NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(all tabular amounts in millions, except number of shares, which are reflected in thousands, and per share data)
(1) Basis of Presentation
The consolidated financial statements of Hologic, Inc. (“Hologic” or the “Company”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and disclosures required by U.S. generally accepted accounting principles (“GAAP”). These financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended
September 24, 2016
included in the Company’s Form 10-K filed with the SEC on November 17, 2016. In the opinion of management, the financial statements and notes contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate. Operating results for the
three
months ended
December 31, 2016
are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending
September 30, 2017
. Fiscal 2017 is a 53 week fiscal period and this additional week is included in the results for the three months ended December 31, 2016.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share Based Payment Accounting
(ASU 2016-09). The guidance changes how companies account for certain aspects of share-based payments to employees. The amendments in the update are effective for annual periods beginning after December 15, 2016, and are applicable to the Company in fiscal 2018 with early adoption permitted in any interim or annual period. During the first quarter of fiscal 2017, the Company elected to early adopt this standard. The update requires certain changes to presentation of the financial statements as follows:
|
|
•
|
All excess tax benefits and deficiencies are recognized as a component of the provision for income taxes on a discrete basis in the period when the equity awards vest and/or are settled. Previously, the Company recorded this tax impact directly to additional paid in capital. For the three months ended
December 31, 2016
, the Company recorded a tax benefit of
$6.0 million
. The standard does not permit retroactive presentation of this benefit to prior fiscal years on the Consolidated Statements of Income.
|
|
|
•
|
The tax benefit or deficiency is required to be classified as a cash flow provided by (used in) operating activities. It was previously required to be presented as a cash flow provided by (used in) financing activities in the Consolidated Statements of Cash Flows, with a corresponding adjustment to operating cash flows. As permitted in the ASU, the Company has elected to adopt this classification on a retrospective basis, and therefore, the prior fiscal period Consolidated Statement of Cash Flows has been recast for this provision resulting in cash flows provided by operations increasing
$7.1 million
for the three months ended December 26, 2015 with a corresponding increase to cash flows used in financing activities.
|
|
|
•
|
In the diluted net earnings per share calculation, when applying the treasury stock method for shares that could be repurchased, the assumed proceeds no longer include the amount of excess tax benefit. This provision, which is only applicable on a prospective basis, did not have a material impact on the Company's diluted net earnings per share calculation in the first quarter of fiscal 2017.
|
|
|
•
|
ASU 2016-09 allows a Company to elect to account for award forfeitures as they occur or to continue to estimate forfeitures. The Company has elected to continue to estimate potential forfeitures. As such, there is no impact from a change in accounting principle within stockholders' equity.
|
Subsequent Events Consideration
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that may require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events recorded in the unaudited consolidated financial statements as of and for the
three
months ended
December 31, 2016
. On January 31, 2017, the Company completed the sale of its blood screening business for a sales price of
$1.85 billion
, subject to adjustment. Please see note 10 for further discussion of this transaction.
(2) Fair Value Measurements
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The Company has investments in publicly-traded companies, which are valued using quoted market prices, representing Level 1 assets, and investments in derivative instruments comprised of interest rate caps and forward foreign currency contracts, which are valued using analyses obtained from independent third party valuation specialists based on market observable inputs, representing Level 2 assets. The fair values of the Company's interest rate caps and forward foreign currency contracts represent the estimated amounts the Company would receive or pay to terminate the contracts. Refer to Note 5 for further discussion and information on the interest rate caps and forward foreign currency contracts.
The Company has a payment obligation to the participants under its Nonqualified Deferred Compensation Plan (“DCP”). This liability is recorded at fair value based on the underlying value of certain hypothetical investments under the DCP as designated by each participant for their benefit. Since the value of the DCP obligation is based on market prices, the liability is classified within Level 1.
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following at
December 31, 2016
:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
|
Balance as of December 31, 2016
|
|
Quoted Prices in
Active Market for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Equity securities
|
$
|
4.4
|
|
|
$
|
4.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate cap - derivative
|
2.5
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
Forward foreign currency contracts
|
7.4
|
|
|
—
|
|
|
7.4
|
|
|
—
|
|
Total
|
$
|
14.3
|
|
|
$
|
4.4
|
|
|
$
|
9.9
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deferred compensation liabilities
|
$
|
41.1
|
|
|
$
|
41.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
$
|
41.1
|
|
|
$
|
41.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
The Company remeasures the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets are comprised of cost-method equity investments and long-lived assets, including property, plant and equipment, intangible assets and goodwill.
The Company holds certain cost-method equity investments in non-publicly traded securities aggregating
$3.4 million
and
$3.5 million
at
December 31, 2016
and
September 24, 2016
, respectively, which are included in other long-term assets on the Company’s Consolidated Balance Sheets. These investments are generally carried at cost, less any write-downs for other-than-temporary impairment charges. To determine the fair value of these investments, the Company uses all available financial information related to the entities, including information based on recent or pending third-party equity investments in these entities. In certain instances, a cost method investment’s fair value is not estimated as there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and to make such an estimate would be impractical.
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, interest rate caps, forward foreign currency contracts, insurance contracts, DCP liability, accounts payable and debt obligations. The carrying amounts of the Company’s cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. The Company’s marketable securities, interest rate caps, and forward foreign currency contracts are recorded at fair value. The carrying amount of the insurance contracts are recorded at the cash surrender value, as required by U.S. GAAP, which approximates fair value, and the related DCP liability is recorded at fair value. The Company believes the carrying amounts of its cost-method equity investments approximate fair value.
Amounts outstanding under the Company’s Credit Agreement and Securitization Program of
$1.39 billion
and
$188.0 million
aggregate principal, respectively, as of
December 31, 2016
are subject to variable rates of interest based on current market rates, and as such, the Company believes the carrying amount of these obligations approximates fair value. The Company’s 2022 Senior Notes had a fair value of approximately
$1.05 billion
as of
December 31, 2016
based on their trading price, representing a Level 1 measurement. The fair value of the Company’s Convertible Notes is based on the trading prices of the respective notes and represents a Level 1 measurement. Refer to Note 4 for the carrying amounts of the various components of the Company’s debt.
The estimated fair values of the Company’s Convertible Notes at
December 31, 2016
were as follows:
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|
|
|
|
2012 Notes
|
494.2
|
|
2013 Notes
|
451.4
|
|
|
$
|
945.6
|
|
(3) Restructuring and Divestiture Charges
The Company evaluates its operations for opportunities to improve operational effectiveness and efficiency, including facility and operations consolidation, and to better align expenses with revenues. In addition, the Company continually assesses its management structure. As a result of these assessments, the Company has undertaken various restructuring actions, which are described below. The following table displays charges related to these actions recorded in the fiscal
2017
year to date period (3 months ended December 31, 2016) and fiscal
2016
(the year ended September 24, 2016) and a rollforward of the accrued balances from
September 24, 2016
to
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016 Actions
|
|
Total
|
Restructuring and Divestiture Charges
|
|
|
|
|
Fiscal 2016 charges:
|
|
|
|
|
Workforce reductions
|
|
$
|
10.5
|
|
|
$
|
10.5
|
|
Fiscal 2016 restructuring charges
|
|
$
|
10.5
|
|
|
$
|
10.5
|
|
Fiscal 2017 charges:
|
|
|
|
|
Severance adjustments
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
Facility closure costs
|
|
3.5
|
|
|
3.5
|
|
Fiscal 2017 restructuring charges
|
|
$
|
3.2
|
|
|
$
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016 Actions
|
|
Fiscal 2015 Actions
|
|
Fiscal 2014 Actions
|
|
Total
|
Rollforward of Accrued Restructuring
|
|
|
|
|
|
|
|
|
Balance as of September 24, 2016
|
|
$
|
5.5
|
|
|
$
|
0.2
|
|
|
$
|
0.6
|
|
|
$
|
6.3
|
|
Fiscal 2017 facility closure costs
|
|
3.5
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
Severance payments and adjustments
|
|
(3.8
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
(3.9
|
)
|
Other payments
|
|
(0.4
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(0.5
|
)
|
Balance as of December 31, 2016
|
|
$
|
4.8
|
|
|
$
|
0.1
|
|
|
$
|
0.5
|
|
|
$
|
5.4
|
|
Fiscal 2016 Actions
During the fourth quarter of fiscal 2016, the Company decided to initiate a cost reduction initiative in part of its Diagnostic's reportable segment, resulting in the termination of certain employees. The employees were notified of termination and related benefits in the fourth quarter of fiscal 2016, and the Company recorded these charges pursuant to ASC 420,
Exit or Disposal Cost Obligations
(ASC 420) as the benefits qualify as one-time termination benefits. As such, the Company recorded a charge for severance and benefits of
$0.9 million
in the fourth quarter. This action is complete and no additional severance and benefits charges are expected.
During the third quarter of fiscal 2015, the Company decided to close its Bedford, Massachusetts facility where it manufactured its Skeletal Health products and provided certain support manufacturing services for its Breast Health segment. The manufacturing of the Skeletal Health products has been outsourced to a third-party, and the Breast Health manufacturing services were moved to the Company's Danbury, Connecticut and Marlborough, Massachusetts facilities. In addition, research and development, sales and services support and administrative functions have been moved to both Marlborough and Danbury. The transition was substantially completed by the end of calendar 2016. In connection with this plan, certain employees, primarily in manufacturing, were terminated. The employees were notified of termination and related benefits in the first quarter of fiscal 2016, and the Company recorded these charges pursuant to ASC 420. Employees were required to remain employed during this transition period and charges were recorded ratably over the required service period. The Company recorded a total of
$1.7 million
in severance and benefits charges in fiscal 2016 of which
$0.5 million
was recorded in the first quarter of fiscal 2016. This action is complete and
no
additional severance and benefits charges are expected.
In connection with shutting down the Bedford location, during the first quarter of fiscal 2017 the Company recorded
$3.5 million
for lease obligation charges related to a section of the facility that the Company had determined met the cease-use date criteria. The Company has made certain assumptions regarding the time period it will take to obtain a subtenant and the sublease rates it can obtain. These estimates may vary from the actual sublease agreements executed, if at all, resulting in an adjustment to the charge. In addition, the Company expects to meet the cease-use date criteria for additional sections of the facility in fiscal 2017 resulting in additional charges.
During the first quarter of fiscal 2016, the Company began implementing a second plan to consolidate and improve operational efficiency of its international sales and marketing and field services operations and certain support functions. As a result, the Company identified and terminated certain employees during each quarter in fiscal 2016. Severance and benefit charges under this action were recorded pursuant to ASC 712,
Compensation-Nonretirement Postemployment Benefits
(ASC 712), and ASC 420 depending on the circumstances. The Company recorded severance and benefit charges of
$7.9 million
in fiscal 2016 related to this plan. Included in this charge was
$0.4 million
of stock-based compensation. During the first quarter of fiscal 2016, the Company recorded severance and benefits charges of
$1.8 million
.
(4) Borrowings and Credit Arrangements
The Company’s borrowings consisted of the following:
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|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 24,
2016
|
Current debt obligations, net of debt discount:
|
|
|
|
Term Loan
|
$
|
93.1
|
|
|
$
|
83.8
|
|
Securitization Program
|
188.0
|
|
|
200.0
|
|
Convertible Notes
|
426.2
|
|
|
12.2
|
|
Total current debt obligations
|
$
|
707.3
|
|
|
$
|
296.0
|
|
Long-term debt obligations, net of debt discount:
|
|
|
|
Term Loan
|
1,281.2
|
|
|
1,308.2
|
|
2022 Senior Notes
|
978.8
|
|
|
977.7
|
|
Convertible Notes
|
355.6
|
|
|
763.5
|
|
Total long-term debt obligations
|
$
|
2,615.6
|
|
|
$
|
3,049.4
|
|
Total debt obligations
|
$
|
3,322.9
|
|
|
$
|
3,345.4
|
|
Credit Agreement
Borrowings outstanding under the Credit Agreement for the
three
months ended
December 31, 2016
and
December 26, 2015
had weighted-average interest rates of
2.05%
and
1.95%
, respectively. The interest rate on the outstanding Term Loan borrowing at
December 31, 2016
was
2.27%
. Interest expense under the Credit Agreement aggregated
$9.8 million
for the
three
months ended
December 31, 2016
, which includes non-cash interest expense of
$1.1 million
related to the amortization of the deferred issuance costs and accretion of the debt discount. Interest expense under the Credit Agreement aggregated
$10.0 million
for the
three
months ended
December 26, 2015
, which includes
$1.1 million
of non-cash interest expense related to the amortization of the deferred issuance costs and accretion of the debt discount.
The Credit Agreement contains two financial covenants, a total net leverage ratio and an interest coverage ratio, both of which are measured as of the last day of each fiscal quarter. These terms, and the calculation thereof, are defined in further detail in the Credit Agreement. As of
December 31, 2016
, the Company was in compliance with these covenants.
2022 Senior Notes
The Company's
5.250%
Senior Notes due 2022 (the “2022 Senior Notes”) mature on July 15, 2022 and bear interest at the rate of
5.250%
per year, payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2016. The Company recorded interest expense of
$15.1 million
and
$14.0 million
for the
three
months ended
December 31, 2016
and December 26, 2015, respectively, which includes non-cash interest expense of
$1.0 million
related to the amortization of the deferred issuance costs and accretion of the debt discount for both periods.
Convertible Notes
On November 9, 2016, the Company announced that pursuant to the terms of the indenture for the
2.00%
Convertible Exchange Senior Notes due 2037, issued in November 2010 (the “2010 Notes”), holders of the 2010 Notes, had the option of requiring the Company to repurchase their 2010 Notes on December 16, 2016 at a repurchase price payable in cash equal to
100%
of the original principal amount of the 2010 Notes. None of the 2010 Notes were surrendered for repurchase pursuant to the option.
In addition, the Company also announced on November 9, 2016 that, pursuant to the terms of the indenture, it had elected to redeem, on December 19, 2016, all of the then outstanding 2010 Notes at a redemption price payable in cash equal to
100%
of the accreted principal amount of the 2010 Notes. Holders of the 2010 Notes also had a right to convert their 2010 Notes. As of December 16, 2016, holders of
$8.4 million
in aggregate principal of the 2010 Notes surrendered notes for conversion, which remained outstanding as of
December 31, 2016
and will be paid in cash in the second quarter of fiscal 2017. This amount is included within the current portion of long term debt on the Consolidated Balance Sheet. The premium on the conversion price for the 2010 Notes will also be paid in cash in the second quarter of fiscal 2017 based on the average trading price of the Company's common stock during a thirty-day trading period. The Company also paid
$6.4 million
in cash for conversion requests in the first quarter of fiscal 2017, which included
$2.5 million
of premium.
The term "Convertible Notes" refers to the 2010 Notes, the 2012 Notes and the 2013 Notes.
Interest expense under the Convertible Notes was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
2016
|
|
December 26,
2015
|
Amortization of debt discount
|
$
|
5.2
|
|
|
$
|
6.4
|
|
Amortization of deferred financing costs
|
0.2
|
|
|
0.3
|
|
Principal accretion
|
4.6
|
|
|
4.1
|
|
Non-cash interest expense
|
10.0
|
|
|
10.8
|
|
2.00% accrued interest (cash)
|
2.0
|
|
|
3.2
|
|
|
$
|
12.0
|
|
|
$
|
14.0
|
|
Accounts Receivable Securitization Program
Borrowings under the Securitization Program for the
three
month period ended
December 31, 2016
had a weighted-average interest rate of
1.25%
. Interest expense under the Securitization Program aggregated
$0.7 million
for the
three
month period ended
December 31, 2016
. The interest rate on the amounts outstanding at
December 31, 2016
was
1.47%
. On December 22, 2016, the Company paid down
$12.0 million
under the Securitization Program as its qualified borrowing base decreased.
(5) Derivatives
Interest Rate Cap - Cash Flow Hedge
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposure to some of its interest rate risk through the use of interest rate caps, which are derivative financial instruments. The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive income ("AOCI") to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in other income (expense) in the Consolidated Statements of Income.
During fiscal 2015, the Company entered into separate interest rate cap agreements with multiple counter-parties to help mitigate the interest rate volatility associated with the variable interest rate on amounts borrowed under its Credit Agreement. Interest rate cap agreements provide the right to receive cash if the reference interest rate rises above a contractual rate. The aggregate premium paid for the interest rate cap agreements was
$13.2 million
, which was the initial fair value of the instruments recorded in the Company's financial statements.
The critical terms of the interest rate caps were designed to mirror the terms of the Company’s LIBOR-based borrowings under its Credit Agreement and therefore are highly effective at offsetting the cash flows being hedged. The Company designated these derivatives as cash flow hedges of the variability of the LIBOR-based interest payments on
$1.0 billion
of principal over a
three-year
period, which ends on December 29, 2017.
As of
December 31, 2016
, the Company determined that the existence of hedge ineffectiveness, if any, was immaterial and all changes in the fair value of the interest rate caps were recorded in the Consolidated Statements of Comprehensive Income as a component of AOCI.
During the
three
months ended
December 31, 2016
,
$2.1 million
was reclassified from AOCI to the Company’s Consolidated Statements of Income related to the interest rate cap agreements. The Company expects to similarly reclassify a loss of approximately
$7.1 million
from AOCI to the Consolidated Statements of Income in the next twelve months.
The aggregate fair value of these interest rate caps was
$2.5 million
and
$1.4 million
at
December 31, 2016
and
September 24, 2016
, respectively and is included in Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheet. Refer to Note 2 “Fair Value Measurements” above for related fair value disclosures.
Forward Foreign Currency Contracts
The Company enters into forward foreign currency exchange contracts to mitigate certain operational exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company's operations that are denominated in currencies other than the U.S. dollar, primarily the Euro, the UK Pound, the Australian dollar, the Canadian dollar and the Japanese Yen. These foreign currency exchange contracts are entered into to support transactions made in the ordinary course of business and are not speculative in nature. The contracts are generally for periods of one year or less. During fiscal 2016, the Company began to execute forward foreign currency contracts in order to mitigate its exposure to fluctuations in various currencies against its reporting currency, the U.S. dollar. The Company did not elect hedge accounting for these forward foreign currency contracts; however, the Company may seek to apply hedge accounting in future scenarios. The change in the fair value of these contracts is recognized directly in earnings as a component of other income (expense), net. During the
three
months ended
December 31, 2016
and December 26, 2015, the Company recorded net realized gains of
$1.2 million
and
$0.4 million
, respectively, from settling forward foreign currency contracts and unrealized gains of
$8.4 million
and
$1.0 million
, respectively, on the mark-to-market for its outstanding forward foreign currency contracts.
As of
December 31, 2016
, the Company had outstanding forward foreign currency contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar of forecasted transactions denominated in the Euro, UK Pound, Australian dollar, Canadian Dollar and Japanese Yen with an aggregate notional amount of
$156.7 million
.
Financial Instrument Presentation
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the balance sheet as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
December 31, 2016
|
|
September 24, 2016
|
Assets:
|
|
|
|
|
|
Derivative instruments designated as a cash flow hedge:
|
|
|
|
|
|
Interest rate cap agreements
|
Prepaid expenses and other current assets
|
|
$
|
2.5
|
|
|
$
|
1.0
|
|
Interest rate cap agreements
|
Other assets
|
|
—
|
|
|
0.4
|
|
|
|
|
$
|
2.5
|
|
|
$
|
1.4
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Forward foreign currency contracts
|
Prepaid expenses and other current assets
|
|
$
|
7.4
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Forward foreign currency contracts
|
Accrued expenses
|
|
$
|
—
|
|
|
$
|
1.3
|
|
The following table presents the unrealized loss recognized in AOCI related to the interest rate caps for the following reporting periods:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31, 2016
|
|
December 26, 2015
|
Amount of gain recognized in other comprehensive income, net of taxes:
|
|
|
|
Interest rate cap agreements
|
$
|
0.7
|
|
|
$
|
0.3
|
|
The following table presents the adjustment to fair value (realized and unrealized) recorded within the Consolidated Statements of Income for derivative instruments for which the Company did not elect hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not classified as hedging instruments
|
|
Amount of Gain Recognized in Income
|
|
Location of Gain Recognized in Income
|
|
|
Three Months Ended December 31, 2016
|
|
Three months ended December 26, 2015
|
|
|
Forward foreign currency contracts
|
|
$
|
9.6
|
|
|
$
|
1.4
|
|
|
Other income, net
|
(6) Commitments and Contingencies
Litigation and Related Matters
On June 9, 2010, Smith & Nephew, Inc. ("Smith & Nephew") filed suit against Interlace Medical, Inc. ("Interlace"), which the Company acquired on January 6, 2011, in the United States District Court for the District of Massachusetts. The complaint alleged that the Interlace MyoSure hysteroscopic tissue removal device infringed U.S. patent 7,226,459 (the '459 patent). On November 22, 2011, Smith & Nephew filed suit against the Company in the United States District Court for the District of Massachusetts. The complaint alleged that use of the MyoSure tissue removal system infringed U.S. patent 8,061,359 (the '359 patent). Both complaints sought preliminary and permanent injunctive relief and unspecified damages. On September 4, 2012, following a two week trial, the jury returned a verdict of infringement of both the ‘459 and ‘359 patents and assessed damages of
$4.0 million
. A two-day bench trial regarding the Company’s assertion of inequitable conduct on the part of Smith & Nephew with regard to the ‘359 patent began on December 10, 2012 and oral arguments on the issue of inequitable
conduct were presented on February 27, 2013. On June 27, 2013, the Court denied the Company’s motions related to inequitable conduct and allowed Smith & Nephew’s request for injunction, but ordered that enforcement of the injunction be stayed until final resolution, including appeal, of the current re-examinations of both patents at the United States Patent and Trademark Office (“USPTO”). The Court also rejected the jury’s damage award and ordered the parties to identify a mechanism for resolving the damages issue. The USPTO issued final decisions that the claims of the ‘459 and the '359 patents asserted as part of the litigation are not patentable, which decisions Smith & Nephew appealed to the U.S. Patent Trial and Appeal Board. In 2016, the U.S. Patent Trial and Appeal Board (i) affirmed the USPTO decision with respect to the '459 patent, holding that the claims at issue are invalid, and (ii) reversed the USPTO decision with respect to the '359 patent, holding that the claims at issue are not invalid. The Company and Smith & Nephew have appealed the decisions by the Patent Trial and Appeal Board on the '359 patent and the '459 patent, respectively, to the U.S. Court of Appeals for the Federal Circuit. 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.
In January 2012, Enzo Life Sciences, Inc. ("Enzo") filed suit against the Company's subsidiary, Gen-Probe Incorporated ("Gen-Probe"), in the United States District Court for the District of Delaware, alleging that certain of Gen-Probe’s diagnostics products, including products that incorporate Gen-Probe’s patented hybridization protection assay technology (HPA), including the Aptima
line of products, infringe Enzo’s U.S. patent 6,992,180 (the '180 patent). On March 6, 2012, Enzo filed suit against the Company in the United States District Court for the District of Delaware, alleging that products based on the Company's Invader chemistry platform, such as Cervista HPV HR and Cervista HPV 16/18, infringe the '180 patent. On July 16, 2012, Enzo amended its complaint to include additional products that include HPA or TaqMan reagent chemistry, including Progensa, AccuProbe and Prodesse product lines. The Company counter-claimed for non-infringement, invalidity and unenforceability of the ‘180 patent. On September 30, 2013, Enzo filed its infringement contentions which added products including "Torch" probes, PACE and certain Procleix assays. Both complaints seek preliminary and permanent injunctive relief and unspecified damages. Enzo has asserted the ‘180 patent claims against six other companies. Summary judgment and Daubert motions were filed by the parties on December 15, 2016. A hearing on the summary judgment motions is scheduled for April 4, 2017 and trial in both suits is scheduled to begin on October 2, 2017. 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 27, 2015, Enzo filed an additional suit against the Company in the United States District Court for the District of Delaware. The complaint alleged that certain additional Company molecular diagnostic products, including, inter alia, the Procleix Parvo/HAV assays and coagulation products, including the Invader Factor II test and the Invader Factor V test, also infringe the '180 patent. The complaint further alleged that certain of the Company’s molecular diagnostic products, including the Company’s Progensa PCA3, Aptima and Procleix products using target capture technology infringe Enzo’s U. S. Patent 7,064,197 (the '197 patent). On June 11, 2015, this matter was stayed pending the resolution of summary judgment motions in the other related suits involving the '197 patent. On March 30, 2016, Hologic filed two requests for
inter partes
review of the ‘197 patent at the USPTO. The USPTO instituted the two inter partes reviews on all challenged claims on October 4, 2016. The oral arguments in both inter partes reviews are scheduled for June 1, 2017. At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses.
On October 3, 2016, Enzo filed an additional suit against the Company in the United States District Court for the District of Delaware. The complaint alleged that all of the Company's Progensa PCA3, Aptima and Procleix products infringe U.S. Patent 6,221,581. 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.
The Company is a party to various other legal proceedings and claims arising out of the ordinary course of its business. The Company believes that except for those matters described above there are no other proceedings or claims pending against it the ultimate resolution of which could have a material adverse effect on its financial condition or results of operations. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450,
Contingencies
. Legal costs are expensed as incurred.
(7) Marketable Securities
The following reconciles the cost basis to the fair market value of the Company’s equity securities that are classified as available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended:
|
Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Other Than Temporary Impairment
|
|
Fair Value
|
December 31, 2016
|
$
|
0.7
|
|
|
$
|
4.0
|
|
|
$
|
(0.3
|
)
|
|
$
|
—
|
|
|
$
|
4.4
|
|
September 24, 2016
|
$
|
2.4
|
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
1.0
|
|
In the first quarter of fiscal 2017, one of the Company's cost-method equity investments became a marketable security, and the Company recorded the increase in value of
$4.0 million
to other comprehensive income.
In the first quarter of fiscal 2016, the Company sold all of its shares in one of its marketable securities and recorded a realized gain of
$25.1 million
in Other income, net.
(8) Net Income Per Share
A reconciliation of basic and diluted share amounts is as follows:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
2016
|
|
December 26,
2015
|
Basic weighted average common shares outstanding
|
278,663
|
|
|
282,976
|
|
Weighted average common stock equivalents from assumed exercise of stock options and stock units
|
3,143
|
|
|
3,109
|
|
Incremental shares from Convertible Notes premium
|
2,418
|
|
|
5,886
|
|
Diluted weighted average common shares outstanding
|
284,224
|
|
|
291,971
|
|
Weighted-average anti-dilutive shares related to:
|
|
|
|
Outstanding stock options
|
1,442
|
|
|
733
|
|
Stock units
|
13
|
|
|
67
|
|
The Company has outstanding Convertible Notes, and the principal balance and any conversion premium may be satisfied, at the Company’s option, by issuing shares of common stock, cash or a combination of shares and cash. The Company's current policy is that it will settle the principal balance of the Convertible Notes in cash. As such, the Company applies the treasury stock method to these securities and the dilution related to the conversion premium of the 2010, 2012 and 2013 Notes is included in the calculation of diluted weighted-average shares outstanding to the extent each issuance is dilutive based on the average stock price during each reporting period being greater than the conversion price of the respective Notes.
(9) Stock-Based Compensation
The following presents stock-based compensation expense in the Company’s Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
2016
|
|
December 26,
2015
|
Cost of revenues
|
$
|
2.8
|
|
|
$
|
2.2
|
|
Research and development
|
2.8
|
|
|
2.4
|
|
Selling and marketing
|
2.7
|
|
|
2.5
|
|
General and administrative
|
10.9
|
|
|
8.8
|
|
|
$
|
19.2
|
|
|
$
|
15.9
|
|
The Company granted
0.9 million
and
0.9 million
stock options during the
three months ended
December 31, 2016
and
December 26, 2015
, respectively, with weighted-average exercise prices of
$37.62
and
$39.94
, respectively. There were
6.5 million
options outstanding at
December 31, 2016
with a weighted-average exercise price of
$27.43
.
The Company uses a binomial model to determine the fair value of its stock options. The weighted-average assumptions utilized to value these stock options are indicated in the following table:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
2016
|
|
December 26,
2015
|
Risk-free interest rate
|
1.8
|
%
|
|
1.6
|
%
|
Expected volatility
|
36.6
|
%
|
|
37.8
|
%
|
Expected life (in years)
|
4.7
|
|
|
4.7
|
|
Dividend yield
|
—
|
|
|
—
|
|
Weighted average fair value of options granted
|
$
|
12.18
|
|
|
$
|
13.13
|
|
The Company granted
0.9 million
and
0.9 million
restricted stock units (RSUs) during the
three
months ended
December 31, 2016
and
December 26, 2015
, respectively, with weighted-average grant date fair values of
$37.58
and
$39.96
per unit, respectively. As of
December 31, 2016
, there were
2.8 million
unvested RSUs outstanding with a weighted-average grant date fair value of
$34.12
per unit. In addition, the Company granted
0.1 million
and
0.3 million
performance stock units (PSUs) during the
three
months ended
December 31, 2016
and
December 26, 2015
, respectively, to members of its senior management team, which have a weighted-average grant date fair value of
$37.64
and
$26.58
per unit, respectively. Each recipient of PSUs is eligible to receive between
zero
and
200%
of the target number of shares of the Company’s common stock at the end of
three years
provided the Company’s defined Return on Invested Capital metrics are achieved. The Company is recognizing compensation expense ratably over the required service period based on its estimate of the number of shares that will vest. If there is a change in the estimate of the number of shares that are probable of vesting, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made. The Company also granted
0.1 million
market based awards (MSUs) to its senior management team. Each recipient of MSUs is eligible to receive between
zero
and
200%
of the target number of shares of the Company’s common stock at the end of
three years
based upon achieving a certain total shareholder return relative to a defined peer group. The MSUs were valued at
$48.90
per share using the Monte Carlo simulation model. The Company is recognizing compensation expense for the MSUs ratably over the service period.
At
December 31, 2016
, there was
$28.6 million
and
$94.4 million
of unrecognized compensation expense related to stock options and stock units (comprised of RSUs and PSUs), respectively, to be recognized over a weighted-average period of
3.0
years and
2.2
years, respectively.
(10) Assets Held-for-Sale
On December 14, 2016, the Company entered into a definitive agreement to sell its blood screening business to its commercial partner, Grifols, for a sales price of
$1.85 billion
in cash, subject to adjustment based on the closing amount of inventory. The transaction, which is an asset sale, closed on January 31, 2017. Upon closing of the transaction, the Company's existing collaboration agreement with Grifols terminated. The Company has agreed to provide transition services to Grifols, including manufacturing inventory for Grifols. In determining whether or not this disposal qualified to be reported as discontinued operation, the Company considered a number of quantitative and qualitative factors and concluded that the disposal of the blood screening business does not qualify as a strategic shift as the blood screening business has not had and will not have a major effect on the Company's operations and financial results. Under the existing collaboration agreement, the Company performed research and development activities and manufacturing, while Grifols performed the commercial and distribution activities. The blood screening business is embedded within the Company's molecular diagnostics business and the Company retains ownership and will continue to use the intellectual property for the underlying technology of its molecular diagnostics assays and instrumentation. As a result of this transaction, certain of the Company's assets used in the blood screening business have been designated as assets held-for-sale. Assets held-for sale are reflected separately in the Company's Consolidated Balance Sheet and comprise the following as of
December 31, 2016
:
|
|
|
|
|
Assets:
|
|
Inventory
|
$
|
35.6
|
|
Property, plant and equipment
|
26.2
|
|
Goodwill
|
325.0
|
|
Intangible assets
|
541.7
|
|
Total assets held-for-sale
|
$
|
928.5
|
|
Income from operations of the disposed business for the periods ended December 31, 2016 and December 26, 2015 was as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31, 2016
|
December 26, 2015
|
|
|
|
Income from operations
|
$
|
28.6
|
|
$
|
27.1
|
|
The Company believes that the sale of its blood screening business to Grifols constitutes an asset sale under the Credit Agreement and that, subject to the terms and limitations set forth in the Credit Agreement, the Company is permitted to use the after tax net proceeds to reinvest in its business. The Company is then required to apply the balance of net available cash, unless otherwise consented to by its lenders, to Mandatory Prepayments as defined in the Credit Agreement.
(11) Other Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 24,
2016
|
Inventories
|
|
|
|
Raw materials
|
$
|
95.3
|
|
|
$
|
96.4
|
|
Work-in-process
|
38.9
|
|
|
51.7
|
|
Finished goods
|
124.1
|
|
|
126.6
|
|
|
$
|
258.3
|
|
|
$
|
274.7
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
Equipment and software
|
$
|
373.3
|
|
|
$
|
381.9
|
|
Equipment under customer usage agreements
|
338.7
|
|
|
334.6
|
|
Building and improvements
|
168.4
|
|
|
186.1
|
|
Leasehold improvements
|
54.9
|
|
|
65.6
|
|
Land
|
46.2
|
|
|
51.9
|
|
Furniture and fixtures
|
12.7
|
|
|
18.4
|
|
|
994.2
|
|
|
1,038.5
|
|
Less – accumulated depreciation and amortization
|
(561.6
|
)
|
|
(578.3
|
)
|
|
$
|
432.6
|
|
|
$
|
460.2
|
|
(12) Business Segments and Geographic Information
The Company has
four
reportable segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health. Certain reportable segments represent an aggregation of operating units within each segment. The Company measures and evaluates its reportable segments based on segment revenues and operating income adjusted to exclude the effect of non-cash charges, such as intangible asset amortization expense, intangible asset and goodwill impairment charges, acquisition related fair value adjustments and integration expenses, restructuring, divestiture and facility consolidation charges and other one-time or unusual items.
Identifiable assets for the
four
principal operating segments consist of inventories, intangible assets, goodwill, and property, plant and equipment. The Company fully allocates depreciation expense to its four reportable segments. The Company has presented all other identifiable assets as corporate assets. There were
no
intersegment revenues during the
three
months ended
December 31, 2016
and
December 26, 2015
. Segment information is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
2016
|
|
December 26,
2015
|
Total revenues:
|
|
|
|
Diagnostics
|
$
|
325.4
|
|
|
$
|
310.7
|
|
Breast Health
|
273.3
|
|
|
262.2
|
|
GYN Surgical
|
114.8
|
|
|
98.8
|
|
Skeletal Health
|
20.9
|
|
|
23.5
|
|
|
$
|
734.4
|
|
|
$
|
695.2
|
|
Income from operations:
|
|
|
|
Diagnostics
|
$
|
41.1
|
|
|
$
|
31.6
|
|
Breast Health
|
85.2
|
|
|
71.6
|
|
GYN Surgical
|
25.5
|
|
|
20.8
|
|
Skeletal Health
|
(5.8
|
)
|
|
2.1
|
|
|
$
|
146.0
|
|
|
$
|
126.1
|
|
Depreciation and amortization:
|
|
|
|
Diagnostics
|
$
|
84.9
|
|
|
$
|
83.7
|
|
Breast Health
|
5.1
|
|
|
7.3
|
|
GYN Surgical
|
25.1
|
|
|
24.6
|
|
Skeletal Health
|
0.2
|
|
|
0.3
|
|
|
$
|
115.3
|
|
|
$
|
115.9
|
|
Capital expenditures:
|
|
|
|
Diagnostics
|
$
|
10.3
|
|
|
$
|
11.9
|
|
Breast Health
|
2.2
|
|
|
2.0
|
|
GYN Surgical
|
4.1
|
|
|
3.4
|
|
Skeletal Health
|
0.3
|
|
|
0.1
|
|
Corporate
|
7.8
|
|
|
2.3
|
|
|
$
|
24.7
|
|
|
$
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
September 24,
2016
|
Identifiable assets:
|
|
|
|
Diagnostics
|
$
|
3,687.1
|
|
|
$
|
3,771.9
|
|
Breast Health
|
812.3
|
|
|
809.1
|
|
GYN Surgical
|
1,551.6
|
|
|
1,570.7
|
|
Skeletal Health
|
31.7
|
|
|
30.9
|
|
Corporate
|
1,255.1
|
|
|
1,134.4
|
|
|
$
|
7,337.8
|
|
|
$
|
7,317.0
|
|
The Company had
no
customers that represented greater than 10% of consolidated revenues during the
three
months ended
December 31, 2016
and
December 26, 2015
.
The Company operates in the following major geographic areas as noted in the below chart. Revenue data is based upon customer location. Other than the United States,
no
single country accounted for more than 10% of consolidated revenues. The Company’s sales in Europe are predominantly derived from France, Germany and the United Kingdom. The Company’s sales in Asia-Pacific are predominantly derived from China, Australia and Japan. The “All others” designation includes Canada, Latin America and the Middle East.
Revenues by geography as a percentage of total revenues were as follows:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
2016
|
|
December 26,
2015
|
United States
|
77.9
|
%
|
|
78.4
|
%
|
Europe
|
10.7
|
%
|
|
10.0
|
%
|
Asia-Pacific
|
8.4
|
%
|
|
7.9
|
%
|
All others
|
3.0
|
%
|
|
3.7
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
(13) Income Taxes
In accordance with ASC 740,
Income Taxes
(ASC 740), each interim period is considered integral to the annual period, and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.
The Company’s effective tax rate for the
three
months ended
December 31, 2016
was
25.5%
compared to
25.9%
for the corresponding period in the prior year. For the current
three
month period, the effective tax rate was lower than the statutory tax rate primarily due to the adoption of ASU 2016-09, which resulted in a tax benefit, earnings in jurisdictions subject to lower tax rates, and the domestic production activities deduction benefit. For the three months ended
December 26, 2015
, the effective tax rate was lower than the statutory tax rate primarily due to increased earnings in jurisdictions subject to lower tax rates, the domestic production activities deduction benefit, the retroactively reinstated Federal research credit, and a change in the valuation allowance related to the sale of a marketable security that had a gain for book purposes.
The IRS completed its audit of the Company's consolidated Federal income tax returns for fiscal 2013 and 2014 subsequent to December 31, 2016.
(14) Intangible Assets
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
As of December 31, 2016
|
|
As of September 24, 2016
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
Developed technology
|
$
|
3,727.4
|
|
|
$
|
1,962.9
|
|
|
$
|
3,983.7
|
|
|
$
|
1,991.6
|
|
In-process research and development
|
3.7
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
Customer relationships and contracts
|
512.1
|
|
|
366.9
|
|
|
1,098.9
|
|
|
546.2
|
|
Trade names
|
236.1
|
|
|
144.1
|
|
|
236.2
|
|
|
141.6
|
|
Business licenses
|
2.3
|
|
|
2.0
|
|
|
2.4
|
|
|
2.1
|
|
|
$
|
4,481.6
|
|
|
$
|
2,475.9
|
|
|
$
|
5,324.9
|
|
|
$
|
2,681.5
|
|
In the first quarter of fiscal 2017, the Company classified the assets of its blood screening business as assets held for sale. As such, developed technology and customer contract assets of
$154.0 million
and
$387.7 million
, respectively, were reclassified accordingly in the Company's Consolidated Balance Sheet as of December 31, 2016.
The estimated remaining amortization expense as of
December 31, 2016
for each of the five succeeding fiscal years is as follows:
|
|
|
|
|
Remainder of Fiscal 2017
|
$
|
210.1
|
|
Fiscal 2018
|
$
|
286.5
|
|
Fiscal 2019
|
$
|
274.8
|
|
Fiscal 2020
|
$
|
264.2
|
|
Fiscal 2021
|
$
|
242.6
|
|
(15) Product Warranties
Product warranty activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning of
Period
|
|
Provisions
|
|
Settlements/
Adjustments
|
|
Balance at
End of Period
|
Three Months Ended:
|
|
|
|
|
|
|
|
December 31, 2016
|
$
|
5.0
|
|
|
$
|
2.6
|
|
|
$
|
(1.7
|
)
|
|
$
|
5.9
|
|
December 26, 2015
|
$
|
5.4
|
|
|
$
|
5.7
|
|
|
$
|
(1.7
|
)
|
|
$
|
9.4
|
|
During the first quarter of fiscal 2016, the Company recorded a warranty provision of
$4.0 million
related to certain products sold exclusively in the Chinese market.
(16) Accumulated Other Comprehensive Loss
The following tables summarize the changes in accumulated balances of other comprehensive loss for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2016
|
|
Foreign Currency Translation
|
|
Marketable Securities
|
|
Pension Plans
|
|
Hedged Interest Rate Caps
|
|
Total
|
Beginning Balance
|
$
|
(26.1
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
(3.4
|
)
|
|
$
|
(32.3
|
)
|
Other comprehensive income (loss) before reclassifications
|
(15.7
|
)
|
|
2.3
|
|
|
—
|
|
|
0.7
|
|
|
(12.7
|
)
|
Amounts reclassified to statement of income
|
—
|
|
|
0.1
|
|
|
—
|
|
|
2.1
|
|
|
2.2
|
|
Ending Balance
|
$
|
(41.8
|
)
|
|
$
|
2.1
|
|
|
$
|
(2.5
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(42.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 26, 2015
|
|
Foreign Currency Translation
|
|
Marketable Securities
|
|
Pension Plans
|
|
Hedged Interest Rate Caps
|
|
Total
|
Beginning Balance
|
$
|
(15.7
|
)
|
|
$
|
6.9
|
|
|
$
|
(1.8
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
(14.5
|
)
|
Other comprehensive income (loss) before reclassifications
|
(4.2
|
)
|
|
(0.6
|
)
|
|
—
|
|
|
0.3
|
|
|
(4.5
|
)
|
Amounts reclassified to statement of income
|
—
|
|
|
(7.2
|
)
|
|
—
|
|
|
0.3
|
|
|
(6.9
|
)
|
Ending Balance
|
$
|
(19.9
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(25.9
|
)
|
(18) New Accounting Pronouncements
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740).
The guidance requires companies to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period in which the transfer occurs. The guidance is effective for annual periods beginning after December 15, 2017, and is applicable to the Company in fiscal 2019. Early adoption is permitted as of the beginning of an annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2016-16 on its consolidated financial position and results of operations.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flow (Topic 230)
. The guidance reduces diversity in how certain cash receipts and cash payments are presented and classified in the Statements of Cash Flows. Certain of ASU 2016-15 requirements are as follows: 1) cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities, 2) contingent consideration payments made soon after a business combination should be classified as cash outflows for investing activities and cash payment made thereafter should be classified as cash outflows for financing up to the amount of the contingent consideration liability recognized at the acquisition date with any excess classified as operating activities, 3) cash proceeds from the settlement of insurance claims should be classified on the basis of the nature of the loss, 4) cash proceeds from the settlement of Corporate-Owned Life Insurance (COLI) Policies should be classified as cash inflows from investing activities and cash payments for premiums on COLI policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities, and 5) cash paid to a tax authority by an employer when withholding shares from an employee's award for tax-withholding purposes should be classified as cash outflows for financing activities. The guidance is effective for annual periods beginning after December 15, 2017, and is applicable to the Company in fiscal 2019. Early adoption is permitted. The adoption of ASU 2016-15 is not expected to have a material effect on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326)
. The guidance requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The updated guidance is effective for annual periods beginning after December 15, 2019, and is applicable to the Company in fiscal 2021. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial position and results of operations.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842).
The guidance requires an entity to recognize a right-of-use asset and a lease liability for virtually all of its leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The guidance is effective for annual periods beginning after December 15, 2018, and is applicable to the Company in fiscal 2020. Early adoption is permitted. The updated guidance requires a modified retrospective adoption. The Company is currently evaluating the anticipated impact of the adoption of ASU 2016-02 on its consolidated financial position and results of operations.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. This guidance changes how
entities measure equity investments that do not result in consolidation and are not accounted for under the equity method. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity investments that do not have readily determinable fair values,
however; the exception requires the Company to consider relevant transactions that can be reasonably known to identify any observable price changes that would impact the fair value
. This guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. This guidance is effective for annual periods beginning after December 15, 2017, and is applicable to the Company in fiscal 2019
. Early adoption is permitted. The Company is currently evaluating the anticipated impact of the adoption of ASU 2016-01 on its consolidated financial position and results of operations.
In July 2015, the FASB issued guidance under ASC 330,
Simplifying the Measurement of Inventory.
The new guidance requires inventory to be measured at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. This new guidance is effective for the Company's first quarter of fiscal 2018 and early adoption is permitted. The guidance must be applied prospectively. The Company is currently evaluating the impact of the adoption of this requirement on its consolidated financial statements but does not anticipate that adoption of this guidance will have a material impact on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.
ASU 2014-15 requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and is applicable to the Company in fiscal 2018. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on the Company's consolidated financial statements or disclosures.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 660)
, which provides guidance for revenue recognition. This ASU is applicable to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 will supersede the revenue recognition requirements in Topic 605,
Revenue Recognition
, and most industry-specific guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to receive in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current U.S. GAAP. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. On July 9, 2015, the FASB voted in favor of delaying the effective date of the new standard by one year, with early adoption permitted as of the original effective date. ASU 2014-09 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which is fiscal 2019 for the Company. The Company is currently evaluating the anticipated impact of the adoption of ASU 2014-09 on its consolidated financial position and results of operations.