,889

Prepaid income taxes

     (16,700     324   

Prepaid expenses and other assets

     1,225        (3,574

Accounts payable

     (12,939     2,339   

Accrued expenses and other liabilities

     (11,799     50,439   

Deferred revenue

     4,308        5,631   
  

 

 

   

 

 

 

Net cash provided by operating activities

     169,528        212,835   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Acquisition of a business

     (3,918     —    

Payment of additional acquisition consideration

     (16,808     (9,784

Proceeds from sale of business, net of cash transferred

     86,250        —    

Purchase of property and equipment

     (25,888     (14,232

Increase in equipment under customer usage agreements

     (20,955     (19,325

Purchase of insurance contracts

     (4,000     —    

Proceeds from sale of intellectual property

     60,000        12,500  

Purchase of cost method investments

     (3,625     (250

(Increase) decrease in other assets

     (4,951     1   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     66,105        (31,090
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Repayment of long-term debt

     (32,500     —    

Payment of debt issuance cost

     (7,019     (5,822

Payment of contingent consideration

     (42,433     (51,680

Net proceeds from issuance of common stock pursuant to employee stock plans

     37,623        20,389   

Excess tax benefit related to equity awards

     4,437        2,683   

Payment of employee restricted stock minimum tax withholdings

     (9,972     (5,696
  

 

 

   

 

 

 

Net cash used in financing activities

     (49,864     (40,126

Effect of exchange rate changes on cash and cash equivalents

     (1,203     610   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     184,566        142,229   

Cash and cash equivalents, beginning of period

     560,430        712,332   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 744,996      $ 854,561   
  

 

 

   

 

 

 

See accompanying notes.

 

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HOLOGIC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(all tabular amounts in thousands except 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 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. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended September 29, 2012, included in the Company’s Form 8-K filed with the Securities and Exchange Commission on January 28, 2013. The Form 8-K was filed to add a footnote to the consolidated financial statements for the requirement to provide financial information of the Company’s guarantors of its Senior Notes (see Note 5) in connection with registering the Senior Notes on a Registration Statement on Form S-4 filed with the Securities and Exchange Commission on January 28, 2013. 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. generally accepted accounting principles requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate. Operating results for the three and six months ended March 30, 2013 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending September 28, 2013.

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 subsequent events recorded in the unaudited consolidated financial statements as of and for the three and six months ended March 30, 2013.

(2) Fair Value Measurements

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

As of March 30, 2013 and September 29, 2012, the Company’s financial assets that are re-measured at fair value on a recurring basis included $0.3 million in money market mutual funds in both periods that are classified as cash and cash equivalents in the Consolidated Balance Sheets. Money market funds are classified within Level 1 of the fair value hierarchy and are valued using quoted market prices for identical assets. As a result of its acquisition of Gen-Probe Incorporated (“Gen-Probe”), the Company has an equity investment in a publicly-traded company 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”) and the deferred compensation plan assumed in the Gen-Probe acquisition. This aggregate liability is recorded at fair value based on the underlying value of certain hypothetical investments under the DCP and actual investments under the plan assumed from Gen-Probe as designated by each participant for their benefit. Since the value of the deferred compensation plan obligations are based on market prices, the liability is classified within Level 1. In addition, the Company has contingent consideration liabilities related to its acquisitions that are recorded at fair value. The fair values of these liabilities are based on Level 3 inputs and are discussed in Note 6(a).

 

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Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following at March 30, 2013:

 

          Fair Value at Reporting Date Using  
    Balance as of
March 30, 2013
    Quoted Prices in
Active Market for
Identical Assets
(Level  1)
    Significant
Other
Observable
Inputs (Level 2)
    Significant
Unobservable
Inputs (Level 3)
 

Assets:

       

Money market funds

  $ 315      $ 315      $ —       $ —    

Marketable securities:

       

Equity securities

    8,159        8,159        —         —    

Mutual funds

    7,002        7,002        —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 15,476      $ 15,476      $ —       $ —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Deferred compensation liabilities

  $ 37,011      $ 37,011      $ —       $ —    

Contingent consideration

    3,627        —         —         3,627   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 40,638      $ 37,011      $ —       $ 3,627   
 

 

 

   

 

 

   

 

 

   

 

 

 

Changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3), which solely consisted of contingent consideration liabilities, were as follows:

 

     Three Months Ended     Six Months Ended  
     March 30,
2013
    March 24,
2012
    March 30,
2013
    March 24,
2012
 

Balance at beginning of period

   $ 93,000      $ 104,807      $ 86,368      $ 103,790   

Fair value adjustments

     799        43,188        10,839        48,310   

Payments made

     (90,172     (51,783 )     (93,580     (55,888 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 3,627      $ 96,212      $ 3,627      $ 96,212   
  

 

 

   

 

 

   

 

 

   

 

 

 

The remaining contingent consideration liability represents amounts withheld from payments made to the former shareholders of Interlace Medical, Inc. for legal indemnification provisions.

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.

The Company holds certain cost-method equity investments in non-publicly traded securities aggregating $17.8 million and $16.0 million at March 30, 2013 and September 29, 2012, respectively, which are included in other long-term assets on the Company’s Consolidated Balance Sheets. These investments are generally carried at cost. As the inputs utilized for the Company’s periodic impairment assessment are not based on observable market data, these cost method investments are classified within Level 3 of the fair value hierarchy. 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 second quarter of fiscal 2013, the Company recorded an other-than-temporary impairment charge of $1.7 million related to one of these investments.

Refer to Note 4 for disclosure of the nonrecurring fair value measurement related to the impairment charge for manufacturing equipment and equipment located at customer sites recorded in the second quarter of fiscal 2012. Refer to Note 5 for disclosure of the nonrecurring fair value measurement related to the debt extinguishment losses recorded in the second quarter of fiscal 2013 and 2012.

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, deferred compensation plan liabilities, 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 carrying amount of the insurance contracts are recorded at the cash surrender value, as required by U.S. generally accepted accounting principles, which approximates fair value, and the related DCP liability is recorded at fair value. The Company believes the carrying amounts of its cost-method investments approximate fair value.

 

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The $2.47 billion in aggregate principal outstanding under the Company’s Credit Agreement is 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 were registered with the Securities and Exchange Commission in the second quarter of fiscal 2013, and had a fair value of $1.06 billion as of March 30, 2013 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 at the dates noted and represents a Level 1 measurement. The Company had $1.56 billion of Convertible Notes recorded (see Note 5 for further discussion) as of March 30, 2013 and September 29, 2012. The aggregate principal amount of the Convertible Notes at both periods was $1.725 billion. As of March 30, 2013, the Company has four issues of Convertible Notes outstanding: the 2007 Notes (principal of $405.0 million), the 2010 Notes (principal of $450.0 million), the 2012 Notes (principal of $500.0 million) and the 2013 Notes (principal of $370.0 million).

The estimated fair values of the Company’s Convertible Notes were as follows:

 

     March 30,
2013
     September 29,
2012
 

2007 Notes

   $ 407,100       $ 771,600   

2010 Notes

     541,100         505,600   

2012 Notes

     524,100         490,700   

2013 Notes

     387,600         —     
  

 

 

    

 

 

 
   $ 1,859,900       $ 1,767,900   
  

 

 

    

 

 

 

(3) Business Combinations

Gen-Probe Incorporated

On August 1, 2012, the Company completed the acquisition of Gen-Probe and acquired all of the outstanding shares of Gen-Probe. Pursuant to the merger agreement, each share of common stock outstanding immediately prior to the effective time of the acquisition was cancelled and converted into the right to receive $82.75 in cash. In addition, all outstanding restricted shares, restricted stock units, performance shares, and those stock options granted prior to February 8, 2012 were cancelled and converted into the right to receive $82.75 per share in cash less the exercise price, as applicable. Stock options granted after February 8, 2012 were converted into stock options to acquire shares of Hologic common stock determined by the conversion formula defined in the merger agreement. The Company paid $3.8 billion to the shareholders of Gen-Probe and $169.0 million to equity award holders. The Company funded the acquisition using available cash and financing consisting of senior secured credit facilities and Senior Notes (see Note 5 for further discussion) resulting in aggregate proceeds of $3.48 billion, excluding financing fees to the underwriters. The Company incurred approximately $34.3 million of direct transaction costs, which were recorded within general and administrative expenses in fiscal 2012.

Gen-Probe, headquartered in San Diego, California, is a leader in molecular diagnostics products and services that are used primarily to diagnose human diseases and screen donated human blood. The Company expects this acquisition to enhance its molecular diagnostics franchise and to complement its existing portfolio of diagnostics products. Gen-Probe’s results of operations are reported within the Company’s Diagnostics reportable segment from the date of acquisition.

The purchase price consideration was as follows:

 

Cash paid

   $ 3,967,866   

Deferred payment

     1,655   

Fair value of stock options exchanged

     2,655   
  

 

 

 

Total purchase price

   $ 3,972,176   
  

 

 

 

 

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The fair value of stock options exchanged, that were recorded as purchase price, represented the fair value of the Gen-Probe options converted into the Company’s stock options attributable to pre-combination services pursuant to ASC 805, Business Combinations (ASC 805). The remainder of the fair value of these stock options of $23.2 million is being recognized as stock-based compensation expense over the remaining vesting period, which was approximately 3.5 years at the date of acquisition. The Company estimated the fair value of the stock options using a binomial valuation model with the following weighted average assumptions: risk free interest rate of 0.41%, expected volatility of 39.9%, expected life of 3.6 years and dividend yield of 0.0%. The weighted average fair value of stock options granted was $7.07 per share.

The preliminary allocation of the purchase price presented below is based on estimates of the fair value of assets acquired and liabilities assumed as of August 1, 2012. The Company is continuing to obtain information to complete its valuation of acquired assets and liabilities, including tax assets and liabilities. The components of the preliminary purchase price allocation are as follows:

 

Cash

   $ 205,463   

Accounts receivable

     81,444   

Inventory

     153,416   

Property, plant and equipment

     274,095   

Other assets

     191,868   

Assets held-for-sale, net

     87,465   

Accounts payable

     (19,671

Accrued expenses

     (131,102

Other liabilities

     (19,255

Identifiable intangible assets:

  

Developed technology

     1,565,000   

In-process research and development

     227,000   

Customer contract

     585,000   

Trade names

     95,000   

Deferred income taxes, net

     (973,947

Goodwill

     1,650,400   
  

 

 

 

Purchase Price

   $ 3,972,176   
  

 

 

 

The purchase price has been allocated to the acquired assets and liabilities based on management’s estimate of their fair values. During fiscal 2013, as the Company continues to complete its valuation procedures, it lowered the valuation of trade names by $2.0 million with an offsetting increase to goodwill. In addition, certain tax related adjustments were recorded.

Certain of Gen-Probe’s assets were designated as assets held-for-sale and recorded at fair value less the estimated cost to sell such assets. These represented non-core assets to the Company’s business plan and were expected to be sold within one year of the acquisition. On January 3, 2013, the Company entered into a definitive agreement to sell its LIFECODES business to Immucor, Inc. for $85.0 million in cash, subject to adjustment, plus a contingent payment of an additional $10.0 million based on future revenue results. This transaction closed on March 22, 2013, and the Company recorded a gain on the sale of $0.9 million in the second quarter of fiscal 2013. LIFECODES sells molecular and antibody-based assays in the markets of transplant diagnostics, specialty coagulation and transfusion medicine. In the first quarter of fiscal 2013, the Company completed the sale of another of these asset groups for $2.2 million. As of March 30, 2013, only certain property and equipment with a value of $0.6 million were classified as assets held-for-sale.

As part of the preliminary purchase price allocation, the Company has determined the identifiable intangible assets are developed technology, in-process research and development (“IPR&D”), customer contracts, and trade names. The fair value of the intangible assets has been estimated using the income approach and the cash flow projections were discounted using rates ranging from 10% to 12%. The cash flows are based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.

The developed technology assets are comprised of know-how, patents and technologies embedded in Gen-Probe’s products and relate to currently marketed products and related instrument automation. In valuing the developed technology assets, consideration was only given to products that have received regulatory approval. The developed technology assets primarily comprise the significant product families used in diagnostic testing, and the majority of fair value relates to the APTIMA family of assays for testing of certain sexually transmitted diseases and microbial infectious diseases and the PROCLEIX family of assays for blood screening. The Company applied the Excess Earnings Method under the income approach to determine the fair value of the developed technology assets excluding the PROCLEIX technology asset, for which the Company applied the Relief-from-Royalty Method to fair value this asset.

 

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IPR&D projects relate to in-process projects that have not reached technological feasibility as of the acquisition date and have no alternative future use. The primary basis for determining technological feasibility of these projects is obtaining regulatory approval to market the underlying product, which primarily pertains to receiving approval to perform certain diagnostic testing on Gen-Probe’s instrumentation, such as the PANTHER and TIGRIS systems. The Company recorded $227.0 million of IPR&D related to 6 projects. One project, valued at $7.0 million, received FDA approval in October 2012, and another project, valued at $27.0 million, received FDA approval in January 2013. Amortization of these assets begins once FDA approval is received. The other projects are expected to be completed over the next four years with a total cost of approximately $46 million to complete such projects. Given the uncertainties inherent with product development and commercial introduction, there can be no assurance that any of the Company’s product development efforts will be successful, completed on a timely basis or within budget, if at all. All of the IPR&D assets were valued using the multiple-period excess earnings method approach using a discount rate of 12.0%.

The customer contract intangible asset pertains to Gen-Probe’s relationship with Novartis Vaccines and Diagnostics, Inc., and the Company used the Excess Earnings Method to estimate the fair value of this asset. Trade names relate to the Gen-Probe corporate name and the primary product names, and the Company used the Relief-from-Royalty Method to estimate the fair value of these assets.

Developed technology, customer contract and trade names are being amortized on a straight-line basis over a weighted average period of 12.5 years, 13.0 years and 11.0 years, respectively.

The Company estimated the fair value of property, plant and equipment using a combination of the cost and market approaches, depending on the component. The Company applied the cost approach as the primary method in estimating the fair value of land and buildings. In total, the fair value adjustment to increase the carrying amount of property, plant and equipment was $107.9 million, of which $70.6 million related to land and buildings.

The excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired was recorded to goodwill. The factors contributing to the recognition of the amount of goodwill were based on several strategic and synergistic benefits that are expected to be realized from the Gen-Probe acquisition. These benefits include the expectation that the combination of the combined company’s complementary products in the molecular diagnostics market with Gen-Probe’s fully automated product franchise will significantly broaden the Company’s offering in women’s health and diagnostics. The combined company is expected to benefit from a broader global presence and with Hologic’s direct sales force and marketing in Europe and its investment in China distribution, the growth prospects of Gen-Probe’s products are expected to be enhanced significantly. The combined company anticipates significant cross-selling opportunities within the diagnostics market through Hologic’s larger channel coverage and physician sales team. None of the goodwill is expected to be deductible for income tax purposes.

The following unaudited pro forma information presents the combined financial results for the Company and Gen-Probe as if the acquisition of Gen-Probe had been completed as of the beginning of the fiscal year prior to the period of acquisition, September 26, 2010:

 

     Three Months Ended
March 24, 2012
    Six Months Ended
March 24, 2012
 

Revenue

   $ 624,491      $ 1,255,336   

Net loss

   $ (77,174   $ (87,210

Basic and diluted net loss per common share

   $ (0.29   $ (0.33

The unaudited pro forma information for the three and six months ended March 24, 2012 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments to reflect pro forma results of operations as if the acquisition occurred on September 26, 2010, such as fair value adjustments to inventory, accounts receivable, and property, plant and equipment, increased expenses for restructuring charges and retention costs, increased interest expense on debt obtained to finance the transaction, lower investment income and increased amortization for the fair value of acquired intangible assets. The pro forma information does not reflect the effect of costs, other than restructuring and retention, or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

Chindex Medical Limited

On December 31, 2012, the Company acquired certain assets from Chindex Medical Limited (“Chindex”) for a net purchase price of $4.5 million, including contingent consideration. Chindex was a distributor of certain of the Company’s Breast Health products in China. The Company has accounted for this transaction as the acquisition of a business pursuant to ASC 805 and has allocated the majority of the purchase price to customer relationships.

 

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(4) Restructuring and Divestiture Charges

The Company also evaluates its operations for opportunities to improve operational effectiveness and efficiency, including facility and operations consolidation, and to better align expenses with revenues. As a result of these assessments, the Company has undertaken various restructuring actions. These actions are described below. The following table displays charges taken related to restructuring actions in fiscal 2013 and 2012 and a rollforward of the charges to the accrued balances as of March 30, 2013.

 

Restructuring Charges

  Abandonment of
Adiana Product
Line
    Consolidation of
Diagnostics
Operations
    Closure of
Indianapolis
Facility
    Other
Operating
Cost
Reductions
    Total  

Fiscal 2012 charges:

         

Non-cash impairment charge

  $ 16,316      $ 585      $ —       $ —       $ 16,901   

Purchase orders and other contractual obligations

    3,099        —         —         —         3,099   

Workforce reductions

    128        14,202        879        40        15,249   

Facility closure costs

    —         —         —         430        430   

Other

    —         —         900        —         900   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fiscal 2012 charges

  $ 19,543      $ 14,787      $ 1,779      $ 470      $ 36,579   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recorded to cost of product sales

  $ 19,064      $ —       $ —       $ —       $ 19,064   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recorded to restructuring

  $ 479      $ 14,787      $ 1,779      $ 470      $ 17,515   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fiscal 2013 charges:

         

Workforce reductions

  $ —       $ 12,536      $ 3,027      $ 636     $ 16,199   

Facility closure costs

    —         —         —         184       184   

Other

    —         —         714        —         714   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fiscal 2013 charges

  $ —       $ 12,536      $ 3,741      $ 820     $ 17,097   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Rollforward of Accrued Restructuring

                             

Total fiscal 2012 charges

  $ 19,543      $ 14,787      $ 1,779      $ 470      $ 36,579   

Non-cash impairment charges

    (16,316     (585     —         —         (16,901

Stock compensation

    —         (3,500     —         —         (3,500

Severance payments

    (128     (2,423     —         (78     (2,629

Payments related to purchase orders and other contractual obligations

    (2,572     —         —         —         (2,572

Other payments

    —         —         —         (430     (430

Acquired

    —         83        —         —         83   

Foreign exchange and other adjustments

    —         22        —         91        113   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 29, 2012

  $ 527      $ 8,384      $ 1,779      $ 53      $ 10,743   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fiscal 2013 charges

  $ —       $ 12,536      $ 3,741      $ 820      $ 17,097   

Stock compensation

    —         (6,079     —         —         (6,079

Non-cash impairment charges

    —         —         —         (47     (47

Severance payments

    —         (11,370     (70     (53     (11,493

Payments related to purchase orders and other contractual obligations

    (527     —         (273     (28     (828

Foreign exchange and other adjustments

    —         (3     —         (19     (22
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 30, 2013

  $ —       $ 3,468      $ 5,177      $ 726      $ 9,371   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Abandonment of Adiana Product Line

At the end of the second quarter of fiscal 2012, the Company decided to cease manufacturing, marketing and selling its Adiana system, which was a product line within the Company’s GYN Surgical reporting segment. Management determined that the product was not financially viable and would not become so in the foreseeable future. In addition, the Company settled its intellectual property litigation regarding the Adiana system with Conceptus, Inc., which did not result in any additional charges. In the second quarter of

 

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fiscal 2012, the Company recorded a charge of $18.3 million and recorded additional adjustments in fiscal 2012 resulting in an aggregate charge of $19.5 million. Of the total charge, $19.1 million was recorded within cost of product sales and $0.4 million was recorded in restructuring. The amount recorded in cost of product sales comprised impairment charges of $9.9 million to record inventory at its net realizable value, $6.5 million to write down certain manufacturing equipment and equipment placed at customer sites to its fair value that had no further utility, and $2.7 million for outstanding contractual purchase orders of raw materials and components that will not be utilized and other contractual obligations. In connection with this action, the Company terminated certain manufacturing and other personnel primarily at its Costa Rica location, resulting in severance charges of $0.1 million, and incurred other contractual charges of $0.3 million. All identified employees were terminated and paid as of September 29, 2012.

Consolidation of Diagnostics Operations

In connection with its acquisition of Gen-Probe, the Company implemented restructuring actions to consolidate its Diagnostics operations, such as streamlining product development initiatives, reducing overlapping functional areas such as sales, marketing and general and administrative functions, and consolidation of 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 recorded severance and benefit charges in fiscal 2012 of $13.3 million related to this action pursuant to ASC 420, Exit or Disposal Cost Obligations (ASC 420). The majority of these employees ceased working in the fourth quarter of fiscal 2012, and their full severance charge was recorded in the fourth quarter of fiscal 2012. In addition, certain of the terminated Gen-Probe employees had unvested stock options, which were accelerated at termination pursuant to the stock options’ original terms. As such, the severance charges in fiscal 2012 include $3.5 million of stock-based compensation expense. In the first quarter of fiscal 2013, the Company recorded $0.8 million of severance charges, including $0.2 million for stock-based compensation.

In the second quarter of fiscal 2013, certain Gen-Probe executives including Carl Hull, Gen-Probe’s former Chairman, President and Chief Executive Officer, ceased employment. As a result, the Company recorded a charge of $9.7 million in the second quarter of fiscal 2013 related to the acceleration of certain retention payments and equity awards pursuant to the original terms of the related agreements.

In addition, the Company is moving its legacy molecular diagnostics operations from Madison, Wisconsin to Gen-Probe’s facilities in San Diego, California. This transfer is expected to be finalized by the end of calendar 2014, and the majority of employees in Madison will be terminated in fiscal 2013 and 2014. The Company is recording severance and benefit charges pursuant to ASC 420 and estimates the total severance and benefits charge to be approximately $6.1 million, which will be recorded ratably over the estimated service period of the affected employees. The Company recorded $1.0 million and $2.0 million in the three and six months ended March 30, 2013, respectively, and $0.9 million in the fourth quarter of fiscal 2012. The Company also recorded non-cash charges of $0.6 million in the fourth quarter of fiscal 2012 as a result of exiting certain research projects. Additional charges, which are not expected to be significant, will be recorded as the manufacturing operation is transferred and the facility is closed down. These charges will be recorded as they are incurred.

Closure of Indianapolis Facility

In the fourth quarter of fiscal 2012, the Company finalized its decision to transfer production of the majority of its interventional breast products, which are included within the Breast Health reporting segment, from its Indianapolis facility to its facility in Costa Rica. The transfer is expected to be completed in the first half of calendar 2014, and all employees at the Indianapolis location will be terminated. The Company is recording severance and benefit charges pursuant to ASC 420 and estimates the total severance and benefits charge to be approximately $6.1 million, which will be recorded ratably over the estimated service period of the affected employees. The Company recorded $1.5 million and $3.0 million of severance benefits in the three and six months ended March 30, 2013, respectively, and $0.9 million in the fourth quarter of fiscal 2012. In addition, the Company recorded charges of $0.7 million in the first quarter of fiscal 2013 for additional miscellaneous items and $0.9 million in the fourth quarter of fiscal 2012 for amounts owed to the state of Indiana for employment credits. Additional charges, which are not expected to be significant, will be recorded as the manufacturing operation is transferred and the facility is closed down. These charges will be recorded as they are incurred.

Other Operating Cost Reductions:

Consolidation of Selenium Panel Coating Production

During the third quarter of fiscal 2012, the Company finalized its decision to consolidate its Selenium panel coating process and transfer the production line to its Newark, Delaware facility from its Hitec-Imaging German subsidiary. This production line is included within the Breast Health segment. The transfer is expected to be completed in fiscal 2013. In connection with this consolidation plan, the Company is terminating certain employees, primarily manufacturing personnel. Severance charges will be recorded pursuant to ASC 420 because the severance benefits qualify as one-time employee termination benefits. The termination communications began in January 2013, and the Company recorded severance charges of $0.6 million in the second quarter of fiscal 2013. The Company expects to incur a total of approximately $1.0 million in severance charges in fiscal 2013 related to this action.

 

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Other

The Company recorded a charge of $0.2 million in the second quarter of fiscal 2013 for a lease obligation charge and the write-off of related leaseholds.

Divestiture

The Company completed the sale of its LIFECODES business and recorded a net gain of $0.9 million in the second quarter of fiscal 2013, which is recorded within restructuring and divestiture net charges in the Statement of Operations.

(5) Borrowings and Credit Arrangements

The Company had total debt with a carrying value of $5.00 billion and $5.04 billion at March 30, 2013 and September 29, 2012, respectively. The Company’s borrowings consisted of the following:

 

    March 30, 2013     September 29, 2012  

Current debt obligations, net of debt discount:

   

Convertible Notes

  $ 389,139      $ —    

Term Loan A

    49,676        49,582   

Term Loan B

    14,862        14,853   
 

 

 

   

 

 

 

Total current debt obligations

    453,677        64,435   

Long-term debt obligations, net of debt discount:

   

Term Loan A

    919,029        942,065   

Term Loan B

    1,463,907        1,470,454   

Senior Notes

    1,000,000        1,000,000   

Convertible Notes

    1,168,083        1,558,660   
 

 

 

   

 

 

 

Total long-term debt obligations

    4,551,019        4,971,179   
 

 

 

   

 

 

 

Total debt obligations

  $ 5,004,696      $ 5,035,614   
 

 

 

   

 

 

 

Credit Agreement

On August 1, 2012, the Company and certain domestic subsidiaries (the “Guarantors”) entered into a credit and guaranty agreement (the “Credit Agreement”) with Goldman Sachs Bank USA, in its capacity as administrative and collateral agent (“Goldman Sachs”), and the lenders party thereto (collectively, the “Lenders”).

The credit facilities under the Credit Agreement consisted of:

 

   

$1.0 billion senior secured tranche A term loan (“Term Loan A”) with a final maturity date of August 1, 2017;

 

   

$1.5 billion secured tranche B term loan (“Term Loan B”) with a final maturity date of August 1, 2019; and

 

   

$300.0 million secured revolving credit facility (“Revolving Facility”) with a final maturity date of August 1, 2017.

On March 20, 2013, the Company, the Guarantors, Goldman Sachs, and the Lenders entered into a Refinancing Amendment No. 1 (the “Credit Agreement Amendment”).

The Credit Agreement Amendment (i) refinanced the Company’s original Term Loan A with a new senior secured tranche A term loan facility with the same principal amount, maturity date and amortization schedule but with an applicable margin 1.00% less than the original Term Loan A (at each margin level) (“New Term Loan A”), (ii) refinanced the Company’s original Revolving Facility with a new senior secured revolving credit facility with the same principal amount and maturity date, but with an applicable margin 1.00% less than the original Revolving Facility (at each margin level) (the “New Revolving Facility”), and (iii) amended certain covenants and terms of the Credit Agreement. As of the date of this refinancing, the principal amount outstanding under the Term Loan A was $975.0 million, and the Company had no borrowings under the Revolving Facility.

Effective as of the date of the Credit Agreement Amendment, amounts outstanding under the New Term Loan A and the New Revolving Facility will initially bear interest, at the Company’s option: (i) at the Base Rate plus 1.00% per annum, or (ii) at the Adjusted Eurodollar Rate (i.e., the Libor rate) plus 2.00% per annum. The applicable margin with respect to the New Term Loan A and the New Revolving Facility are subject to specified changes depending on the Company’s total net leverage ratio, as defined in the Credit Agreement.

 

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Pursuant to ASC 470, Debt, the accounting for this refinancing is required to be evaluated on a creditor-by-creditor basis to determine whether each transaction should be accounted for as a modification or extinguishment. Certain creditors under the Credit Agreement did not participate in this refinancing transaction and ceased being creditors of the Company. As a result, the Company recorded a debt extinguishment loss of $3.2 million to write-off the pro-rata amount of unamortized debt discount and deferred issuance costs related to these creditors for the initial borrowings under the Term Loan A facility. For the remainder of the creditors, this transaction has been accounted for as a modification. Pursuant to ASC 470, subtopic 50-40, third-party costs incurred directly related to the exchange were expensed as incurred. As such, the Company recorded issuance costs related to the refinancing of $2.4 million to interest expense in the second quarter of fiscal 2013.

Borrowings outstanding under the Credit Agreement for the three and six months ended March 30, 2013 had a weighted average interest rate of 3.78% and 3.88%, respectively. The interest rates on the outstanding Term Loan A and Term Loan B borrowings at March 30, 2013 were 2.2% and 4.5%, respectively. Interest expense under the Credit Agreement totaled $28.5 million and $58.6 million for the three and six months ended March 30, 2013, respectively, which includes non-cash interest expense of $4.1 million and $7.8 million related to the amortization of the deferred financing costs and accretion of the debt discount.

The Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants restricting the ability of the Company and the Guarantors, subject to negotiated exceptions, to: incur additional indebtedness and additional liens on their 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. The credit facilities also contain total net leverage ratio and interest coverage ratio financial covenants measured as of the last day of each fiscal quarter, which are effective in our second quarter of fiscal 2013. The Company was in compliance with the Credit Agreement’s covenants as of March 30, 2013.

The Company has evaluated the Credit Agreement for derivatives pursuant to ASC 815, Derivatives and Hedging, and identified embedded derivatives that require bifurcation as the features are not clearly and closely related to the host instrument. The embedded derivatives are a default provision, which could require additional interest payments, and provision requiring contingent payments to compensate the lenders for changes in tax deductions. The Company has determined that the fair value of these embedded derivatives was nominal as of March 30, 2013.

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 and $32.1 million in the three and six months ended March 30, 2013, respectively, which includes non-cash interest expense of $0.4 million and $0.8 million, respectively, related to the amortization of the deferred financing costs related to the Senior Notes.

Convertible Notes

On December 10, 2007, the Company issued and sold $1.725 billion, at par, of 2.00% Convertible Senior Notes due 2037 (the “2007 Notes”). The Company recorded the 2007 Notes net of the unamortized debt discount, which was attributable to the fair value of the embedded conversion option, as required by U.S. generally accepted accounting principles. On November 18, 2010, the Company entered into separate, privately-negotiated exchange agreements under which it retired $450.0 million in aggregate principal of the 2007 Notes for $450.0 million in aggregate principal of new 2.00% Convertible Exchange Senior Notes due 2037 (the “2010 Notes”). On February 29, 2012, the Company entered into separate, privately-negotiated exchange agreements under which it retired $500.0 million in aggregate principal of the 2007 Notes for $500.0 million in aggregate principal of new 2.00% Convertible Senior Notes due 2042 (the “2012 Notes”). In connection with this exchange transaction for the 2012 Notes, the Company recorded a loss on extinguishment of debt of $42.3 million in the second quarter of fiscal 2012. For additional information pertaining to the terms and provisions and related accounting for the 2007 Notes, 2010 Notes and 2012 Notes, refer to Note 5 to the consolidated financial statements for the year ended September 29, 2012 included in the Company’s Form 8-K filed with the Securities and Exchange Commission on January 28, 2013.

 

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On February 14, 2013, the Company entered into separate, privately-negotiated exchange agreements under which it retired $370.0 million in aggregate principal of the 2007 Notes for $370.0 million in aggregate principal of new 2.00% Convertible Senior Notes due 2043 (the “2013 Notes”). Following this transaction, $405.0 million in principal amount of the 2007 Notes remain outstanding. The 2007 Notes, the 2010 Notes, the 2012 Notes and the 2013 Notes are collectively referred to herein as the “Convertible Notes.”

Pursuant to ASC 470-50, this exchange transaction is being accounted for as a modification and not an extinguishment because the terms of the two debt instruments are not substantially different. As a result, there is no gain or loss from this exchange recorded to the statement of operations. As required, the Company has recorded the increase in the fair value of the conversion option of $32.5 million from this exchange to additional paid-in-capital, net of deferred taxes. The Company determined the fair value of the conversion option for each debt instrument on the date of modification by calculating the fair value of each debt instrument using the binomial model and subtracting the fair value of the respective debt’s liability component. The fair value of the liability component for each debt instrument was determined by using a discounted cash flow technique with an effective interest rate of 3.25% and 5.42% for the 2007 Notes and 2013 Notes, respectively. These rates represent the estimated nonconvertible borrowing rate with a maturity as of the measurement date consistent with the first put dates of each debt instrument. The difference between the debt’s fair value and the fair value of its liability component represents the value allocated to the debt’s conversion option. In addition, direct costs incurred for this exchange of $4.1 million have been expensed as incurred within interest expense.

Holders may require the Company to repurchase the 2013 Notes on each of December 15, 2017, 2022, 2027, 2032 and 2037, or upon a fundamental change, as provided in the indenture for the 2013 Notes, at a repurchase price equal to 100% of their accreted principal amount, plus accrued and unpaid interest. The Company may redeem any of the 2013 Notes beginning December 15, 2017. The Company may redeem the 2013 Notes either in whole or in part at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest, including contingent interest and liquidated damages, if any, to, but excluding, the redemption date.

The 2013 Notes bear interest at a rate of 2.00% per year on the original principal amount, payable semi-annually in arrears in cash on June 15 and December 15 of each year, ending on December 15, 2013. The 2013 Notes accrete principal from their date of issuance at a rate of 4.00% per year until and including December 15, 2017, and 2.00% per year thereafter. Beginning with the six month interest period commencing December 15, 2017, the Company will pay contingent interest to the holders of 2013 Notes during any six month interest period if the “trading price,” as defined, of the 2013 Notes for each of the five trading days ending on the second trading day immediately preceding the first day of the applicable six month interest period equals or exceeds 120% of the accreted principal amount of the 2013 Notes. The holders of the 2013 Notes may convert the notes into shares of the Company’s common stock at a conversion price of approximately $38.59 per share, subject to adjustment, prior to the close of business on September 15, 2043 under any of the following circumstances: (1) during any calendar quarter if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) during the five business day period after any five consecutive trading day period in which the trading price per note for each day of such period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; (3) if the notes have been called for redemption; or (4) upon the occurrence of specified corporate events. At the option of the holder, regardless of the foregoing circumstances, holders may convert the 2013 Notes at any time on or after September 15, 2043 through the close of business on the second scheduled trading day immediately preceding the maturity date. The conversion rate will not be adjusted for accrued interest or accreted principal in excess of the original $1,000 principal amount, as accrued interest and accreted principal will not be convertible into common stock. None of these triggering events had occurred as of March 30, 2013.

In lieu of delivery of shares of the Company’s common stock in satisfaction of the Company’s obligation upon conversion of the 2013 Notes, the Company may elect to deliver cash or a combination of cash and shares of its common stock. If the Company elects to satisfy its conversion obligation in a combination of cash and shares of the Company’s common stock, the Company is required to deliver a specified dollar amount of cash per $1,000 original principal amount of 2013 Notes, and will settle the remainder of its conversion obligation in shares of its common stock, in each case based on the daily conversion value calculated as provided in the respective indentures for the 2013 Notes. This net share settlement election is in the Company’s sole discretion and does not require the consent of holders of the 2013 Notes. It is the Company’s current intent and policy to settle any conversion of the 2013 Notes as if the Company had elected to make the net share settlement election.

The 2013 Notes are the Company’s senior unsecured obligations and rank equally with all of its existing and future senior unsecured debt. The 2013 Notes are effectively subordinated to any future secured indebtedness to the extent of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

 

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The Convertible Notes and related equity components (recorded in additional paid-in-capital, net of deferred taxes) consisted of the following:

 

     March 30,
2013
    September 29,
2012
 

2007 Notes principal amount

   $ 405,000      $ 775,000   

Unamortized discount

     (15,861     (50,591
  

 

 

   

 

 

 

Net carrying amount

   $ 389,139      $ 724,409   
  

 

 

   

 

 

 

Equity component, net of taxes

   $ 121,946      $ 233,353   
  

 

 

   

 

 

 

2010 Notes principal amount

   $ 450,000      $ 450,000   

Unamortized discount

     (66,314     (74,062
  

 

 

   

 

 

 

Net carrying amount

   $ 383,686      $ 375,938   
  

 

 

   

 

 

 

Equity component, net of taxes

   $ 60,054      $ 60,054   
  

 

 

   

 

 

 

2012 Notes principal amount

   $ 500,000      $ 500,000   

Unamortized discount

     (38,221     (41,687
  

 

 

   

 

 

 

Net carrying amount

   $ 461,779      $ 458,313   
  

 

 

   

 

 

 

Equity component, net of taxes

   $ 49,195      $ 49,195   
  

 

 

   

 

 

 

2013 Notes principal amount

   $ 370,000      $ —     

Principal accretion

     1,789        —     

Unamortized discount

     (49,171     —     
  

 

 

   

 

 

 

Net carrying amount

   $ 322,618      $ —     
  

 

 

   

 

 

 

Equity component, net of taxes

   $ 131,451      $ —     
  

 

 

   

 

 

 

Interest expense under the Convertible Notes was as follows:

 

     Three Months Ended      Six Months Ended  
     March 30,
2013
     March 24,
2012
     March 30,
2013
     March 24,
2012
 

Amortization of debt discount

   $ 13,621       $ 17,946       $ 29,265       $ 36,899   

Amortization of deferred financing costs

     790         975         1,698         1,982   

Principal accretion

     1,789         —           1,789         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-cash interest expense

     16,200         18,921         32,752         38,881   
  

 

 

    

 

 

    

 

 

    

 

 

 

2.00% accrued interest

     8,616         8,567         17,226         17,145   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 24,816       $ 27,488       $ 49,978       $ 56,026   
  

 

 

    

 

 

    

 

 

    

 

 

 

(6) Commitments and Contingencies

(a) Contingent Earn-Out Payments

In connection with certain of its acquisitions, the Company has incurred the obligation to make contingent earn-out payments tied to performance criteria, principally revenue growth of the acquired businesses over a specified period. In certain circumstances, such as a change of control, a portion of these obligations may be accelerated. In addition, contractual provisions relating to these contingent earn-out obligations may include covenants to operate the businesses acquired in a manner that may not otherwise be most advantageous to the Company.

The Company made its final contingent consideration payment of $16.8 million to the former Adiana shareholders, which was net of amounts withheld for qualifying legal costs, in the first quarter of fiscal 2013.

 

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The measurement period for the Company’s remaining contingent consideration obligation to the former shareholders of Sentinelle Medical was completed in the fourth quarter of fiscal 2012. The Company had accrued $3.4 million as of September 29, 2012 and made its final payment in the first quarter of fiscal 2013.

In connection with the Company’s acquisition of Interlace in fiscal 2011, the Company had an obligation to the former Interlace stockholders to make contingent payments over a two-year period up to a maximum payout of $225.0 million based on a multiple of incremental revenue growth during the two-year period following the completion of the acquisition. Pursuant to ASC 805, the Company recorded its estimate of the fair value of the contingent consideration liability based on future revenue projections of the Interlace business under various potential scenarios and weighted probability assumptions of these outcomes. The final measurement period ended during the second quarter of fiscal 2013, resulting in a contingent consideration liability of $93.8 million, of which, $86.9 million was paid to the former Interlace stockholders in the second quarter of fiscal 2013. The remainder was withheld for legal indemnification provisions.

In connection with the Company’s acquisition of TCT in June 2011, the Company has an obligation to certain of the former TCT shareholders, based on future employment, to make contingent payments over a two year period not to exceed $200.0 million less a deferred payment of $35.0 million from the initial consideration. The first earn-out payment of $54.0 million was made in the fourth quarter of fiscal 2012. At March 30, 2013, the Company has accrued $97.9 million for the second contingent earn-out payment.

In connection with the Company’s acquisition of Healthcome in July 2011, the Company has an obligation to the former Healthcome shareholders to make contingent payments totaling $5.0 million over the next two fiscal years. At March 30, 2013, the Company has accrued $5.0 million for these contingent payments as employment was no longer required.

A summary of amounts recorded to the Consolidated Statements of Operations is as follows:

 

                                                                                    

Statement of Operations Line Item – 3 Months Ended March 30, 2013

   Sentinelle
Medical
     Interlace      TCT      Healthcome      Total  

Contingent consideration – compensation expense

   $ —        $ —        $ 29,388       $ —         $ 29,388   

Contingent consideration – fair value adjustments

     —           799         —           —          799   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 799       $ 29,388       $ —         $ 30,187   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                    

Statement of Operations Line Item – 6 Months Ended March 30, 2013

   Sentinelle
Medical
     Interlace      TCT      Healthcome      Total  

Contingent consideration – compensation expense

   $ —        $ —         $ 58,874       $ —         $ 58,874   

Contingent consideration – fair value adjustments

     —           10,839         —           —           10,839   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 10,839       $ 58,874       $ —         $ 69,713   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                    

Statement of Operations Line Item – 3 Months Ended March 24, 2012

   Sentinelle
Medical
     Interlace      TCT      Healthcome      Total  

Contingent consideration – compensation expense

   $ —        $ —        $ 17,527       $ 594       $ 18,121   

Contingent consideration – fair value adjustments

     258         42,930         —          —          43,188   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 258       $ 42,930       $ 17,527       $ 594       $ 61,309   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                    

Statement of Operations Line Item – 6 Months Ended March 24, 2012

   Sentinelle
Medical
    Interlace      TCT      Healthcome      Total  

Contingent consideration – compensation expense

   $ —       $ —        $ 27,539       $ 1,023       $ 28,562   

Contingent consideration – fair value adjustments

     (210 )     48,520         —          —          48,310   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
   $ (210 )   $ 48,520       $ 27,539       $ 1,023       $ 76,872   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

(b) Litigation and Related Matters

On June 9, 2010, Smith & Nephew, Inc. filed suit against Interlace, which the Company acquired on January 6, 2011, in the United States District Court for the District of Massachusetts. In the complaint, it is alleged that the Interlace MyoSure hysteroscopic tissue removal device infringes U.S. patent 7,226,459. The complaint seeks permanent injunctive relief and unspecified damages. A Markman hearing on claim construction was held on November 9, 2010, and a ruling was issued on April 21, 2011. On November 22, 2011, Smith & Nephew, Inc. filed suit against the Company in the United States District Court for the District of Massachusetts. In the complaint, it is alleged that use of the MyoSure hysteroscopic tissue removal system infringes U.S. patent 8,061,359. The complaint seeks preliminary and permanent injunctive relief and unspecified damages. On January 17, 2012, at a hearing on Smith & Nephew’s motion for preliminary injunction with respect to the suit filed on November 22, 2011, the judge did not issue an injunction, consolidated the two matters for a single trial and scheduled a trial on the merits for both claims for June 25, 2012. A case management conference held on February 14, 2012 resulted in the trial being rescheduled to begin on August 20, 2012. On March 15, 2012, the Court heard summary judgment arguments related to the ‘459 patent and claim construction arguments related to the ‘359 patent. On June 5, 2012, the Court denied Smith & Nephew’s request for summary judgment of infringement, denied Smith & Nephew’s request for preliminary injunction, and denied the Company’s requests for summary judgment of non-infringement and invalidity. On September 4, 2012, following a two week trial, the jury returned a verdict of infringement of both the ‘459 and ‘359

 

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patents and assessed damages of $4.0 million. The Court has not yet entered judgment adopting the jury’s finding. Based in part on the fact that the United States Patent and Trademark Office (“USPTO”) has taken up a re-examination of both the ‘359 and ‘459 patents rejecting all previously issued claims, including all claims asserted against the MyoSure product, the Company intends to file post trial motions seeking to reverse the jury’s verdict. 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. A hearing on post-trial motions for that trial will be scheduled when the Court rules on inequitable conduct and enters judgment. At this time, based on available information regarding this litigation, the Company does not believe a loss is probable and is unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses, beyond the pending jury verdict. The purchase and sale agreement associated with the acquisition of Interlace includes an indemnification provision that provides for the reimbursement of a portion of legal expenses in defense of the Interlace intellectual property. The Company has the right to collect certain amounts set aside in escrow and, as applicable, offset contingent consideration payments of qualifying legal costs. The Company is recording legal fees incurred for this suit pursuant to the indemnification provision on a net basis within accrued expenses.

On February 10, 2012, C.R. Bard (as acquirer of SenoRx, Inc. “SenoRx”) filed suit against the Company in the United States District Court for the District of Delaware. In the complaint, it is alleged that the Company’s MammoSite product infringes SenoRx’s U.S. Patents 8,079,946 and 8,075,469. The complaint seeks permanent injunctive relief and unspecified damages. On September 4, 2012 and October 16, 2012 the USPTO took up a re-examination of the ‘946 and ‘469 patents, respectively. With respect to the ‘469 patent, all previously issued claims were rejected and with respect to the ‘946 patent all but four claims were rejected. Based on the actions of the USPTO, the Company filed a motion seeking to stay all litigation proceedings pending the outcome of the USPTO’s re-examination of both patents in suit. On January 11, 2013, the Court issued an order denying the stay. On February 1, 2013, the Court entered a stay of the proceedings in the case to allow the Parties to pursue settlement discussions. 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. In the complaint, it is 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 spring of 2015. In January 2012, Enzo filed suit against Gen-Probe in the United States District Court for the District of Delaware. In that complaint, it is alleged that certain of Gen-Probe’s diagnostics products, including products that incorporate Gen-Probe’s patented HPA technology, such as the APTIMA Combo 2 and APTIMA HPV assays, infringe Enzo’s U.S. Patent 6,992,180. The complaint seeks permanent injunctive relief and unspecified damages, and a trial is tentatively scheduled for the spring 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.

Prior to its acquisition by Hologic, Gen-Probe had patent infringement claims against Becton Dickinson (“BD”) seeking monetary damages and injunctive relief. The parties settled this litigation in the first quarter of fiscal 2013. Under the terms of the settlement, BD made a one-time payment and was granted a non-exclusive royalty-bearing license to the asserted intellectual property.

A number of lawsuits were filed against the Company, Gen-Probe, and Gen-Probe’s board of directors related to the Company’s acquisition of Gen-Probe. These include: (1) Teamsters Local Union No. 727 Pension Fund v. Gen-Probe Incorporated, et al. (Superior Court of the State of California for the County of San Diego); (2) Timothy Coyne v. Gen-Probe Incorporated, et al. (Delaware Court of Chancery); and (3) Douglas R. Klein v. John W. Brown, et al. (Delaware Chancery Court). The two Delaware actions have been consolidated into a single action titled: In re: Gen-Probe Shareholders Litigation. The suits were filed after the announcement of our acquisition of Gen-Probe on April 30, 2012 as putative stockholder class actions. Each of the actions assert similar claims alleging that Gen-Probe’s board of directors failed to adequately discharge its fiduciary duties to shareholders by failing to adequately value Gen-Probe’s shares and ensure that Gen-Probe’s shareholders received adequate consideration in our acquisition of Gen-Probe, that the acquisition was the product of a flawed sales process, and that the Company aided and abetted the alleged breach of fiduciary duty. The plaintiffs demand, among other things, a preliminary and permanent injunction enjoining our acquisition of Gen-Probe and rescinding the transaction or any part thereof that has been implemented. On May 24, 2012, the plaintiffs in the Delaware action filed an amended complaint, adding allegations that the disclosures in Gen-Probe’s preliminary proxy statement were inadequate. The defendants in the Delaware action answered the complaint on June 4, 2012. On July 18, 2012, the parties in the Delaware action entered into a memorandum of understanding regarding a proposed settlement of the litigation. The proposed settlement was conditioned upon, among other things, the execution of an appropriate stipulation of settlement, consummation of the merger, and final approval of the proposed settlement by the Delaware Court of Chancery. On April 10, 2013, the Delaware Court of Chancery approved the proposed settlement and the consolidated action in Delaware was dismissed with prejudice. On July 9, 2012, the plaintiffs in the California action filed a motion for voluntary dismissal without prejudice. On July 12, 2012, the California Superior Court entered an order dismissing the California complaint without prejudice.

 

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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.

(7) Sale of Makena

On January 16, 2008, the Company entered into an agreement to sell the full world-wide rights of its Makena (formerly Gestiva) pharmaceutical product to K-V Pharmaceutical Company (“KV”) upon FDA approval of the then pending Makena new drug application for $82.0 million. The Company executed certain amendments to this agreement resulting in an increase in the total sales price to $199.5 million and changing the timing of when payments are due to the Company. Gains attributable to payments in the amount of $79.5 million received from KV prior to FDA approval were deferred.

On February 3, 2011, the Company received FDA approval of Makena, and subject to a security interest and a right of reversion for failure to make future payments, all rights to Makena were transferred to KV. Upon FDA approval, the Company received $12.5 million, and including the $79.5 million previously received, the Company recorded a gain on the sale of intellectual property, net of the write-off of certain assets, of $84.5 million in the second quarter of fiscal 2011. Pursuant to the amended agreement, the Company received $12.5 million in the second quarter of fiscal 2012, which was recorded net of amounts due to the inventor of Makena. The Company was to receive the remaining $95.0 million of the sales price over a period of 18 to 30 months from FDA approval (subject to further deferral elections) depending on which one of two payment options KV selected. KV would also have owed the Company a 5% royalty on sales for certain time periods determined based upon the payment option or deferral elections selected by KV. On August 4, 2012, KV and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York. The Company had been pursuing its claims against KV in these proceedings for amounts due to the Company under its agreement with KV, and in December 2012, the Company and KV executed a settlement agreement, which became effective on December 28, 2012 upon the Bankruptcy Court entering certain orders. Under the settlement agreement, the Company released KV from all claims in consideration of a $60.0 million payment. The Company recorded this amount in the first quarter of fiscal 2013, net of certain costs, including contingent fees and amounts due to the inventor, resulting in a gain of $53.9 million. The Company will receive no further payments from KV.

(8) Marketable Securities

The Company’s marketable securities are comprised of an equity security and mutual funds. The equity security is an investment in the common stock of a publicly traded company, and the mutual funds are to fund the Gen-Probe deferred compensation plan. The equity security is classified as available-for-sale and is recorded at fair value with the unrealized gains or losses, net of tax, within accumulated other comprehensive income (loss), which is a component of stockholders’ equity. The mutual funds are classified as trading and are recorded at fair value with unrealized gains and losses recorded in other income in the Consolidated Statements of Operations.

The following reconciles the cost basis to the fair market value of the Company’s one equity security as of March 30, 2013:

 

     Cost      Gross Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  

Equity security

   $ 5,931       $ 2,228      $ —         $ 8,159   

(9) Net Loss Per Share

A reconciliation of basic and diluted share amounts is as follows:

 

    Three Months Ended     Six Months Ended  
    March 30,
2013
    March 24,
2012
    March 30,
2013
    March 24,
2012
 

Basic weighted average common shares outstanding

    268,175        263,900        267,259        263,309   

Weighted average common stock equivalents from assumed exercise of stock options and restricted stock units

    —          —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average common shares outstanding

    268,175        263,900        267,259        263,309   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average anti-dilutive shares related to:

       

Outstanding stock options

    8,081        9,644        9,104        10,971   

Restricted stock units

    1,037        846        1,059        1,602   

 

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(10) Stock-Based Compensation

The following presents stock-based compensation expense in the Company’s Consolidated Statements of Operations:

 

     Three Months Ended      Six Months Ended  
     March 30,
2013
     March 24,
2012
     March 30,
2013
     March 24,
2012
 

Cost of revenues

   $ 1,723       $ 1,275       $ 3,557       $ 2,382   

Research and development

     2,015         1,277         3,883         2,478   

Selling and marketing

     2,567         1,844         4,768         3,394   

General and administrative

     5,739         4,553         11,680         9,352   

Restructuring and divestiture

     6,969         —           7,191         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 19,013       $ 8,949       $ 31,079       $ 17,606   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company granted approximately 2.2 million and 2.1 million stock options during the six months ended March 30, 2013 and March 24, 2012, respectively, with weighted average exercise prices of $19.91 and $17.05, respectively. There were 17.3 million options outstanding at March 30, 2013 with a weighted average exercise price of $18.27.

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     Six Months Ended  
     March 30,
2013
    March 24,
2012
    March 30,
2013
    March 24,
2012
 

Risk-free interest rate

     0.5 %     0.7 %     0.5 %     0.7 %

Expected volatility

     43.7 %     46.9 %     43.7 %     46.9 %

Expected life (in years)

     4.4        4.3        4.4        4.3   

Dividend yield

     —         —         —          —    

Weighted average fair value of options granted

   $ 5.83      $ 6.63      $ 6.99      $ 6.42   

The Company granted approximately 1.9 million and 1.5 million restricted stock units (RSU) during the six months ended March 30, 2013 and March 24, 2012, respectively, with weighted average grant date fair values of $19.86 and $17.09, respectively. As of March 30, 2013, there were 4.0 million unvested RSUs outstanding with a weighted average grant date fair value of $18.04. The Company also granted approximately 0.1 million market stock units (MSU) in the first quarter of fiscal 2013 to its chief executive officer and chief financial officer. The MSUs were valued at $18.49 using the Monte Carlo simulation model. Each recipient of the MSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of three years provided the Company’s stock price achieves the defined measurement criteria. The Company is recognizing compensation expense over the required service period, and since these are market-based awards, the compensation expense will be recognized by the Company regardless of whether the required criteria is met to receive such shares.

The Company uses the straight-line attribution method to recognize stock-based compensation expense for stock options and RSUs. The vesting term of stock options granted to employees is generally five years with annual vesting of 20% per year on the anniversary of the grant date, and RSUs granted to employees generally vest over four years with annual vesting at 25% per year on the anniversary of the grant date. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that is ultimately expected to vest. Based on an analysis of historical forfeitures, the Company has determined a specific forfeiture rate for certain employee groups and has applied forfeiture rates ranging from 0% to 7% as of March 30, 2013. This analysis is periodically re-evaluated and forfeiture rates will be adjusted as necessary. Ultimately, the actual stock-based compensation expense recognized will only be for those stock options and RSUs that vest.

At March 30, 2013, there was $44.1 million and $58.1 million of unrecognized compensation expense related to stock options and stock units (comprised of RSUs and MSUs), respectively, to be recognized over a weighted average period of 3.4 years and 3.0 years, respectively.

 

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(11) Other Balance Sheet Information

 

    March 30,
2013
    September 29,
2012
 

Inventories

   

Raw materials

  $ 130,159      $ 134,983   

Work-in-process

    56,661        93,218   

Finished goods

    133,178        138,990   
 

 

 

   

 

 

 
  $ 319,998      $ 367,191   
 

 

 

   

 

 

 

Property, plant and equipment

   

Equipment and software

  $ 304,138      $ 296,776   

Equipment under customer usage agreements

    266,918        249,692   

Building and improvements

    168,841        156,665   

Leasehold improvements

    63,619        71,943   

Land

    51,531        51,430   

Furniture and fixtures

    21,432        21,495   
 

 

 

   

 

 

 
    876,479        848,001   

Less – accumulated depreciation and amortization

    (373,840     (340,003
 

 

 

   

 

 

 
  $ 502,639      $ 507,998   
 

 

 

   

 

 

 

 

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(12) Business Segments and Geographic Information

The Company has four reportable segments: Breast Health, Diagnostics, 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 (loss) adjusted to exclude the effect of non-cash charges, such as intangible asset amortization expense, contingent consideration charges, restructuring and divestiture charges and other one-time or unusual items and related tax effects.

Identifiable assets for the four principal operating segments consist of inventories, intangible assets including goodwill, and property 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 and six months ended March 30, 2013 and March 24, 2012. Segment information is as follows:

 

     Three Months Ended     Six Months Ended  
     March 30,
2013
    March 24,
2012
    March 30,
2013
    March 24,
2012
 

Total revenues:

        

Diagnostics

   $ 296,507      $ 151,841      $ 602,423      $ 305,905   

Breast Health

     220,058        218,631        440,866        433,983   

GYN Surgical

     73,692        77,178        154,601        155,723   

Skeletal Health

     22,406        23,515        46,135        48,265   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 612,663      $ 471,165      $ 1,244,025      $ 943,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss):

        

Diagnostics

   $ (46,978   $ 21,619      $ (32,683   $ 41,757   

Breast Health

     47,892        48,869        92,837        96,286   

GYN Surgical

     2,241        (63,377 )     2,863        (68,390

Skeletal Health

     2,387        3,023        5,754        7,240   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 5,542      $ 10,134      $ 68,771      $ 76,893   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization:

        

Diagnostics

   $ 89,402      $ 39,926      $ 180,944      $ 79,915   

Breast Health

     10,124        10,470        20,054        21,074   

GYN Surgical

     26,524        26,217        53,003        52,305   

Skeletal Health

     226        428        430        870   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 126,276      $ 77,041      $ 254,431      $ 154,164   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures:

        

Diagnostics

   $ 13,464      $ 9,455      $ 27,318      $ 17,623   

Breast Health

     5,910        2,213        9,490        3,782   

GYN Surgical

     2,171        3,251        4,916        6,000   

Skeletal Health

     28        9        206        466   

Corporate

     2,823        2,823        4,913        5,686   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 24,396      $ 17,751      $ 46,843      $ 33,557   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     March 30,
2013
     September 29,
2012
 

Identifiable assets:

     

Diagnostics

   $ 5,951,165       $ 6,170,553   

Breast Health

     957,783         956,134   

GYN Surgical

     1,898,933         1,944,386   

Skeletal Health

     34,156         32,778   

Corporate

     1,467,169         1,373,257   
  

 

 

    

 

 

 
   $ 10,309,206       $ 10,477,108   
  

 

 

    

 

 

 

The Company had no customers with balances greater than 10% of accounts receivable as of March 30, 2013 or September 29, 2012, or any customer that represented greater than 10% of consolidated revenues during the three and six months ended March 30, 2013 and March 24, 2012.

 

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Table of Contents

Products sold by the Company internationally are manufactured at both domestic and international locations. Transfers between the Company and its subsidiaries are generally recorded at amounts similar to the prices paid by unaffiliated foreign dealers. All intercompany profit is eliminated in consolidation.

The Company operates in the major geographic areas as noted in the below chart. Revenue data is based upon customer location, and internationally totaled $153.5 million and $323.6 million during the three and six months ended March 30, 2013, respectively, and totaled $117.5 million and $235.0 million during the three and six months ended March 24, 2012, respectively. 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 Germany, the United Kingdom and the Netherlands. 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 was as follows:

 

     Three Months Ended     Six Months Ended  
     March 30,
2013
    March 24,
2012
    March 30,
2013
    March 24,
2012
 

United States

     75 %     75 %     74 %     75 %

Europe

     12 %     11 %     14 %     12 %

Asia

     9 %     8 %     8 %     8 %

All others

     4 %     6 %     4 %     5 %
  

 

 

   

 

 

   

 

 

   

 

 

 
     100 %     100 %     100 %     100 %
  

 

 

   

 

 

   

 

 

   

 

 

 

(13) Income Taxes

In accordance with ASC 740, Income Taxes, 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 best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, as adjusted for discrete taxable events that occur during the interim period. If, however, the entity is unable to reliably estimate its annual effective tax rate, then the actual effective tax rate for the year-to-date may be the best annual effective tax rate estimate. For the six months ended March 30, 2013, the Company determined that it was unable to make a reliable annual effective tax rate estimate due to the sensitivity of the rate as it relates to its forecasted fiscal 2013 results. Therefore, the Company recorded a tax benefit for the six months ended March 30, 2013 based on the effective rate for the six months ended March 30, 2013.

The Company’s effective tax rates for the three and six month periods ended March 30, 2013 were 30.7% and 40.8% respectively, compared to 31.3% and (4.0)%, respectively, for the corresponding periods in the prior year. For the three months ended March 30, 2013, the tax rate benefit was less than the statutory rate primarily due to non-deductible contingent consideration expense related to TCT and Interlace, partially offset by the effect of the retroactively reinstated and extended Federal Research tax credit in the second quarter of fiscal 2013 and the Section 199 manufacturing deduction. For the six months ended March 30, 2013, the tax rate benefit was higher than the statutory rate primarily due to a $19.0 million valuation allowance release related to built-in capital losses, that the Company has concluded are more likely than not realizable as a result of the $53.9 million gain recorded on the Makena sale (see Note 7) and the effect of the retroactively reinstated and extended Federal Research tax credit in the second quarter of fiscal 2013, partially offset by non-deductible contingent consideration expense related to TCT and Interlace. For the three and six months ended March 24, 2012, the effective tax rate was less than the statutory rate primarily due to the tax benefit for charges recorded in the second quarter of fiscal 2012 related to the debt extinguishment loss and discontinuing the Adiana product line. These discrete benefits were partially offset by the net recurring rate impact of the non-deductible TCT contingent consideration compensation expense, non-deductible contingent consideration fair value adjustments for Interlace and Sentinelle Medical and the Section 199 manufacturing deduction.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted, which retroactively reinstated and extended the Federal Research tax credit from January 1, 2012 to December 31, 2013. As a result, the Company’s income tax provision for the second quarter of fiscal 2013 includes a discrete tax benefit for the previously expired period from January 1, 2012 to December 31, 2012, as well as a benefit related to the tax credit for the quarter ended March 30, 2013.

As of March 30, 2013, the Company has recorded $1.62 billion of net deferred tax liabilities compared to $1.76 billion at September 29, 2012. The Company’s deferred tax assets are periodically evaluated to determine their recoverability.

The Company has $113.0 million of gross unrecognized tax benefits, including interest, as of March 30, 2013. The gross unrecognized tax benefits increased by $58.1 million from September 29, 2012, of which $53.5 million was a result of uncertain tax positions related to the convertible debt exchange that took place in the second quarter of fiscal 2013. As of March 30, 2013, $59.5 million of the unrecognized tax benefits would, if recognized, reduce the Company’s effective tax rate. The remaining $53.5 million relates to temporary differences that would not affect the Company’s effective tax rate. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits and income tax liabilities within income tax expense. As of March 30, 2013, accrued interest, net of tax benefit, was $2.2 million and no penalties have been accrued.

 

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Table of Contents

(14) Goodwill and Intangible Assets

Goodwill

A rollforward of goodwill activity by reportable segment from September 29, 2012 to March 30, 2013 was as follows:

 

     Breast Health     Diagnostics     GYN Surgical      Skeletal Health     Total  

Balance at September 29, 2012

   $ 635,741      $ 2,283,447      $ 1,015,466       $ 8,125      $ 3,942,779   

Gen-Probe acquisition adjustments

     —         (2,146     —          —         (2,146

Chindex acquisition

     1,903        —         —          —         1,903   

Tax adjustments

     —         (545     12         —         (533

Foreign currency

     (1,614     255        666         (1     (694
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at March 30, 2013

   $ 636,030      $ 2,281,011      $ 1,016,144       $ 8,124      $ 3,941,309   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Intangible Assets

Intangible assets consisted of the following:

 

Description

   As of March 30, 2013      As of September 29, 2012  
   Gross
Carrying
Value
     Accumulated
Amortization
     Gross
Carrying
Value
     Accumulated
Amortization
 

Developed technology

   $ 3,816,465       $ 938,655       $ 3,784,689       $ 788,274   

In-process research and development

     193,000         —          227,000         —    

Customer relationships and contracts

     1,101,232         250,972         1,097,842         205,612   

Trade names

     238,077         72,027         240,092         60,318   

Patents

     11,940         8,109         11,417         7,906   

Business licenses

     2,607         478         2,577         344   

Non-competition agreements

     306         270         310         223   
  

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 5,363,627       $ 1,270,511       $ 5,363,927       $ 1,062,677   
  

 

 

    

 

 

    

 

 

    

 

 

 

The estimated remaining amortization expense as of March 30, 2013 for each of the five succeeding fiscal years was as follows:

 

Remainder of Fiscal 2013

   $ 205,733   

Fiscal 2014

     398,978   

Fiscal 2015

     384,088   

Fiscal 2016

     370,306   

Fiscal 2017

     361,254   

(15) Product Warranties

Product warranty activity was as follows:

 

     Balance at
Beginning of
Period
     Provisions      Settlements/
Adjustments
    Balance at
End of Period
 

Six Months Ended:

          

March 30, 2013

   $ 6,179       $ 5,328       $ (4,965   $ 6,542   

March 24, 2012

   $ 4,448       $ 3,738       $ (3,341   $ 4,845   

(16) Equity

Stockholder Rights Plan

The Amended and Restated Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of April 2, 2008 (the “Rights Plan”), and all preferred share purchase rights distributed to holders of the Company’s common stock pursuant to the Rights Plan, expired by their terms on January 1, 2013. As a result, the Rights Plan is of no further force and effect.

 

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Table of Contents

Amended and Restated 2008 Equity Incentive Plan

On March 11, 2013, the Company’s shareholders approved the Company’s Amended and Restated 2008 Equity Incentive Plan, in which the number of shares that are authorized for issuance under this plan was increased by 10 million to 31.5 million.

(17) Pension and Other Employee Benefits

The Company has certain defined benefit pension plans covering the employees of its Hitec-Imaging German subsidiary (formerly AEG). As of March 30, 2013 and September 29, 2012, the Company’s pension liability was $9.7 million, which is primarily recorded as a component of long-term liabilities in the Consolidated Balance Sheets. As of March 30, 2013 and September 29, 2012, the pension plans held no assets. The Company’s net periodic benefit cost and components thereof were not material during the three and six months ended March 30, 2013 and March 24, 2012.

(18) New Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (AOCI) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. The ASU is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 is not expected to have a significant impact on the Company’s results of operations or financial position.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 amended ASC 210, Balance Sheet, to converge the presentation of offsetting assets and liabilities between U.S. GAAP and IFRS. ASU 2011-11 requires that entities disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013, which is the Company’s fiscal year 2014. The Company is currently evaluating the impact of the adoption of ASU 2011-11 on its consolidated financial statements.

 

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Table of Contents

(19) Supplemental Guarantor Condensed Consolidating Financial Statements (Unaudited)

The Company’s Senior Notes issued in August 2012 are fully and unconditionally and jointly and severally guaranteed by Hologic, Inc. (“Parent/Issuer”) and each of its domestic subsidiaries. The following represents the supplemental condensed financial information of Hologic, Inc. and its guarantor and non-guarantor subsidiaries, as of March 30, 2013 and September 29, 2012 and for the three and six months ended March 30, 2013 and March 24, 2012.

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

March 30, 2013

 

    Parent/Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  
ASSETS          

Current assets:

         

Cash and cash equivalents

  $ 188,551      $ 455,672      $ 100,773      $ —       $ 744,996   

Restricted cash

    —         —         7,179        —         7,179   

Accounts receivable, net

    98,705        179,059        123,458        79        401,301   

Inventories

    82,179        173,552        64,287        (20     319,998   

Deferred income tax assets

    —         15,615        626        (16,241     —     

Prepaid income taxes

    55,334        38,691        —          (7,480 )     86,545   

Prepaid expenses and other current assets

    19,722        13,825        13,059        —         46,606   

Intercompany receivables

    —         2,228,533        50,594        (2,279,127     —    

Other current assets – assets held-for-sale

    —         —          623        —         623   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    444,491        3,104,947        360,599        (2,302,789     1,607,248   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Property and equipment, net

    29,369        371,986        101,284        —         502,639   

Intangible assets, net

    22,815        3,962,339        107,962        —         4,093,116   

Goodwill

    281,860        3,519,856        139,593        —         3,941,309   

Other assets

    114,838        48,679        1,365        12        164,894   

Investment in subsidiaries

    9,847,845        100,772        2,296        (9,950,913     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 10,741,218      $ 11,108,579      $ 713,099      $ (12,253,690   $ 10,309,206   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY          

Current liabilities:

         

Accounts payable

  $ 28,494      $ 37,621      $ 9,494      $ —       $ 75,609   

Accrued expenses

    207,071        71,048        43,867        (7,746     314,240   

Deferred revenue

    86,624        9,502        29,540        —         125,666   

Current portion of long-term debt

    453,677        —         —         —         453,677   

Deferred income tax liabilities

    57,340        —         —         (16,241     41,099   

Intercompany payables

    2,198,427        —         88,405        (2,286,832     —    

Other current liabilities – assets held-for-sale

    —         —          15        —         15   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    3,031,633        118,171        171,321        (2,310,819     1,010,306   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt, net of current portion

    4,551,019        —         —         —         4,551,019   

Deferred income tax liabilities

    72,842        1,499,591        10,541        —          1,582,974   

Deferred service obligations – long-term

    9,585        2,551        12,326        (2,191     22,271   

Other long-term liabilities

    85,576        33,706        32,790        —          152,072   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    7,750,655        1,654,019        226,978        (2,313,010     7,318,642   

Total stockholders’ equity

    2,990,563        9,454,560        486,121        (9,940,680     2,990,564   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

  $ 10,741,218      $ 11,108,579      $ 713,099      $ (12,253,690   $ 10,309,206   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

September 29, 2012

 

    Parent/Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  
ASSETS          

Current assets:

         

Cash and cash equivalents

  $ 210,028      $ 269,416      $ 80,986      $ —       $ 560,430   

Restricted cash

    —         —         5,696        —         5,696   

Accounts receivable, net

    101,538        192,349        115,522        (76     409,333   

Inventories

    74,500        223,043        70,180        (532     367,191   

Deferred income tax assets

    13,578        —         617        (2,480     11,715   

Prepaid income taxes

    20,805        48,429        611        —         69,845   

Prepaid expenses and other current assets

    18,817        12,816        12,668        —         44,301   

Intercompany receivables

    —         2,094,017        55,761        (2,149,778     —    

Other current assets – assets held-for-sale

    —         67,878        26,625        —         94,503   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    439,266        2,907,948        368,666        (2,152,866     1,563,014   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Property and equipment, net

    26,928        379,702        101,368        —         507,998   

Intangible assets, net

    24,034        4,162,930        114,286        —         4,301,250   

Goodwill

    279,956        3,522,474        140,349        —         3,942,779   

Other assets

    112,339        49,036        2,406        (1,714     162,067   

Investments in subsidiaries

    9,782,940        101,615        2,296        (9,886,851     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 10,665,463      $ 11,123,705      $ 729,371      $ (12,041,431   $ 10,477,108   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY          

Current liabilities:

         

Accounts payable

  $ 29,847      $ 43,339      $ 14,037      $ —       $ 87,223   

Accrued expenses

    238,387        86,566        50,052        (2,624     372,381   

Deferred revenue

    92,234        10,307        27,147        —         129,688   

Current portion of long-term debt

    64,435        —         —         —         64,435   

Intercompany payables

    2,085,339        6,655        66,335        (2,158,329     —    

Other current liabilities – assets held-for-sale

    —         5,520        2,102        —         7,622   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    2,510,242        152,387        159,673        (2,160,953     661,349   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt, net of current portion

    4,971,179        —         —         —         4,971,179   

Deferred income tax liabilities

    180,916        1,581,833        8,836        —         1,771,585   

Deferred service obligations – long-term

    7,536        1,160        7,601        (2,583     13,714   

Other long-term liabilities

    34,559        30,587        34,504        (1,400     98,250   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    7,704,432        1,765,967        210,614        (2,164,936     7,516,077   

Total stockholders’ equity

    2,961,031        9,357,738        518,757        (9,876,495     2,961,031   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

  $ 10,665,463      $ 11,123,705      $ 729,371      $ (12,041,431   $ 10,477,108   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended March 30, 2013

 

     Parent/Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenues:

          

Product sales

   $ 100,614      $ 398,811      $ 121,340      $ (102,751   $ 518,014   

Service and other revenues

     81,176        19,422        9,535        (15,484     94,649   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     181,790        418,233        130,875        (118,235     612,663   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

          

Cost of product sales

     52,488        170,310        88,231        (102,751     208,278   

Cost of product sales – amortization of intangible assets

     1,309        73,374        1,050        —         75,733   

Cost of service and other revenues

     40,620        15,777        8,413        (15,484     49,326   

Research and development

     7,234        39,973        2,414        —         49,621   

Selling and marketing

     20,484        45,237        22,893        —         88,614   

General and administrative

     16,716        38,631        8,886        —         64,233   

Amortization of intangible assets

     777        26,687        1,203        —         28,667   

Contingent consideration – compensation expense

     29,388        —         —         —         29,388   

Contingent consideration – fair value adjustments

     799        —         —         —         799   

Restructuring and divestiture net charges

     164        10,600        3,092        (1,394 )     12,462   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     169,979        420,589        136,182        (119,629     607,121   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     11,811        (2,356     (5,307     1,394       5,542   

Interest income

     99        36        72        —         207   

Interest expense

     (75,238     (309     (502     —         (76,049

Debt extinguishment loss

     (3,247     —          —          —          (3,247

Other (expense) income, net

     1,638        (3,073     1,247        (13     (201
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (64,937     (5,702     (4,490     1,381        (73,748

(Benefit) provision for income taxes

     (14,842     (8,081     279        —         (22,644

Equity in earnings (losses) of subsidiaries

     (1,009     2,459        —         (1,450     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (51,104   $ 4,838      $ (4,769   $ (69   $ (51,104
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended March 30, 2013

 

     Parent/Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenues:

          

Product sales

   $ 198,657      $ 778,582      $ 254,415      $ (178,438   $ 1,053,216   

Service and other revenues

     159,136        40,563        19,407        (28,297     190,809   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     357,793        819,145        273,822        (206,735     1,244,025   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

          

Cost of product sales

     106,008        334,205        169,996        (178,438     431,771   

Cost of product sales – amortization of intangible assets

     2,615        146,291        2,114        —         151,020   

Cost of service and other revenues

     78,998        31,368        18,166        (28,297     100,235   

Research and development

     14,652        81,726        4,752        —         101,130   

Selling and marketing

     41,257        92,602        49,198        —         183,057   

General and administrative

     32,036        69,647        16,941        —         118,624   

Amortization of intangible assets

     1,455        53,336        2,402        —         57,193   

Contingent consideration – compensation expense

     58,874        —         —         —         58,874   

Contingent consideration – fair value adjustments

     10,839        —         —         —         10,839   

Gain on sale of intellectual property, net

     —          (53,884     —          —          (53,884

Restructuring and divestiture net charges

     385       13,886       3,518        (1,394 )     16,395   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     347,119        769,177        267,087        (208,129     1,175,254   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     10,674        49,968        6,735        1,394       68,771   

Interest income

     230        78        159        —         467   

Interest expense

     (146,492     (623     (1,015     —         (148,130

Debt extinguishment loss

     (3,247     —          —          —          (3,247

Other income (expense), net

     1,757        (7,119     6,427        (27 )     1,038   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (137,078     42,304        12,306        1,367       (81,101

(Benefit) provision for income taxes

     (26,589     (11,195     4,669        —         (33,115

Equity in earnings (losses) of subsidiaries

     62,503        13,393        —          (75,896     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (47,986   $ 66,892      $ 7,637      $ (74,529   $ (47,986
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended March 24, 2012

 

     Parent/Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenues:

          

Product sales

   $ 105,485      $ 248,435      $ 103,727      $ (69,562   $ 388,085   

Service and other revenues

     74,836        15,122        7,105        (13,983     83,080   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     180,321        263,557        110,832        (83,545     471,165   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

          

Cost of product sales

     53,947        94,789        75,249        (69,562     154,423   

Cost of product sales – amortization of intangible assets

     1,304        42,911        126        —         44,341   

Cost of service and other revenues

     38,474        14,487        7,313        (13,983     46,291   

Research and development

     6,553        19,385        3,359        —         29,297   

Selling and marketing

     15,686        42,509        20,344        —         78,539   

General and administrative

     12,110        22,087        7,646        —         41,843   

Amortization of intangible assets

     677        13,860        2,092        —         16,629   

Contingent consideration – compensation expense

     18,121        —         —         —         18,121   

Contingent consideration – fair value adjustments

     43,188        —         —         —         43,188   

Gain on sale of intellectual property, net

     —          (12,424     —          —         (12,424

Restructuring and divestiture net charges

     —          196        587        —         783   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     190,060        237,800        116,716        (83,545     461,031   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (9,739     25,757        (5,884     —         10,134   

Interest income

     463        31        96        —         590   

Interest expense

     (27,662     (360     (490     —         (28,512

Debt extinguishment loss

     (42,347     —          —          —         (42,347

Other income, net

     1,418        48        61        —         1,527   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (77,867     25,476        (6,217     —         (58,608

(Benefit) provision for income taxes

     (31,518     15,067        (1,884     —         (18,335

Equity in earnings (losses) of subsidiaries

     6,076        2,403        —          (8,479     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (40,273   $ 12,812      $ (4,333   $ (8,479   $ (40,273
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended March 24, 2012

 

<
     Parent/Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenues:

          

Product sales

   $ 211,246      $ 498,883      $ 206,261      $ (136,209   $ 780,181   

Service and other revenues

     148,264        29,648        14,367        (28,584     163,695   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     359,510        528,531        220,628        (164,793     943,876   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

          

Cost of product sales

     107,637        175,510        139,429        (136,209     286,367   

Cost of product sales – amortization of intangible assets

     2,609        85,821        2,082        —         90,512   

Cost of service and other revenues

     77,709        28,217        14,175        (28,584     91,517   

Research and development

     13,797        37,515        6,327        —         57,639   

Selling and marketing

     32,183        84,755        39,061        —         155,999   

General and administrative

     25,130        46,277        16,931        —         88,338   

Amortization of intangible assets

     1,354        27,719        2,398        —         31,471   

Contingent consideration – compensation expense

     28,562        —         —         —         28,562   

Contingent consideration – fair value adjustments

     48,310        —         —         —         48,310   

Gain on sale of intellectual property, net

     —          (12,424 )     —         —         (12,424

Non-recurring charges

     —          —         (91 )     —         (91

Restructuring and divestiture net charges

     —         196       587        —         783   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     337,291        473,586        220,899        (164,793     866,983   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     22,219        54,945        (271     —         76,893   

Interest income

     1,041        77        134        —         1,252   

Interest expense

     (56,371     (687     (963     —         (58,021

Debt extinguishment loss

     (42,347     —          —          —         (42,347

Other income, net

     2,882        69        568        —         3,519   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (72,576     54,404        (532     —         (18,704

Provision (benefit) for income taxes

     (25,309     23,638        2,428        —         757   

Equity in earnings (losses) of subsidiaries

     27,806        5,793        557        (34,156     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (19,461   $ 36,559      $