What changed in this filing

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Item 1. Financial Statements

2024-11-08 compared with 2024-08-01 · 165 added, 138 removed, 527 unchanged (37% of the section changed)

3 unchanged sentences

(In millions, except par value)

June 30, 2024 December 31, 2023

September 29, 2024 December 31, 2023

Current assets:

11 unchanged sentences

Intangible assets, net 2,795.9 2,934.3

Deferred tax asset 24.7 25.9

Deferred tax assets 25.7 25.9

Other assets 257.1 179.6

17 unchanged sentences

5.0 shares authorized;

none issued or outstanding at June 30, 2024 and December 31, 2023

none issued or outstanding at September 29, 2024 and December 31, 2023

Common stock, $ 0.001 par value per share;

126.2 shares authorized;

67.1 and 66.7 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

67.2 and 66.7 shares issued and outstanding at September 29, 2024 and December 31, 2023, respectively

Additional paid-in capital 2,875.9 2,848.0

7 unchanged sentences

(In millions, except per share data)

Three Months Ended Six Months Ended

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended Nine Months Ended

September 29, 2024 October 1,

2023 September 29, 2024 October 1,

Total revenues $ 727.1 $ 744.0 $ 2,075.1 $ 2,255.2

7 unchanged sentences

Other operating expenses 6.3 7.4 23.6 17.0

Operating (loss) income ( 117.5 ) ( 26.9 ) ( 1,875.5 ) 72.7

Operating income (loss) 15.0 26.3 ( 1,860.5 ) 99.0

Interest expense, net 42.9 37.7 122.9 110.9

9 unchanged sentences

QUIDELORTHO CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

Three Months Ended Six Months Ended

June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended Nine Months Ended

September 29, 2024 October 1,

2023 September 29, 2024 October 1,

Net loss $ ( 19.9 ) $ ( 12.7 ) $ ( 1,873.6 ) $ ( 17.1 )

Other comprehensive (loss) income

Other comprehensive income (loss)

Changes in cumulative translation adjustment, net of tax 61.6 ( 55.3 ) 35.5 ( 17.2 )

Changes in unrealized (losses) gains from investments, net of tax — ( 0.1 ) — 0.1

Changes in unrealized gains from cash flow hedges, net of tax:

Net unrealized gains on derivative instruments 13.1 40.0 43.6 23.1

Changes in unrealized gains from investments, net of tax — 0.2 — 0.3

Changes in unrealized (losses) gains from cash flow hedges, net of tax:

Net unrealized (losses) gains on derivative instruments ( 33.7 ) 24.5 9.9 47.6

Reclassification of net realized gains on derivative instruments included in net income ( 6.8 ) ( 6.3 ) ( 18.9 ) ( 16.3 )

Total change in unrealized gains from cash flow hedges, net of tax 6.9 35.7 31.5 13.1

Comprehensive (loss) income $ ( 146.1 ) $ ( 10.2 ) $ ( 1,848.3 ) $ 46.9

Total change in unrealized (losses) gains from cash flow hedges, net of tax ( 40.5 ) 18.2 ( 9.0 ) 31.3

Comprehensive income (loss) $ 1.2 $ ( 49.6 ) $ ( 1,847.1 ) $ ( 2.7 )

See accompanying notes.

21 unchanged sentences

Balance at June 30, 2024 67.1 0.1 2,863.9 ( 24.6 ) 334.1 3,173.5

Issuance of common stock under equity compensation plans 0.1 — 0.4 — — 0.4

Stock-based compensation expense — — 12.0 — — 12.0

Tax withholdings related to vesting of stock-based awards — — ( 0.4 ) — — ( 0.4 )

Other comprehensive income, net of tax — — — 21.1 — 21.1

Net loss — — — — ( 19.9 ) ( 19.9 )

Balance at September 29, 2024 67.2 $ 0.1 $ 2,875.9 $ ( 3.5 ) $ 314.2 $ 3,186.7

Common Stock Additional

17 unchanged sentences

Balance at July 2, 2023 66.8 0.1 2,825.2 ( 16.3 ) 2,193.5 5,002.5

Issuance of common stock under equity compensation plans — — 0.8 — — 0.8

Stock-based compensation expense — — 13.5 — — 13.5

Tax withholdings related to vesting of stock-based awards — — ( 0.5 ) — — ( 0.5 )

Other comprehensive loss, net of tax — — — ( 36.9 ) — ( 36.9 )

Net loss — — — — ( 12.7 ) ( 12.7 )

Balance at October 1, 2023 66.8 $ 0.1 $ 2,839.0 $ ( 53.2 ) $ 2,180.8 $ 4,966.7

See accompanying notes.

2 unchanged sentences

(In millions)

Six Months Ended

June 30, 2024 July 2, 2023

Nine Months Ended

September 29, 2024 October 1,

OPERATING ACTIVITIES

Net loss $ ( 1,873.6 ) $ ( 17.1 )

Adjustments to reconcile net loss to net cash (used for) provided by operating activities:

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

Depreciation and amortization 344.1 341.8

2 unchanged sentences

Stock-based compensation expense 32.5 39.3

Net change in operating lease right-of-use assets and liabilities 0.1 0.2

Change in deferred tax assets and liabilities ( 72.6 ) ( 4.5 )

9 unchanged sentences

Other current and non-current liabilities ( 10.4 ) ( 4.1 )

Net cash (used for) provided by operating activities ( 98.6 ) 158.3

Net cash provided by operating activities 19.3 199.8

INVESTING ACTIVITIES

14 unchanged sentences

Effect of exchange rates on cash ( 0.5 ) ( 3.3 )

Net decrease in cash, cash equivalents and restricted cash ( 12.0 ) ( 114.3 )

Net increase (decrease) in cash, cash equivalents and restricted cash 24.5 ( 144.0 )

Cash, cash equivalents and restricted cash at beginning of period 119.5 293.9

2 unchanged sentences

Purchase of property, equipment and intangibles by incurring current liabilities $ 16.1 $ 11.4

Capital expenditures to be reimbursed under a government contract $ — $ 3.0

Transfer of instrument inventories to fixed assets $ 99.4 $ 105.8

Reduction of accrued payroll and related expenses upon issuance of restricted share units $ 0.3 $ 1.9

Initial recognition of finance lease right-of-use asset and liability $ 12.5 $ —

See accompanying notes.

7 unchanged sentences

Refer to the Summary of Abbreviated Terms at the end of this Quarterly Report for definitions of terms used throughout the document.

The information at June 30, 2024, and for the three and six months ended June 30, 2024 and July 2, 2023, is unaudited.

The information at September 29, 2024, and for the three and nine months ended September 29, 2024 and October 1, 2023, is unaudited.

For further information, refer to the Company’s Consolidated Financial Statements and notes thereto for the fiscal year ended December 31, 2023 included in QuidelOrtho’s Annual Report.

2 unchanged sentences

For 2024 and 2023, the Company’s fiscal year will end or has ended on December 29, 2024 and December 31, 2023, respectively.

For 2024 and 2023, the Company’s second quarter ended on June 30, 2024 and July 2, 2023, respectively.

The three and six months ended June 30, 2024 and July 2, 2023 each included 13 and 26 weeks, respectively.

For 2024 and 2023, the Company’s third quarter ended on September 29, 2024 and October 1, 2023, respectively.

The three and nine months ended September 29, 2024 and October 1, 2023 each included 13 and 39 weeks, respectively.

Use of Estimates

3 unchanged sentences

Certain reclassifications have been made to prior periods amounts to conform to the current period presentation.

Such amounts include a reclassification of $ 0.5 million and $ 1.0 million recognized in the three and six months ended July 2, 2023, respectively, related to impairment of long-lived assets from (i) Cost of sales, excluding amortization of intangibles (excludes $ 0.1 million for both the three and six months ended July 2, 2023), and (ii) Research and development (excludes $ 0.4 million and $ 0.9 million for the three and six months ended July 2, 2023, respectively), to Asset impairment charge.

The reclassifications did not have an impact on the Company’s previously reported Consolidated Balance Sheets, Consolidated Statements of Comprehensive (Loss) Income, Consolidated Statements of Stockholders’ Equity or Consolidated Statements of Cash Flows.

Such amounts include a reclassification of $ 2.2 million and $ 3.2 million recognized in the three and nine months ended October 1, 2023, respectively, related to impairment of long-lived assets from (i) Cost of sales, excluding amortization of intangibles (excludes $ 1.3 million and $ 1.4 million for the three and nine months ended October 1, 2023, respectively), and (ii) Research and development (excludes $ 0.9 million and $ 1.8 million for the three and nine months ended October 1, 2023, respectively), to Asset impairment charge.

The reclassifications did not have an impact on the Company’s previously reported Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Stockholders’ Equity or Consolidated Statements of Cash Flows.

Recent Accounting Pronouncements

There have been no accounting pronouncements issued or adopted during the six months ended June 30, 2024 that are expected to have a material impact on the Company’s Consolidated Financial Statements.

There have been no accounting pronouncements issued or adopted during the nine months ended September 29, 2024 that are expected to have a material impact on the Company’s Consolidated Financial Statements.

Computation of Earnings Per Share

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

Three Months Ended Six Months Ended

(In millions) June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended Nine Months Ended

(In millions) September 29, 2024 October 1, 2023 September 29, 2024 October 1, 2023

Basic weighted-average shares of common stock outstanding 67.3 66.9 67.1 66.8

1 unchanged sentence

Diluted weighted-average shares of common stock outstanding 67.3 66.9 67.1 66.8

(1) In the three and six months ended June 30, 2024 and July 2, 2023, all potential shares of common stock issuable for stock options and RSUs were excluded from the dilutive calculations above because the effect of including them would have been anti-dilutive.

effect of potential shares of common stock issuable for stock options and RSUs on the weighted-average number of shares of common stock outstanding would have been as follows:

Three Months Ended Six Months Ended

(In millions) June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

(1) In the three and nine months ended September 29, 2024 and October 1, 2023, all potential shares of common stock issuable for stock options and RSUs were excluded from the dilutive calculations above because the effect of including them would have been anti-dilutive.

The dilutive effect of potential shares of common stock issuable for stock options and RSUs on the weighted-average number of shares of common stock outstanding would have been as follows:

Three Months Ended Nine Months Ended

(In millions) September 29, 2024 October 1,

2023 September 29, 2024 October 1,

Basic weighted-average shares of common stock outstanding 67.3 66.9 67.1 66.8

2 unchanged sentences

Stock options and RSUs where the combined exercise price and unrecognized stock-based compensation was greater than the average market price for the Company’s common stock were not included in the computations of diluted weighted-average shares because the effect would have been anti-dilutive under the treasury stock method.

These stock options and RSUs represented 2.1 million shares of common stock for both the three and six months ended June 30, 2024, and 1.2 million and 1.1 million shares of common stock for the three and six months ended July 2, 2023, respectively.

These stock options and RSUs represented 1.9 million and 2.0 million shares of common stock for the three and nine months ended September 29, 2024, respectively, and 1.7 million and 1.6 million shares of common stock for the three and nine months ended October 1, 2023, respectively.

Contract Balances

2 unchanged sentences

Contract assets are included within Prepaid expenses and other current assets in the Company’s 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 Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 was $ 44.1 million and $ 46.2 million, respectively.

The balance of contract assets recorded in the Company’s Consolidated Balance Sheets as of September 29, 2024 and December 31, 2023 was $ 39.5 million and $ 46.2 million, respectively.

The contract asset balance consisted of the following components:

• a customer supply agreement under which the difference between the timing of invoicing and revenue recognition resulted in a contract asset of $ 1.9 million as of December 31, 2023.

There was no contract asset remaining as of June 30, 2024;

There was no contract asset remaining as of September 29, 2024;

• 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 $ 44.1 million and $ 41.8 million as of June 30, 2024 and December 31, 2023, respectively;

The balance of the contract asset related to these arrangements was $ 39.5 million and $ 41.8 million as of September 29, 2024 and December 31, 2023, respectively;

• one of the Company’s contract manufacturing agreements that recognizes revenue as the products are manufactured resulted in a contract asset of $ 2.5 million as of December 31, 2023.

There was no contract asset remaining as of June 30, 2024.

There was no contract asset remaining as of September 29, 2024.

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 and six months ended June 30, 2024 and July 2, 2023.

No credit losses related to contract assets were recognized during the three and nine months ended September 29, 2024 and October 1, 2023.

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 $ 40.1 million and $ 36.8 million as of June 30, 2024 and December 31, 2023, respectively, and was included in Other current liabilities in the Consolidated Balance Sheets.

The balance of the Company’s current deferred revenue was $ 41.9 million and $ 36.8 million as of September 29, 2024 and December 31, 2023, respectively, and was included in Other current liabilities in the Consolidated Balance Sheets.

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 $ 15.9 million and $ 13.9 million as of June 30, 2024 and December 31, 2023, respectively, and was included in Other liabilities in the Consolidated Balance Sheets.

The amount of deferred revenue as of December 31, 2023 that was recorded in Total revenues during the three and six months ended June 30, 2024 was $ 9.2 million and $ 27.0 million, respectively.

The balance of the deferred revenue included in long-term liabilities was $ 17.4 million and $ 13.9 million as of September 29, 2024 and December 31, 2023, respectively, and was included in Other liabilities in the Consolidated Balance Sheets.

The amount of deferred revenue as of December 31, 2023 that was recorded in Total revenues during the three and nine months ended September 29, 2024 was $ 4.8 million and $ 31.8 million, respectively.

Joint Business with Grifols

The Company has an ongoing Joint Business between Ortho and 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 $ 8.9 million and $ 17.0 million during the three and six months ended June 30, 2024, respectively, and $ 6.1 million and $ 29.7 million during the three and six months ended July 2, 2023, respectively.

These amounts included the Company’s portion of the pre-tax net profit of $ 6.5 million and $ 11.5 million during the three and six months ended June 30, 2024, respectively, and $ 5.5 million and $ 6.7 million during the three and six months ended July 2, 2023, respectively, on sales transactions with third parties where the Company is the principal.

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 $ 7.3 million and $ 24.3 million during the three and nine months ended September 29, 2024, respectively, and $ 8.9 million and $ 38.6 million during the three and nine months ended October 1, 2023, respectively.

These amounts included the Company’s portion of the pre-tax net profit of $ 5.3 million and $ 16.8 million during the three and nine months ended September 29, 2024, respectively, and $ 7.3 million and $ 14.0 million during the three and nine months ended October 1, 2023, 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 Consolidated Statements of Loss.

The Company’s portion of the pre-tax net profit also included revenue from collaboration and royalty agreements of $ 2.4 million and $ 5.5 million during the three and six months ended June 30, 2024, respectively, and $ 0.6 million and $ 23.0 million during the three and six months ended July 2, 2023, respectively, which is presented on a net basis within Total revenues.

The Company’s portion of the pre-tax net profit also included revenue from collaboration and royalty agreements of $ 2.0 million and $ 7.5 million during the three and nine months ended September 29, 2024, respectively, and $ 1.6 million and $ 24.6 million during the three and nine months ended October 1, 2023, respectively, which is presented on a net basis within Total revenues.

Disaggregation of Revenue

The following table summarizes Total revenues by business unit:

Three Months Ended Six Months Ended

(In millions) June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended Nine Months Ended

(In millions) September 29, 2024 October 1,

2023 September 29, 2024 October 1,

Labs $ 355.9 $ 341.4 $ 1,067.0 $ 1,073.5

Transfusion Medicine 161.3 163.3 321.6 319.2

Immunohematology (1)

132.0 128.9 385.9 380.1

Donor Screening (1)

28.0 35.0 95.7 103.0

Point of Care 205.6 233.1 509.3 675.4

1 unchanged sentence

Total revenues $ 727.1 $ 744.0 $ 2,075.1 $ 2,255.2

(1) For presentation purposes, as a result of the wind-down of the U.S.

donor screening portfolio, the previously reported Transfusion Medicine business unit is shown in its two product categories:

Immunohematology and Donor Screening.

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

Concentration of Revenue and Credit Risk

For the six months ended June 30, 2024, one customer represented 11 % of Total revenues.

For the six months ended July 2, 2023, no customers individually accounted for more than 10% of Total revenues.

As of June 30, 2024, no customers had a balance due in excess of 10% of Accounts receivable, net.

As of December 31, 2023, customers with a balance due in excess of 10% of Accounts receivable, net totaled $ 63.5 million.

Revenue related to the Company’s respiratory products accounted for 9 % and 14 % of Total revenues for the three and six months ended June 30, 2024, respectively, and 13 % and 23 % for the three and six months ended July 2, 2023, respectively.

For the nine months ended September 29, 2024, one customer represented 11 % of Total revenues.

For the nine months ended October 1, 2023, no customers individually accounted for more than 10% of Total revenues.

Revenue related to the Company’s respiratory products accounted for 23 % and 17 % of Total revenues for the three and nine months ended September 29, 2024, respectively, and 25 % and 24 % for the three and nine months ended October 1, 2023, respectively.

As of September 29, 2024 and December 31, 2023, customers with a balance due in excess of 10% of Accounts receivable, net totaled $ 63.0 million and $ 63.5 million, respectively.

Segment and Geographic Information

7 unchanged sentences

Total revenues by reportable segment are as follows:

Three Months Ended Six Months Ended

(In millions) June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended Nine Months Ended

(In millions) September 29, 2024 October 1,

2023 September 29, 2024 October 1,

North America $ 436.2 $ 465.2 $ 1,220.2 $ 1,426.8

3 unchanged sentences

Total revenues $ 727.1 $ 744.0 $ 2,075.1 $ 2,255.2

The following table sets forth Adjusted EBITDA by segment and the reconciliations to Loss before income taxes for the three and six months ended June 30, 2024 and July 2, 2023:

Three Months Ended Six Months Ended

(In millions) June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

The following table sets forth Adjusted EBITDA by segment and the reconciliations to Loss before income taxes for the three and nine months ended September 29, 2024 and October 1, 2023:

Three Months Ended Nine Months Ended

(In millions) September 29, 2024 October 1,

2023 September 29, 2024 October 1,

North America $ 233.0 $ 253.4 $ 625.7 $ 708.1

5 unchanged sentences

( 137.6 ) ( 162.9 ) ( 459.2 ) ( 388.3 )

Interest expense, net ( 41.0 ) ( 36.5 ) ( 80.0 ) ( 73.2 )

Depreciation and amortization ( 113.1 ) ( 113.1 ) ( 344.1 ) ( 341.8 )

Interest expense, net ( 42.9 ) ( 37.7 ) ( 122.9 ) ( 110.9 )

Integration related costs ( 36.8 ) ( 26.5 ) ( 90.3 ) ( 80.4 )

1 unchanged sentence

Asset impairment charge — ( 2.2 ) ( 56.9 ) ( 3.2 )

Credit Agreement amendment fees ( 4.0 ) — ( 4.0 ) —

Amortization of deferred cloud computing implementation costs ( 4.7 ) ( 2.8 ) ( 10.6 ) ( 5.9 )

1 unchanged sentence

( 0.4 ) ( 0.4 ) ( 1.5 ) ( 1.9 )

Loss on investments — ( 1.0 ) — ( 1.2 )

Employee compensation charges — — ( 5.6 ) —

Credit Agreement amendment fees — — ( 4.0 ) —

Tax indemnification income — 0.1 — 0.2

Gain (loss) on investments 0.7 ( 0.2 ) — ( 0.2 )

Other adjustments ( 1.6 ) ( 1.1 ) ( 3.4 ) ( 2.6 )

8 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 June 30, 2024, the Company recognized an income tax benefit of $ 15.2 million in relation to loss before income taxes of $ 162.9 million, resulting in an effective benefit tax rate of 9.3 %.

For the three months ended July 2, 2023, the Company recognized an income tax benefit of $ 11.2 million in relation to loss before income taxes of $ 64.4 million, resulting in an effective benefit tax rate of 17.4 %.

For the three months ended June 30, 2024, the effective tax rate differed from the U.S.

federal statutory rate primarily due to Subpart F income and the Base Erosion and Anti-Abuse Tax liability.

For the three months ended July 2, 2023, the effective tax rate differed from the U.S.

federal statutory rate primarily due to non-U.S.

For the three months ended September 29, 2024, the Company recognized an income tax benefit of $ 8.9 million in relation to loss before income taxes of $ 28.8 million, resulting in an effective tax rate of 30.9 %.

For the three months ended October 1, 2023, the Company recognized an income tax benefit of $ 2.8 million in relation to loss before income taxes of $ 15.5 million, resulting in an effective tax rate of 18.1 %.

For the three months ended September 29, 2024, the effective tax rate differed from the U.S.

federal statutory rate primarily due to the utilization of net operating losses previously not benefited due to valuation allowances.

For the three months ended October 1, 2023, the effective tax rate differed from the U.S.

federal statutory rate primarily due to net operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances and Global Intangible Low-Tax Income, partially offset by non-U.S.

earnings being taxed at rates that were different than the U.S.

statutory rate, operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances, R&D credits and foreign tax credits, partially offset by foreign exchange losses and the Global Intangible Low-Tax Income.

For the six months ended June 30, 2024, the Company recognized an income tax benefit of $ 108.1 million in relation to loss before income taxes of $ 1,961.8 million, resulting in an effective tax rate of 5.5 %.

For the six months ended July 2, 2023, the recognized amount of income tax benefit was not material in relation to loss before income taxes of $ 4.4 million, resulting in an effective benefit tax rate of 0.7 %.

For the six months ended June 30, 2024, the effective tax rate differed from the U.S.

federal statutory rate primarily due to goodwill impairment charges that are nondeductible for tax purposes.

For the six months ended July 2, 2023, the effective tax rate differed from the U.S.

federal statutory rate primarily due to net operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances and the Global Intangible Low-Tax Income, partially offset by U.S.

statutory rate, R&D credits, foreign tax credits and foreign exchange losses.

For the nine months ended September 29, 2024, the Company recognized an income tax benefit of $ 117.0 million in relation to loss before income taxes of $ 1,990.6 million, resulting in an effective tax rate of 5.9 %.

For the nine months ended October 1, 2023, the Company recognized an income tax benefit of $ 2.8 million in relation to loss before income taxes of $ 19.9 million, resulting in an effective tax rate of 14.1 %.

For the nine months ended September 29, 2024, the effective tax rate differed from the U.S.

federal statutory rate primarily due to goodwill impairment charges that were nondeductible for tax purposes.

For the nine months ended October 1, 2023, the effective tax rate differed from the U.S.

earnings being taxed at rates that were different than the U.S.

statutory rate, R&D credits, foreign tax credits and foreign exchange losses.

The balance of unrecognized tax benefits at June 30, 2024, not including interest and penalties, was $ 29.3 million, of which $ 22.0 million could affect the effective income tax rate in future periods, if recognized.

The balance of unrecognized tax benefits at September 29, 2024, not including interest and penalties, was $ 30.1 million, of which $ 22.6 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 June 30, 2024, the Company had approximately $ 4.1 million of interest and penalties accrued related to unrecognized tax benefits.

At September 29, 2024, the Company had approximately $ 4.5 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, should decrease by $ 11.7 million.

7 unchanged sentences

Accordingly, all tax liabilities related to these tax years are required to be indemnified by Johnson & Johnson.

The indemnification receivable from Johnson & Johnson totaled $ 3.0 million as of June 30, 2024 and December 31, 2023, and is included as a component of Prepaid expenses and other current assets on the Consolidated Balance Sheet.

The indemnification receivable from Johnson & Johnson totaled $ 3.1 million and $ 3.0 million as of September 29, 2024 and December 31, 2023, respectively, and is included as a component of Prepaid expenses and other current assets on the Consolidated Balance Sheet.

Balance Sheet Account Details

Cash, Cash Equivalents and Restricted Cash

(In millions) June 30, 2024 December 31, 2023

(In millions) September 29, 2024 December 31, 2023

Cash and cash equivalents $ 143.7 $ 118.9

2 unchanged sentences

Marketable Securities

The Company had no marketable securities outstanding as of June 30, 2024.

The Company had no marketable securities outstanding as of September 29, 2024.

The following table is a summary of marketable securities as of December 31, 2023:

11 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) June 30, 2024 December 31, 2023

(In millions) September 29, 2024 December 31, 2023

Accounts receivable $ 395.2 $ 395.1

4 unchanged sentences

Inventories consisted of the following:

(In millions) June 30, 2024 December 31, 2023

(In millions) September 29, 2024 December 31, 2023

Raw materials $ 211.4 $ 212.7

8 unchanged sentences

Prepaid expenses and other current assets consisted of the following:

(In millions) June 30, 2024 December 31, 2023

(In millions) September 29, 2024 December 31, 2023

Income taxes and other tax receivables $ 181.1 $ 104.7

7 unchanged sentences

Other current liabilities consisted of the following:

(In millions) June 30, 2024 December 31, 2023

(In millions) September 29, 2024 December 31, 2023

Accrued commissions, rebates and returns $ 59.9 $ 63.8

Accrued interest 45.5 30.3

Deferred revenue 41.9 36.8

2 unchanged sentences

Derivatives 6.1 12.1

Accrued interest 1.4 30.3

Other 84.9 115.7

15 unchanged sentences

Foreign currency translation — 21.8 1.6 ( 0.9 ) 22.5

Balance at June 30, 2024 $ — $ 574.8 $ 84.2 $ 73.5 $ 732.5

Balance at September 29, 2024 $ — $ 604.2 $ 87.3 $ 79.1 $ 770.6

The Company tests goodwill for impairment on an annual basis on the first day of the fourth quarter and monitors throughout the year for impairment triggering events that indicate that the carrying value of one or more of its reporting units exceeds its fair value.

During the first quarter of 2024, the Company concluded that (i) the sustained decline in the Company’s stock price and market capitalization occurred during the first quarter of 2024, (ii) the faster than expected decline in COVID-19 and flu markets, and (iii) the recent delay in the timing of expected commercialization for Savanna were triggering events requiring an interim goodwill impairment assessment for all reporting units.

Based on the Company’s interim goodwill impairment assessment, the Company concluded that the North America reporting unit’s carrying value exceeded its estimated fair value.

During the first quarter of 2024, the Company concluded that (i) the sustained decline in the Company’s stock price and market capitalization that occurred during the first quarter of 2024, (ii) the faster than expected decline in COVID-19 and flu markets, and (iii) the delay in the timing of expected commercialization for Savanna were triggering events requiring an interim goodwill impairment assessment for all reporting units.

Based on the Company’s interim goodwill impairment assessment in the first quarter of 2024, the Company concluded that the North America reporting unit’s carrying value exceeded its estimated fair value.

As a result, the Company recorded a non-cash goodwill impairment charge of $ 1.7 billion in the first quarter of 2024 for the North America reporting unit, which represented a full impairment of the goodwill allocated to the North America reporting unit.

The decline in the estimated fair value of the North America reporting unit and the resulting impairment was primarily driven by revised short-term and mid-term forecasts for revenue and EBITDA expectations in North America.

The decline in the estimated fair value of the North America reporting unit and the resulting impairment were primarily driven by revised short-term and mid-term forecasts for revenue and EBITDA expectations in North America.

The estimated fair values of the EMEA, Latin America and JPAC reporting units as of the interim testing date exceeded their respective carrying values.

6 unchanged sentences

The projected future revenue growth rates and EBITDA margins, and the resulting projected cash flows are based on historical experience and internal annual operating plans reviewed by management, extrapolated over the forecast period.

Discount rates are determined using a

weighted average cost of capital adjusted for risk factors specific to the reporting units.

Discount rates are determined using a weighted average cost of capital adjusted for risk factors specific to the reporting units.

Market multiples are based on the guideline public company method using comparable publicly traded company multiples of revenue and EBITDA for a group of benchmark companies.

3 unchanged sentences

Recoverability of long-lived assets is measured by a comparison of the carrying value of an asset group to future undiscounted net cash flows expected to be generated by the asset group.

The undiscounted cash flows for the North America long-lived asset group were above the carrying value and the Company determined that the long-lived asset group was recoverable, and no impairment existed as of June 30, 2024.

Subsequent to the first quarter of 2024, no impairment indicators were noted.

The components of borrowings were as follows:

(In millions) June 30, 2024 December 31, 2023

(In millions) September 29, 2024 December 31, 2023

Term Loan $ 2,317.1 $ 2,420.2

8 unchanged sentences

The Credit Agreement, dated May 27, 2022, by and among the Company, as borrower, Bank of America, N.A., as administrative agent and swing line lender, and the other lenders and L/C issuers party thereto consists of a $ 2,750.0 million Term Loan and an $ 800.0 million Revolving Credit Facility.

Availability under the Revolving Credit Facility, after deducting letters of credit of $ 13.0 million and $ 253.0 million borrowings outstanding, was $ 534.0 million as of June 30, 2024.

During the six months ended June 30, 2024, the Company made $ 103.1 million in payments on the Term Loan.

Availability under the Revolving Credit Facility, after deducting letters of credit of $ 13.0 million and $ 230.0 million borrowings outstanding, was $ 557.0 million as of September 29, 2024.

During the nine months ended September 29, 2024, the Company made $ 103.1 million in payments on the Term Loan.

The Credit Agreement contains affirmative and negative covenants that are customary for credit agreements of this nature.

4 unchanged sentences

The Credit Agreement contains 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 June 30, 2024.

The following table provides the detailed amounts within Interest expense, net for the three and six months ended June 30, 2024 and July 2, 2023:

Three Months Ended Six Months Ended

(In millions) June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

The Company was in compliance with the financial covenants as of September 29, 2024.

The following table provides the detailed amounts within Interest expense, net for the three and nine months ended September 29, 2024 and October 1, 2023:

Three Months Ended Nine Months Ended

(In millions) September 29, 2024 October 1,

2023 September 29, 2024 October 1,

Term Loan $ 43.9 $ 45.7 $ 132.8 $ 130.8

6 unchanged sentences

Stock-based compensation expense was as follows:

Three Months Ended Six Months Ended

(In millions) June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023

Three Months Ended Nine Months Ended

(In millions) September 29, 2024 October 1,

2023 September 29, 2024 October 1,

Cost of sales, excluding amortization of intangibles $ 1.4 $ 1.2 $ 4.1 $ 3.3

3 unchanged sentences

Total stock-based compensation expense $ 12.5 $ 17.1 $ 32.8 $ 48.1

The table above includes compensation expense related to liability-classified awards of $ 2.8 million and $ 5.8 million for the three and six months ended July 2, 2023, respectively, which has been or is expected to be settled in cash.

Amounts related to the three and six months ended June 30, 2024 were not material.

The table above includes compensation expense related to liability-classified awards of $ 3.0 million and $ 8.8 million for the three and nine months ended October 1, 2023, respectively, which has been or is expected to be settled in cash.

Amounts related to the three and nine months ended September 29, 2024 were not material.

Commitments and Contingencies

25 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:

June 30, 2024 December 31, 2023

September 29, 2024 December 31, 2023

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

5 unchanged sentences

Total liabilities measured at fair value $ — $ 47.1 $ — $ 47.1 $ — $ 27.5 $ 0.1 $ 27.6

There were no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the six months ended June 30, 2024 and fiscal year 2023.

There were no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy during the nine months ended September 29, 2024 and fiscal year 2023.

Marketable securities consist of investment-grade corporate and government debt securities, corporate asset-backed securities and commercial paper.

2 unchanged sentences

Financial Instruments Not Measured at Fair Value

The estimated fair value of the Company’s borrowings under the Term Loan was $ 2,296.8 million at June 30, 2024, compared to the carrying amount, excluding debt issuance costs, of $ 2,317.1 million.

The estimated fair value of the Company’s borrowings under the Term Loan was $ 2,293.9 million at September 29, 2024, compared to the carrying amount, excluding debt issuance costs, of $ 2,317.1 million.

The estimated fair value of the Company’s borrowings under the Term Loan was $ 2,396.0 million at December 31, 2023, compared to the carrying amount, excluding debt issuance costs, of $ 2,420.2 million.

14 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.

Pre-tax unrealized gains of $ 20.4 million as of June 30, 2024 are expected to be reclassified from OCI to earnings in the next 12 months.

The following table summarizes the Company’s interest rate derivative agreements as of June 30, 2024, all of which were interest rate swaps:

Pre-tax unrealized loss of $ 1.3 million as of September 29, 2024 is expected to be reclassified from OCI to earnings in the next 12 months.

The following table summarizes the Company’s interest rate derivative agreements as of September 29, 2024, all of which were interest rate swaps:

Notional Amount

18 unchanged sentences

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, Czech Koruna, Danish Krone, Euro, Indian Rupee, Japanese Yen, Mexican Peso, Philippine Peso, South Korean Won, Swiss Franc and Thai Baht.

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, Czech Koruna, Euro, Indian Rupee, Japanese Yen, Mexican Peso, Philippine Peso, South Korean Won, Swiss Franc and Thai Baht.

The Company designates certain foreign currency forward contracts as cash flow hedges.

1 unchanged sentence

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.

Pre-tax unrealized gains of $ 0.7 million as of June 30, 2024 is expected to be reclassified from OCI to earnings in the next 12 months.

Pre-tax unrealized gains of $ 2.2 million as of September 29, 2024 is expected to be reclassified from OCI 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 expense, net.

The following table provides details of the currency hedging instruments outstanding as of June 30, 2024:

The following table provides details of the currency hedging instruments outstanding as of September 29, 2024:

Description Notional Amount

2 unchanged sentences

Foreign currency forward contracts $ 833.6 Non-designated

The following table summarizes pre-tax gains and losses from designated derivative and non-derivative instruments within AOCI for the three and six months ended June 30, 2024 and July 2, 2023:

The following table summarizes pre-tax gains and losses from designated derivative and non-derivative instruments within AOCI for the three and nine months ended September 29, 2024 and October 1, 2023:

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 June 30, 2024

Three Months Ended September 29, 2024

Foreign currency forward contracts (sales) $ 3.2 Total revenues $ —

1 unchanged sentence

Interest rate derivatives $ 41.7 Interest expense, net $ ( 7.1 )

Six Months Ended June 30, 2024

Nine Months Ended September 29, 2024

Foreign currency forward contracts (sales) $ ( 2.8 ) Total revenues $ 2.1

1 unchanged sentence

Interest rate derivatives $ ( 4.1 ) Interest expense, net $ ( 21.3 )

Three Months Ended July 2, 2023

Three Months Ended October 1, 2023

Foreign currency forward contracts (sales) $ ( 1.0 ) Total revenues $ 1.8

1 unchanged sentence

Interest rate derivatives $ ( 28.0 ) Interest expense, net $ ( 8.5 )

Six Months Ended July 2, 2023

Nine Months Ended October 1, 2023

Foreign currency forward contracts (sales) $ 0.7 Total revenues $ 2.7

9 unchanged sentences

Net Investment Hedging Relationships

(In millions) Amount of Pre-tax (Gain) Loss Recognized in OCI Amount of Pre-tax (Gain) Loss Recognized in Other Expense (Income), Net for Amounts Excluded from Effectiveness Testing

Three Months Ended June 30, 2024

(In millions) Amount of Pre-tax Loss (Gain) Recognized in OCI Amount of Pre-tax (Gain) Loss Recognized in Other Expense, Net for Amounts Excluded from Effectiveness Testing

Three Months Ended September 29, 2024

Foreign exchange contracts $ 20.2 $ ( 3.3 )

Six Months Ended June 30, 2024

Nine Months Ended September 29, 2024

Foreign exchange contracts $ 1.9 $ ( 8.2 )

Fair value gains on foreign currency forward contracts, as determined using Level 2 inputs, that do not qualify for hedge accounting treatment are recorded in Other expense, net and were $ 5.7 million for both the three and six months ended June 30,

Fair value gains that do not qualify for hedge accounting treatment were $ 3.2 million and $ 0.5 million for the three and six months ended July 2, 2023, respectively.

The following table summarizes the fair value of designated and non-designated hedging instruments recognized within the Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023:

(In millions) June 30, 2024 December 31, 2023

Fair value gains and losses on foreign currency forward contracts, as determined using Level 2 inputs, that do not qualify for hedge accounting treatment are recorded in Other expense, net.

Fair value gains were $ 4.4 million and $ 10.1 million for the

three and nine months ended September 29, 2024, respectively.

Fair value losses that do not qualify for hedge accounting treatment were $ 0.2 million for the three months ended October 1, 2023 and fair value gains were $ 0.3 million for the nine months ended October 1, 2023.

The following table summarizes the fair value of designated and non-designated hedging instruments recognized within the Consolidated Balance Sheets as of September 29, 2024 and December 31, 2023:

(In millions) September 29, 2024 December 31, 2023

Designated cash flow hedges

1 unchanged sentence

Prepaid expenses and other current assets $ 2.3 $ 0.2

Other assets 24.6 —

Other liabilities 24.1 6.9

10 unchanged sentences

The following table summarizes the changes in AOCI by component:

Three Months Ended June 30, 2024

Three Months Ended September 29, 2024

(In millions) Pension and Other Post-

Employment Benefits Cash Flow Hedges Available-for-Sale Investments Foreign Currency Translation Adjustments Accumulated Other Comprehensive (Loss) Income

Balance at March 31, 2024 $ ( 1.3 ) $ 14.8 $ — $ ( 39.7 ) $ ( 26.2 )

Balance at June 30, 2024 $ ( 1.3 ) $ 21.7 $ — $ ( 45.0 ) $ ( 24.6 )

Current period deferrals (1)

3 unchanged sentences

Net change — ( 40.5 ) — 61.6 21.1

Balance at June 30, 2024 $ ( 1.3 ) $ 21.7 $ — $ ( 45.0 ) $ ( 24.6 )

Six Months Ended June 30, 2024

Balance at September 29, 2024 $ ( 1.3 ) $ ( 18.8 ) $ — $ 16.6 $ ( 3.5 )

Nine Months Ended September 29, 2024

(In millions) Pension and Other Post-

6 unchanged sentences

Net change — ( 9.0 ) — 35.5 26.5

Balance at June 30, 2024 $ ( 1.3 ) $ 21.7 $ — $ ( 45.0 ) $ ( 24.6 )

Three Months Ended July 2, 2023

Balance at September 29, 2024 $ ( 1.3 ) $ ( 18.8 ) $ — $ 16.6 $ ( 3.5 )

Three Months Ended October 1, 2023

(In millions) Pension and Other Post-

Employment Benefits Cash Flow Hedges Available-for-Sale Investments Foreign Currency Translation Adjustments Accumulated Other Comprehensive (Loss) Income

Balance at April 2, 2023 $ 0.7 $ ( 21.1 ) $ ( 0.3 ) $ ( 38.6 ) $ ( 59.3 )

Balance at July 2, 2023 $ 0.7 $ 14.6 $ ( 0.4 ) $ ( 31.2 ) $ ( 16.3 )

Current period deferrals (2)

3 unchanged sentences

Net change — 18.2 0.2 ( 55.3 ) ( 36.9 )

Balance at July 2, 2023 $ 0.7 $ 14.6 $ ( 0.4 ) $ ( 31.2 ) $ ( 16.3 )

Six Months Ended July 2, 2023

Balance at October 1, 2023 $ 0.7 $ 32.8 $ ( 0.2 ) $ ( 86.5 ) $ ( 53.2 )

Nine Months Ended October 1, 2023

(In millions) Pension and Other Post-

6 unchanged sentences

Net change — 31.3 0.3 ( 17.2 ) 14.4

Balance at July 2, 2023 $ 0.7 $ 14.6 $ ( 0.4 ) $ ( 31.2 ) $ ( 16.3 )

(1) Includes tax impact of (i) $ 0.9 million and $ 7.4 million related to cash flow hedges for the three and six months ended June 30, 2024, respectively, and (ii) $ 0.9 million and $ 2.9 million related to foreign currency translation adjustments for the three and six months ended June 30, 2024, respectively.

(2) Includes tax impact of $ 9.5 million and $ 3.4 million related to cash flow hedges for the three and six months ended July 2, 2023, respectively.

Balance at October 1, 2023 $ 0.7 $ 32.8 $ ( 0.2 ) $ ( 86.5 ) $ ( 53.2 )

(1) Includes tax impact of (i) $ 11.1 million and $ 3.7 million related to cash flow hedges for the three and nine months ended September 29, 2024, respectively, and (ii) $ 4.9 million and $ 2.0 million related to foreign currency translation adjustments for the three and nine months ended September 29, 2024, respectively.

(2) Includes tax impact of $ 4.6 million and $ 8.0 million related to cash flow hedges for the three and nine months ended October 1, 2023, respectively.

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