CAUTIONARY STATEMENT
Some of the statements contained in this report and documents incorporated by reference herein are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements may include, but are not limited to, statements regarding: •the ongoing and possible future effects of the global COVID-19 pandemic and economic disruptions on our business, financial condition, results of operations and cash flows and our ability to draw down our revolver; •the ongoing and possible future effects on supply chain constraints and inflation, including from the war inUkraine , on our business;
•the ongoing and possible future effects of the global COVID-19 pandemic on our customers and suppliers;
•the possibility of interruptions or delays at our manufacturing facilities, or the failure to secure alternative suppliers if any of our sole source third-party manufacturers fail to supply us;
•continued demand for our COVID-19 assays;
•the timing, scope and effect of furtherU.S. and international governmental, regulatory, fiscal, monetary and public health responses, including emerging vaccine mandates, to the COVID-19 pandemic;
•our ability to manufacture, on a scale necessary to meet demand, our COVID-19 assays as well as the systems on which the assays run;
•our ability to predict accurately the demand for our products, and products under development and to develop strategies to address markets successfully;
•potential cybersecurity threats and targeted computer crime;
•the effect of the continuing worldwide macroeconomic uncertainty, including the
impact of the
•the effect of the worldwide political and social uncertainty and divisions throughout the world, including the impact on trade regulation and tariffs, that may adversely impact the cost and sale of our products in certain countries, or increase the cost we may incur to purchase materials, parts and equipment from our suppliers;
•the development of new competitive technologies and products;
•the impact and anticipated benefits of completed acquisitions and acquisitions we may complete in the future;
•the ability to consolidate certain of our manufacturing and other operations on a timely basis and within budget, without disrupting our business and to achieve anticipated cost synergies related to such actions;
•the ability to successfully manage ongoing organizational and strategic changes, including our ability to attract, motivate and retain key employees and maintain engagement and efficiency in remote work environments;
•our ability to obtain regulatory approvals and clearances for our products, including the implementation of the new European Union Medical Device Regulations, and maintain compliance with complex and evolving regulations;
•the coverage and reimbursement decisions of third-party payors;
•the uncertainty of the impact of cost containment efforts and federal healthcare reform legislation on our business and results of operations;
•the guidelines, recommendations, and studies published by various organizations relating to the use of our products;
•the effect of consolidation in the healthcare industry;
•our ability to meet production and delivery schedules for our products;
•our ability to protect our intellectual property rights;
•the possibility that products may contain undetected errors or defects or otherwise not perform as anticipated;
•the anticipated development of markets we sell our products into and the success of our products in these markets;
•the anticipated performance and benefits of our products;
•business strategies;
•estimated asset and liability values;
•the impact of future tax legislation;
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•conducting business internationally;
•the impact and costs and expenses of any litigation we may be subject to now or in the future;
•our compliance with covenants contained in our debt agreements;
•anticipated trends relating to our financial condition or results of operations, including the impact of interest rate and foreign currency exchange fluctuations, including the potential impact of the proposed phase out of LIBOR; and
•our liquidity, capital resources and the adequacy thereof.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "intends," "anticipates," "believes," "estimates," "projects," "predicts," "likely," "future," "strategy." "potential," "seeks," "goal" and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences in our future financial results include the cautionary statements set forth herein and in our other filings with theSecurities and Exchange Commission , including those set forth under "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those described in our Annual Report on Form 10-K for the fiscal year endedSeptember 25, 2021 or any other of our subsequently filed reports. We qualify all of our forward-looking statements by these cautionary statements.
OVERVIEW
We are a developer, manufacturer and supplier of premium diagnostics products, medical imaging systems, and surgical products focused on women's health and well-being through early detection and treatment. We sell and service our products through a combination of direct sales and service personnel and a network of independent distributors and sales representatives. We operate in four segments: Diagnostics,Breast Health ,GYN Surgical and Skeletal Health . Through our Diagnostics segment, we offer a wide range of diagnostics products, which are used primarily to aid in the screening and diagnosis of human diseases. Our primary Diagnostics products include our molecular diagnostic assays, which run on our advanced instrumentation systems (Panther, Panther Fusion, and Tigris), our ThinPrep cytology system, and the Rapid Fetal Fibronectin Test. OurAptima family of molecular diagnostic assays is used to detect, among other things, the infectious microorganisms that cause the common sexually transmitted diseases, or STDs, such as: chlamydia and gonorrhea, or CTGC; certain high-risk strains of human papillomavirus, or HPV; Trichomonas vaginalis, the parasite that causes trichomoniasis; Mycoplasma genitalium; and Herpes simplex viruses 1 and 2. We also offer viral load tests for HIV, Hepatitis C and Hepatitis B for use on our Panther instrument system. In addition, we offer bacterial vaginosis and candida vaginitis assays for the diagnosis of vaginitis, a common and complex ailment affecting millions of women a year. Our assay portfolio also includes diagnostic tests for a range of acute respiratory infections, including SARS-CoV-2, various strains of influenza and parainfluenza, and respiratory syncytial virus that are run on the Panther Fusion system, a field upgradeable instrument addition to the base Panther system. In response to the COVID-19 pandemic, we developed and launched the Aptima SARS-CoV-2 assay (which runs on our standard Panther system) and the Panther Fusion SARS-CoV-2 assay (which runs on our Panther Fusion system). The Panther Fusion SARS-CoV-2 assay and the Aptima SARS-CoV-2 assay were launched at the end of our second quarter and in the third quarter of fiscal 2020, respectively. The ThinPrep System is primarily used in cytology applications, such as cervical cancer screening, and the Rapid Fetal Fibronectin Test assists physicians in assessing the risk of pre-term birth. OurBreast Health segment offers a broad portfolio of solutions for breast cancer care primarily in the areas of radiology, breast surgery, pathology and treatment. These solutions include 3D digital mammography systems, image analytics software utilizing artificial intelligence, reading workstations, ultrasound imaging, minimally invasive breast biopsy guidance systems, breast biopsy site markers, localization, specimen radiology, connectivity solutions and breast conserving surgery products. Our most advanced breast imaging platforms, Selenia Dimensions and 3Dimensions, utilize tomosynthesis to produce 3D images that show multiple contiguous slice images of the breast, which we refer to as the Genius 3D Mammography exam. Our GYN Surgical products include our NovaSure Endometrial Ablation System, or NovaSure, and our MyoSure Hysteroscopic Tissue Removal System, or MyoSure, our Fluent Fluid Management system, or Fluent, as well as our Acessa ProVu laparoscopic radiofrequency ablation system, or Acessa. The NovaSure portfolio is comprised of the NovaSure CLASSIC and NovaSure ADVANCED devices and most recently, the NovaSure V5 device for the treatment of abnormal 33 -------------------------------------------------------------------------------- uterine bleeding. The MyoSure suite of devices offers four options to provide incision-less removal of fibroids, polyps, and other pathology within the uterus. The Fluent system is a fluid management system that provides liquid distention during diagnostic and operative hysteroscopic procedures. The Acessa system is a fully integrated system that uses laparoscopic ultrasound, guidance mapping and radiofrequency ablation to treat nearly all types of fibroids.
Our
Unless the context otherwise requires, references to we, us, Hologic or our
company refer to
Supply Chain Considerations
The current worldwide supply chain shortages and constraints are impacting our ability to obtain certain critical raw materials and components used primarily in ourBreast Health capital equipment products. The supply chain shortages and disruptions primarily affecting ourBreast Health manufacturing lines are related to electronic components, primarily semiconductor chips. We are dependent on a small number of semiconductor manufacturers and their allocation of chips to us. Based on our current understanding of their allocation of chips to us for the remainder of fiscal 2022, if such allocation does not increase or we are not able to obtain alternative sources of chips, we believe we will not be able to manufacture sufficient quantities of our capital equipment products, primarily 3D Dimension systems, Trident specimen radiography systems, Affirm Prone biopsy systems and Brevera systems to meet customer demand. As a result, if we are unable to obtain sufficient quantities of chips, we expect sales of these products to further decline in the remainder of fiscal 2022 as compared to the prior year periods. Since we expect manufacturing of these products to decline below normal manufacturing capacity, we are anticipating an increase in unfavorable manufacturing variances. In addition, the prices of raw materials and components, as well as freight, have been rising and continued supply chain shortages could increase the costs further. These factors may result in a lower gross margin forBreast Health in the remainder of fiscal 2022 for our affected products. Our procurement team has and will continue to expend significant time and resources to try to secure sufficient quantities to meet demand.
Trademark Notice
Hologic is a trademark ofHologic, Inc. Other trademarks, logos, and slogans registered or used by Hologic and its divisions and subsidiaries inthe United States and other countries include, but are not limited to, the following: 3Dimensions, 3D Mammography, Acessa, Acessa ProVu, Affirm, Affirm Prone, Amplidiag,Aptima , ATEC,Biotheranostics , Brevera, CoolSeal, Diagenode, Fluent, Fluoroscan, Genius 3D, Genius 3D Mammography, Hologic, Horizon DXA, Insight, JustRight, Mobidiag, MyoSure, Novodiag, NovaSure, NXC Imaging, Panther, Panther Fusion, ProVu, Rapid fFN, Selenia, Selenia Dimensions, Somatex, SuperSonic Imagine, ThinPrep, Tigris, Trident, and Tumark. All other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Hologic's use or display of other parties' trademarks, trade dress or products in this offering circular does not imply that Hologic has a relationship with, or endorsement or sponsorship of, the trademark or trade dress owners. 34 --------------------------------------------------------------------------------
ACQUISITIONS
The following sets forth descriptions of acquisitions we have completed in fiscal 2022 and 2021.
Bolder Surgical
OnNovember 29, 2021 , we completed the acquisition ofBolder Surgical Holdings, Inc. , or Bolder, for a purchase price of$160.1 million . Bolder, located inLouisville, Colorado , is a developer and manufacturer of energy vessel sealing surgical devices used in both laparoscopic and open procedures. Based on our preliminary valuation, we allocated$96.7 million of the purchase price to the value of intangible assets and$70.9 million to goodwill. The allocation of the purchase price is preliminary as we continue to gather information supporting the valuation of the acquired assets and liabilities. Bolder's results of operations are reported in our GYN Surgical segment.
Mobidiag
OnJune 17, 2021 , we completed the acquisition ofMobidiag Oy , or Mobidiag, for a purchase price of$729.6 million . Mobidiag, located inFinland , manufactures molecular diagnostic solutions for gastrointestinal infections, antimicrobial resistance management and other infections. Based on our preliminary valuation, we allocated$399.9 million of the purchase price to the value of intangible assets and$431.7 million to goodwill. The allocation of the purchase price is preliminary as we continue to gather information supporting the valuation of the acquired assets and liabilities. This acquisition expands our molecular diagnostics portfolio into the near-patient testing market. Mobidiag's results of operations are reported in our Diagnostics segment.
OnFebruary 22, 2021 , we completed the acquisition ofBiotheranostics, Inc. , orBiotheranostics , for a purchase price of$231.3 million .Biotheranostics , located inSan Diego, California , manufactures molecular diagnostic tests that support physicians in the treatment of breast cancer and all metastatic cancers and performs the lab testing procedures at its CLIA-certified laboratory. Based on our valuation, we allocated$162.4 million of the purchase price to the value of intangible assets and$80.9 million to goodwill.Biotheranostics' results of operations are included in our Diagnostics segment and its revenues are reported within Service and Other Revenue in our Consolidated Statements of Income.
Diagenode
OnMarch 1, 2021 , we completed the acquisition ofDiagenode SA , or Diagenode, for a purchase price of$155.1 million . Diagenode, located inBelgium , is a developer and manufacturer of molecular diagnostic assays based on polymerase chain reaction (PCR) technology to detect infectious diseases of bacterial, viral or parasite origin. Based on our valuation, we allocated$79.0 million of the purchase price to the value of intangible assets and$83.5 million to goodwill. Diagenode's results of operations are included in our Diagnostics segment.
Somatex Medical Technologies
OnDecember 30, 2020 , we completed the acquisition ofSomatex Medical Technologies GmbH , or Somatex, for a purchase price of$62.9 million . Somatex, located inGermany , is a manufacturer of biopsy site markers, including the Tumark product line of tissue markers, which we distributed in theU.S. prior to the acquisition. Somatex's results of operations are included in ourBreast Health segment.
RESULTS OF OPERATIONS
All dollar amounts in tables are presented in millions.
35 -------------------------------------------------------------------------------- Table of Contents Product Revenues Three Months Ended Six Months Ended March 26, 2022 March 27, 2021 Change March 26, 2022
March 27, 2021 Change % of % of % of % of Total Total Total Total Amount Revenue Amount Revenue Amount % Amount Revenue Amount Revenue Amount % Product Revenues Diagnostics $ 964.8 67.2 %$ 1,043.5 67.9 %$ (78.7) (7.5) %$ 1,894.2 65.2 %$ 2,156.5 68.5 %$ (262.3) (12.2) %Breast Health 173.0 12.1 % 205.8 13.4 % (32.8) (15.9) % 393.3 13.5 % 406.0 12.9 % (12.7) (3.1) % GYN Surgical 116.9 8.1 % 113.9 7.4 % 3.0 2.6 % 251.0 8.6 % 237.8 7.6 % 13.2 5.6 %Skeletal Health 13.5 0.9 % 15.6 1.0 % (2.1) (13.5) % 33.1 1.1 % 33.9 1.1 % (0.8) (2.4) %$ 1,268.2 88.3 %$ 1,378.8 89.7 %$ (110.6) (8.0) %$ 2,571.6 88.4 %$ 2,834.2 90.1 %$ (262.6) (9.3) % We had a decrease in product revenues in both the current three and six month periods of 8.0% and 9.3%, respectively, compared to the corresponding periods in the prior year. This was primarily due to the decrease in revenues in the Diagnostics business as COVID-19 assay sales were lower, and to a lesser extent, there was also a decrease inBreast Health revenue primarily due to supply chain constraints. Diagnostics product revenues decreased$78.7 million and$262.3 million , or 7.5% and 12.2%, respectively, in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease inMolecular Diagnostics of$74.3 million and$261.6 million , respectively, a decrease in Blood Screening of$2.6 million and$4.7 million , respectively, and a decrease in Cytology & Perinatal for the current three month period of$1.8 million . Cytology & Perinatal revenue increased$4.0 million in the current six month period compared to the corresponding prior year period.Molecular Diagnostics product revenue was$842.9 million and$1,637.7 million , respectively, in the current three and six month periods compared to$917.2 million and$1,899.4 million in the corresponding periods in the prior year. The decrease was primarily attributable to a decrease of$95.1 million and$317.8 million , respectively, in sales from our two SARS-CoV-2 assays due to lower volumes , which we primarily attribute to lower demand from an improvement in the COVID-19 pandemic compared to the prior year and a decrease in average selling prices. We also had a decrease in the sale of our Panther and Panther Fusion instruments in the current year periods compared to the prior year periods. These decreases were partially offset by an increase in sales of$14.6 million and$39.6 million in the current three and six month periods for ourAptima assays and STD collection kits (exclusive of our Aptima SARS-CoV-2 assays), which primarily consisted of our CTGC, Bacterial Vaginosis, and CV Candida assays, on a worldwide basis as volumes increased, partially offset by lower HPV assay volumes. In addition, we had an increase from our Quant Viral assays as well as an increase of$8.7 million and$25.0 million , respectively, in the current three and six month periods from the inclusion of our recent acquisitions of Mobidiag and Diagenode. We also experienced a decrease in revenue from the unfavorable foreign currency exchange impact of the strengthenedU.S. dollar against a number of currencies.Breast Health product revenues decreased$32.8 million and$12.7 million , or 15.9% and 3.1%, respectively, in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease in volumes of our 3D Dimensions systems and related software and workflow products, partially offset by an increase in average selling prices for these products. In addition, in the current three month period we experienced a decrease in volumes of our Affirm biopsy systems and interventional breast solutions products The decrease in volume was driven by supply chain constraints impacting our ability to manufacture sufficient quantities to meet customer demand. Partially offsetting the decrease in the current six month period, we had an increase in sales of our interventional breast solutions products, primarily driven by ATEC and Brevera disposables. We also experienced a decrease in revenue from the unfavorable foreign currency exchange impact of the strengthenedU.S. dollar against a number of currencies. GYN Surgical product revenues increased$3.0 million and$13.2 million , or 2.6% and 5.6%, respectively, in the current three and six month periods compared to the corresponding periods in the prior year primarily due to increases in the sales volume of our Fluent Fluid Management products, CoolSeal vessel sealers acquired in the Bolder acquisition, and Acessa ProVu systems. We also had an increase in MyoSure system sales in the current six month period as overall there has been a recovery in elective procedures year over year. These increases were partially offset by decreases in NovaSure and MyoSure system sales in the current three month period and NovaSure system sales in the current six month period compared to the corresponding periods in the prior year primarily due to the COVID Omicron variant uptick in January and February resulting in a slowdown of elective procedures. 36
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Skeletal Health product revenues decreased$2.1 million and$0.8 million , or 13.5% and 2.4%, respectively, in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease in sales volume of our Horizon DXA systems. This decrease is largely associated with supply chain constraints. We also experienced a decrease in revenue from the unfavorable foreign currency exchange impact of the strengthenedU.S. dollar against a number of currencies. Product revenues by geography as a percentage of total product revenues were as follows: Three Months Ended Six Months Ended March 26, 2022 March 27, 2021 March 26, 2022
March 27, 2021 United States 67.2 % 68.5 % 67.2 % 69.4 % Europe 21.7 % 22.4 % 21.5 % 21.9 % Asia-Pacific 7.9 % 5.9 % 8.2 % 5.7 % Rest of World 3.2 % 3.2 % 3.1 % 3.0 % 100.0 % 100.0 % 100.0 % 100.0 % In the current three and six month periods compared to the corresponding periods in the prior year, the percentage of product revenue derived from theU.S. decreased whileAsia-Pacific increased, which we primarily attributed to a decrease in SARS-CoV-2 assays volumes as well as lowerBreast Health capital equipment sales in theU.S. and an increase in sales of our SARS-CoV-2 assays inAustralia ,New Zealand andJapan . In addition, we had lower SARS-CoV-2 assay sales inEurope in the current three and six month periods compared to the corresponding periods in the prior year. Service and Other Revenues Three Months Ended Six Months EndedMarch 26, 2022 March 27, 2021 ChangeMarch 26, 2022 March 27, 2021 Change % of % of % of % of Total Total Total Total Amount Revenue Amount Revenue Amount % Amount Revenue Amount Revenue Amount % Service and Other Revenues$ 167.5 11.7 %$ 158.8 10.3 %$ 8.7 5.5 %$ 335.3 11.5 %$ 313.2 10.0 %$ 22.1 7.1 % Service and other revenues consist primarily of revenue generated from our field service organization to provide ongoing service, installation, and repair of our products. The majority of these revenues are generated within ourBreast Health segment. The increase in service and other revenue in the current three and six month periods compared to the corresponding periods in the prior year was primarily due to an increase inBreast Health service contract revenue as theBreast Health business continued to convert a high percentage of our installed base of digital mammography systems to service contracts upon expiration of the warranty period, as well as additions from our distributor acquisitions. In our Diagnostics business, lab testing revenue from the inclusion of ourBiotheranostics acquisition in the second quarter of fiscal 2021, increased$12.4 million and$27.7 million , respectively, in the current three and six month periods compared to the corresponding periods in the prior year. This was partially offset by a decrease in royalty revenue in the current three and six month periods of$11.7 million and$23.8 million , respectively, from Grifols, S.A., or Grifols, related to licensing our intellectual property to our COVID-19 assays for their sale inSpain . Cost of Product Revenues Three Months Ended Six Months EndedMarch 26, 2022 March 27, 2021 ChangeMarch 26, 2022 March 27, 2021 Change % of % of % of % of Product Product Product Product Amount Revenue Amount Revenue Amount % Amount Revenue Amount Revenue Amount % Cost of Product Revenues$ 322.6 25.4 %$ 300.7 21.8 %$ 21.9 7.3 %$ 640.7 24.9 %$ 585.2 20.6 %$ 55.5 9.5 % Amortization of Intangible Assets 72.3 5.7 % 64.5 4.7 % 7.8 12.1 % 147.2 5.7 % 126.1 4.4 % 21.1 16.7 %$ 394.9 31.1 %$ 365.2 26.5 %$ 29.7 8.1 %$ 787.9 30.6 %$ 711.3 25.1 %$ 76.6 10.8 % 37
-------------------------------------------------------------------------------- Table of Contents Cost of Product Revenues. The cost of product revenues as a percentage of product revenues was 25.4% and 24.9% in the current three and six month periods compared to 21.8% and 20.6% in the corresponding periods in the prior year, respectively. Cost of product revenues as a percentage of revenue increased in the current three and six month periods primarily due to a decrease in sales of our SARS-CoV-2 assays, which have higher gross margins compared to our other diagnostic products, and comprised 46.0% and 43.0%, respectively, of total product revenue in the current three and six month periods compared to 49.3% and 50.3%, respectively, in the corresponding periods in the prior year. Diagnostics' product costs as a percentage of revenue increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to lower sales of our SARS-CoV-2 assays including a decrease in average selling prices, an increase in inventory reserves, higher field service costs for our expanded instrument installed base and higher freight charges internationally, partially offset by lower sales of instruments, which carry low margins.Breast Health's product costs as a percentage of revenue increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to the impact of the COVID-19 pandemic on the supply chain resulting in lower sales volumes of our higher margin products, reduced manufacturing utilization and higher prices of raw materials and components, partially offset by a slight increase in average selling prices of our 3Dimensions systems and related workflow products. GYN Surgical's product costs as a percentage of revenue increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to product mix of higher volumes of lower margin products, including our Fluent Fluid Management systems, Acessa ProVu systems and CoolSeal vessel sealers.
Amortization of Intangible Assets. Amortization of intangible assets relates to acquired developed technology, which is generally amortized over its estimated useful life of between 5 and 15 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic benefits of the assets are expected to be consumed. Amortization expense increased in the current quarter compared to the corresponding period in the prior year primarily due to intangible assets acquired in the Mobidiag,Biotheranostics , Diagenode and Bolder acquisitions, partially offset by lower amortization of intangible assets acquired in theCytyc acquisition which reduces over time.
Cost of Service and Other Revenues
Three Months Ended Six Months EndedMarch 26, 2022 March 27, 2021 ChangeMarch 26, 2022 March 27, 2021 Change % of % of % of % of Service Service Service Service Amount Revenue Amount Revenue Amount % Amount Revenue Amount Revenue Amount % Cost of Service and Other Revenue$ 94.2 56.2 %$ 86.6 54.5 %$ 7.6 8.8 %$ 186.1 55.5 %$ 170.0 54.3 %$ 16.1 9.5 % Service and other revenues gross margin decreased to 43.8% and 44.5%, respectively, in the current three and six month periods compared to 45.5% and 45.7%, respectively, in the corresponding periods in the prior year. The decrease in the current year periods was primarily due to a decrease in Grifols royalty revenue from licensing of our intellectual property related to our COVID-19 assays for their sale inSpain , which has a high margin, partially offset by the inclusion of lab testing revenue fromBiotheranostics , which has higher margins than our legacy service business. Also partially offsetting the decrease in service margin in the current year periods is an increase inBreast Health service contract revenue. 38 --------------------------------------------------------------------------------
Table of Contents Operating Expenses Three Months Ended Six Months EndedMarch 26, 2022 March 27, 2021 ChangeMarch 26, 2022 March 27, 2021 Change % of % of % of % of Total Total Total Total Amount Revenue Amount Revenue Amount % Amount Revenue Amount Revenue Amount % Operating Expenses Research and development$ 69.5 4.8 %$ 71.5 4.6 %$ (2.0) (2.8) %$ 142.3 4.9 %$ 130.7 4.2 %$ 11.6 8.9 % Selling and marketing 171.4 11.9 % 131.5 8.5 % 39.9 30.3 % 318.7 11.0 % 259.5 8.2 % 59.2 22.8 % General and administrative 100.5 7.0 % 88.9 5.8 % 11.6 13.0 % 218.5 7.5 % 180.4 5.7 % 38.1 21.1 % Amortization of intangible assets 11.3 0.8 % 10.2 0.7 % 1.1 10.8 % 22.1 0.8 % 20.4 0.6 % 1.7 8.3 % Contingent consideration - fair value adjustment - - % (14.7) (1.0) % 14.7 (100.0) % (4.1) (0.1) % (10.1) (0.3) % 6.0 (59.4) % Restructuring and Divestiture charges (0.2) - % 1.6 0.1 % (1.8) (112.5) % - - % 3.0 0.1 % (3.0) (100.0) %$ 352.5 24.6 %$ 289.0 18.8 %$ 63.5 22.0 %$ 697.5 24.0 %$ 583.9 18.6 %$ 113.6 19.5 % Research and Development Expenses. Research and development expenses decreased 2.8% in the current three month period and increased 8.9% in the current six month period compared to the corresponding periods in the prior year. The decrease in the current quarter is primarily due to a$7.0 million charge in the corresponding period in the prior year related to the purchase of intellectual property and a higher credit in the current quarter of$5.9 million recorded to research and development expenses for funds received from theBiomedical Advanced Research and Development Authority (BARDA) grant to obtain FDA approval of our two SARS-CoV-2 assays. Partially offsetting these decreases is the inclusion of incremental expenses from theBiotheranostics , Mobidiag, Diagenode and Bolder acquisitions in the aggregate of$10.1 million . The increase in the current six month period compared to the corresponding period in the prior year is primarily due to the inclusion of incremental expenses from theBiotheranostics , Mobidiag, Diagenode and Bolder acquisitions in the aggregate of$19.0 million , and higher project spend in Diagnostics and Surgical. At any point in time, we have a number of different research projects and clinical trials being conducted and the timing of these projects and related costs can vary from period to period. Selling and Marketing Expenses. Selling and marketing expenses increased 30.3% and 22.8% in the current three and six month periods, respectively, compared to the corresponding periods in the prior year primarily due to increased spending on advertising and marketing initiatives primarily related to ourSuper Bowl commercial, sponsorship of theWomen's Tennis Association and grants supporting women's health initiatives, the inclusion of incremental expenses from theBiotheranostics , Diagenode, Mobidiag and Bolder acquisitions in the aggregate of$11.9 million and$25.2 million , respectively, higher meeting expenses and trade shows that were lower in the prior year primarily due to canceled or curtailed events as a result of the COVID-19 pandemic, higher travel expenses and an increase in Diagnostics commissions. These increases were partially offset by a decrease in commissions inBreast Health due to lower revenues. General and Administrative Expenses. General and administrative expenses increased 13.0% and 21.1% in the current three and six month periods compared to the corresponding periods in the prior year primarily due to an increase in charitable contributions of$7.1 million and$17.2 million , respectively, the inclusion of incremental expenses from theBiotheranostics , Mobidiag, Diagenode, and Bolder acquisitions in the aggregate of$4.6 million and$10.7 million , respectively, an increase in salaries and bonus, higher information systems infrastructure projects spend, and an increase in non-income tax charges. In addition, in the prior year six month period we recorded a$3.6 million credit related to services provided under the transition services agreement with Cynosure. These increases were partially offset by a decrease in bad debt expense, acquisition costs, litigation and settlement costs, and lower expense from our deferred compensation plan. Amortization of Intangible Assets. Amortization of intangible assets primarily results from customer relationships and trade names related to our acquisitions. These intangible assets are generally amortized over their estimated useful lives of between 2 and 30 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic 39 -------------------------------------------------------------------------------- Table of Contents benefits of the assets are expected to be consumed utilizing expected undiscounted future cash flows. Amortization expense increased slightly in the current year periods due to recent acquisitions partially offset by assets from older acquisitions becoming fully amortized. Contingent Consideration Fair Value Adjustments. In connection with the acquisition of Acessa, we are obligated to make contingent earn-out payments. The payments are based on achieving incremental revenue growth over a three-year period ending annually in December of each of 2021, 2022, and 2023. As of the acquisition date for Acessa, we recorded a contingent consideration liability for the estimated fair value of the amount we expected to pay to the former shareholders of the acquired business. This liability is not contingent on future employment, and we recorded our estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of Acessa, comparable company revenue growth rates, implied volatility and applying a risk adjusted discount rate. Increases or decreases in the fair value of contingent consideration liabilities can result from the passage of time, changes in discount rates, and changes in the timing, probabilities and amount of revenue estimates. In the first quarter of fiscal 2022, we recorded a gain of$4.1 million based on actual amounts owed for the first earn-out period being lower than the amount accrued as ofSeptember 25, 2021 . There was no change in the fair value of the liability in the second quarter of fiscal 2022. In the prior year first and second quarters, we recorded a loss of$4.6 million and a gain of$14.7 million , respectively, to record the liability at fair value at that time. Interest Expense Three Months Ended Six Months Ended March 26, March 27, March 26, March 27, 2022 2021 Change 2022 2021 Change Amount Amount Amount % Amount Amount Amount %
Interest Expense
6.1 %$ (48.3) $ (49.3) $ 1.0 (2.0) % Interest expense consists primarily of the cash interest costs and the related amortization of the debt discount and deferred issuance costs on our outstanding debt. Interest expense increased in the current three month period compared to the corresponding period in the prior year primarily due to borrowings outstanding under the Securitization Program in the current year versus in the prior year period no amounts were outstanding. Interest expense decreased in the current six month period compared to the corresponding period in the prior year primarily due to lower debt refinancing costs of$4.0 million recorded as an expense, lower interest rates on our Senior Notes due to issuing our 2029 Senior Notes and paying off our 2025 Senior Notes in the prior year, and the pay-off of amounts outstanding under our Securitization Program in the prior year, partially offset by higher interest rate swap expense and interest expense related to debt from the Mobidiag acquisition. Debt Extinguishment Loss Three Months Ended Six Months Ended March 26, March 27, March 26, March 27, 2022 2021 Change 2022 2021 Change Amount Amount Amount % Amount Amount Amount % Debt Extinguishment Loss $ - $ - $ - - %$ (0.7) $ (21.6) $ 20.9 (96.8) % In the first quarter of fiscal 2022, we entered into a Refinancing Amendment No. 2 to the 2021 Credit Agreement withBank of America, N.A . The proceeds were used to pay off the term loan outstanding under the 2018 Credit Agreement. In connection with this transaction we recorded a debt extinguishment charge of$0.7 million . In the first quarter of fiscal 2021, we completed a private placement of$950 million aggregate principal amount of our 2029 Senior Notes. The proceeds under the 2029 Senior Notes offering, together with available cash, were used to redeem our 2025 Senior Notes in the same principal amount. In connection with this transaction, we recorded a debt extinguishment loss of$21.6 million in the first quarter of fiscal 2021. 40 -------------------------------------------------------------------------------- Table of Contents Other Income, net Three Months Ended Six Months Ended March 26, March 27, March 26, March 27, 2022 2021 Change 2022 2021 Change Amount Amount Amount % Amount Amount Amount %
Other Income, net$ 2.1 $ 4.7 $ (2.6) **$ 8.7 $ 0.9 $ 7.8 ** **Percentage not meaningful For the current three month period, this account primarily consisted of net foreign currency exchange gains of$3.3 million , primarily from settling hedging transactions, and a$2.4 million gain on life insurance proceeds as a result of the death of a former employee, partially offset by a loss of$3.5 million from the change in cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market losses. For the second quarter of fiscal 2021, this account primarily consisted of a gain of$2.7 million on the cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market gains and net foreign currency exchange gains of$2.1 million , primarily from the mark-to-market of outstanding forward foreign currency exchange and foreign currency option contracts. For the current six month period, this account primarily consisted of net foreign currency exchange gains of$12.6 million , primarily from settling transactions, and$2.4 million gain on life insurance proceeds, partially offset by a charge of$4.3 million to write off an equity method investment acquired in the Mobidiag acquisition and a loss of$2.2 million from the change in cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market losses. For the prior year corresponding six month period, this account primarily consisted of a gain of$8.9 million on the cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market gains, partially offset by net foreign currency exchange losses of$7.4 million , primarily from the mark-to-market of outstanding forward foreign currency exchange and foreign currency option contracts. Provision for Income Taxes Three Months Ended Six Months Ended March 26, March 27, March 26, March 27, 2022 2021 Change 2022 2021 Change Amount Amount Amount % Amount Amount Amount % Provision for Income Taxes$ 118.7 $ 161.1 $ (42.4) (26.3) %$ 241.4 $ 340.1 $ (98.7) (29.0) % Our effective tax rates for the three and six months endedMarch 26, 2022 were 20.7% and 20.2%, respectively, compared to 20.6% and 21.1%, respectively, for the corresponding periods in the prior year. Our effective tax rates for the three and six months endedMarch 26, 2022 were lower than theU.S. statutory tax rate primarily due to the impact of theU.S. deduction for foreign derived intangible income and the geographic mix of income earned by our international subsidiaries, which are taxed at rates lower than theU.S. statutory tax rate, partially offset by state income taxes. Our effective tax rate for the three months endedMarch 27, 2021 was lower than theU.S. statutory tax rate primarily due to the impact of theU.S. deduction for foreign derived intangible income and the geographic mix of income earned by our international subsidiaries, which are taxed at rates lower than theU.S. statutory tax rate, partially offset by state income taxes. Our effective tax rate for the six months endedMarch 27, 2021 was higher than theU.S. statutory tax rate primarily due to state income taxes, partially offset by the impact of theU.S. deduction for foreign derived intangible income and the geographic mix of income earned by our international subsidiaries, which are taxed at rates lower than theU.S. statutory tax rate.
Segment Results of Operations
We operate in four segments: Diagnostics,Breast Health ,GYN Surgical and Skeletal Health . The accounting policies of the segments are the same as those described in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedSeptember 25, 2021 . We measure segment performance based on total revenues and operating income. Revenues from product sales of each of these segments are described in further detail above. The 41 -------------------------------------------------------------------------------- Table of Contents discussion that follows is a summary analysis of total revenues and the primary changes in operating income or loss by segment. Diagnostics Three Months Ended Six Months Ended March 26, March 27, March 26, March 27, 2022 2021 Change 2022 2021 Change Amount Amount Amount % Amount Amount Amount % Total Revenues$ 987.1 $ 1,064.5 $ (77.4) (7.3) %$ 1,937.5 $ 2,192.7 $ (255.2) (11.6) % Operating Income$ 540.6 $ 700.6 $ (160.0) (22.8) %$ 1,072.4 $ 1,485.0 $ (412.6) (27.8) % Operating Income as a % of Segment Revenue 54.8 % 65.8 % 55.3 % 67.7 % Diagnostics revenues decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease in sales of our SARS-CoV-2 assays, a decrease in royalty revenue from Grifols related to licensing our intellectual property of our COVID-19 assays for their sale inSpain and lower instrument sales, partially offset by revenue from acquisitions, an increase inAptima assays and Quant Viral assays. Operating income for this business segment decreased in the current three and six month periods compared to the corresponding periods in the prior year due to a decrease in gross profit from lower COVID-19 assay sales and an increase in operating expenses. Gross margin was 71.8% and 72.3% in the current three and six month periods, respectively, compared to 77.3% and 78.7% in the corresponding periods in the prior year, respectively. The decrease in gross profit in the current three and six month periods was primarily due to lower sales volume of our SARS-CoV-2 assays which have a higher margin, an increase in intangible asset amortization expense from recent acquisitions, lower Grifols license revenue, an increase in inventory reserves, higher field service costs for our expanded instrument install bases and an increase in freight internationally. Operating expenses increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to the inclusion of operating expenses from theBiotheranostics , Mobidiag, and Diagenode acquisitions, an increase in allocated advertising and charitable contributions, an increase in salaries and bonus, an increase in marketing initiatives, higher acquisition costs, and an increase in travel expenses partially offset by an increase in the BARDA credit received and lower bad debt expense.Breast Health Three Months Ended Six Months Ended March 26, March 27, March 26, March 27, 2022 2021 Change 2022 2021 Change Amount Amount Amount % Amount Amount Amount % Total Revenues$ 310.4 $ 336.3 $ (25.9) (7.7) %$ 669.9 $ 669.1 $ 0.8 0.1 % Operating Income$ 49.3 $ 67.8 $ (18.5) (27.3) %$ 131.0 $ 154.1 $ (23.1) (15.0) % Operating Income as a % of Segment Revenue 15.9 % 20.2 % 19.6 % 23.0 %Breast Health revenues decreased in the current three month period compared to the corresponding period in the prior year due to a decrease of$32.8 million in product revenue partially offset by an increase of$6.9 million in service revenue discussed above.Breast Health revenues increased in the current six month period compared to the corresponding period in the prior year primarily due to an increase in service revenue offset by a decrease in product revenue discussed above. Operating income for this business segment decreased in the current three and six month periods compared to the corresponding periods in the prior year. The decrease in the current three month period is primarily due to a decrease in product sales gross profit, partially offset by an increase in service gross profit from higher service revenue and a decrease in operating expenses. The decrease in operating income in the current six month period is primarily due to a decrease in product sales gross profit and an increase in operating expenses, partially offset by an increase in gross profit from higher service revenue. Gross margin was 53.4% and 54.6% in the current three and six month periods, respectively, compared to 56.2% and 57.0% in the corresponding periods in the prior year, respectively. The decrease in gross margin is primarily due to the reduced 42
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Table of Contents manufacturing utilization from supply chain shortages, higher costs for raw materials and components and an increase in intangible asset amortization expense.
Operating expenses decreased in the in the current three month period compared to the corresponding period in the prior year primarily due to a decrease in research and development project spend and a decrease in compensation and commissions from lower sales and sales force headcount, partially offset by an increase in allocated advertising, marketing initiatives and allocated charitable donations. Operating expenses increased in the current six month period compared to the corresponding period in the prior year primarily due to an increase in allocated advertising and charitable contributions, an increase in marketing initiatives, trade shows and sales meetings, higher salaries and bonus and an increase in research and development project spend. These increases were partially offset by a decrease in compensation and commissions from lower sales and sales force headcount and lower restructuring charges. GYN Surgical Three Months Ended Six Months Ended March 26, March 27, March 26, March 27, 2022 2021 Change 2022 2021 Change Amount Amount Amount % Amount Amount Amount % Total Revenues$ 117.3 $ 114.2 $ 3.1 2.7 %$ 251.6 $ 238.2 $ 13.4 5.6 % Operating Income$ 5.7 $ 28.6 $ (22.9) (80.1) %$ 32.3 $ 42.3 $ (10.0) (23.6) % Operating Income as a % of Segment Revenue 4.9 % 25.0 % 12.8 % 17.8 %
GYN Surgical revenues increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to the increase in product revenues discussed above.
Operating income for this business segment decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to an increase in operating expenses, which was, partially offset by an increase in gross profit in the current six month period. Gross margin was 56.4% and 59.5% in the current three and six month periods, respectively, compared to 59.5% and 61.1% in the corresponding periods in the prior year, respectively. The decrease in gross margin was primarily due to product mix as we sold more lower margin products in the current year periods. Operating expenses increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a gain of$14.7 million and$10.1 million recorded in the prior three and six month periods, respectively, to decrease the contingent consideration liability to fair value related to the Acessa acquisition, the inclusion of Bolder expenses, and higher advertising, marketing initiatives and travel, partially offset by lower legal expenses. In addition, these increases were partially offset in the current six month period by a decrease in research and development project spend.Skeletal Health Three Months Ended Six Months Ended March 26, March 27, March 26, March 27, 2022 2021 Change 2022 2021 Change Amount Amount Amount % Amount Amount Amount % Total Revenues$ 20.9 $ 22.6 $ (1.7) (7.5) %$ 47.9 $ 47.4 $ 0.5 1.1 % Operating Income (Loss)$ (1.5) $ (0.2) $ (1.3) **$ (0.3) $ 0.8 $ (1.1)
**
Operating Income (Loss) as a % of Segment Revenue (7.2) % (1.0) % (0.6) % 1.7 %
** percentage not meaningful
Skeletal Health revenues decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to the decrease in product revenues discussed above. Operating income for this business segment decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease in gross profit. Gross margin was 30.4% and 33.5% in the current three and six month periods, respectively, compared to 35.4% and 35.5% in the corresponding periods in the prior year, respectively. The decrease in gross margin was primarily due to lower sales volume of our Horizon DXA systems. 43 -------------------------------------------------------------------------------- Table of Contents Operating expenses were consistent in the current three and six month periods compared to the corresponding periods in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
AtMarch 26, 2022 , we had$2,576.3 million of working capital and our cash and cash equivalents totaled$2,290.8 million . Our cash and cash equivalents increased by$1,120.5 million during the first six months of fiscal 2022 primarily due to cash generated from operating activities, partially offset by cash used in investing and financing activities primarily related to a business acquisition and repurchases of our common stock. In the first six months of fiscal 2022, our operating activities provided cash of$1,626.4 million , primarily due to net income of$954.9 million , non-cash charges for depreciation and amortization aggregating$214.1 million , and stock-based compensation expense of$36.5 million . These adjustments to net income were partially offset by a decrease in deferred taxes of$41.5 million primarily due to the amortization of intangible assets. Cash provided by operations included a net cash inflow of$443.0 million from changes in our operating assets and liabilities. The net cash inflow was primarily driven by a$355.3 million dollar decrease in prepaid expenses and other assets primarily due to refunds received in the second quarter related to federal and state loss carryback claims partially offset by a payment for ourWomen's Tennis Association sponsorship, a decrease in accounts receivable of$101.6 million due to strong collections in the quarter as days sales outstanding decreased to 55 days from 68 days in the fourth quarter of fiscal 2021, and an increase in accounts payable of$9.1 million due to the timing of payments. These cash inflows were partially offset by an increase in inventory of$26.4 million primarily due to a strategic buildup of emergency sourced components for ourBreast Health business to hedge against the continuing worldwide supply constraints. In the first six months of fiscal 2022, our investing activities used cash of$164.4 million primarily due to net cash paid for our acquisitions of$158.4 million and net capital expenditures of$69.9 million , which primarily consisted of the placement of equipment under customer usage agreements as purchases of equipment were more than offset by the reimbursement of funds received from theDepartment of Defense under a grant to increase production of our two SARS-CoV-2 assays. In the first six months of fiscal 2022, our financing activities used cash of$346.0 million primarily due to$367.0 million for repurchases of our common stock,$63.6 million for the repayment of debt acquired in the Mobidiag acquisition,$22.5 million for the payment of employee taxes withheld for the net share settlement of vested restricted stock units, and a$12.2 million contingent consideration payment as a result of the completion of the first annual earn-out period from the Acessa acquisition. Partially offsetting these uses of cash were net proceeds of$103.7 million from the refinancing of the 2021 Credit Agreement and$17.3 million from our equity plans, primarily from the exercise of stock options.
Debt
We had total recorded debt outstanding of$3.07 billion atMarch 26, 2022 , which was comprised of amounts outstanding under our 2021 Credit Agreement of$1.49 billion (principal of$1.5 billion ), 2029 Senior Notes of$935.6 million (principal of$950.0 million ), 2028 Senior Notes of$395.7 million (principal of$400.0 million ) and the Securitization Program of$248.5 million .
2021 Credit Agreement
OnSeptember 27, 2021 , we refinanced our existing term loan and revolving credit facility withBank of America, N.A . in its capacity as Administrative Agent, SwingLine Lender and L/C Issuer, and certain other lenders from time to time party thereto (the "2018 Credit Agreement") by entering into Refinancing Amendment No. 2 dated as ofSeptember 27, 2021 , to the Amended and Restated Credit and Guaranty Agreement, dated as ofOctober 3, 2017 , as amended(the "2021 Credit Agreement"). Borrowings under the 2021 Credit Agreement are secured by first-priority liens on, and a first priority security interest in, substantially all of our and our Subsidiary Guarantors'U.S. assets. These liens are subject to release during the term of the facilities if we are able to achieve certain corporate or corporate family ratings and other conditions are met. The credit facilities (the "2021 Credit Facilities") under the 2021 Credit Agreement consist of:
•A
•A secured revolving credit facility (the "2021 Revolver") under which the Borrowers may borrow up to$2.0 billion , subject to certain sublimits, with a stated maturity date ofSeptember 25, 2026 . 44 -------------------------------------------------------------------------------- Borrowings under the 2021 Credit Agreement, other than Swing Line Loans, bear interest, at our option, at the Base Rate, at the Eurocurrency Rate, at the Alternative Currency Daily Rate, or at the LIBOR Daily Floating Rate, in each case plus the Applicable Rate. The Applicable Rate in regards to the Base Rate, the Eurocurrency Rate, the Alternative Currency Daily Rate, the Alternative Currency Term Rate, and the LIBOR Daily Floating Rate is subject to change depending on the Total Net Leverage Ratio (as such terms are defined in the 2021 Credit Agreement). As ofMarch 26, 2022 , the interest rate under the 2021 Term Loan was 1.46% per annum. We are also required to pay a quarterly commitment fee calculated on a daily basis equal to the Applicable Rate as of such day multiplied by the undrawn committed amount available under the 2021 Revolver. As ofMarch 26, 2022 , this commitment fee was 0.15% per annum.
Upon the earliest to occur of
We are required to make scheduled principal payments under the 2021 Term Loan in increasing amounts ranging from$3.75 million per three-month period commencing with the three-month period ending onDecember 29, 2022 to$18.75 million per three-month period commencing with the three-month period ending onDecember 26, 2025 . The remaining scheduled balance of$1.335 billion (or such lesser aggregate principal amount then outstanding) on the 2021 Term Loan and any amounts outstanding under the 2021 Revolver are due at maturity. In addition, subject to the terms and conditions set forth in the 2021 Credit Agreement, we may be required to make certain mandatory prepayments from the net proceeds of specified types of asset sales (subject to certain reinvestment rights), debt issuances (excluding permitted debt) and insurance recoveries (subject to certain reinvestment rights). Certain of the mandatory prepayments are subject to reduction or elimination of certain financial covenants are met. These mandatory prepayments are required to be applied first to the 2021 Term Loan, second to any outstanding amount under any Swing Line Loans), third to the 2021 Revolver, fourth to prepay any outstanding reimbursement obligations with respect to letters of credit and fifth to cash collateralize any letters of credit. Subject to certain limitations, we may voluntarily prepay any of the 2021 Credit Facilities without premium or penalty. As ofMarch 26, 2022 , the outstanding principal balance of the 2021 Term Loan was$1.5 billion , and there were no amounts outstanding under the 2021 Revolver. The 2021 Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants restricting our ability subject to negotiated exceptions, to incur additional indebtedness and grant additional liens on our 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 our business. In addition, the 2021 Credit Agreement requires the Borrowers to maintain certain financial ratios. The 2021 Credit Agreement also contains customary representations and warranties and events of default, including payments defaults, breach of representations and warranties, covenant defaults, cross defaults and an event of default upon a change of control of the company. The 2021 Credit Agreement contains two financial covenants (a total net leverage ratio and an interest coverage ratio) measured as of the last day of each fiscal quarter. As ofMarch 26, 2022 , we were in compliance with these covenants.
2028 Senior Notes
The total aggregate principal balance of the 2028 Senior Notes is$400.0 million . The 2028 Senior Notes are general senior unsecured obligations and are guaranteed on a senior unsecured basis by certain of our domestic subsidiaries. The 2028 Senior Notes mature onFebruary 1, 2028 and bear interest at the rate of 4.625% per year, payable semi-annually onFebruary 1 andAugust 1 of each year. We may redeem the 2028 Senior Notes at any time prior toFebruary 1, 2023 at a price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date and a make-whole premium set forth in the indenture. We also have the option to redeem the 2028 Senior Notes on or after:February 1, 2023 throughFebruary 1, 2024 at 102.312% of par;February 1, 2024 throughFebruary 1, 2025 at 101.541% of par;February 1, 2025 throughFebruary 1, 2026 at 100.770% of par; andFebruary 1, 2026 and thereafter at 100% of par. In addition, if there is a change of control coupled with a decline in ratings, as provided in the indenture, we will be required to make an offer to purchase each holder's 2028 Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. 45 --------------------------------------------------------------------------------
2029 Senior Notes
The total aggregate principal balance of the 2029 Senior Notes is$950.0 million . The 2029 Senior Notes are general senior unsecured obligations and are guaranteed on a senior unsecured basis by certain domestic subsidiaries. The 2029 Senior Notes mature onFebruary 15, 2029 and bear interest at the rate of 3.250% per year, payable semi-annually onFebruary 15 andAugust 15 of each year. We may redeem the 2029 Senior Notes at any time prior toSeptember 28, 2023 at a price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date and a make-whole premium set forth in the indenture. We may also redeem up to 40% of the aggregate principal amount of the 2029 Senior Notes with the net cash proceeds of certain equity offerings at any time and from time to time beforeSeptember 28, 2023 , at a redemption price equal to 103.250% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date. We have the option to redeem the 2029 Senior Notes on or after:September 28, 2023 throughSeptember 27, 2024 at 101.625% of par;September 28, 2024 throughSeptember 27, 2025 at 100.813% of par; andSeptember 28, 2025 and thereafter at 100% of par. In addition, if there is a change of control coupled with a decline in ratings, as provided in the indenture, we will be required to make an offer to purchase each holder's 2029 Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
Accounts Receivable Securitization Program
OnApril 25, 2016 , we entered into a one-year accounts receivable securitization program (the "Securitization Program") with several of our wholly-owned subsidiaries and certain financial institutions. The Securitization Program provides for annual renewals. Under the terms of the Securitization Program, we and certain of our wholly-owned subsidiaries sell our customer receivables to a bankruptcy remote special purpose entity, which is wholly-owned by us. The special purpose entity, as borrower, and we, as servicer, have entered into a credit and security agreement with several lenders (the "Credit and Security Agreement") pursuant to which the special purpose entity may borrow from the lenders up to the maximum borrowing amount allowed, with the loans secured by the receivables. The amount that the special purpose entity may borrow at a given point in time is determined based on the amount of qualifying receivables that are present in the special purpose entity at such point in time. The assets of the special purpose entity secure the amounts borrowed and cannot be used to pay our other debts or liabilities. OnApril 13, 2020 , we amended the Credit and Security Agreement with the lenders, temporarily suspending the ability to borrow and the need to comply with covenants for up to a year. OnJune 11, 2021 , we amended and restated the Credit and Security Agreement to restart the Securitization Program and increase the maximum borrowing amount to$320.0 million . Loans outstanding under the Securitization Program bear interest at LIBOR plus an applicable margin for defined tranches. As ofMarch 26, 2022 , there was$248.5 million outstanding under this program, and the interest rate under the Securitization Program was 0.81%. Subsequent toMarch 26, 2022 , we repaid the outstanding balance of$248.5 million .
Contingent Consideration Earn-Out Payments
In connection with certain of our acquisitions, we have incurred the obligation to make contingent earn-out payments tied to performance criteria, principally revenue growth of the acquired business over a specified period. In addition, contractual provisions relating to these contingent earn-out obligations may result in the risk of litigation relating to the calculation of the amount due or our operation of the acquired business. Such litigation could be expensive and divert management attention and resources. Our obligation to make contingent payments may also result in significant operating expenses. Contingent consideration arrangements are recorded as either additional purchase price or compensation expense if continuing employment is required to receive such payments. Pursuant to ASC 805, Business Combinations, contingent consideration that is deemed to be part of the purchase price is recorded as a liability based on the estimated fair value of the consideration we expect to pay to the former shareholders of the acquired business as of the acquisition date. This liability is re-measured each reporting period with the change in fair value recorded through a separate line item within our Consolidated Statements of Income. Increases or decreases in the fair value of contingent consideration liabilities can result from changes in discount rates, changes in the timing, probabilities and amount of revenue estimates, and accretion of the liability for the passage of time. Currently, our only contingent consideration liability is from our Acessa acquisition. We have an obligation to the former Acessa shareholders to make contingent payments based on a multiple of annual incremental revenue growth over a three-year period ending annually in December. There is no maximum earnout. Pursuant to ASC 805, the contingent consideration was deemed to be part of the purchase price, and we recorded our estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of the business, comparable companies revenue growth rates, implied volatility and applying a risk adjusted discount rate. The first earn-out period was completed in December 46 -------------------------------------------------------------------------------- 2021 and we paid$12.2 million to the former shareholders in the second quarter of fiscal 2022. As ofMarch 26, 2022 , this liability was recorded at its fair value of$58.8 million . Stock Repurchase Program OnDecember 9, 2020 , our Board of Directors authorized a new five-year share repurchase plan, to repurchase up to$1.0 billion of our outstanding common stock. The prior plan was terminated in connection with this new authorization. During the three and six months endedMarch 26, 2022 , we repurchased 2.9 million and 5.2 million shares, respectively, of our common stock for a total consideration of$200.0 million and$367.0 million , respectively. As ofMarch 26, 2022 ,$324.7 million remained available under this authorization. The timing of the share repurchases will be based upon our continuing analysis of market, financial, and other factors. Repurchases under the authorized share repurchase plan may be made using a variety of methods, which may include, but are not limited to, open market purchases, privately negotiated transactions, accelerated share repurchase agreements, or purchases pursuant to a Rule 10b5-1 plan under the Exchange Act. The authorized share repurchase plan may be suspended, delayed or discontinued at any time.
Legal Contingencies
We are currently involved in several legal proceedings and claims. In connection with these legal proceedings and claims, management periodically reviews estimates of potential costs to be incurred by us in connection with the adjudication or settlement, if any, of these proceedings. These estimates are developed, as applicable in consultation with outside counsel, and are based on an analysis of potential litigation outcomes and settlement strategies. In accordance with ASC 450, Contingencies, loss contingencies are accrued if, in the opinion of management, an adverse outcome is probable and such financial outcome can be reasonably estimated. It is possible that future results for any particular quarter or annual period may be materially affected by changes in our assumptions or the effectiveness of our strategies relating to these proceedings. Information with respect to this disclosure may be found in Note 10 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
Future Liquidity Considerations
We expect to continue to review and evaluate potential strategic transactions that we believe will complement our current or future business. Subject to the "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q, if any, as well as those described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedSeptember 25, 2021 or any other of our subsequently filed reports, and the general disclaimers set forth in our "Cautionary Statement" regarding forward-looking statements at the outset of this Item 2, we believe that our cash and cash equivalents, cash flows from operations, and the cash available under our 2021 Revolver will provide us with sufficient funds in order to fund our expected normal operations and debt payments over the next twelve months. Our longer-term liquidity is contingent upon future operating performance. We may also require additional capital in the future to fund capital expenditures, repayment of debt, acquisitions, strategic transactions or other investments. As described above, we have significant indebtedness outstanding under our 2021 Credit Agreement, 2028 Senior Notes, 2029 Senior Notes and Securitization Program. These capital requirements could be substantial. For a description of risks to our operating performance and our indebtedness, see "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedSeptember 25, 2021 .
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our interim consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition for multiple element arrangements, allowance for doubtful accounts, reserves for excess and obsolete inventories, valuations, purchase price allocations and contingent consideration related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, restructuring and other related charges, stock-based compensation, contingent liabilities, tax reserves and recoverability of our net deferred tax assets and related valuation allowances. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates if past experience or other assumptions do not turn out to be substantially accurate. Any differences may have a material impact on our financial condition and results of operations. For a discussion of how these and other factors may affect our business, see the "Cautionary 47
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Table of Contents Statement" regarding forward-looking statements set forth at the outset of this Item 2 and the "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q as well as those described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedSeptember 25, 2021 or any other of our subsequently filed reports. The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedSeptember 25, 2021 . There have been no material changes to our critical accounting policies or estimates from those set forth in our Annual Report on Form 10-K for the fiscal year endedSeptember 25, 2021 .
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