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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________________________________________________
FORM 10-Q
  ____________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-41409
 ____________________________________________________________________________ 
QUIDELORTHO CORPORATION
(Exact name of registrant as specified in its charter)
  ____________________________________________________________________________
Delaware 87-4496285
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
9975 Summers Ridge Road, San Diego, California
92121
(Address of principal executive offices)
(zip code)
(858552-1100
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 Par ValueQDELThe Nasdaq Stock Market
____________________________________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  
As of October 25, 2022, 66,045,358 shares of the registrant’s common stock were outstanding.




INDEX
 
   2021

2


PART I    FINANCIAL INFORMATION
 
ITEM 1.    Financial Statements
QUIDELORTHO CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions, except par value)
October 2, 2022January 2, 2022
ASSETS
Current assets:
Cash and cash equivalents$212.2 $802.8 
Marketable securities51.8 25.7 
Accounts receivable, net416.6 378.0 
Inventories536.2 198.8 
Prepaid expenses and other current assets228.4 35.0 
Total current assets1,445.2 1,440.3 
Property, plant and equipment, net1,261.6 349.2 
Marketable securities20.3 37.9 
Right-of-use assets163.7 127.6 
Goodwill2,357.7 337.0 
Intangible assets, net3,223.9 98.7 
Deferred tax asset18.7 20.1 
Other assets164.4 19.6 
Total assets$8,655.5 $2,430.4 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$241.8 $101.5 
Accrued payroll and related expenses115.5 40.4 
Income tax payable67.3 66.9 
Current portion of borrowings207.6 0.3 
Other current liabilities240.5 114.4 
Total current liabilities872.7 323.5 
Operating lease liabilities162.5 128.6 
Long-term borrowings2,482.0 0.4 
Deferred tax liability256.4  
Other liabilities86.6 48.5 
Total liabilities3,860.2 501.0 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.001 par value per share; 5.0 shares authorized; 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; 66.0 and 41.7 shares issued and outstanding at October 2, 2022 and January 2, 2022, respectively
  
Additional paid-in capital2,772.2 279.8 
Accumulated other comprehensive (loss) income(144.5)0.4 
Retained earnings2,167.6 1,649.2 
Total stockholders’ equity4,795.3 1,929.4 
Total liabilities and stockholders’ equity$8,655.5 $2,430.4 

See accompanying notes.
3


QUIDELORTHO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in millions, except per share data)
 
 Three Months EndedNine Months Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Total revenues$783.8 $509.8 $2,399.5 $1,061.7 
Cost of sales, excluding amortization of intangibles376.3 134.4 912.5 274.6 
Selling, marketing and administrative204.2 63.0 407.4 165.9 
Research and development65.6 23.7 126.2 69.6 
Amortization of intangible assets50.5 6.9 78.6 20.5 
Acquisition and integration costs26.4  109.6 1.8 
Other operating expenses4.0  8.0  
Operating income56.8 281.8 757.2 529.3 
Interest expense, net29.7 1.3 41.0 4.7 
Loss on extinguishment of debt  24.0  
Other income, net(4.2)(1.0)(2.6)(0.4)
Income before provision for income taxes31.3 281.5 694.8 525.0 
Provision for income taxes12.1 65.8 176.4 112.1 
Net income$19.2 $215.7 $518.4 $412.9 
Basic earnings per share$0.29 $5.17 $9.67 $9.91 
Diluted earnings per share$0.28 $5.08 $9.56 $9.72 
Weighted-average shares outstanding - basic66.9 41.7 53.6 41.7 
Weighted-average shares outstanding - diluted67.5 42.5 54.2 42.5 
See accompanying notes.

4


QUIDELORTHO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(in millions)
 
 Three Months EndedNine Months Ended
 October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Net income$19.2 $215.7 $518.4 $412.9 
Other comprehensive (loss) income
Changes in cumulative translation adjustment, net of tax(92.9)(0.5)(158.9)(1.1)
Changes in unrealized losses from investments, net of tax  (0.6) 
Changes in unrealized gains (losses) from cash flow hedges, net of tax:
Net unrealized gains on derivative instruments9.3  13.9 0.1 
Reclassification of net realized (gains) losses on derivative instruments included in net income(0.2)0.4 0.7 2.3 
Total change in unrealized gains (losses) from cash flow hedges, net of tax9.1 0.4 14.6 2.4 
Comprehensive (loss) income$(64.6)$215.6 $373.5 $414.2 
See accompanying notes.

5


QUIDELORTHO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in millions)
Common StockAdditional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
stockholders’
equity
SharesPar
Balance at January 2, 202241.7 $ $279.8 $0.4 $1,649.2 $1,929.4 
Issuance of common stock under equity compensation plans0.2  6.4 — — 6.4 
Stock-based compensation expense— — 6.2 — — 6.2 
Tax withholdings related to vesting of stock-based awards(0.1)— (6.8)— — (6.8)
Other comprehensive loss, net of tax— — — (0.2)— (0.2)
Net income— — — — 479.9 479.9 
Balance at April 3, 202241.8 $ 285.6 0.2 2,129.1 2,414.9 
Issuance of common stock under equity compensation plans0.1  0.8 — — 0.8 
Stock-based compensation expense— — 14.7 — — 14.7 
Issuance of shares in connection with the Combinations25.1 — 2,495.4 — — 2,495.4 
Issuance of equity replacement awards in connection with the Combinations— — 36.1 — — 36.1 
Tax withholdings related to vesting of stock-based awards — (0.7)— — (0.7)
Other comprehensive loss, net of tax— — — (60.9)— (60.9)
Net income— — — — 19.3 19.3 
Balance at July 3, 202267.0 $ 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, 202266.0 $ $2,772.2 $(144.5)$2,167.6 $4,795.3 
.
6


Common StockAdditional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
stockholders’
equity
SharesPar
Balance at January 3, 202142.3 $ $388.1 $(0.4)$945.0 $1,332.7 
Issuance of common stock under equity compensation plans0.4  6.4 — — 6.4 
Stock-based compensation expense— — 5.9 — — 5.9 
Tax withholdings related to vesting of stock-based awards(0.2)— (33.9)— — (33.9)
Other comprehensive income, net of tax— — — 0.5 — 0.5 
Net income— — — — 178.1 178.1 
Balance at April 4, 202142.5  366.5 0.1 1,123.1 1,489.7 
Issuance of common stock under equity compensation plans0.1 — 0.5 — — 0.5 
Stock-based compensation expense— — 5.8 — — 5.8 
Tax withholdings related to vesting of stock-based awards — (1.5)— — (1.5)
Repurchases of common stock(1.0)— (103.4)— — (103.4)
Other comprehensive income, net of tax— — — 0.9 — 0.9 
Net income— — — — 19.1 19.1 
Balance at July 4, 202141.6  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, 202141.6 $ $275.3 $0.8 $1,357.9 $1,634.0 
See accompanying notes.
7


QUIDELORTHO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
 Nine Months Ended
 October 2, 2022October 3, 2021
OPERATING ACTIVITIES:
Net income$518.4 $412.9 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization167.0 37.3 
Stock-based compensation expense36.6 18.7 
Net change in operating lease right-of-use assets and liabilities9.9 2.6 
Payment of accreted interest on contingent and deferred consideration(10.4)(8.2)
Loss on extinguishment of debt24.0  
Unwind inventory fair value adjustment46.6  
Other non-cash, net(3.7)7.3 
Changes in assets and liabilities:
Accounts receivable181.6 161.5 
Inventories(97.9)(83.3)
Prepaid expenses and other current and non-current assets(41.3)(15.2)
Accounts payable9.2 (3.5)
Accrued payroll and related expenses(3.6)(3.9)
Income taxes payable(9.2)(67.7)
Other current and non-current liabilities(111.3)26.0 
Net cash provided by operating activities715.9 484.5 
INVESTING ACTIVITIES
Acquisitions of property, equipment, investments and intangibles(79.2)(260.4)
Acquisition of businesses, net of cash and restricted cash acquired(1,511.4) 
Proceeds from government assistance allocated to fixed assets15.8 36.9 
Purchases of marketable securities(49.4) 
Proceeds from sale of marketable securities39.3  
Net cash used for investing activities(1,584.9)(223.5)
FINANCING ACTIVITIES
Proceeds from issuance of common stock5.2 7.3 
Proceeds from long-term borrowings, net of debt issuance costs2,734.5  
Payments on long-term borrowings and extinguishment costs(2,336.1)(0.2)
Payments of tax withholdings related to vesting of stock-based awards(8.0)(36.0)
Repurchases of common stock(74.3)(103.5)
Principal payments of acquisition contingent consideration(4.2)(4.7)
Principal payments of deferred consideration(33.4)(35.1)
Net cash provided by (used for) financing activities283.7 (172.2)
Effect of exchange rates on cash(4.3)(0.3)
Net (decrease) increase in cash, cash equivalents and restricted cash(589.6)88.5 
Cash, cash equivalents and restricted cash at beginning of period802.8 489.9 
Cash, cash equivalents and restricted cash at end of period$213.2 $578.4 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Purchase of property, equipment and intangibles by incurring current liabilities$17.4 $7.7 
Transfer of instrument inventories to fixed assets$48.6 $ 
Reduction of other current liabilities upon issuance of restricted share units$4.6 $2.0 
See accompanying notes.
8


QuidelOrtho Corporation
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
Organization and Business
On May 27, 2022, pursuant to a Business Combination Agreement entered into as of December 22, 2021 (the “BCA”), by and among Quidel Corporation (“Quidel”), Ortho Clinical Diagnostics Holdings plc (“Ortho”), QuidelOrtho Corporation (formerly, Coronado Topco, Inc.) (“QuidelOrtho” and collectively with its subsidiaries, the “Company”), Orca Holdco, Inc., Laguna Merger Sub, Inc. (“U.S. Merger Sub”), and Orca Holdco 2, Inc., Quidel and Ortho consummated a business combination (the “Combinations”) by way of (i) a scheme of arrangement undertaken by Ortho under Part 26 of the U.K. Companies Act 2006 (the “Ortho Scheme”), pursuant to which each issued and outstanding share of Ortho was acquired by a nominee of QuidelOrtho, such that Ortho became a wholly owned subsidiary of QuidelOrtho, and (ii) a merger of U.S. Merger Sub with and into Quidel, with Quidel surviving the merger as a wholly owned subsidiary of QuidelOrtho. 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 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. The Company’s expertise in clinical chemistry, immunoassay and molecular testing helps clinicians and patients make better informed decisions across the globe. The Company’s global infrastructure and commercial reach support its customers across more than 130 countries and territories with quality diagnostics, a broad test portfolio and market leading service.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and with the general instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnotes or other financial information required by GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included.
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.
The Company follows the concept of a fiscal year that ends on the Sunday nearest to the end of the month of December, and fiscal quarters that end on the Sunday nearest to the end of the months of March, June, and September. 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 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
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

9


Reclassifications
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 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. The Company early adopted the guidance during the first quarter of 2022 with no material impact to the Company’s unaudited Consolidated Financial Statements.
Significant Accounting Policies
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
The cost of an acquired business is assigned to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of the estimated fair values at the date of acquisition. We assess fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, using a variety of methods including, but not limited to, an income approach and a market approach, such as the estimation of future cash flows of the acquired business and current selling prices of similar assets. Fair value of the assets acquired and liabilities assumed, including intangible assets, in-process research and development (“IPR&D”), and contingent payments, are measured based on the assumptions and estimations with regards to variable factors such as the amount and timing of future cash flows for the asset or liability being measured, appropriate risk-adjusted discount rates, nonperformance risk, or other factors that market participants would consider. Upon acquisition, we determine the estimated economic lives of the acquired intangible assets for amortization purposes, which are based on the underlying expected cash flows of such assets. When applicable, adjustments to inventory are based on the fair market value of inventory and amortized into income based on the period in which the underlying inventory is sold. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that is not individually identified and separately recognized. Actual results may vary from projected results and assumptions used in the fair value assessments.
Defined Benefit Plans and Other Post-Employment Benefits
In connection with the Combinations, the Company assumed Ortho’s defined benefit plans in certain countries and a retiree healthcare reimbursement plan for certain U.S. employees. 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 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. The net obligation is then determined with reference to the fair value of the plan assets (if any). The discount rate used is the yield on bonds that are denominated in the currency in which the benefits will be paid and that have maturity dates approximating the terms of the obligations. The calculations are performed by qualified actuaries using the projected unit credit method.
10


Government Assistance
In connection with the Combinations, the Company acquired a previously established agreement between Ortho and the Biomedical Advanced Research and Development Authority (“BARDA”), a division of the U.S. Department of Health and Human Services, which provided funding for Ortho to build manufacturing space and production support equipment to increase COVID-19 assay production capacity, as well as to build a manufacturing facility to produce certain analyzers needed to support COVID-19 testing. 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 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.
Note 2. Business Combination
On May 27, 2022, pursuant to the BCA, Quidel and Ortho consummated the Combinations and each of Quidel and Ortho became a wholly owned subsidiary of QuidelOrtho. As a result of the Combinations, QuidelOrtho became the successor issuer to Quidel. The Combinations have been accounted for as a business combination using the acquisition method of accounting in conformity with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, with Quidel considered the accounting and the legal acquirer. The Combinations enhance the Company’s revenue profile and expand the Company’s geographic footprint and product diversity.
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. The total purchase consideration was calculated as follows (in millions, except value per share data and Ortho Exchange Ratio):
Total Ortho shares subject to exchange237.487
Ortho Exchange Ratio0.1055
QuidelOrtho shares issued25.055
Value per Quidel share as of May 26, 2022$99.60 
Fair value of stock consideration$2,495.5 
Fair value of replacement equity awards (1)47.9 
Cash consideration (2)1,747.7 
Total purchase consideration$4,291.1 
(1)
Represents the fair value of replacement stock options (which include options with time-based, performance-based, and both performance- and market-based vesting conditions), restricted stock units (“RSUs”) and restricted stock outstanding as of May 27, 2022 that are attributable to service prior to the Combinations. The terms of the replacement awards are substantially similar to the former Ortho equity awards for which they were exchanged. The portion of the fair value of the replacement equity awards attributable to service after the Combinations is $46.6 million and will be recognized as compensation expense based on the vesting terms of the replacement equity awards.
(2)
Represents cash consideration of $7.14 per share paid to Ortho shareholders and holders of vested Ortho stock options on the closing date of the Combinations for 237.5 million outstanding Ortho shares and 7.3 million vested Ortho stock options.
The Company funded the cash portion of the purchase price with cash on its balance sheet and a portion of the Term Loan (as defined in Note 8) proceeds from the Financing (as defined in Note 8). See Note 8 for further information regarding the Company’s debt.

11


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 AdjustmentsAmounts Recognized as of Acquisition Date
(as adjusted)
Cash and cash equivalents$234.5 $ $234.5 
Accounts receivable240.6  240.6 
Inventories386.8  386.8 
Property, plant and equipment767.5 157.8 925.3 
Goodwill2,291.3 (190.7)2,100.6 
Intangible assets3,133.0 95.0 3,228.0 
Prepaid expenses and other assets287.9 4.4 292.3 
Total assets7,341.6 66.5 7,408.1 
Accounts payable(135.0) (135.0)
Accrued payroll and related expenses(80.7)(0.4)(81.1)
Long-term borrowings, including current portion (1)
(2,268.4) (2,268.4)
Deferred tax liability(215.4)(62.8)(278.2)
Other current and non-current liabilities(351.0)(3.3)(354.3)
Total liabilities(3,050.5)(66.5)(3,117.0)
Total purchase consideration$4,291.1 $ $4,291.1 
(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 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 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. 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.
12


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 as of the closing date of the Combinations is as follows (in millions):
North America$1,170.2 
EMEA376.0 
China114.4 
Other440.0 
$2,100.6 
The following table sets forth the amounts assigned to the identifiable intangible assets acquired (in millions, except years):
Intangible AssetAmortization PeriodFair Value of Assets Acquired
Customer relationships20 years$1,775.0 
Developed technology15 years903.0 
Trademarks15 years373.0 
In-process research and developmentNot amortized177.0 
$3,228.0 
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. 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. 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.
Intangible assets are amortized on a straight-line basis over the amortization periods noted above, which reflects the estimated useful life of the underlying assets. The amortization of IPR&D will begin at the related product launch and will be tested annually for potential impairment.
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:
Three Months EndedNine Months Ended
(In millions)October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Pro forma total revenues$783.8 $1,032.3 $3,184.7 $2,583.5 
Pro forma net (loss) income50.2 225.2 549.5 340.2 
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 $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;
13


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; and
Tax impacts related to the above adjustments.
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.
Note 3. Computation of Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted EPS is computed based on the sum of the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares of common stock consist of shares issuable from stock options, unvested RSUs and restricted stock. Potentially dilutive shares of common stock from outstanding stock options and unvested RSUs are determined using the average share price for each period under the treasury stock method.
The following table presents the calculation of the weighted-average shares used in computing basic and diluted EPS:
Three Months EndedNine Months Ended
(In millions)October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Basic weighted-average shares of common stock outstanding66.9 41.7 53.6 41.7 
Dilutive potential shares issuable from stock options and unvested RSUs0.6 0.8 0.6 0.8 
Diluted weighted-average shares of common stock outstanding67.5 42.5 54.2 42.5 
Potentially dilutive shares excluded from calculation due to anti-dilutive effect1.6 0.2 1.5 0.1 
Potentially dilutive shares excluded from the calculation above represent stock options when the combined exercise price and unrecognized stock-based compensation are greater than the average market price for the Company’s common stock because their effect is anti-dilutive.
Note 4. Revenue
Contract Balances
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 (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 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 $8.5 million;
14


contractual arrangements with certain customers under which the Company invoices the customers based on reportable results generated by its reagents; however, control of the goods transfers to the customers upon shipment or delivery of the products, as determined under the terms of the contract. Using the expected value method, the Company estimates the number of reagents that will generate a reportable result. 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 $41.5 million as of October 2, 2022 and was recorded in Prepaid expenses and other current assets; and
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 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”). The Company’s contract liabilities consist of deferred revenue primarily related to customer service contracts. 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 $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 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 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 $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 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
Following the Combinations, the Company generates product revenue in the following business units:
Labs—Focused on (i) clinical chemistry laboratory instruments and tests, which measure target chemicals in bodily fluids for the evaluation of health and the clinical management of patients, (ii) immunoassay laboratory instruments and tests, which measure proteins as they act as antigens in the spread of disease, antibodies in the immune response spurred by disease, or markers of proper organ function and health, (iii) testing to detect and monitor disease progression across a broad spectrum of therapeutic areas, (iv) other product revenues primarily from contract manufacturing, (v) specialized diagnostic solutions and (vi) collaboration and license agreements pursuant to which the Company derives collaboration and royalty revenues.
Transfusion Medicine—Focused on (i) immunohematology instruments and tests used for blood typing to help ensure patient-donor compatibility in blood transfusions and (ii) donor screening instruments and tests used for blood and plasma screening for infectious diseases for customers primarily in the U.S.
Point-of-Care—Focused on tests to provide rapid results across a broad continuum of point-of-care settings, including tests for professional healthcare providers and tests that can be taken at home. Includes (i) tests for a range of benchtop analyzers and (ii) tests that can be visually read.
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.
15


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 EndedNine Months Ended
(In millions)October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Labs$334.8 $11.4 $505.5 $32.7 
Transfusion Medicine163.1  231.3  
Point-of-Care270.5 443.6 1,580.6 879.4 
Molecular Diagnostics15.4 54.8 82.1 149.6 
Total revenues$783.8 $509.8 $2,399.5 $1,061.7 
Concentration of Revenue and Credit Risk
The Company had sales to individual customers in excess of 10% of Total revenues as follows:
Nine Months Ended
October 2, 2022October 3, 2021
Customer:
A27 % %
B10 %27 %
C7 %11 %
D4 %10 %
48 %48 %
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.
Note 5. Segment and Geographic Information
In connection with the Combinations, the manner in which the chief operating decision maker (“CODM”) reviews the Company’s performance and allocates resources changed, resulting in three geographically-based reportable segments: North America; Europe, the Middle East and Africa (“EMEA”); and China. Although all three segments are engaged in the marketing, distribution and sale of diagnostic instruments and assays for hospitals, retailers, distributors, laboratories and/or blood and plasma centers worldwide, each region is managed separately to better align with the market dynamics of the specific geographic region. Latin America, Japan and Asia Pacific are immaterial operating segments that are not considered reportable segments and are included in “Other.” Previously, the Company operated as a single reportable segment. Prior periods have been revised to align with the current period presentation.
Total revenues by reportable segment are as follows:
Three Months EndedNine Months Ended
(In millions)October 2, 2022October 3, 2021October 2, 2022October 3, 2021
North America$517.6 $466.8 $1,917.3 $902.2 
EMEA73.7 14.8 131.0 53.8 
China80.8 12.1 163.1 46.8 
Other111.7 16.1 188.1 58.9 
Total revenues$783.8 $509.8 $2,399.5 $1,061.7 
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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 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 EndedNine Months Ended
(In millions)October 2, 2022October 3, 2021October 2, 2022October 3, 2021
North America$326.3 $370.4 $1,356.2 $745.2 
EMEA17.2 4.5 33.5 22.8 
China44.9 4.7 83.6 20.1 
Other29.8 7.6