What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-05 · 201 added, 151 removed, 574 unchanged (38% of the section changed)

3 unchanged sentences

(in millions, except par value)

July 3, 2022 January 2, 2022

October 2, 2022 January 2, 2022

Current assets:

30 unchanged sentences

5.0 shares authorized;

none issued or outstanding at July 3, 2022 and January 2, 2022

none issued or outstanding at October 2, 2022 and January 2, 2022

Common stock, $ 0.001 par value per share;

126.2 and 97.5 shares authorized;

67.0 and 41.7 shares issued and outstanding at July 3, 2022 and January 2, 2022, respectively

66.0 and 41.7 shares issued and outstanding at October 2, 2022 and January 2, 2022, respectively

Additional paid-in capital 2,772.2 279.8

7 unchanged sentences

(in millions, except per share data)

Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Total revenues $ 783.8 $ 509.8 $ 2,399.5 $ 1,061.7

8 unchanged sentences

Loss on extinguishment of debt — — 24.0 —

Other expense, net 2.5 0.2 1.6 0.6

Other income, net ( 4.2 ) ( 1.0 ) ( 2.6 ) ( 0.4 )

Income before provision for income taxes 31.3 281.5 694.8 525.0

9 unchanged sentences

(in millions)

Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

Three Months Ended Nine Months Ended

October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Net income $ 19.2 $ 215.7 $ 518.4 $ 412.9

32 unchanged sentences

Balance at July 3, 2022 67.0 $ — 2,831.9 ( 60.7 ) 2,148.4 4,919.6

Issuance of common stock under equity compensation and benefit plans — — 2.6 — — 2.6

Stock-based compensation expense — — 12.6 — — 12.6

Tax withholdings related to vesting of stock-based awards — — ( 0.6 ) — — ( 0.6 )

Repurchases of common stock ( 1.0 ) — ( 74.3 ) — — ( 74.3 )

Other comprehensive loss, net of tax — — — ( 83.8 ) — ( 83.8 )

Net income — — — — 19.2 19.2

Balance at October 2, 2022 66.0 $ — $ 2,772.2 $ ( 144.5 ) $ 2,167.6 $ 4,795.3

Common Stock Additional

18 unchanged sentences

Balance at July 4, 2021 41.6 — 267.9 1.0 1,142.2 1,411.1

Issuance of common stock under equity compensation and benefit plans — — 2.4 — — 2.4

Stock-based compensation expense — — 5.6 — — 5.6

Tax withholdings related to vesting of stock-based awards — — ( 0.6 ) — — ( 0.6 )

Repurchases of common stock — — — — — —

Other comprehensive loss, net of tax — — — ( 0.2 ) — ( 0.2 )

Net income — — — — 215.7 215.7

Balance at October 3, 2021 41.6 $ — $ 275.3 $ 0.8 $ 1,357.9 $ 1,634.0

See accompanying notes.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in millions)

Six Months Ended

July 3, 2022 July 4, 2021

(in millions)

Nine Months Ended

October 2, 2022 October 3, 2021

OPERATING ACTIVITIES:

6 unchanged sentences

Loss on extinguishment of debt 24.0 —

Unwind inventory fair value adjustment 46.6 —

Other non-cash, net ( 3.7 ) 7.3

30 unchanged sentences

Purchase of property, equipment and intangibles by incurring current liabilities $ 17.4 $ 7.7

Capital expenditures to be reimbursed under a government contract $ 1.4 $ 13.6

Transfer of instrument inventories to fixed assets $ 48.6 $ —

10 unchanged sentences

The High Court of Justice of England and Wales (the “Court”) sanctioned the Ortho Scheme on May 26, 2022 and a sealed order of the Court was delivered to the Registrar of Companies at Companies House on May 27, 2022, satisfying the final condition to closing.

The results of operations of Ortho have been included in our consolidated financial statements from the date of acquisition.

See Note 2 for further information related to the Combinations.

The results of operations of Ortho have been included in the Company’s unaudited Consolidated Financial Statements from the date of acquisition.

See Note 2 for further information regarding the Combinations.

The Company’s mission is to develop and manufacture accurate and affordable diagnostic testing technologies across the continuum of healthcare testing needs to create better patient outcomes.

6 unchanged sentences

In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included.

The information at July 3, 2022, and for the three and six months ended July 3, 2022 and July 4, 2021, is unaudited.

For further information, refer to the unaudited Consolidated Financial Statements and notes thereto for the year ended January 2, 2022 included in Quidel’s 2021 Annual Report on Form 10-K.

The information at October 2, 2022, and for the three and nine months ended October 2, 2022 and October 3, 2021, is unaudited.

For further information, refer to the Consolidated Financial Statements and notes thereto for the year ended January 2, 2022 included in Quidel’s 2021 Annual Report on Form 10-K.

Operating results for any quarter are historically seasonal in nature and are not necessarily indicative of the results expected for the full year.

1 unchanged sentence

For 2022 and 2021, the Company’s fiscal year will end or has ended on January 1, 2023 and January 2, 2022, respectively.

For 2022 and 2021, the Company’s second quarter ended on July 3, 2022 and July 4, 2021, respectively.

The three and six-month periods ended July 3, 2022 and July 4, 2021 each included 13 and 26 weeks, respectively.

For 2022 and 2021, the Company’s third quarter ended on October 2, 2022 and October 3, 2021, respectively.

The three and nine-month periods ended October 2, 2022 and October 3, 2021 each included 13 and 26 weeks, respectively.

Use of Estimates

2 unchanged sentences

Reclassifications

Certain prior period amounts were reclassified to conform to the current period presentation, including separate presentation of Amortization of intangible assets and Interest expense, net, the combination of Selling, marketing and administrative expense, and reclassification of Other current liabilities and Other liabilities, which did not change the reported amounts of Total current liabilities or Total liabilities.

Cost of sales, excluding amortization of intangibles for the three and six months ended July 4, 2021 excludes $ 1.8 million and $ 3.6 million, respectively, of intangibles amortization expense, formerly included in Cost of sales, which has been reclassified to Amortization of intangible assets.

Selling, marketing and administrative expense for the three and six months ended July 4, 2021 excludes $ 5.0 million and $ 10.0 million, respectively, of intangibles amortization expense, formerly included in Sales and marketing expense, which has been reclassified to Amortization of intangible assets.

Certain prior period amounts were reclassified to conform to the current period presentation, including the separate presentation of Amortization of intangible assets and Interest expense, net, the combination of Selling, marketing and administrative expense, and reclassification of Other current liabilities and Other liabilities, which did not change the reported amounts of Total current liabilities or Total liabilities.

Cost of sales, excluding amortization of intangibles for the three and nine months ended October 3, 2021 excludes $ 1.9 million and $ 5.5 million, respectively, of intangibles amortization expense, formerly included in Cost of sales, which has been reclassified to Amortization of intangible assets.

Selling, marketing and administrative expense for the three and nine months ended October 3, 2021 excludes $ 5.0 million and $ 15.0 million, respectively, of intangibles amortization expense, formerly included in Sales and marketing expense, which has been reclassified to Amortization of intangible assets.

The reclassifications did not have an impact on net assets, Operating income, Net income, Basic or Diluted earnings per share, or cash flows.

Recent Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board issued guidance codified in Accounting Standards Update 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

Under new guidance, an acquirer is required to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers .

In October 2021, the Financial Accounting Standards Board issued guidance which was codified in Accounting Standards Update 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

Under the new guidance, an acquirer is required to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers .

For public business entities, this guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

1 unchanged sentence

Significant Accounting Policies

During the six months ended July 3, 2022, there have been no changes to the Company’s significant accounting policies as described in Quidel’s 2021 Annual Report on Form 10-K, except the addition of certain policies related to the Combinations which are discussed below and within the notes.

During the nine months ended October 2, 2022, there have been no changes to the Company’s significant accounting policies as described in Quidel’s 2021 Annual Report on Form 10-K, except for the addition of certain policies related to the Combinations, which are discussed below.

Business Combinations

9 unchanged sentences

Defined benefit plans specify an amount of pension benefit that an employee will receive on retirement, usually dependent on factors such as age, years of service and compensation.

The net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of the future benefits that employees have earned in return for their service in the current and prior periods.

The net obligation with respect to defined benefit plans is calculated separately for each plan by estimating the amount of the future benefits that employees have earned in return for their service in the current and prior periods.

These benefits are then discounted to determine the present value of the obligations and are then adjusted for the impact of any unamortized prior service costs.

6 unchanged sentences

Amounts received from BARDA under this grant are recorded as a reduction to the carrying value of the related assets.

A portion of the grant will be for purposes of reimbursement of certain general and administrative expenses related to the project, which will not be capitalized as part of the equipment constructed in connection with the project and will be recorded as a reduction to the related expense.

The Company received $ 10.4 million during the six months ended July 3, 2022, which was recorded as a reduction to the carrying value of the related assets.

A portion of the grant is for purposes of reimbursement of certain general and administrative expenses related to the project, which will not be capitalized as part of the equipment constructed in connection with the project and will be recorded as a reduction to the related expense.

The Company received $ 15.8 million during the nine months ended October 2, 2022, which was recorded as a reduction to the carrying value of the related assets.

Business Combination

3 unchanged sentences

The Combinations enhance the Company’s revenue profile and expand the Company’s geographic footprint and product diversity.

The Combinations were completed for total consideration of approximately $ 4.3 billion, which includes the fair value of equity issued based on the May 26, 2022 closing price of $ 99.60 per share of Quidel common stock.

The Combinations were completed for a total consideration of approximately $ 4.3 billion, which included the fair value of equity issued based on the May 26, 2022 closing price of $ 99.60 per share of Quidel common stock.

Former Ortho shareholders received $ 7.14 in cash and 0.1055 shares of QuidelOrtho common stock for each Ortho ordinary share.

14 unchanged sentences

See Note 8 for further information regarding the Company’s debt.

The components of the preliminary purchase price allocation on the closing date of the Combinations are as follows (in millions):

The components of the preliminary purchase price allocation on the closing date of the Combinations are as follows:

(In millions) Amounts Recognized as of Acquisition Date

(as previously reported) Measurement Period Adjustments Amounts Recognized as of Acquisition Date

(as adjusted)

Cash and cash equivalents $ 234.5 $ — $ 234.5

9 unchanged sentences

Long-term borrowings, including current portion (1)

( 2,268.4 ) — ( 2,268.4 )

Deferred tax liability ( 215.4 ) ( 62.8 ) ( 278.2 )

3 unchanged sentences

(1) Immediately following the closing of the Combinations, the Company repaid long-term borrowings assumed, which consisted of $ 1,608.4 million aggregate principal amount related to Ortho’s Dollar Term Loan and Euro Term Loan Facilities, $ 240.0 million aggregate principal amount of 7.375 % Senior Notes due 2025 and $ 405.0 million aggregate principal amount of 7.250 % Senior Notes due 2028.

The Senior Notes outstanding were fully discharged following the Combinations.

The 7.375 % and 7.250 % Senior Notes were fully discharged following the Combinations.

The Company recorded a $ 23.5 million loss on extinguishment in connection with the Combinations, representing the difference between the reacquisition value, inclusive of $ 35.9 million of redemption premium, and the net carrying value of the extinguished debt.

The fair value estimates for the assets acquired and liabilities assumed were based on preliminary calculations, and the Company’s estimates and assumptions are subject to change, including the valuation of inventory, property, plant and equipment, intangible assets, income taxes and legal contingencies, among other items, to reflect any additional information related to facts and circumstances that existed as of the closing date of the Combinations that, if known, would have affected the measurement of the amounts recognized as of that date.

The Company is continuing to obtain and evaluate information relevant to the estimated future cash flows to value certain intangible assets, as well as replacement cost and relevant market transaction information to value acquired plant, property, and equipment.

As a result, the preliminary related amounts presented above may change.

The Company is continuing to obtain and evaluate information relevant to the estimated future cash flows to value certain intangible assets, as well as replacement costs and relevant market transaction information to value acquired plant, property, and equipment.

As a result, the preliminary related amounts presented above may change due to further measurement period adjustments.

The Company expects to finalize the valuation as soon as practicable, but no later than one year after the closing date of the Combinations.

The measurement period adjustments in the three months ended October 2, 2022 primarily resulted from completing preliminary valuations of real estate and personal property, revised future cash flow estimates for certain intangible assets and income tax liabilities.

The related impact to net earnings that would have been recognized in previous periods if the adjustments were recognized as of the acquisition date is immaterial to the unaudited Consolidated Financial Statements.

Inventories acquired included raw materials, work in progress and finished goods.

Inventories were recorded at their estimated fair values.

The inventory was valued at the estimated selling price less the estimated costs to be incurred to complete and sell the inventory, the associated margins on these activities and holding costs.

A preliminary step-up in value of inventory of $ 64.1 million was recorded in connection with the Combinations.

The step-up value will be recorded in Cost of sales, excluding amortization of intangibles in the Consolidated Statements of Income as the inventory is sold to customers and is expected to be fully recognized in approximately six months.

In each of the three and six months ended July 3, 2022, $ 11.2 million of the fair value step-up of inventory was recognized in the unaudited Consolidated Statements of Income.

Inventories were valued at the estimated selling price less the estimated costs to be incurred to complete and sell the inventories, the associated margins on these activities and holding costs.

A preliminary step-up in the value of inventory of $ 64.1 million was recorded in connection with the Combinations.

The step-up value is being recorded in Cost of sales, excluding amortization of intangibles in the Consolidated Statements of Income as the inventory is sold to customers, and is expected to be fully recognized by the end of 2022.

In the three and nine months ended October 2, 2022, $ 35.4 million and $ 46.6 million, respectively, of the fair value step-up of inventory was recognized in the unaudited Consolidated Statements of Income.

Goodwill represents the excess of the total purchase consideration over the estimated fair value of the net assets acquired, and is primarily attributable to synergies which are expected to expand the Company’s revenue profile and product diversity, as well as Ortho’s assembled workforce.

Goodwill is not deductible for tax purposes.

The preliminary assignment of goodwill by reportable segment is as follows (in millions):

The preliminary assignment of goodwill by reportable segment as of the closing date of the Combinations is as follows (in millions):

North America $ 1,170.2

6 unchanged sentences

The fair value of customer relationships and in-process research and development (“IPR&D”) was estimated using the Multi-Period Excess Earnings Method, which is a form of the income approach.

The significant assumptions include:

Significant assumptions include:

(i) the estimated annual net cash flows, which are a function of expected earnings attributable to the asset, contributory asset charges and the applicable tax rate, and (ii) the discount rate.

The fair value of developed technology and trademarks was estimated using the Relief from Royalty Method, which is another form of the income approach.

The significant assumptions include:

Significant assumptions include:

(i) the estimated annual net cash flows, which are a function of expected earnings attributable to the asset, the probability of use of the asset, the royalty rate and the applicable tax rate, and (ii) the discount rate.

1 unchanged sentence

The amortization of IPR&D will begin at the related product launch and will be tested annually for potential impairment.

In the three and six months ended July 3, 2022, the Company incurred $ 43.7 million and $ 45.9 million, respectively, of transaction costs related to the Combinations, which primarily consisted of financial advisory, legal, accounting and valuation-related expenses.

For the three and nine months ended October 2, 2022, the Company incurred $ 1.1 million and $ 47.0 million, respectively, of transaction costs related to the Combinations, which primarily consisted of financial advisory, legal, accounting and valuation-related expenses.

These expenses were recorded in Acquisition and integration costs in the unaudited Consolidated Statements of Income.

The following unaudited supplemental pro forma financial information shows the combined results of operations of the Company as if the Combinations had occurred on January 4, 2021, the beginning of the periods presented:

(In millions) Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

Three Months Ended Nine Months Ended

(In millions) October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Pro forma total revenues $ 783.8 $ 1,032.3 $ 3,184.7 $ 2,583.5

Pro forma net (loss) income 50.2 225.2 549.5 340.2

This unaudited supplemental pro forma financial information is presented for information purposes only and is not indicative of the results of operations that would have been achieved had the Combinations been completed at the beginning of fiscal year 2021.

This unaudited supplemental pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the Combinations been completed at the beginning of fiscal year 2021.

In addition, the unaudited supplemental pro forma financial information is not a projection of the Company’s future results of operations, nor does it reflect the expected realization of any synergies or cost savings associated with the Combinations.

The unaudited supplemental pro forma financial information includes adjustments for:

• Incremental intangible assets amortization expense to be incurred of $ 6.3 million, $ 15.5 million, $ 8.8 million and $ 17.6 million in the three and six months ended July 3, 2022 and the three and six months ended July 4, 2021, respectively, based on the preliminary fair values of the identifiable intangible assets acquired;

• Incremental cost of sales related to the fair value step-up of inventory which is reflected by an adjustment to decrease expense by $ 11.2 million in each of the three and six months ended July 3, 2022 and an adjustment to increase expense by $ 32.0 million and $ 64.1 million in the three and six months ended July 4, 2021, respectively;

• Decreases in interest expense of $ 4.5 million, $ 11.2 million, $ 6.7 million and $ 20.6 million in the three and six months ended July 3, 2022 and the three and six months ended July 4, 2021, respectively, associated with the issuance of debt to finance the Combinations and to repay Ortho’s then-outstanding indebtedness, including the net impact of the removal of the amortization of the discount on Ortho’s indebtedness and change in amortization of deferred financing fees;

• The removal of $ 50.3 million of loss on extinguishment of debt from Ortho’s results for the six months ended July 4, 2021 and the reclassification of $ 24.0 million of loss on extinguishment of debt incurred during each of the three and six months ended July 3, 2022 to the six months ended July 4, 2021;

• The reclassification of $ 12.8 million of expense related to the accelerated vesting of certain stock awards of Ortho’s former Chief Executive Officer from the three and six months ended July 3, 2022 to the six months ended July 4, 2021;

• Incremental intangible assets amortization expense to be incurred of $ 17.5 million, $ 10.2 million and $ 30.1 million in the nine months ended October 2, 2022 and the three and nine months ended October 3, 2021, respectively, based on the preliminary fair values of the identifiable intangible assets acquired;

• Incremental cost of sales related to the fair value step-up of inventory which is reflected by an adjustment to decrease expense by $ 35.4 million and $ 46.6 million in the three and nine months ended October 2, 2022, respectively, and an adjustment to increase expense by $ 64.1 million in the nine months ended October 3, 2021;

• Decreases in interest expense of $ 11.2 million, $ 7.5 million and $ 28.1 million in the nine months ended October 2, 2022 and the three and nine months ended October 3, 2021, respectively, associated with the issuance of debt to finance the Combinations and to repay Ortho’s then-outstanding indebtedness, including the net impact of the removal of the amortization of the discount on Ortho’s indebtedness and the change in amortization of deferred financing fees;

• The removal of $ 50.3 million of loss on extinguishment of debt from Ortho’s financial results for the nine months ended October 3, 2021 and the reclassification of $ 24.0 million of loss on extinguishment of debt incurred during the nine months ended October 2, 2022 to the nine months ended October 3, 2021;

• The reclassification of $ 12.8 million of expense related to the accelerated vesting of certain stock awards of Ortho’s former Chief Executive Officer from the nine months ended October 2, 2022 to the nine months ended October 3, 2021;

• Tax impacts related to the above adjustments.

From the closing date of the Combinations through July 3, 2022, the acquired results of operations of Ortho contributed total revenues of $ 213.7 million and net loss of $ 40.1 million to the Company’s consolidated results, which included amortization of acquired intangible assets of $ 14.1 million and recognition in Cost of sales, excluding amortization of intangibles of the fair value step-up of inventory of $ 11.2 million.

From the closing date of the Combinations through October 2, 2022, the acquired results of operations of Ortho contributed total revenues of $ 700.4 million and net loss of $ 63.6 million to the Company’s consolidated results, which included amortization of acquired intangible assets of $ 57.7 million and recognition in Cost of sales, excluding amortization of intangibles of the fair value step-up of inventory of $ 46.6 million.

Computation of Earnings Per Share

4 unchanged sentences

The following table presents the calculation of the weighted-average shares used in computing basic and diluted EPS:

Three Months Ended Six Months Ended

(In millions) July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

Three Months Ended Nine Months Ended

(In millions) October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Basic weighted-average shares of common stock outstanding 66.9 41.7 53.6 41.7

5 unchanged sentences

Timing of revenue recognition may differ from timing of invoicing to customers.

The Company records an asset when revenue is recognized prior to invoicing a customer (“contract asset”).

The Company records an asset when revenue is recognized prior to invoicing a customer (a “contract asset”).

Contract assets are included within Prepaid expenses and other current assets or Other assets in the Company’s unaudited Consolidated Balance Sheets and are transferred to accounts receivable when the right to payment becomes unconditional.

The balance of contract assets recorded in the Company’s unaudited Consolidated Balance Sheets were as follows:

(In millions) July 3, 2022

Prepaid expenses and other current assets $ 54.4

Other assets 0.5

Total contract assets $ 54.9

The contract asset balance as of July 3, 2022 consists of the following components, all of which were acquired by the Company in connection with the Combinations;

The balance of contract assets recorded in the Company’s unaudited Consolidated Balance Sheets as of October 2, 2022 was $ 54.6 million and was included in Prepaid expenses and other current assets.

The contract asset balance as of October 2, 2022 consists of the following components, all of which relate to agreements acquired by the Company in connection with the Combinations;

therefore, no balance existed at January 2, 2022:

• a customer supply agreement under which the difference between the timing of invoicing and revenue recognition resulted in a contract asset of $ 10.3 million, of which $ 9.8 million as of July 3, 2022 was recorded in Prepaid expenses and other current assets and $ 0.5 million was included in Other assets;

• a customer supply agreement under which the difference between the timing of invoicing and revenue recognition resulted in a contract asset of $ 8.5 million;

• contractual arrangements with certain customers under which the Company invoices the customers based on reportable results generated by its reagents;

2 unchanged sentences

The Company records the revenue upon shipment and an associated contract asset, and relieves the contract asset upon completion of the invoicing.

The balance of the contract asset related to these arrangements was $ 44.6 million as of July 3, 2022 and was recorded in Prepaid expenses and other current assets.

The balance of the contract asset related to these arrangements was $ 41.5 million as of October 2, 2022 and was recorded in Prepaid expenses and other current assets;

• one of the Company’s contract manufacturing agreements that recognizes revenue as the products are manufactured.

The balance of the contract asset related to this arrangement was $ 4.6 million as of October 2, 2022.

The Company reviews contract assets for expected credit losses resulting from the collectability of customer accounts.

Expected losses are established based on historical losses, customer mix and credit policies, current economic conditions in customers’ country or industry, and expectations associated with reasonable and supportable forecasts.

No credit losses related to contract assets were recognized during the three months ended July 3, 2022.

No credit losses related to contract assets were recognized during the three and nine months ended October 2, 2022.

The Company recognizes a contract liability when a customer pays an invoice prior to the Company transferring control of the goods or services (“contract liabilities”).

1 unchanged sentence

The Company classifies deferred revenue as current or non-current based on the timing of the transfer of control or performance of the service.

The balance of the Company’s current deferred revenue was $ 33.2 million as of July 3, 2022, and $ 1.9 million as of January 2, 2022.

The balance of the Company’s current deferred revenue was $ 32.5 million as of October 2, 2022, and $ 1.9 million as of January 2, 2022.

The Company has one arrangement with a customer where the revenue is expected to be recognized beyond one year.

The balance of the deferred revenue included in long-term liabilities was $ 9.7 million as of July 3, 2022 and was included in Other liabilities in the unaudited Consolidated Balance Sheets.

The balance of the deferred revenue included in long-term liabilities was $ 9.7 million as of October 2, 2022 and was included in Other liabilities in the unaudited Consolidated Balance Sheets.

Grifols / Novartis Vaccines and Diagnostics, Inc.

In connection with the Combinations, the Company acquired the ongoing collaboration arrangement (the “Joint Business”) between Ortho and Grifols Diagnostic Solutions, Inc.

(“Grifols”), under which Ortho and Grifols pursue a collaboration relating to Ortho’s Hepatitis and HIV diagnostics business.

(“Grifols”), under which Ortho and Grifols agreed to pursue a collaboration relating to Ortho’s Hepatitis and HIV diagnostics business.

The governance of the Joint Business is shared through a supervisory board made up of equal representation by Ortho and Grifols, which is responsible for all significant decisions relating to the Joint Business that are not exclusively assigned to either Ortho or Grifols, as defined in the Joint Business agreement.

The Company’s portion of the pre-tax net profit shared under the Joint Business was $ 5.6 million during each of the three and six months ended July 3, 2022.

This includes the Company’s portion of the pre-tax net profit of $ 3.6 million during each of the three and six months ended July 3, 2022 on sales transactions with third parties where the Company is the principal.

The Company’s portion of the pre-tax net profit shared under the Joint Business was $ 7.9 million and $ 13.5 million during the three and nine months ended October 2, 2022, respectively.

This included the Company’s portion of the pre-tax net profit of $ 5.2 million and $ 8.8 million during the three and nine months ended October 2, 2022, respectively, on sales transactions with third parties where the Company is the principal.

The Company recognized revenues, cost of sales, excluding amortization of intangibles, and operating expenses, on a gross basis on these sales transactions in their respective lines in the unaudited Consolidated Statements of Income.

The Company’s portion of the pre-tax net profit also includes revenue of $ 2.0 million from collaboration and royalty agreements during the three and six months ended July 3, 2022, which is presented on a net basis within Total revenues.

The Company’s portion of the pre-tax net profit also included revenue of $ 2.7 million and $ 4.7 million from collaboration and royalty agreements during the three and nine months ended October 2, 2022, respectively, which is presented on a net basis within Total revenues.

Disaggregation of Revenue

5 unchanged sentences

• Molecular Diagnostics—Includes (i) Polymerase Chain Reaction (“PCR”) thermocyclers with reduced process time and ready-to-use reagent configurations and (ii) analyzer and amplification systems with the ability to run multiple assays at one time.

The following table summarizes Total revenues by business unit for the three and six months ended July 3, 2022 and July 4, 2021:

Three Months Ended Six Months Ended

(In millions) July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

The following table summarizes Total revenues by business unit for the three and nine months ended October 2, 2022 and October 3, 2021:

Three Months Ended Nine Months Ended

(In millions) October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Labs $ 334.8 $ 11.4 $ 505.5 $ 32.7

5 unchanged sentences

The Company had sales to individual customers in excess of 10% of Total revenues as follows:

Six Months Ended

July 3, 2022 July 4, 2021

As of July 3, 2022 and January 2, 2022, customers with balances due in excess of 10% of Accounts receivable, net totaled $ 73.8 million and $ 267.3 million, respectively.

For the six months ended July 3, 2022 and July 4, 2021, sales of COVID-19 products accounted for 70 % and 64 % of Total revenues, respectively.

For the six months ended July 3, 2022 and July 4, 2021, sales of influenza products accounted for 8 % and 3 % of Total revenues, respectively.

Nine Months Ended

October 2, 2022 October 3, 2021

As of October 2, 2022 and January 2, 2022, customers with balances due in excess of 10% of Accounts receivable, net totaled $ 162.9 million and $ 267.3 million, respectively.

For the nine months ended October 2, 2022 and October 3, 2021, sales of COVID-19 products accounted for 54 % and 71 % of Total revenues, respectively.

For the nine months ended October 2, 2022 and October 3, 2021, sales of influenza products accounted for 7 % and 3 % of Total revenues, respectively.

Segment and Geographic Information

6 unchanged sentences

Total revenues by reportable segment are as follows:

Three Months Ended Six Months Ended

(In millions) July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

Three Months Ended Nine Months Ended

(In millions) October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

North America $ 517.6 $ 466.8 $ 1,917.3 $ 902.2

3 unchanged sentences

Total revenues $ 783.8 $ 509.8 $ 2,399.5 $ 1,061.7

Beginning in the second quarter of 2022, in connection with the Combinations, the basis by which the Company measures segment profit or loss changed to Segment Adjusted EBITDA in order to manage the Company’s business to better align with the market dynamics of the specific geographic regions in which the Company operates.

Beginning in the second quarter of 2022, in connection with the Combinations, the basis by which the Company measures segment profit or loss changed to Adjusted EBITDA in order to manage the Company’s business to better align with the market dynamics of the specific geographic regions in which the Company operates.

Prior periods have been revised to align with the current period presentation.

The following table sets forth the reconciliations of Segment Adjusted EBITDA to Income before provision for income taxes for the three and six months ended July 3, 2022 and July 4, 2021:

Three Months Ended Six Months Ended

(In millions) July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

The following table sets forth Adjusted EBITDA by segment and the reconciliations to Income before provision for income taxes for the three and nine months ended October 2, 2022 and October 3, 2021:

Three Months Ended Nine Months Ended

(In millions) October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

North America $ 326.3 $ 370.4 $ 1,356.2 $ 745.2

13 unchanged sentences

Derivative mark-to-market gain 3.4 — 4.4 —

Loss on investments ( 0.8 ) — ( 0.8 ) —

Gain (loss) on investments — 1.2 ( 0.8 ) 1.2

Employee compensation charges and other costs ( 1.3 ) — ( 1.8 ) —

1 unchanged sentence

( 0.6 ) — ( 1.0 ) —

Tax indemnification income 0.3 — 0.3 —

Change in fair value of acquisition contingencies — — ( 0.1 ) ( 0.1 )

3 unchanged sentences

The Company’s corporate function also includes debt and stock-based compensation associated with all employee stock-based awards.

(2) Represents incremental consulting costs and research and development (“R&D”) manufacturing site costs to align compliance of Ortho’s existing, on-market products that were previously registered under the European In Vitro Diagnostics Directive regulatory framework with the requirements under the EU’s In Vitro Diagnostic Regulation, which generally apply from May 2022.

The CODM does not review capital expenditures, total depreciation and amortization or assets by segment, and therefore this information has been excluded as it does not comprise part of management’s key performance metrics.

2 unchanged sentences

The tax effects for other items that are excluded from ordinary income are discretely calculated and recognized in the period in which they occur.

For the three months ended July 3, 2022 and July 4, 2021, the Company recognized a Provision for income taxes of $ 23.6 million and $ 2.6 million, respectively, in relation to Income before provision for income taxes of $ 42.9 million and $ 21.7 million, respectively, resulting in effective tax rates of 55 % and 12 %, respectively.

As compared to the federal statutory rate of 21%, the effective tax rates in both periods were impacted primarily by income taxes owed in U.S.

For the three months ended July 4, 2021, the effective tax rate was partially offset by benefits from the discrete impact of excess tax deductions from stock-based compensation, R&D credits and corporate deductions attributable to Foreign Derived Intangible Income (“FDII”), which were immaterial to the effective tax rate in the three months ended July 3, 2022.

For the six months ended July 3, 2022 and July 4, 2021, the Company recognized a Provision for income taxes of $ 164.3 million and $ 46.3 million, respectively, in relation to Income before provision for income taxes of $ 663.5 million and $ 243.5 million, respectively, resulting in effective tax rates of 25 % and 19 %, respectively.

As compared to the federal statutory rate of 21%, the effective tax rates in both periods were impacted primarily by income taxes owed in U.S.

For the six months ended July 4, 2021, the effective tax rate was partially offset by benefits from the discrete impact of excess tax deductions from stock-based compensation, R&D credits and corporate deductions attributable to FDII, which were immaterial to the effective tax rate in the six months ended July 3, 2022.

For the three months ended October 2, 2022 and October 3, 2021, the Company recognized a Provision for income taxes of $ 12.1 million and $ 65.8 million, respectively, in relation to Income before provision for income taxes of $ 31.3 million and $ 281.5 million, respectively, resulting in effective tax rates of 39 % and 23 %, respectively.

As compared to the federal statutory rate of 21%, the effective tax rates in both periods were impacted primarily by income taxes owed in certain U.S.

For the three months ended October 2, 2022, the effective tax rate was also impacted by operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances.

For the three months ended October 3, 2021, the effective tax rate was impacted primarily by income taxes owed in U.S.

states, partially offset by benefits from the discrete impact of excess tax deductions from stock-based compensation, which were immaterial to the effective tax rate in the three months ended October 2, 2022.

For the nine months ended October 2, 2022 and October 3, 2021, the Company recognized a Provision for income taxes of $ 176.4 million and $ 112.1 million, respectively, in relation to Income before provision for income taxes of $ 694.8 million and $ 525.0 million, respectively, resulting in effective tax rates of 25 % and 21 %, respectively.

As compared to the federal statutory rate of 21%, the effective tax rates in both periods were impacted primarily by income taxes owed in certain U.S.

For the nine months ended October 3, 2021, the effective tax rate was partially offset by benefits from the discrete impact of excess tax deductions from stock-based compensation, which were immaterial to the effective tax rate in the nine months ended October 2, 2022.

The Company is subject to periodic audits by domestic and foreign tax authorities.

Due to the carryforward of unutilized credits, the Company’s federal tax years from 2012 and forward are subject to examination by the U.S.

The Company’s state and foreign tax years for 2001 and forward are subject to examination by applicable tax authorities.

Due to the carryforward of unutilized credits, the Company’s federal tax years from 2012 and onwards are subject to examination by the U.S.

The Company’s state and foreign tax years for 2001 and onwards are subject to examination by applicable tax authorities.

The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax laws applied to the facts of each matter.

The balance of unrecognized tax benefits at July 3, 2022, not including interest and penalties, was $ 45.5 million, of which $ 33.2 million would affect the effective income tax rate in future periods, if recognized.

The balance of unrecognized tax benefits at October 2, 2022, not including interest and penalties, was $ 45.2 million, of which $ 32.9 million could affect the effective income tax rate in future periods, if recognized.

The Company also recognizes interest and penalties related to unrecognized tax benefits in tax expense.

At July 3, 2022, the Company had approximately $ 8.4 million of interest and penalties accrued related to unrecognized tax benefits.

At October 2, 2022, the Company had approximately $ 8.8 million of interest and penalties accrued related to unrecognized tax benefits.

The Company estimates that within the next 12 months, its uncertain tax positions, excluding interest, will decrease by $ 3.0 million.

1 unchanged sentence

Cash, Cash Equivalents and Restricted Cash

(In millions) July 3, 2022 January 2, 2022

(In millions) October 2, 2022 January 2, 2022

Cash and cash equivalents $ 212.2 $ 802.8

3 unchanged sentences

The following table is a summary of marketable securities:

July 3, 2022 January 2, 2022

October 2, 2022 January 2, 2022

(In millions) Amortized Cost Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Losses Fair Value

Corporate bonds 40.4 $ ( 0.6 ) $ 39.8 $ 22.3 $ — $ 22.3

Commercial paper 2.2 — 2.2 — — —

Corporate asset-backed securities 10.0 — 10.0 3.4 — 3.4

government securities 2.0 — 2.0 — — —

Total marketable securities, current 52.4 ( 0.6 ) 51.8 25.7 — 25.7

5 unchanged sentences

Accounts receivables primarily consist of trade accounts receivables with maturities of one year or less and are presented net of reserves:

(In millions) July 3, 2022 January 2, 2022

(In millions) October 2, 2022 January 2, 2022

Accounts receivable $ 489.5 $ 430.4

4 unchanged sentences

Inventories consisted of the following:

(In millions) July 3, 2022 January 2, 2022

(In millions) October 2, 2022 January 2, 2022

Raw materials $ 189.5 $ 103.2

8 unchanged sentences

Prepaid expenses and other current assets consist of the following:

(In millions) July 3, 2022 January 2, 2022

(In millions) October 2, 2022 January 2, 2022

Other receivables $ 37.2 $ 15.8

7 unchanged sentences

Other current liabilities consist of the following:

(In millions) July 3, 2022 January 2, 2022

(In millions) October 2, 2022 January 2, 2022

Accrued commissions and rebates $ 41.4 $ 15.9

10 unchanged sentences

The components of borrowings were as follows:

(In millions) July 3, 2022 January 2, 2022

(In millions) October 2, 2022 January 2, 2022

Term Loan $ 2,698.4 $ —

12 unchanged sentences

Loans under the Credit Agreement will bear interest at a rate per annum equal to the Term SOFR or Base Rate plus the Applicable Rate (each as defined in the Credit Agreement).

On the closing date of the Credit Agreement, the Company borrowed the entire amount of the Term Loan, and the effective interest rate as of July 3, 2022 was 2.97 %.

As of July 3, 2022, letters of credit issued under the Revolving Credit Facility totaled $ 33.2 million, which reduced the available amount under the Revolving Credit Facility to $ 716.8 million.

As of October 2, 2022, letters of credit issued under the Revolving Credit Facility totaled $ 18.2 million, which reduced the available amount under the Revolving Credit Facility to $ 781.8 million.

In connection with the Credit Agreement, the Company incurred $ 15.4 million of debt issuance costs, of which $ 11.9 million was related to the Term Loan and $ 3.5 million was related to the Revolving Credit Facility.

Debt issuance costs related to the issuance of the Term Loan were recorded as a reduction of the principal amount of the borrowings and are being amortized using the effective interest method as a component of Interest expense, net over the life of the Term Loan.

Debt issuance costs related to the Revolving Credit Facility were recorded as Other assets and are being amortized on a straight-line basis over the term of the Revolving Credit Facility.

Debt issuance costs related to the issuance of the Term Loan were recorded as a reduction of the principal amount of the borrowings and are amortized using the effective interest method as a component of Interest expense, net over the life of the Term Loan.

Debt issuance costs related to the Revolving Credit Facility were recorded as Other assets and are amortized on a straight-line basis over the term of the Revolving Credit Facility.

The Term Loan is subject to quarterly amortization of the principal amount on the last business day of each fiscal quarter of the Company (commencing on September 30, 2022) in such amounts as are set forth in the Credit Agreement.

6 unchanged sentences

and (ii) a minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00 as of the end of any fiscal quarter for the most recently completed four fiscal quarters.

The Company was in compliance with the financial covenants as of July 3, 2022.

The Credit Agreement was entered into in connection with the Combinations in order to fund a portion of the cash portion of the purchase price as well as repay substantially all of Ortho’s then-outstanding indebtedness.

See Note 2 for more information related to the Combinations.

The Company was in compliance with the financial covenants as of October 2, 2022.

The Credit Agreement was entered into in connection with the Combinations in order to fund a portion of the cash portion of the purchase price as well as to repay substantially all of Ortho’s then-outstanding indebtedness.

See Note 2 for more information regarding the Combinations.

In connection with the closing of the Combinations, Quidel terminated its previous $ 175.0 million revolving credit facility and related credit agreement on May 27, 2022, which did not have an outstanding balance.

The following table provides the detailed amounts within Interest expense, net for the three and six months ended July 3, 2022 and July 4, 2021:

Three Months Ended Six Months Ended

July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

The following table provides the detailed amounts within Interest expense, net for the three and nine months ended October 2, 2022 and October 3, 2021:

Three Months Ended Nine Months Ended

(In millions) October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Term Loan $ 27.9 $ — $ 36.3 $ —

6 unchanged sentences

Issuances of Common Stock

A summary of the status of stock option activity for the six months ended July 3, 2022 is as follows:

A summary of the status of stock option activity for the nine months ended October 2, 2022 is as follows:

(In millions, except price data)

5 unchanged sentences

Exercised ( 0.1 ) 41.39

Outstanding at July 3, 2022 2.0 $ 86.18

A summary of the status of RSU activity for the six months ended July 3, 2022 is as follows:

Outstanding at October 2, 2022 2.0 $ 86.17

A summary of the status of RSU activity for the nine months ended October 2, 2022 is as follows:

(In millions, except price data)

3 unchanged sentences

Vested ( 0.2 ) 85.18

Non-vested at July 3, 2022 1.1 $ 100.12

Forfeited ( 0.1 ) 104.18

Non-vested at October 2, 2022 1.0 $ 99.02

Stock-Based Compensation

The expense related to the Company’s stock-based compensation plans included in the accompanying unaudited Consolidated Statements of Income was as follows:

Three Months Ended Six Months Ended

(In millions) July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021

Three Months Ended Nine Months Ended

(In millions) October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Cost of sales $ 0.8 $ 0.9 $ 2.0 $ 2.1

3 unchanged sentences

Total stock-based compensation expense $ 16.2 $ 7.0 $ 50.5 $ 18.7

As of July 3, 2022, total unrecognized compensation expense was $ 105.1 million, which is expected to be recognized over a weighted-average period of approximately 2.7 years.

The table above includes $ 3.0 million and $ 13.9 million of compensation expense related to liability-classified awards for the three and nine months ended October 2, 2022, respectively, which have been or are expected to be settled in cash.

These awards represent the $ 7.14 per share cash settled portion of the replacement awards issued in connection with the Combinations.

As of October 2, 2022, total unrecognized compensation expense was $ 105.8 million, which is expected to be recognized over a weighted-average period of approximately 2.6 years.

The estimated fair value of each stock option was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions for the option grants, including grants related to options assumed in the Combinations presented separately:

Six Months Ended

May 27, 2022 (1) July 3, 2022 July 4, 2021

Nine Months Ended

May 27, 2022 (1) October 2, 2022 October 3, 2021

Risk-free interest rate 2.28 % 1.99 % 0.48 %

3 unchanged sentences

Weighted-average grant date fair value $ 40.57 $ 50.86 $ 106.55

(1) The replacement stock options granted to Ortho option holders on the Combinations date were issued consistent with the vesting conditions of the replaced award.

The fair value on the Combinations date attributed to post-combination service, adjusted for estimated forfeitures, is recognized as expensed on a straight-line basis over the remaining vesting period.

(1) The replacement stock options granted to Ortho option holders on the closing date of the Combinations were issued consistent with the vesting conditions of the replaced award.

The fair value on the closing date of the Combinations attributed to post-combination service, adjusted for estimated forfeitures, is recognized as expensed on a straight-line basis over the remaining vesting period.

The fair value of the replacement stock options were valued utilizing the Black-Scholes option valuation model.

The fair value of RSUs is determined based on the closing market price of the Company’s common stock on the grant date.

The weighted-average fair value of RSUs granted during the six months ended July 3, 2022 and July 4, 2021 was $ 98.38 and $ 204.50 , respectively.

The weighted-average fair value of RSUs granted during the nine months ended October 2, 2022 and October 3, 2021 was $ 97.52 and $ 200.05 , respectively.

Commitments and Contingencies

10 unchanged sentences

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of the following periods:

July 3, 2022 January 2, 2022

October 2, 2022 January 2, 2022

(In millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

7 unchanged sentences

Total liabilities measured at fair value $ — $ 48.0 $ 0.1 $ 48.1 $ — $ 78.7 $ 6.1 $ 84.8

There were no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the three and six-month periods ended July 3, 2022 and the year ended January 2, 2022.

There were no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the three and nine months ended October 2, 2022 and the year ended January 2, 2022.

Cash equivalents consist of funds held in money market accounts that are valued using quoted prices in active markets for identical instruments and highly liquid corporate debt securities with maturities within three months from purchase.

5 unchanged sentences

The fair value of the payments treated as contingent consideration is calculated using a discounted probability weighted valuation model.

Discount rates used in such calculation are a significant assumption that are not observed in the market and, therefore, the resulting fair value represents a Level 3 measurement.

Changes in estimated fair value of contingent consideration liabilities from January 2, 2022 through July 3, 2022 were as follows:

(In millions) Contingent consideration liabilities

Discount rates used in such calculations are significant assumptions that are not observed in the market and, therefore, the resulting fair value represents a Level 3 measurement.

Changes in estimated fair value of contingent consideration liabilities from January 2, 2022 through October 2, 2022 were as follows:

(In millions) Contingent Consideration

(Level 3 Measurement)

1 unchanged sentence

Cash payments ( 6.0 )

Balance at July 3, 2022 $ 0.1

Balance at October 2, 2022 $ 0.1

Financial Instruments Not Measured at Fair Value

The estimated fair value of the Company’s borrowings under the Term Loan was $ 2,567.8 million at July 3, 2022, compared to the carrying amount, excluding debt issuance costs, of $ 2,750.0 million.

The estimated fair value of the Company’s borrowings under the Term Loan was $ 2,681.6 million at October 2, 2022, compared to the carrying amount, excluding debt issuance costs, of $ 2,698.4 million.

The estimate of fair value is generally based upon the quoted market prices for similar issuances of long-term debt with the same maturities, which is classified as a Level 2 input.

As of January 2, 2022, there were no Long-term borrowings outstanding.

Derivative Instruments and Hedging Activities

11 unchanged sentences

In the event the Company determines the hedged transaction is no longer probable to occur or concludes the hedge relationship is no longer effective, the hedge is prospectively de-designated.

The pre-tax unrealized gain of $ 3.1 million within OCI as of July 3, 2022 is expected to be reclassified to earnings in the next 12 months.

The following table summarizes the Company’s interest rate derivative agreements as of July 3, 2022:

The pre-tax unrealized gain of $ 10.4 million within OCI as of October 2, 2022 is expected to be reclassified to earnings in the next 12 months.

The following table summarizes the Company’s interest rate derivative agreements as of October 2, 2022:

Instrument Notional Amount (1)

6 unchanged sentences

(1) The notional value of these instruments is expected to be $ 500.0 million in 2023.

Subsequent to October 2, 2022, the Company entered into interest rate swap contracts, commencing on December 30, 2022, with a total notional value of $ 1.3 billion through December 29, 2023 and $ 1.8 billion subsequently, to hedge future interest

rate exposures on variable rate debt, including the Revolving Credit Facility and Term Loan.

The following table summarizes these interest rate derivative agreements:

Notional Amount

(In millions) Description Hedge Designation Effective Date Expiration Date

$ 397.2 Pay 3.765 % fixed, receive floating rate (1-month USD-SOFR)

Designated cash flow hedge December 30, 2022 May 27, 2027

144.4 Pay 3.7725 % fixed, receive floating rate (1-month USD-SOFR)

Designated cash flow hedge December 30, 2022 May 27, 2027

216.7 Pay 3.7675 % fixed, receive floating rate (1-month USD-SOFR)

Designated cash flow hedge December 30, 2022 May 27, 2027

288.9 Pay 3.7575 % fixed, receive floating rate (1-month USD-SOFR)

Designated cash flow hedge December 30, 2022 May 27, 2027

252.8 Pay 3.7725 % fixed, receive floating rate (1-month USD-SOFR)

Designated cash flow hedge December 30, 2022 May 27, 2027

Additionally, subsequent to October 2, 2022, the Company amended the termination date for the interest rate cap to December 30, 2022.

Currency Hedging Instruments

The Company has currency risk exposures relating primarily to foreign currency denominated monetary assets and liabilities and forecasted foreign currency denominated intercompany and third-party transactions.

The Company uses foreign currency forward contracts, option contracts and cross currency swaps to manage its currency risk exposures.

The Company uses foreign currency forward contracts and may use option contracts and cross currency swaps to manage its currency risk exposures.

The Company’s foreign currency forward contracts are denominated primarily in Australian Dollar, Brazilian Real, British Pound, Canadian Dollar, Chilean Peso, Chinese Yuan/Renminbi, Colombian Peso, Euro, Indian Rupee, Japanese Yen, Mexican Peso, Philippine Peso, Singapore Dollar, Swiss Franc and the Thai Baht.

2 unchanged sentences

In the event the Company determines the hedged transaction is no longer probable to occur or concludes the hedge relationship is no longer effective, the hedge is prospectively de-designated.

The pre-tax unrealized loss of $ 2.4 million within OCI as of July 3, 2022 is expected to be reclassified to earnings in the next 12 months.

The Company also enters into foreign currency forward contracts that are not part of designated hedging relationships, which are intended to mitigate exchange rate risk of monetary assets and liabilities and related forecasted transactions.

The Company records these non-designated derivatives at mark-to-market with gains and losses recognized currently in earnings within Other expense, net.

The following table provides details of the currency hedging instruments outstanding as of July 3, 2022:

The pre-tax unrealized income of $ 4.6 million within OCI as of October 2, 2022 is expected to be reclassified to earnings in the next 12 months.

The Company also enters into foreign currency forward contracts that are not part of designated hedging relationships and which are intended to mitigate exchange rate risk of monetary assets and liabilities and related forecasted transactions.

The Company records these non-designated derivatives at mark-to-market with gains and losses recognized in earnings within Other income, net.

The following table provides details of the currency hedging instruments outstanding as of October 2, 2022:

Description Notional Amount

2 unchanged sentences

Foreign currency forward contracts 543.8 Non-designated

The following table summarizes the fair value of designated and non-designated hedging instruments recognized within the Consolidated Balance Sheets as of July 3, 2022 and January 2, 2022:

(In millions) July 3, 2022 January 2, 2022

The following table summarizes pre-tax gains and losses from designated derivative and non-derivative instruments within accumulated other comprehensive (loss) income (“AOCI”) for the three and nine months ended October 2, 2022:

Designated Hedging Instruments

(In millions) Amount of Loss (Gain) Recognized in OCI on Hedges Location of Amounts Reclassified From AOCI Into Income Amount of Loss (Gain) Reclassified From AOCI Into Income

Three Months Ended October 2, 2022

Foreign currency forward contracts (sales) $ ( 2.6 ) Total revenues $ ( 0.7 )

Foreign currency forward contracts (purchases) ( 0.6 ) Cost of sales, excluding amortization of intangibles ( 0.1 )

Interest rate derivatives ( 7.9 ) Interest expense, net 0.4

Nine Months Ended October 2, 2022

Foreign currency forward contracts (sales) $ ( 5.0 ) Total revenues $ ( 0.9 )

Foreign currency forward contracts (purchases) ( 0.8 ) Cost of sales, excluding amortization of intangibles ( 0.1 )

Interest rate derivatives ( 11.0 ) Interest expense, net 1.7

Gains and losses from designated derivative and non-derivative instruments within AOCI for the three and nine months ended October 3, 2021 were not material.

The following table summarizes the fair value of designated and non-designated hedging instruments recognized within the Consolidated Balance Sheets as of October 2, 2022 and January 2, 2022:

(In millions) October 2, 2022 January 2, 2022

Designated cash flow hedges

6 unchanged sentences

Interest rate derivatives:

Other liabilities 1.2 —

Other assets 3.2 —

Foreign currency forward contracts:

3 unchanged sentences

Quotient Limited

As a result of the consummation of the Combinations, the Company acquired Ortho’s Letter Agreement (the “Letter Agreement”), entered into in September 2020, with Quotient Limited (“Quotient”), in which Ortho has partnered with Quotient to commercialize, when approved, the next generation product in immunohematology (“IH”), a transfusion diagnostic patient IH microarray intended for use with Quotient’s MosaiQ instruments (the “IH3 Microarray”), that enables a high level of multiplexing and addresses the ultra-high throughput market.

As a result of the consummation of the Combinations, the Company acquired Ortho’s Letter Agreement (the “Letter Agreement”), entered into in September 2020, with Quotient Limited (“Quotient”), in which Ortho partnered with Quotient to commercialize, when approved, the next generation product in immunohematology (“IH”), a transfusion diagnostic patient IH microarray intended for use with Quotient’s MosaiQ instruments (the “IH3 Microarray”) that enables a high level of multiplexing and addresses the ultra-high throughput market.

Under the Letter Agreement, Ortho will have the right to distribute, market and sell the IH3 Microarrays in the European Economic Area, the U.K.

and Switzerland (collectively, the “European Territory”) and the U.S., solely for use in testing the immunohematological profile of the blood of medical patients in the course of their care of treatment.

Quotient retains the right to distribute, market and sell the IH3 Microarrays for use in blood donor testing worldwide and in the patient testing market outside of the European Territory and the U.S.

Ortho’s rights in respect of the IH3 Microarray are exclusive as long as Ortho satisfies its obligation to meet annual minimum purchase volume requirements in each territory.

Ortho’s rights with respect to the IH3 Microarray are exclusive so long as Ortho satisfies its obligation to meet annual minimum purchase volume requirements in each territory.

Under the Letter Agreement, Ortho also has the non-exclusive right to sell and distribute MosaiQ instruments in the U.S.

2 unchanged sentences

Ortho is also required to make milestone payments to Quotient as specified milestones and benchmarks are achieved.

Ortho will be obligated to make up to $ 60 million of milestone payments to Quotient upon its achievement of certain regulatory milestones and the achievement by Ortho of commercial sales benchmarks related to MosaiQ , including a milestone payment of up to $ 25 million upon the achievement by Ortho of certain cumulative gross revenue hurdl es.

The Company did not make such payments during the three and six months ended July 3, 2022 and does not anticipate making any such payments for the remainder of fiscal year 2022.

Ortho will be obligated to pay up to $ 60 million in milestone payments to Quotient upon its achievement of certain regulatory milestones and the achievement by Ortho of commercial sales benchmarks related to MosaiQ , including a milestone payment of up to $ 25 million upon the achievement by Ortho of certain cumulative gross revenue hurdl es.

The Company did not make such payments during the three and nine months ended October 2, 2022 and does not anticipate making any such payments for the remainder of fiscal year 2022.

Due to the Company’s equity method investment held in Quotient, the Company concluded that Quotient is a related party of the Company.

Under a separate supply agreement between Ortho and Quotient, which was also acquired by the Company as a result of the consummation of the Combinations, the Company purchased inventories from a subsidiary of Quotient amounting to $ 2.1 million during the three and six months ended July 3, 2022.

As of July 3, 2022, Accounts payable included amounts related to purchases from the Quotient subsidiary of $ 2.5 million.

Under a separate supply agreement between Ortho and Quotient, which was also acquired by the Company as a result of the consummation of the Combinations, the Company purchased inventories from a subsidiary of Quotient amounting to $ 4.6 million and $ 6.7 million during the three and nine months ended October 2, 2022, respectively.

As of October 2, 2022, Accounts payable included amounts related to purchases from the Quotient subsidiary of $ 2.7 million.

Accumulated Other Comprehensive (Loss) Income

The balance of accumulated OCI, net of tax, were as follows for the three and six months ended July 3, 2022:

Three Months Ended July 3, 2022 Six Months Ended July 3, 2022

The balance of AOCI, net of tax, was as follows for the three and nine months ended October 2, 2022:

Three Months Ended October 2, 2022 Nine Months Ended October 2, 2022

(In millions) Cash Flow Hedges Available-for-Sale Investments Unrealized Foreign Currency Translation Adjustments Accumulated Other Comprehensive Income (Loss) Cash Flow Hedges Available-for-Sale Investments Unrealized Foreign Currency Translation Adjustments Accumulated Other Comprehensive Income (Loss)

6 unchanged sentences

Ending balance $ 14.6 $ ( 0.7 ) $ ( 158.4 ) $ ( 144.5 ) $ 14.6 $ ( 0.7 ) $ ( 158.4 ) $ ( 144.5 )

Amounts related to the prior year periods were not material for the three and six months ended July 4, 2021.

Amounts related to the prior year periods were not material for the three and nine months ended October 3, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements