Hologic (HOLX) 10-Q 6 May 10 2010 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	6 Months Ended Mar. 27, 2010	May. 03, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-27
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q2
Trading Symbol	HOLX
Entity Registrant Name	HOLOGIC INC
Entity Central Index Key	0000859737
Current Fiscal Year End Date	--09-26
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		259,087,850

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands	6 Months Ended Mar. 27, 2010	12 Months Ended Sep. 26, 2009
Current assets:
Cash and cash equivalents	$431,315	$293,186	[1]
Restricted cash	872	916	[1]
Accounts receivable, less reserves of $7,677 and $7,279, respectively	266,806	263,231	[1]
Inventories	195,676	182,780	[1]
Deferred income tax assets	74,423	52,165	[1]
Prepaid expenses and other current assets	31,856	29,238	[1]
Total current assets	1,000,948	821,516	[1]
Property and equipment, net	256,918	271,628	[1]
Intangible assets, net	2,307,049	2,422,564	[1]
Goodwill	2,116,483	2,108,963	[1]
Other assets	58,476	59,555	[1]
Total assets	5,739,874	5,684,226	[1]
Current liabilities:
Current portion of long-term debt	48,293	38,373	[1]
Accounts payable	49,690	46,589	[1]
Accrued expenses	152,037	137,284	[1]
Deferred revenue	116,370	97,544	[1]
Deferred gain	79,500	9,500	[1]
Total current liabilities	445,890	329,290	[1]
Long-term debt, net of current portion	689	139,955	[1]
Convertible debt (principal of $1,725,000, Note 6)	1,409,842	1,373,923	[1]
Deferred income tax liabilities	1,023,163	1,045,183	[1]
Deferred service obligations - long-term	11,545	11,364	[1]
Other long-term liabilities	58,771	58,534	[1]
Commitments and contingencies (Notes 6, 7, 8, 9 and 15)			[1]
Stockholders' equity:
Preferred stock, $0.01 par value - 1,623 shares authorized; 0 shares issued
Common stock, $0.01 par value - 750,000 shares authorized; 259,249 and 257,938 shares issued, respectively	2,592	2,579	[1]
Capital in excess of par value	5,204,735	5,182,060	[1]
Accumulated deficit	(2,417,544)	(2,464,257)	[1]
Accumulated other comprehensive income	1,709	7,028	[1]
Treasury stock, at cost - 219 and 214 shares, respectively	(1,518)	(1,433)	[1]
Total stockholders' equity	2,789,974	2,725,977	[1]
Total liabilities and stockholders' equity	$5,739,874	$5,684,226	[1]
[1]Adjusted for the retrospective adoption of Financial Accounting Standards Board ("FASB") Staff Position ("FSP") No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (codified within Accounting Standards Codification ("ASC") Topic 470, Debt). See Note 6.

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Per Share data	Mar. 27, 2010	Sep. 26, 2009
Accounts receivable, reserves	$7,677	$7,279	[1]
Convertible debt, principal	$1,725,000	$1,725,000	[1]
Preferred stock, par value	0.01	0.01	[1]
Preferred stock, shares authorized	1,623	1,623	[1]
Preferred stock, shares issued	0	0	[1]
Common stock, par value	0.01	0.01	[1]
Common stock, shares authorized	750,000	750,000	[1]
Common stock, shares issued	259,249	257,938	[1]
Treasury stock, shares	219	214	[1]
[1]Adjusted for the retrospective adoption of Financial Accounting Standards Board ("FASB") Staff Position ("FSP") No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (codified within Accounting Standards Codification ("ASC") Topic 470, Debt). See Note 6.

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data	3 Months Ended Mar. 27, 2010		3 Months Ended Mar. 28, 2009		6 Months Ended Mar. 27, 2010		6 Months Ended Mar. 28, 2009
Revenues:
Product sales	$353,119		$351,887	[1]	$704,529		$731,995	[1]
Service and other revenues	64,993		50,127	[1]	126,031		99,252	[1]
Revenues, Total	418,112		402,014	[1]	830,560		831,247	[1]
Costs and expenses:
Cost of product sales	120,570		113,387	[1]	236,830		237,808	[1]
Cost of product sales - amortization of intangible assets	43,526		37,760	[1]	87,046		75,506	[1]
Cost of product sales - impairment of intangible assets			4,065	[1]			4,065	[1]
Cost of service and other revenues	40,377		37,228	[1]	76,600		74,335	[1]
Research and development	25,298		24,428	[1]	48,496		48,221	[1]
Selling and marketing	61,461		58,472	[1]	126,058		123,474	[1]
General and administrative	38,693		38,810	[1]	81,308		73,615	[1]
Amortization of intangible assets	13,577		12,693	[1]	27,156		25,331	[1]
Litigation-related settlement charge	12,500				12,500
Restructuring (benefit) charge	(132)				355
Loss on divestiture	341				341
Impairment of goodwill			2,340,023	[1]			2,340,023	[1]
Costs and Expenses, Total	356,211	[1]	2,666,866	[1]	696,690	[1]	3,002,378	[1]
Income (loss) from operations	61,901		(2,264,852)	[1]	133,870		(2,171,131)	[1]
Interest income	401		347	[1]	586		793	[1]
Interest expense	(32,321)		(33,212)	[1]	(64,125)		(67,554)	[1]
Other income (expense), net	777		(674)	[1]	1,520		(3,755)	[1]
Income (loss) before income taxes	30,758		(2,298,391)	[1]	71,851		(2,241,647)	[1]
Provision for income taxes	10,140		11,728	[1]	25,138		30,314	[1]
Net income (loss)	$20,618		($2,310,119)	[1]	$46,713		($2,271,961)	[1]
Net income (loss) per common share:
Basic	0.08		-9.01	[1]	0.18		-8.86	[1]
Diluted	0.08		-9.01	[1]	0.18		-8.86	[1]
Weighted average number of common shares outstanding:
Basic	258,653		256,374	[1]	258,339		256,293	[1]
Diluted	261,478		256,374	[1]	261,141		256,293	[1]
[1]Adjusted for the retrospective adoption of FSP APB 14-1. See Note 6.

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands	6 Months Ended Mar. 27, 2010		6 Months Ended Mar. 28, 2009
OPERATING ACTIVITIES
Net income (loss)	$46,713		($2,271,961)	[1]
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	33,587		31,393	[1]
Amortization	114,202		100,837	[1]
Fair value write-up of Third Wave inventory sold			834	[1]
Non-cash interest expense - amortization of debt discount and deferred financing costs	43,126		38,794	[1]
Goodwill impairment charge			2,340,023	[1]
Charge for impairment of acquired intangible assets			4,065	[1]
Other-than-temporary impairment charge on a cost-method investment			310	[1]
Excess tax benefit related to exercise of non-qualified stock options	(1,490)		(299)	[1]
Stock-based compensation expense	16,575		16,343	[1]
Deferred income taxes	(44,237)		(13,165)	[1]
Loss on disposal of property and equipment	1,619		2,133	[1]
Loss on divestiture	341
Other non-cash activity	1,637		658	[1]
Changes in operating assets and liabilities:
Accounts receivable	(7,087)		16,724	[1]
Inventories	(14,908)		(9,166)	[1]
Prepaid income tax	29		8,087	[1]
Prepaid expenses and other current assets	(3,298)		(1,899)	[1]
Accounts payable	3,127		(7,389)	[1]
Accrued expenses and other liabilities	9,459		(27,713)	[1]
Deferred revenue	20,704		12,514	[1]
Net cash provided by operating activities	220,099		241,123	[1]
INVESTING ACTIVITIES
Purchase of property and equipment	(12,292)		(16,558)	[1]
Increase in equipment under customer usage agreements	(9,777)		(10,667)	[1]
Divestiture of business, net of cash transferred to buyer	(2,164)
Deferred gain	70,000
Additional business acquisition consideration, net			(229)	[1]
Purchase of insurance contracts	(5,322)		(5,322)	[1]
Purchase of other intangible assets	(500)		(238)	[1]
Proceeds from sale of intellectual property	1,500		750	[1]
Purchase of cost-method investment	(475)		(225)	[1]
Decrease in restricted cash	44		235	[1]
Net cash provided by (used in) investing activities	41,014		(32,254)	[1]
FINANCING ACTIVITIES
Repayments under credit agreement	(127,198)		(87,685)	[1]
Financing costs on credit agreement			(314)	[1]
Repayments of notes payable	(2,177)		(1,573)	[1]
Purchase of non-controlling interests	(2,683)
Excess tax benefit related to exercise of non-qualified stock options	1,490		299	[1]
Net proceeds from issuance of common stock pursuant to employee stock plans	10,223		1,764	[1]
Payment of employee restricted stock tax withholding requirements	(2,406)		(760)	[1]
Net cash used in financing activities	(122,751)		(88,269)	[1]
Effect of exchange rate changes on cash and cash equivalents	(233)		967	[1]
Net increase in cash and cash equivalents	138,129		121,567	[1]
Cash and cash equivalents, beginning of period	293,186	[2]		[1]
Cash and cash equivalents, end of period	$431,315		$217,228	[1]
[1]Adjusted for the retrospective adoption of FSP APB 14-1. See Note 6.
[2]Adjusted for the retrospective adoption of Financial Accounting Standards Board ("FASB") Staff Position ("FSP") No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (codified within Accounting Standards Codification ("ASC") Topic 470, Debt). See Note 6.

Basis of Presentation

Basis of Presentation
	6 Months Ended Mar. 27, 2010
Basis of Presentation	(1) Basis of Presentation The consolidated financial statements of Hologic, Inc. (the Company) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission 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. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended September26, 2009, included in the Companys Form8-K as filed with the Securities and Exchange Commission on March19, 2010, which reflects the retrospective adoption of FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (codified within Accounting Standards Codification (ASC) Topic 470, Debt). As a result, certain prior period amounts have been adjusted in these consolidated financial statements. See Note 6 for additional information pertaining to the adoption of FSP APB 14-1. In the opinion of management, the financial statements and notes contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Companys 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 U.S. generally accepted accounting principles 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 managements estimates if past experience or other assumptions do not turn out to be substantially accurate. Operating results for the three and six months ended March27, 2010 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending September25, 2010. 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 relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated, and these financial statements reflect those material items that arose after the balance sheet date but prior to the issuance of the financial statements that would be considered recognized subsequent events. Subsequent to March27, 2010, the Company made a voluntary payment of $45,944 on its term notes, paying off the remaining outstanding principal balance. Accordingly, this amount is classified as short-term debt on the Consolidated Balance Sheet at March27, 2010. There were no other material recognized subsequent events recorded in the March27, 2010 consolidated financial statements. During the third

Fair Value Measurements

Fair Value Measurements
	6 Months Ended Mar. 27, 2010
Fair Value Measurements	(2) Fair Value Measurements Effective September28, 2008 (beginning of fiscal 2009), the Company adopted ASC Topic 820, Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standard (SFAS) No.157, Fair Value Measurement), for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and as permitted, delayed the adoption of these accounting rules to its non-financial assets and liabilities, that are measured and reported at fair value on a non-recurring basis, until fiscal 2010. The impact of adoption to non-financial assets and liabilities was not material. ASC 820 establishes a three-level hierarchy to prioritize the inputs to valuation techniques used to measure fair value. Financial assets and financial liabilities are categorized within the valuation hierarchy based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the fair value hierarchy are defined as follows: Level 1 Inputs to the valuation methodology are quoted market prices for identical assets or liabilities. Level 2 Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs. Level 3 Inputs to the valuation methodology are unobservable inputs based on managements best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk. As of March27, 2010, the Companys financial assets that are re-measured at fair value on a recurring basis consisted of $313 in money market mutual funds that are classified as cash and cash equivalents in its Consolidated Balance Sheets. As there are no withdrawal restrictions, they are classified within Level1 of the fair value hierarchy and are valued using quoted market prices for identical assets. The Company holds certain minority cost-method equity investments in non-publicly traded securities aggregating $8,738 and $7,585 at March27, 2010 and September26, 2009, respectively, which are included in other long-term assets on the Companys Consolidated Balance Sheets. These investments are generally carried at cost. As the inputs utilized for the Companys periodic impairment assessment are not based on observable market data, these cost-method investments are classified within Level 3 of the fair value hierarchy on a non-recurring basis. To determine the fair value of these investments, the Company uses all available financial information related to the entities, including information based on recent or pending third-party equity investments in these entities. In certain instances, a cost-method investments fair value is not estimated as there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and to do so would be impractical.

Disclosure of Fair Value of Fin

Disclosure of Fair Value of Financial Instruments
	6 Months Ended Mar. 27, 2010
Disclosure of Fair Value of Financial Instruments	(3) Disclosure of Fair Value of Financial Instruments The Companys financial instruments mainly consist of cash and cash equivalents, accounts receivable, cost-method equity investments, accounts payable and debt obligations. The carrying amounts of the Companys cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. The Company believes the carrying amounts of its cost-method equity investments approximate fair value and has not performed an in-depth analysis of the fair values as it is not practical to do so. Amounts outstanding under the Companys Amended Credit Agreement are subject to variable rates of interest based on current market rates. As such, the Company believes the carrying amount of this obligation approximates its fair value. The Company had $1,409,842 and $1,373,923 of Convertible Notes recorded (See Note 6) as of March27, 2010 and September26, 2009, respectively. The principal amount of the Convertible Notes outstanding at both dates was $1,725,000. The fair value of these Convertible Notes was approximately $1,544,000 and $1,424,000 as of March27, 2010 and September26, 2009, respectively, based on the trading prices at those dates.

Revenue Recognition

Revenue Recognition
	6 Months Ended Mar. 27, 2010
Revenue Recognition	(4) Revenue Recognition In September 2009, the FASB ratified ASC Update (ASU) No.2009-13, Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU 2009-13 amends existing revenue recognition accounting standards that are currently within the scope of FASBASC, Subtopic 605-25, which is the revenue recognition guidance for multiple-element arrangements. ASU 2009-13 provides for three significant changes to the existing multiple element revenue recognition guidance as follows: 1) Deletes the requirement to have objective and reliable evidence of fair value for undelivered elements in an arrangement. This may result in more deliverables being treated as separate units of accounting. 2) Modifies the manner in which the arrangement consideration is allocated to the separately identified deliverables. ASU 2009-13 requires an entity to allocate revenue in an arrangement using its best estimate of selling prices (ESP) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (VSOE) or third-party evidence of selling price (TPE), if VSOE is not available. Each separate unit of accounting must have a selling price, which can be based on managements estimate when there is no other means (VSOE or TPE) to determine the selling price of that deliverable. The arrangement consideration is allocated based on the elements relative selling prices. 3) Eliminates use of the residual method and requires an entity to allocate revenue using the relative selling price method, which results in the discount in the transaction being evenly allocated to the separate units of accounting. In September 2009, the FASB ratified ASU No.2009-14, Certain Revenue Arrangements that Include Software Elements (ASU 2009-14). ASU 2009-14 amends the existing revenue recognition accounting standards to remove tangible products that contain software components and non-software components that function together to deliver the products essential functionality from the scope of industry specific software revenue recognition guidance. As permitted, the Company elected to early adopt this new accounting guidance at the beginning of its first quarter of fiscal 2010 on a prospective basis for transactions originating or materially modified on or after September27, 2009. This accounting guidance generally does not change the units of accounting for the Companys revenue transactions, and most products and services qualify as separate units of accounting. The impact of adopting these new accounting standards was not material to the Companys financial statements in the first or second quarter of fiscal 2010, and if they were applied in the same manner to fiscal 2009 would not have had a material impact to revenue recorded in the first or second quarter of fiscal 2009. The Company does not expect the adoption of these new accounting standards to have a significant impact on the timing and pattern of revenue recognition in the future due to a) the existence of VSOE across most of its products and services and b) the selling price of most of its elements undelivered at the time of shipment of the core product sales are much lower r

Other Balance Sheet Information

Other Balance Sheet Information
	6 Months Ended Mar. 27, 2010
Other Balance Sheet Information	(5) Other Balance Sheet Information Components of selected captions in the Consolidated Balance Sheets at March27, 2010 and September26, 2009 consisted of: March27, 2010 September26, 2009 Inventories Raw material and work-in-process $ 123,116 $ 116,983 Finished goods 72,560 65,797 $ 195,676 $ 182,780 March27, 2010 September26, 2009 Property and equipment Equipment and software $ 196,561 $ 187,961 Equipment under customer usage agreements 131,264 125,635 Building and improvements 56,943 57,214 Leasehold improvements 40,339 39,701 Furniture and fixtures 11,134 11,112 Land 8,876 8,983 445,117 430,606 Less accumulated depreciation and amortization (188,199 ) (158,978 ) $ 256,918 $ 271,628

Borrowings and Credit Arrangeme

Borrowings and Credit Arrangements
	6 Months Ended Mar. 27, 2010
Borrowings and Credit Arrangements	(6) Borrowings and Credit Arrangements The Company had total debt with carrying values of $1,458,824 at March27, 2010 and $1,552,251 at September26, 2009. The Companys borrowings consisted of the following at March27, 2010 and September26, 2009: March27, 2010 September26, 2009 As adjusted Current debt obligations: Term Loan A $ 33,152 $ 28,789 Term Loan B 13,817 6,785 AEG debt 1,500 Other 1,324 1,299 Total current debt obligations 48,293 38,373 Long-term debt obligations: Term Loan A 95,929 Term Loan B 42,664 Other 689 1,362 689 139,955 Convertible notes (principal of $1,725,000) 1,409,842 1,373,923 Total long-term debt obligations 1,410,531 1,513,878 Total debt obligations $ 1,458,824 $ 1,552,251 Credit Agreement In connection with its acquisition of Third Wave Technologies, Inc., on July17, 2008, the Company entered into an amended and restated credit agreement (the Amended Credit Agreement) with Goldman Sachs Credit Partners L.P. and certain other lenders (collectively, the Lenders). The Amended Credit Agreement amended and restated the Companys existing credit agreement with the Lenders, dated as of October22, 2007. Pursuant to the terms and conditions of the Amended Credit Agreement, the Lenders committed to provide senior secured financing in an aggregate amount of up to $800,000. The credit facility consisted of a $400,000 senior secured tranche A term loan (Term Loan A); a $200,000 senior secured tranche B term loan (Term Loan B); and a $200,000 senior secured revolving credit facility (the Revolving Facility). In order to complete the acquisition of Third Wave, the Company borrowed $540,000 under the credit facilities on July17, 2008, consisting of $400,000 under the Term Loan A and $140,000 under the Term Loan B. As of March27, 2010, the Company had an aggregate of $46,969 of principal outstanding under this credit facility. Subsequent to March27, 2010, the Company paid off the remaining outstanding principal, of which $45,944 was a voluntary payment. The aggregate principal balance of the term notes is classified in current portion of long-term debt on the Companys Consolidated Balance Sheet at March27, 2010. The Company had no amounts outstanding under its Revolving Facility, and therefore, had full availability of the $200,000 Revolving Facility as of March27, 2010. The final maturity date for the Revolving Facility is September30, 2012. The domestic subsidiaries of the Company, which are party to the Amended Credit Agreement, guaranteed the Companys obligations under the credit facilities, and the credit facilities are secured by first-priority liens on, and first-priority security interests in, substantially all of the assets of the Company and all subsidiaries party to the Amended Credit Agreement, a first priority security interest in 100% of the capital stock issued by each guarantor, 65% of the capital stock issued by certain first-tier fo

Commitments and Contingencies

Commitments and Contingencies
	6 Months Ended Mar. 27, 2010
Commitments and Contingencies	(7) Commitments and Contingencies (a) Contingent Earn-Out Payments As a result of the merger with Cytyc in October 2007, the Company assumed the obligation to the former Adiana, Inc. stockholders to make contingent earn-out payments tied to the achievement of milestones. The milestone payments include potential contingent payments of up to $155,000 based on worldwide sales of the Adiana Permanent Contraception System in the first year following FDA approval and on annual incremental sales growth thereafter through December31, 2012. FDA approval of the Adiana Permanent Contraception System occurred on July6, 2009, and the Company began accruing contingent consideration in the fourth quarter of fiscal 2009 based on the defined percentage of worldwide sales of the product. The total contingent consideration recorded as additional purchase price as of March27, 2010 is $12,431. Under the terms of the agreement the first payment is not due to the Adiana shareholders until October 2010. The agreement includes an indemnification provision that provides for the reimbursement of qualifying legal expenses in defense of the Adiana intellectual property, and the Company has the right to offset contingent consideration payments to the Adiana shareholders with these qualifying legal costs. The Company is recording legal fees related to the Conceptus litigation matter (described below) as an offset to the accrued contingent consideration payments. Legal costs have not been material to date. (b) Litigation and Related Matters On October5, 2007, Ethicon Endo-Surgery, Inc. (Ethicon), a Johnson Johnson operating company, filed a complaint against Hologic and its wholly-owned subsidiary Suros in the United States District Court for the Southern District of Ohio, Western Division. The complaint alleged that certain of the ATEC biopsy systems manufactured and sold by Suros infringed Ethicon patents, and sought to enjoin Hologic and Suros from conducting acts of unfair competition and infringing the patents as well as the recovery of unspecified damages and costs. On August6, 2009, Ethicon filed a second complaint against the Company and its wholly-owned subsidiary Suros in the United States District Court for the District of Delaware. The complaint alleged that certain of the Eviva biopsy systems manufactured and sold by Suros infringed Ethicon patents and sought to enjoin Hologic and Suros from infringing the patents as well as recovery of damages and costs resulting from the alleged infringement. On February17, 2010, the Company entered into a settlement agreement with Ethicon relating to the two lawsuits previously filed by Ethicon, and one previously filed by Hologic against Ethicon. As a result of the settlement agreement, all outstanding litigation between the parties has been dismissed, without acknowledgement of liability by either party. While details of the agreement are confidential, under the terms of the settlement agreement, Ethicon has agreed to pay Hologic ongoing royalties for sales of its Mammotome magnetic resonance imaging product. In addition, the Company agreed to pay Ethicona one-time payment of $12,500, plusongoing royalties fo

Sale of Gestiva

Sale of Gestiva
	6 Months Ended Mar. 27, 2010
Sale of Gestiva	(8) Sale of Gestiva On January16, 2008, the Company entered into a definitive agreement to sell full U.S. and world-wide rights to its Gestiva pharmaceutical product to KV Pharmaceutical Company (KV) upon approval of the pending Gestiva new drug application (the Gestiva NDA) by the FDA for a purchase price of $82,000. The Gestiva product is a drug that, if approved by the FDA, could be used in the prevention of preterm births in pregnant women with a history of at least one spontaneous preterm birth. Under this agreement, the Company received $9,500 of the purchase price in fiscal 2008, and the balance was due upon final approval of the Gestiva NDA by the FDA on or before February19, 2010 and the production of a quantity of Gestiva suitable to enable the commercial launch of the product. The Company recorded the $9,500 as a deferred gain within current liabilities in the Consolidated Balance Sheet. Either party had the right to terminate the agreement if FDA approval was not obtained by February19, 2010. On January8, 2010, the parties executed an amendment to the agreement eliminating the date by which FDA approval must be received and extending the term indefinitely. In consideration of executing this amendment, the purchase price was increased to $199,500. The Company received $70,000 upon the signing of the amendment, which has been recorded as a deferred gain, and is due to receive an additional $25,000 upon FDA approval of the product and an additional $95,000 over a nine-month period beginning one year after FDA approval. Under the arrangement, the Company is continuing its efforts to obtain FDA approval of the Gestiva NDA. All costs incurred in these efforts are being reimbursed by KV and recorded as a credit against research and development expenses. These reimbursed costs have not been material to date on an annual basis. The Company expects that the amounts recorded in deferred gain will be recognized upon the closing of the transaction following final FDA approval of the Gestiva NDA. The Company cannot assure that it will be able to obtain the requisite FDA approval, that the transaction will be completed or that it will receive the balance of the purchase price.Moreover, if KV terminates the agreement prior to the transfer of the rights to the Gestiva product as a result of a breach by the Company of a material representation, warranty, covenant or agreement, the Company will be required to return the funds previously received as well as expenses reimbursed by KV.

Pension and Other Employee Bene

Pension and Other Employee Benefits
	6 Months Ended Mar. 27, 2010
Pension and Other Employee Benefits	(9) Pension and Other Employee Benefits The Company has certain defined benefit pension plans covering the employees of its AEG German subsidiary (the Pension Benefits). As of March27, 2010 and September26, 2009, the Company has recorded a pension liability of $6,098 and $6,736, respectively, primarily as a component of long-term liabilities in the Consolidated Balance Sheets. As of March27, 2010 and September26, 2009, the pension plans held no assets. Under German law, there are no rules governing investment or statutory supervision of the pension plan. As such, there is no minimum funding requirement imposed on employers. Pension benefits are safeguarded by the Pension Guaranty Fund; a form of compulsory reinsurance that guarantees an employee will receive vested pension benefits in the event of insolvency. The Companys net periodic benefit cost and components thereof were not material during the six months ended March27, 2010 and March28, 2009.

Net Income

Net Income (Loss) Per Share
	6 Months Ended Mar. 27, 2010
Net Income (Loss) Per Share	(10) Net Income (Loss) Per Share Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect of potential common shares from outstanding stock options, restricted stock units, the employee stock purchase plan, and convertible debt determined by applying the treasury stock method. If the Company has a net loss, there is no dilutive effect of common stock equivalents. In accordance with ASC Topic 718, Stock Compensation (formerly SFAS No.123 (revised 2004), Share-Based Payment), the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money and restricted stock units. The Company applies the provisions of ASC Topic 260, Earnings per Share, subtopic 10-45-44 (formerly EITF No.04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share), to determine diluted weighted average shares outstanding as it relates to its outstanding Convertible Notes, and due to the type of debt instrument issued, the dilutive impact of the Companys Convertible Notes is based on the difference between the Companys current stock price and the conversion price of the Convertible Notes, provided there is a premium. Under this accounting guidance, there is no dilution from the accreted principal of the Convertible Notes. Accordingly, the Company uses the treasury stock method to determine dilutive weighted average shares related to its Convertible Notes and not the if-converted method. A reconciliation of basic and diluted share amounts are as follows: Three Months Ended Six Months Ended March27, 2010 March28, 2009 March27, 2010 March28, 2009 As adjusted As adjusted Numerator: Net income (loss) $ 20,618 $ (2,310,119 ) $ 46,713 $ (2,271,961 ) Denominator: Basic weighted average common shares outstanding 258,653 256,374 258,339 256,293 Weighted average common equivalent shares from assumed exercise of stock options and restricted stock units 2,825 2,802 Diluted weighted average common shares outstanding 261,478 256,374 261,141 256,293 Basic net income (loss) per common share $ 0.08 $ (9.01 ) $ 0.18 $ (8.86 ) Diluted net income (loss) per common share $ 0.08 $ (9.01 ) $ 0.18 $ (8.86 ) Weighted-average anti-dilutive shares related to: Outstanding stock options 11,452 14,435 11,362 13,773 Restricted stock units 2 2,841 308 2,531 Diluted weighted average shares outstanding do not include any effect resulting from the assumed conversion of the Companys Convertible Notes issued in December 200

Stock-Based Compensation

Stock-Based Compensation
	6 Months Ended Mar. 27, 2010
Stock-Based Compensation	(11) Stock-Based Compensation Share-based compensation expense for the three and six months ended March27, 2010 and March29, 2009 is as follows: Three Months Ended Six Months Ended March27, 2010 March28, 2009 March27, 2010 March28, 2009 Cost of revenues $ 1,003 $ 1,068 $ 2,032 $ 1,712 Research and development 955 1,023 1,922 2,348 Selling and marketing 1,107 1,206 2,494 2,777 General and administrative 5,389 5,576 10,127 9,506 $ 8,454 $ 8,873 $ 16,575 $ 16,343 Stock Options The Company granted 2,652 and 2,949 stock options during the six months ended March27, 2010 and March28, 2009, respectively, with weighted average exercise prices of $15.67 and $14.42, respectively. There were 15,901 options outstanding at March27, 2010 with a weighted average exercise price of $16.67. The Company uses a binomial model to determine the fair value of its stock options. The weighted-average assumptions utilized to value these stock options are indicated in the following table: Three Months Ended Six Months Ended March27, 2010 March28, 2009 March27, 2010 March28, 2009 Risk-free interest rate 1.8 % 2.0 % 1.8 % 2.0 % Expected volatility 47 % 46 % 47 % 46 % Expected life (in years) 3.9 4.0 3.9 4.0 Dividend yield Weighted average fair value of options granted $ 5.53 $ 4.81 $ 5.88 $ 5.40 Restricted Stock Units The Company granted 1,175 and 1,669 restricted stock units (RSU) during the six months ended March27, 2010 and March28, 2009, respectively, with weighted average grant date fair values of $15.66 and $14.46, respectively. As of March27, 2010, there were 3,348 unvested RSUs outstanding with a weighted average grant date fair value of $20.65. The Company uses the straight-line attribution method to recognize stock-based compensation expense for stock options and RSUs. Stock options granted to employees generally vest over a five year period with annual vesting of 20%per year on the anniversary of the grant date, and RSUs granted to employees either cliff vest at the end of three years or vest over four years with annual vesting of 25%per year on the anniversary of the grant date. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Based on an analysis of historical forfeitures, the Company has determined a specific forfeiture rate for certain employee groups and has applied forfeiture rates ranging from 0% to 6% as of March27, 2010, depending on the specific employee group. This analysis is re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual stock-based compensation expense recognized will only be for those stock options and RSUs that vest. At March27, 2010, there was $39,305 and $38,114 of unrecognized compensation expense rela

Comprehensive Income

Comprehensive Income
	6 Months Ended Mar. 27, 2010
Comprehensive Income	(12) Comprehensive Income The Companys other comprehensive income relates solely to foreign currency translation adjustments. A reconciliation of comprehensive income is as follows: Three Months Ended Six Months Ended March27, 2010 March28, 2009 March7, 2010 March28, 2009 Net income (loss) as reported $ 20,618 $ (2,310,119 ) $ 46,713 $ (2,271,961 ) Translation adjustment (5,102 ) (3,746 ) (5,319 ) (5,379 ) Comprehensive income (loss) $ 15,516 $ (2,313,865 ) $ 41,394 $ (2,277,340 )

Business Segments and Geographi

Business Segments and Geographic Information
	6 Months Ended Mar. 27, 2010
Business Segments and Geographic Information	(13) Business Segments and Geographic Information The Company reports segment information in accordance with ASC Topic 280, Segment Reporting, (formerly SFAS No.131, Disclosures about Segments of an Enterprise and Related Information). Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker (CODM), or decision-making group, in making decisions about how to allocate resources and assess performance. The Companys CODM is its chief executive officer, and the Companys reportable segments have been identified based on the end markets to which its products are sold into. The Company reports its business as four segments: Breast Health, Diagnostics, GYN Surgical and Skeletal Health. Identifiable assets for the four principal operating segments consist of inventories, intangible assets, and property and equipment. The Company has presented all other identifiable assets as corporate assets. There were no intersegment revenues during the three and six month periods ended March27, 2010 and March28, 2009. Segment information for the three and six months ended March27, 2010 and March28, 2009 is as follows: Three Months Ended Six Months Ended March27, 2010 March28, 2009 March27, 2010 March28, 2009 Total revenues Breast Health $ 189,457 $ 180,080 $ 368,530 $ 379,192 Diagnostics 139,977 135,035 280,377 269,659 GYN Surgical 67,138 63,805 138,591 131,754 Skeletal Health 21,540 23,094 43,062 50,642 $ 418,112 $ 402,014 $ 830,560 $ 831,247 Operating income (loss) Breast Health $ 20,501 $ (229,865 ) $ 48,288 $ (184,905 ) Diagnostics 25,608 (887,761 ) 53,025 (863,478 ) GYN Surgical 13,491 (1,150,694 ) 28,215 (1,130,713 ) Skeletal Health 2,301 3,468 4,342 7,965 $ 61,901 $ (2,264,852 ) $ 133,870 $ (2,171,131 ) Depreciation and amortization Breast Health $ 12,574 $ 10,872 $ 25,292 $ 21,742 Diagnostics 41,224 39,291 82,649 78,637 GYN Surgical 17,127 14,037 34,134 28,330 Skeletal Health 2,873 1,849 5,714 3,521 $ 73,798 $ 66,049 $ 147,789 $ 132,230 Capital expenditures Breast Health $ 2,336 $ 2,132 $ 3,642 $ 5,977 Diagnostics 865 1,977 1,722 3,464 GYN Surgical 1,095 1,052 2,914 2,994 Skeletal Health 2,423 1,898 4,014 4,123 $ 6,719 $ 7,059 $ 12,292 $ 16,558 March 27, 2010 September26, 2009 As adjusted Identifiable assets:

Income Taxes

Income Taxes
	6 Months Ended Mar. 27, 2010
Income Taxes	(14) Income Taxes The Companys effective tax rates for the three and six months ended March27, 2010 were 33.0% and 35.0%, respectively. The Companys effective tax rates for the three and six months ended March28, 2009 were (0.5)% and (1.4)%, respectively. For the three months ended March27, 2010, the effective rate was lower than the statutory rate primarily due to the reversal of reserves no longer required of approximately $1,400, which principally related to the closure of the Companys manufacturing operation in Shanghai, China, an entity that was sold in the second quarter of fiscal 2010, and the expiration of the statute of limitations in certain jurisdictions. For the six months ended March27, 2010, the effective tax rate primarily reflects the statutory rate. For the three and six months ended March28, 2009, the effective tax rate was significantly impacted by the goodwill impairment charge recorded in the second quarter of fiscal 2009, substantially all of which is not deductible for tax purposes. As of March27, 2010, the Company recorded net deferred tax liabilities of $948,740, which is net of certain deferred tax assets. Management has concluded that such deferred tax assets are realizable based upon its expectation that the Companys future earnings will provide sufficient taxable income. The realization of the Companys deferred tax assets cannot be assured, and to the extent that the Company fails to generate sufficient taxable income, some or all of the Companys deferred tax assets may not be realized. The Company had gross unrecognized tax benefits, including interest, of $29,849 as of March27, 2010, all of which represents the amount of unrecognized tax that, if recognized, would result in a reduction of the Companys effective tax rate. The Companys policy is to recognize accrued interest and penalties related to unrecognized tax benefits and income tax liabilities as part of income tax expense. As of March27, 2010, accrued interest was $1,415, net of federal benefit, and no penalties have been accrued. The Company and its subsidiaries are subject to United States federal income tax, as well as income tax of multiple state and foreign jurisdictions. The current tax returns are open for audit through fiscal 2013. The Company currently has a tax holiday in Costa Rica that is scheduled to expire in 2015. This tax holiday will not materially reduce the Companys income tax provision for fiscal 2010.

Product Warranties

Product Warranties
	6 Months Ended Mar. 27, 2010
Product Warranties	(15) Product Warranties The Company generally offers a one-year warranty for its products. The Company provides for the estimated cost of product warranties at the time product revenue is recognized with the exception of the Companys CAD and Dimensions digital mammography products for which the Company defers the selling price of post contract customer support to be provided during the warranty period. Factors that affect the Companys warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs and the cost per repair. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. Product warranty activity for the six months ended March27, 2010 and March28, 2009 is as follows: Balanceat beginningof period Provisions Settlements/ adjustments Balanceat endof period Six Months Ended: March27, 2010 $ 5,602 $ 964 $ (2,569 ) $ 3,997 March28, 2009 $ 9,109 $ 3,580 $ (5,560 ) $ 7,129

Restructuring Charges

Restructuring Charges
	6 Months Ended Mar. 27, 2010
Restructuring Charges	(16) Restructuring Charges In the fourth quarter of fiscal 2009, the Company closed its manufacturing facility in Shanghai, China. This facility, which manufactured organic photoconductor drum coatings, was acquired in connection with the AEG acquisition in 2006. The Company recorded restructuring charges for severance benefits of $420 and other costs of $377 in the fourth quarter of fiscal 2009. These severance benefits were paid to the employees as of September26, 2009. In connection with this action, the Company ceased production during the fourth quarter of 2009 and recorded impairment charges of $661 in cost of product sales for manufacturing equipment that had no further utility. In the first quarter of fiscal 2010, the Company recorded an additional $487 of costs related to the clean-up and closure of this facility, including stay bonuses. In the second quarter of fiscal 2010, the Company completed the sale of the capital stock of this manufacturing operation for a net sales price of $3,840 resulting in a loss on divestiture of $341. The Company received $1,582 in the second quarter of fiscal 2010 and the remainder of the sales price is expected to be received by the end of fiscal 2010. At March27, 2010, the Company has recorded an other receivable of $2,258 for the remainder of the sales price. As a result of this disposition, certain accrued amounts were reversed resulting in a net credit of $132 in the second quarter of fiscal 2010. At March27, 2010, no restructuring amounts were accrued.

Goodwill and Intangible Assets

Goodwill and Intangible Assets
	6 Months Ended Mar. 27, 2010
Goodwill and Intangible Assets	(17) Goodwill and Intangible Assets Goodwill In accordance with ASC Topic 350, Intangibles-Goodwill and Other (formerly SFAS No.142, Goodwill and Other Intangible Assets), the Company tests goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator. The Company conducts its annual goodwill impairment test as of the first day of its fourth quarter of each fiscal year. There were no indicators of impairment identified during the first two quarters of fiscal 2010. In connection with completing its annual goodwill impairment test in the fourth quarter of fiscal 2009, the Company determined that if the fair value of two of its reporting units had been lower by 10%, they would have failed Step1 of the impairment test requiring a Step 2 analysis. These reporting units, one in the Diagnostics reportable segment and one in the Skeletal Health reportable segment, had fair values at the annual impairment test date that exceeded their carrying values by 9% and 2%, respectively, and goodwill of $236.0 million and $8.2 million, respectively. The fair value of these reporting units was determined by using the Income Approach, specifically a discounted cash flow analysis (DCF). The key assumptions that drive the fair value in this model are the weighted-average cost of capital (WACC), terminal values, growth rates, and the amount and timing of expected future cash flows. A deterioration in the current worldwide financial markets and economic environment would likely result in a higher WACC because market participants would require a higher rate of return. In the DCF as the WACC increases, the fair value decreases. The other significant factor in the DCF is the Companys projected financial information (i.e., amount and timing of expected future cash flows and growth rates) and if these assumptions were to be adversely affected, this could result in a reduction of the fair values of these reporting units. For the Companys other reporting units with goodwill aggregating $1.77 billion as of the annual impairment test date, the Company believes that these reporting units were not at risk of failing Step 1 of the goodwill impairment test. During the first quarter of fiscal 2009, based upon a combination of factors, including the deteriorating macro-economic environment, declines in the stock market and the decline of the Companys market capitalization significantly below the book value of the Companys net assets, the Company concluded that potential goodwill impairment indicators existed as of December27, 2008. As a result, the Company performed an interim goodwill impairment analysis as of December27, 2008. The Company utilized DCF and market approaches to estimate the

Recent Accounting Pronouncement

Recent Accounting Pronouncements
	6 Months Ended Mar. 27, 2010
Recent Accounting Pronouncements	(18) Recent Accounting Pronouncements In December 2007, the FASB issued ASC Topic 805, Business Combinations (formerly SFAS No.141 (Revised 2007), Business Combinations). This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. ASC 805 replaces SFAS 141s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. ASC 805 retains the guidance in SFAS 141 for identifying and recognizing intangible assets separately from goodwill. ASC 805 will now require acquisition costs to be expensed as incurred, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally to affect income tax expense. ASC 805 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December15, 2008, which is the Companys 2010 fiscal year. The adoption of ASC 805 did not have a material impact on the Companys financial condition, results of operations or cash flows. In December 2007, the FASB issued SFAS No.160, Noncontrolling Interests in Consolidated Financial StatementsAn amendment of ARB No.51 (codified within ASC Topic 810, Consolidation). SFAS 160 amends Accounting Research Bulletin No.51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. This accounting guidance clarifies that changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. This accounting guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December15, 2008, which is the Companys 2010 fiscal year. Early adoption is prohibited. The adoption of this accounting guidance did not have a material impact on the Companys consolidated financial statements. In June 2008, the FASB ratified the consensus reached on EITF Issue No.07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5) (codified within ASC 815). This accounting guidance