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Basis of Presentation | 6 Months Ended
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Mar. 28, 2020
Basis of Presentation [Abstract] |
Basis of Presentation | Basis of Presentation The consolidated financial statements of Hologic, Inc. (“Hologic” or the “Company”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and disclosures required by U.S. generally accepted accounting principles (“GAAP”) for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related notes for the fiscal year ended September 28, 2019 included in the Company’s Form 10-K filed with the SEC on November 27, 2019. In the opinion of management, the financial statements and notes contain all adjustments (consisting of normal recurring accruals and all other necessary adjustments) considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate. Operating results for the three and six months ended March 28, 2020 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending September 26, 2020. COVID-19 Considerations The pandemic caused by the spread of the novel strain of coronavirus disease 2019 ("COVID-19") has created significant volatility, uncertainty and economic disruption in the markets the Company sells its products into, primarily the U.S., Europe and Asia-Pacific. In the second quarter of fiscal 2020, the spread of COVID-19 has negatively impacted business activity globally. As healthcare systems respond to the increasing demands of managing COVID-19 and the resulting economic uncertainties, governments around the world have imposed measures designed to reduce the transmission of COVID-19, and individuals are responding to the fears of contracting COVID-19. In particular, elective procedures and exams are being delayed or cancelled, there has been a significant reduction in physician office visits, and hospitals are postponing or cancelling capital purchases as well as limiting or eliminating services. These responses have had, and the Company believes will continue to have, a negative impact on the Company's operating results and cash flows. While the effects of COVID-19 and the associated economic disruptions were felt primarily in the second half of March in many of the Company's end-markets and earlier in Asia, primarily China, the Company expects the effect on its financial results in the third fiscal quarter to be significant. While the Company believes the impact on its business will begin to lessen in the fourth quarter and continue to do so in subsequent periods the impacts on these periods could be significant. The Company's belief is that COVID-19’s adverse impact on its operating results, cash flows and financial condition will be primarily driven by: the severity and duration of the COVID-19 pandemic; the COVID-19 pandemic’s impact on the U.S. and international healthcare system, the U.S. economy and worldwide economy; and the timing, scope and effectiveness of U.S. and international governmental responses to the COVID-19 pandemic and associated economic disruptions. In addition to adversely affecting demand for the Company's products, COVID-19 and associated economic disruptions could have an adverse impact on the Company's supply chains and distribution systems, including as a result of impacts associated with preventive and precautionary measures that it, other businesses and governments are taking. A reduction or interruption in any of the Company's manufacturing processes could have a material adverse effect on its business. The Company expects that the uncertainty surrounding world financial markets and deteriorating worldwide macroeconomic conditions resulting from the pandemic have caused and may continue to cause the purchasers of medical equipment to decrease their medical equipment purchasing and procurement activities. Additionally, the pandemic has caused and may further cause constrictions in world credit markets that have and could cause its customers to experience increased difficulty in paying their existing obligations to the Company or in securing the financing necessary to purchase the Company's products. Economic uncertainty has and may continue to result in cost-conscious consumers focusing on acute care rather than wellness, which would also continue to adversely affect demand for the Company's products. The terms of the Company's credit facilities require it to satisfy certain financial covenants. Should the Company's future business and operations be significantly impaired by the continuing COVID-19 pandemic and associated economic disruptions over an extended period of time or otherwise, the Company cannot assure that it will remain in compliance with its current financial covenants. In such event, the factors that adversely affect the Company's business may also similarly adversely affect the capital markets, and the Company cannot assure that it would be able to negotiate alternative covenants or alternative financing on favorable terms if at all. The Company's failure to comply with the covenants contained in its credit facilities, including financial covenants, could result in an event of default, which could materially and adversely affect its results of operations and financial condition. As the Company assessed the potential longer term economic and capital market uncertainties resulting from the COVID-19 pandemic, at the end of March 2020 the Company suspended its accounts receivable securitization program and borrowed $750.0 million under its revolver. The Company used $250.0 million of these proceeds to pay off all amounts then owed under its accounts receivable securitization agreement, and retained the balance as cash reserve. As of March 28, 2020 the Company had another $750.0 million available under its revolver. In response to the negative impact of COVID-19 on the Company's business, in April 2020 it initiated cost-cutting measures, which included not only reducing discretionary and variable spend, such as travel, marketing programs and the use of contractors, consultants and temporary help, but the Company also implemented employee furloughs, salary cuts primarily in the U.S., reduced hours and in certain instances employee terminations. Further, the Company has shut down certain manufacturing facilities temporarily and implemented reduced work-week schedules in response to lower near-term demand for many of its products. These actions, as they relate to the Company's manufacturing operations, are expected to reduce the efficiency of its manufacturing operations and could further adversely affect its results of operations. Future cost savings initiatives and other measures related to stopping the spread of COVID-19 could also adversely affect the Company's research and development activities, including its clinical trials. The Company has also taken measures to ensure the safety of its employees and to comply with governmental orders. These measures could require that the Company's employees refrain from traveling to their normal workplace for extended periods of time, which in turn could result in a decrease in its commercial and marketing activities. During the second quarter of fiscal 2020, the FDA granted Emergency Use Authorization (EUA) for the Company's Panther Fusion SARS-CoV-2 assay for testing for the COVID-19 virus. The Company is in the process of completing development of a second SARS-CoV-2 assay which will run on its more widely distributed Panther instrument. The Company has installed more than 1,800 Panther instruments, which are used by clinical laboratories around the world. Subject to obtaining the required authorizations, the Company expects to introduce the assay in May. However, the Company can give no assurance that this assay will be developed and authorized on a timely basis, if at all, or if introduced, will be commercially successful. Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), referred to as ASC 842. The purpose of ASU 2016-02 is to increase the transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet, including those previously classified as operating leases under GAAP, and disclosing key information about leasing arrangements. ASC 842, as amended, is effective for public entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods and was effective for the Company in fiscal 2020. The Company adopted the standard using the transition method provided by ASC Update No. 2018-11, Leases (Topic 842): Targeted Improvements. Under this method, the Company applied the new leasing rules on September 29, 2019, rather than at the earliest comparative period presented in the financial statements. Prior periods were presented in accordance with the existing lease guidance under ASC 840. Upon transition, the Company applied the package of practical expedients permitted under ASC 842 transition guidance to its entire lease portfolio at September 29, 2019. As a result, the Company was not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases, and (iii) initial direct costs for any existing leases. Furthermore, as a lessee the Company elected to combine lease and non-lease components together for the majority of its leases. As a result, for these applicable classes of underlying assets, the Company accounted for each separate lease component and the non-lease components associated with that lease component as a single lease component. Under ASC 842 as a lessor, in instances where the Company places instruments (or equipment) at customer sites as part of its reagent rental contracts, certain of the Company's reagent rental contracts could be classified as sales-type leases. Under sales-type leases, there is accelerated expense recognition for the cost of the placed equipment and potentially up-front revenue in the event there are fixed rental payments, a portion of which would be allocated to the equipment. The Company does not expect to have a significant amount of sales-type leases. Under ASC 840, all instruments placed under the Company's reagent rental programs were classified as operating leases and instrument revenue and cost were recognized over the term of the contract. Upon adoption of the new lease standard, the Company recognized operating lease right-of-use assets and finance lease right-of-use assets of $91.7 million and $10.2 million, respectively, and corresponding operating lease liabilities and finance lease liabilities of $96.6 million and $21.0 million, respectively. This includes recording the Company’s existing capital lease as a finance lease at transition. In addition, the Company derecognized $32.6 million of property, plant and equipment and $35.2 million of finance lease obligations recorded in accrued expenses and other long-term liabilities associated with two previously existing build-to-suit lease arrangements. Right-of-use assets and corresponding liabilities for these build-to-suit lease arrangements are included within the total amount recognized upon adoption of the new lease standard. The Company’s adoption of ASC 842 is more fully described in Note 3. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The guidance requires certain changes to the presentation of hedge accounting in the financial statements and also simplifies the application of hedge accounting and expands the strategies that qualify for hedge accounting. The Company adopted the standard in the first quarter of fiscal 2020. The adoption of ASU 2017-12 did not have a material effect on the Company's consolidated financial statements. Subsequent Events Consideration The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that may require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events affecting the unaudited consolidated financial statements as of and for the three and six months ended March 28, 2020.

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