NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars and shares in millions, except per share data)
(1)
|
BASIS OF PRESENTATION
|
The accompanying condensed consolidated financial statements have been prepared by Myriad Genetics, Inc. (the
Company) in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission
(SEC). The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management,
the accompanying financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly all financial statements in accordance with GAAP. The condensed consolidated financial statements herein should
be read in conjunction with the Companys audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2015, included in the Companys Annual Report on Form 10-K for the fiscal year ended
June 30, 2015. Operating results for the three and nine months ended March 31, 2016 may not necessarily be indicative of results to be expected for any other interim period or for the full year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
New Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (ASU 2016-02). ASU 2016-02 amends the existing
accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019. Early
adoption of ASU 2016-02 is permitted. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The
Companys management is currently evaluating the impact of adopting ASU 2016-02 on the Companys consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, CompensationStock Compensation (Topic 718). (ASU
2016-09), ASU 2016-09 makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU
2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is
permitted. The Companys management is currently evaluating how the adoption of ASU 2016-09 will impact the Companys Consolidated Financial Statements.
German Clinic
On February 27, 2015, the Company completed the acquisition of privately-held Privatklinik Dr. Robert Schindlbeck GmbH & Co.
KG (the Clinic) approximately 15 miles from the Companys European laboratories in Munich, Germany. The cash paid and total consideration transferred to acquire the Clinic was $20.1.
Total consideration transferred was allocated to tangible assets acquired and liabilities assumed based on their fair values at the acquisition
date as set forth below. The Company believes acquisition of the Clinic should facilitate the Companys penetration into the German molecular diagnostic market. The Clinic will allow the Company to directly negotiate reimbursement with
government and private insurance providers for its tests in the German market and collaborate with hospitals and physician groups. These factors contributed to consideration transferred in excess of the fair value of the Clinics net tangible
and intangible assets acquired, resulting in the Company recording goodwill in connection with the transaction. Under German tax law the goodwill related to the purchase of the clinic is deductible and will be amortized for tax purposes over 15
years.
Management estimated the fair value of tangible and intangible assets and liabilities in accordance with the applicable accounting
guidance for business combinations and utilized the services of third-party valuation consultants.
7
|
|
|
|
|
|
|
Estimated Fair
Value
|
|
Current assets
|
|
$
|
3.1
|
|
Real property
|
|
|
20.7
|
|
Equipment
|
|
|
1.6
|
|
Goodwill
|
|
|
8.7
|
|
Current liabilities
|
|
|
(4.4
|
)
|
Long-term liabilities
|
|
|
(9.6
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
20.1
|
|
|
|
|
|
|
During the quarter ended March 31, 2016 there was an adjustment to long-term liabilities. The long-term
liabilities increased by approximately $0.6 due to information obtained from the third party actuarial analysis of the pension obligation which increased goodwill by the same amount.
(3)
|
MARKETABLE INVESTMENT SECURITIES
|
The Company has classified its marketable investment securities as available-for-sale securities. These securities are
carried at estimated fair value with unrealized holding gains and losses, net of the related tax effect, included in accumulated other comprehensive loss in stockholders equity until realized. Gains and losses on investment security
transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale
securities by major security type and class of security at March 31, 2016 and June 30, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
unrealized
holding
losses
|
|
|
Estimated
fair value
|
|
At March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
114.2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
114.2
|
|
Cash equivalents
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
120.5
|
|
|
|
|
|
|
|
|
|
|
|
120.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
48.5
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
48.5
|
|
Municipal bonds
|
|
|
80.6
|
|
|
|
0.2
|
|
|
|
|
|
|
|
80.8
|
|
Federal agency issues
|
|
|
36.5
|
|
|
|
0.1
|
|
|
|
|
|
|
|
36.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
286.1
|
|
|
$
|
0.4
|
|
|
$
|
(0.1
|
)
|
|
$
|
286.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Gross
unrealized
holding
gains
|
|
|
Gross
unrealized
holding
losses
|
|
|
Estimated
fair value
|
|
At June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
54.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
54.7
|
|
Cash equivalents
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
64.1
|
|
|
|
|
|
|
|
|
|
|
|
64.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
41.8
|
|
|
|
|
|
|
|
|
|
|
|
41.8
|
|
Municipal bonds
|
|
|
66.3
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
66.3
|
|
Federal agency issues
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
185.4
|
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
|
$
|
185.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Cash, cash equivalents, and maturities of debt securities classified as available-for-sale
securities are as follows at March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
|
Estimated
fair value
|
|
Cash
|
|
$
|
114.2
|
|
|
$
|
114.2
|
|
Cash equivalents
|
|
|
6.3
|
|
|
|
6.3
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
96.2
|
|
|
|
96.2
|
|
Due after one year through five years
|
|
|
69.4
|
|
|
|
69.7
|
|
Due after five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
286.1
|
|
|
$
|
286.4
|
|
|
|
|
|
|
|
|
|
|
(4)
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
June 30,
2015
|
|
Land
|
|
$
|
2.3
|
|
|
$
|
2.3
|
|
Buildings and improvements
|
|
|
18.8
|
|
|
|
18.2
|
|
Leasehold improvements
|
|
|
18.7
|
|
|
|
18.5
|
|
Equipment
|
|
|
101.9
|
|
|
|
99.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141.7
|
|
|
|
138.1
|
|
Less accumulated depreciation
|
|
|
(81.7
|
)
|
|
|
(70.9
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
60.0
|
|
|
$
|
67.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Depreciation expense
|
|
|
3.5
|
|
|
|
3.3
|
|
|
|
10.6
|
|
|
|
8.8
|
|
(5)
|
GOODWILL AND INTANGIBLE ASSETS
|
Goodwill
The Company has recorded goodwill of $177.9 from the acquisitions of Privatklinik Dr. Robert Schindlbeck GmbH & Co. KG that was
completed on February 27, 2015, Crescendo Bioscience, Inc. that was completed on February 28, 2014 and Rules-Based Medicine, Inc. that was completed on May 31, 2011. Of this goodwill, $112.3 relates to the Companys diagnostic
segment and $65.6 relates to the other segment. The following summarizes changes to the goodwill balance for the nine months ended March 31, 2016:
|
|
|
|
|
|
|
Carrying
amount
|
|
Beginning balance July 1, 2015
|
|
$
|
177.2
|
|
Purchase accounting (see note 2)
|
|
|
0.6
|
|
Translation adjustments
|
|
|
0.1
|
|
|
|
|
|
|
Ending balance March 31, 2016
|
|
$
|
177.9
|
|
|
|
|
|
|
9
Intangible Assets
Intangible assets primarily consist of amortizable assets of purchased licenses and technologies, customer relationships, and trade names as
well as non-amortizable intangible assets of in-process technologies and research and development. The following summarizes the amounts reported as intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
At March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased licenses and technologies
|
|
$
|
199.1
|
|
|
$
|
(25.6
|
)
|
|
$
|
173.5
|
|
Customer relationships
|
|
|
4.7
|
|
|
|
(2.2
|
)
|
|
|
2.5
|
|
Trademarks
|
|
|
3.0
|
|
|
|
(0.6
|
)
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets
|
|
|
206.8
|
|
|
|
(28.4
|
)
|
|
|
178.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development
|
|
|
4.8
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unamortized intangible assets
|
|
|
4.8
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
211.6
|
|
|
$
|
(28.4
|
)
|
|
$
|
183.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
At June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased licenses and technologies
|
|
$
|
199.1
|
|
|
$
|
(16.7
|
)
|
|
$
|
182.4
|
|
Customer relationships
|
|
|
4.7
|
|
|
|
(1.9
|
)
|
|
|
2.8
|
|
Trademarks
|
|
|
3.0
|
|
|
|
(0.4
|
)
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets
|
|
|
206.8
|
|
|
|
(19.0
|
)
|
|
|
187.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development
|
|
|
4.8
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unamortized intangible assets
|
|
|
4.8
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
211.6
|
|
|
$
|
(19.0
|
)
|
|
$
|
192.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded amortization expense during the respective periods for these intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Amortization of intangible assets
|
|
|
3.1
|
|
|
|
3.1
|
|
|
|
9.4
|
|
|
|
9.6
|
|
(6)
|
COST BASIS INVESTMENT
|
As of March 31, 2016, the Company had a $5.0 investment in RainDance Technologies, Inc., which has been recorded under
the cost method as an Other Asset on the Companys condensed consolidated balance sheet. There were no events or circumstances that indicated that impairment exists; therefore, the Company recorded no impairment in the investment
for the nine months ended March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
June 30,
2015
|
|
Employee compensation and benefits
|
|
$
|
39.7
|
|
|
$
|
33.8
|
|
Accrued taxes payable
|
|
|
2.3
|
|
|
|
3.8
|
|
Other
|
|
|
8.8
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
Total Accrued liabilities
|
|
$
|
50.8
|
|
|
$
|
46.1
|
|
|
|
|
|
|
|
|
|
|
(8)
|
OTHER LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Pension obligation
|
|
$
|
5.7
|
|
|
$
|
4.9
|
|
Other
|
|
|
2.0
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
Total other long term liabilities
|
|
$
|
7.7
|
|
|
$
|
8.8
|
|
|
|
|
|
|
|
|
|
|
10
The Company has two non-contributory defined benefit pension plans for its current and former
Clinic employees. Participation in the plans was closed to exclude those employees hired after 2002. As of March 31, 2016 the fair value of the plan assets were approximately $0.1 resulting in a net pension liability of $5.7.
(9)
|
PREFERRED AND COMMON STOCKHOLDERS EQUITY
|
The Company is authorized to issue up to 5.0 shares of preferred stock, par value $0.01 per share. There were no preferred
shares outstanding at March 31, 2016.
The Company is authorized to issue up to 150.0 shares of common stock, par value $0.01 per
share. There were 70.4 shares issued and outstanding at March 31, 2016.
Common shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Common stock issued and outstanding at July 1
|
|
|
68.9
|
|
|
|
73.5
|
|
Common stock issued upon exercise of options and employee stock plans
|
|
|
4.4
|
|
|
|
1.2
|
|
Repurchase and retirement of common stock
|
|
|
(2.9
|
)
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
Common stock issued and outstanding at March 31
|
|
|
70.4
|
|
|
|
70.0
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share is computed based on the weighted-average number of shares of common stock
outstanding. Diluted earnings per share is computed based on the weighted-average number of shares of common stock, including the dilutive effect of common stock equivalents, outstanding.
The following is a reconciliation of the denominators of the basic and diluted earnings per share (EPS) computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used to compute basic EPS
|
|
|
70.9
|
|
|
|
70.7
|
|
|
|
70.1
|
|
|
|
72.0
|
|
Effect of dilutive shares
|
|
|
2.6
|
|
|
|
3.2
|
|
|
|
3.1
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding and dilutive securities used to compute diluted EPS
|
|
|
73.5
|
|
|
|
73.9
|
|
|
|
73.2
|
|
|
|
75.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain outstanding options and restricted stock units (RSUs) were excluded from the computation of
diluted earnings per share because the effect would have been anti-dilutive. These potential dilutive common shares, which may be dilutive to future diluted earnings per share, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Anti-dilutive options and RSUs excluded from EPS computation
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Stock Repurchase Program
In February 2015, the Companys Board of Directors authorized a seventh share repurchase program of $200.0 of the Companys
outstanding common stock. The Company plans to repurchase its common stock from time to time or on an accelerated basis through open market transactions or privately negotiated transactions as determined by the Companys management. The amount
and timing of stock repurchases under the program will depend on business and market conditions, stock price, trading restrictions, acquisition activity and other factors. As of March 31, 2016, the Company has $47.0 remaining on its current
share repurchase authorization.
11
The Company uses the par value method of accounting for its stock repurchases. As a result of the
stock repurchases, the Company reduced common stock and additional paid-in capital and recorded charges to accumulated deficit. The shares retired, aggregate common stock and additional paid-in capital reductions, and related charges to accumulated
deficit for the repurchases for periods ended March 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Shares purchased and retired
|
|
|
1.2
|
|
|
|
1.8
|
|
|
|
2.9
|
|
|
|
4.7
|
|
|
|
|
|
|
Common stock and additional paid-in-capital reductions
|
|
$
|
11.2
|
|
|
$
|
15.2
|
|
|
$
|
26.0
|
|
|
$
|
40.2
|
|
|
|
|
|
|
Charges to retained earnings
|
|
$
|
33.3
|
|
|
$
|
46.8
|
|
|
$
|
81.9
|
|
|
$
|
125.8
|
|
In order to determine the Companys quarterly provision for income taxes, the Company used an estimated annual
effective tax rate that is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter during which they occur and
can be a source of variability in the effective tax rate from quarter to quarter.
Income tax expense for the three months ended
March 31, 2016 was $10.5, or approximately 24% of pre-tax income, compared to $14.1, or approximately 40% of pre-tax income, for the three months ended March 31, 2015. Income tax expense for the nine months ended March 31, 2016 was
$42.1, or approximately 32% of pre-tax income, compared to $37.9, or approximately 38% of pre-tax income, for the nine months ended March 31, 2015. Income tax expense for the three and nine months ended March 31, 2016 is based on the
Companys estimated annual effective tax rate for the full fiscal year ending June 30, 2016, adjusted by discrete items recognized during the period. For the three and nine months ended March 31, 2016, the Companys recognized
effective tax rate differs from the U.S. federal statutory rate of 35% primarily due to the effect of state income taxes, changes in uncertain tax benefits and valuation allowances related to historic tax credits, the federal research tax credit,
the sourcing of foreign losses and the benefits realized from the differences related to the earlier recognition of the tax effect of equity compensation expense from incentive stock options and the deduction realized when those options are
disqualified upon exercise and sale.
The Company files U.S., foreign and state income tax returns in jurisdictions with various statutes
of limitations. The Company is currently under audit by the IRS for the fiscal year ended June 30, 2014, the State of New Jersey for the fiscal years June 30, 2007 through 2013 and the State of New York for the fiscal years June 30,
2014 through 2015. Annual and interim tax provisions include amounts considered necessary to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ
materially from the amount accrued.
Pursuant to the guidelines of the recently issued Accounting Standards Update 2015-17 (the
Update), all deferred tax assets and liabilities are to be classified as non-current. The effective date of the Update for public companies is for annual periods beginning after December 15, 2016 and later dates for all other entities.
Early adoption is permitted. To comply with the guidance, the Company elected to adopt this Update for the quarter ended December 31, 2015 and the annual period ending June 30, 2016. The guidance indicates that the Update may be applied
either prospectively or retrospectively. The Company chose to apply the Update prospectively. Accordingly, no prior periods were adjusted. During the quarter ended December 31, 2015, approximately $13.5 of net current deferred tax assets were
reclassified to non-current and netted against non-current deferred tax liabilities.
(11)
|
SHARE-BASED COMPENSATION
|
The Company maintains a share-based compensation plan, the 2010 Employee, Director and Consultant Equity Incentive Plan, as
amended (the 2010 Plan), that has been approved by the Companys shareholders. The 2010 Plan allows the Company, under the direction of the Compensation Committee of the Board of Directors, to make grants of stock options,
restricted and unrestricted stock awards and other stock-based awards to employees, consultants and directors. On December 3, 2015, the shareholders approved an amendment to the 2010 Plan to add 1.6 to the number of shares of common stock
available for grant. At March 31, 2016, 2.3 shares of common stock were available for issuance. If an option or RSU issued or awarded under the 2010 Plan is cancelled or expires without the issuance of shares of common stock, the unissued or
reacquired shares, which were subject to the option or RSU, shall again be available for issuance pursuant to the 2010 Plan. In addition, as of March 31, 2016, the Company may grant up to 2.5 additional shares of common stock under the 2010
Plan if options previously granted under the Companys terminated 2003 Employee, Director and Consultant Option Plan are cancelled or expire without the issuance of shares of common stock by the Company.
The number of shares, terms, and vesting period of awards under the 2010 Plan are determined by the Compensation Committee of the Board of
Directors for each equity award. Stock options granted under the plan prior to December 5, 2012
12
generally vest ratably over four years and expire ten years from the grant date. Stock options granted after December 5, 2012 generally vest ratably over four years and expire eight years
from the grant date. The exercise price of options granted is equivalent to the fair market value of the stock on the grant date. In September 2014, in lieu of stock options, the Company began issuing restricted stock units (RSUs) to
employees and directors which generally vest ratably over four years on the anniversary date of the grant. Beginning in fiscal 2016, RSUs issued will generally vest ratably over four years from the last day of the month in which the RSU award is
granted. The number of RSUs awarded to certain executive officers may be reduced if certain additional financial performance metrics are not met.
Stock Options
A summary
of the stock option activity under the Companys plans for the nine months ended March 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of
shares
|
|
|
Weighted
average
exercise
price
|
|
Options outstanding at June 30, 2015
|
|
|
12.5
|
|
|
$
|
23.49
|
|
Options granted
|
|
|
|
|
|
$
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(4.1
|
)
|
|
$
|
21.39
|
|
Options canceled or expired
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2016
|
|
|
8.4
|
|
|
$
|
24.51
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2016
|
|
|
6.9
|
|
|
$
|
24.02
|
|
As of March 31, 2016, there was $8.6 of total unrecognized share-based compensation expense related to
stock options that will be recognized over a weighted-average period of 1.16 years.
Restricted Stock Units
A summary of the RSU activity under the Companys plans for the nine months ended March 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
RSUs outstanding at June 30, 2015
|
|
|
1.0
|
|
|
$
|
37.63
|
|
RSUs granted
|
|
|
0.8
|
|
|
$
|
40.66
|
|
Less:
|
|
|
|
|
|
|
|
|
RSUs vested
|
|
|
(0.4
|
)
|
|
$
|
39.74
|
|
RSUs canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding at March 31, 2016
|
|
|
1.4
|
|
|
$
|
38.78
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016, there was $35.0 of total unrecognized share-based compensation expense related to
RSUs that will be recognized over a weighted-average period of 2.54 years. This unrecognized compensation expense is equal to the fair value of RSUs expected to vest.
Employee Stock Purchase Plan
The Company also has an Employee Stock Purchase Plan that was approved by shareholders in 2012 (the 2012 Purchase Plan), under
which 2.0 shares of common stock have been authorized. Shares are issued under the 2012 Purchase Plan twice yearly at the end of each offering period. As of March 31, 2016, approximately 0.7 shares of common stock have been issued under the
2012 Purchase Plan.
13
Share-Based Compensation Expense
Share-based compensation expense recognized and included in the condensed consolidated statements of income and comprehensive income was
allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Cost of molecular diagnostic testing
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
Cost of pharmaceutical and clinical services
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
0.4
|
|
Research and development expense
|
|
|
1.3
|
|
|
|
1.2
|
|
|
|
4.1
|
|
|
|
3.2
|
|
Selling, general, and administrative expense
|
|
|
6.0
|
|
|
|
11.0
|
|
|
|
18.8
|
|
|
|
27.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
7.6
|
|
|
$
|
12.5
|
|
|
$
|
23.9
|
|
|
$
|
31.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
FAIR VALUE MEASUREMENTS
|
The fair value of the Companys financial instruments reflects the amounts that the Company estimates it will receive
in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes the use of inputs used in
valuation techniques into the following three levels:
|
|
|
Level 1
|
|
quoted prices in active markets for identical assets and liabilities.
|
Level 2
|
|
observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities. Some of the Companys marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.
|
Level 3
|
|
unobservable inputs.
|
All of the Companys financial instruments are valued using quoted prices in active markets or based on
other observable inputs. For Level 2 securities, the Company uses a third party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology,
inputs summarized by asset class, pricing application and corroborative information. The Company reviews, tests and validates this information. The following table sets forth the fair value of the financial assets that the Company re-measures on a
regular basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
at March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (a)
|
|
$
|
6.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6.3
|
|
Corporate bonds and notes
|
|
|
|
|
|
|
48.5
|
|
|
|
|
|
|
|
48.5
|
|
Municipal bonds
|
|
|
|
|
|
|
80.8
|
|
|
|
|
|
|
|
80.8
|
|
Federal agency issues
|
|
|
|
|
|
|
36.6
|
|
|
|
|
|
|
|
36.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6.3
|
|
|
$
|
165.9
|
|
|
$
|
|
|
|
$
|
172.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Money market funds are primarily comprised of exchange traded funds and accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
at June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (a)
|
|
$
|
2.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2.4
|
|
Corporate bonds and notes
|
|
|
|
|
|
|
44.8
|
|
|
|
|
|
|
|
44.8
|
|
Municipal bonds
|
|
|
|
|
|
|
70.3
|
|
|
|
|
|
|
|
70.3
|
|
Federal agency issues
|
|
|
|
|
|
|
13.2
|
|
|
|
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2.4
|
|
|
$
|
128.3
|
|
|
$
|
|
|
|
$
|
130.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Money market funds are primarily comprised of exchange traded funds and accrued interest
|
14
(13)
|
COMMITMENTS AND CONTINGENCIES
|
The Company is subject to various claims and legal proceedings covering matters that arise in the ordinary course of its
business activities. As of March 31, 2016, the management of the Company believes any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the Companys consolidated financial
position, operating results, or cash flows.
(14)
|
EMPLOYEE DEFERRED SAVINGS PLAN
|
The Company has a deferred savings plan which qualifies under Section 401(k) of the Internal Revenue Code.
Substantially all of the Companys U.S. employees are covered by the plan. The Company makes matching contributions of 50% of each employees contribution with the employers contribution not to exceed 4% of the employees
compensation. The Companys recorded contributions to the plan as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Deferred savings plan contributions
|
|
$
|
1.4
|
|
|
$
|
1.3
|
|
|
$
|
4.1
|
|
|
$
|
3.8
|
|
(15)
|
SEGMENT AND RELATED INFORMATION
|
The Companys business units have been aligned with how the Chief Operating Decision Maker (CODM) reviews
performance and makes decisions in managing the Company. The business units have been aggregated into two reportable segments: (i) diagnostics and (ii) other. The diagnostics segment provides testing and collaborative development of
testing that is designed to assess an individuals risk for developing disease later in life, identify a patients likelihood of responding to drug therapy and guide a patients dosing to ensure optimal treatment, or assess a
patients risk of disease progression and disease recurrence. The other segment provides testing products and services to the pharmaceutical, biotechnology and medical research industries, research and development, and clinical services for
patients, and includes corporate services such as finance, human resources, legal and information technology. The prior periods presented have been restated to conform to the current presentation.
Segment revenue and operating income (loss) were as follows during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diagnostics
|
|
|
Other
|
|
|
Total
|
|
Three months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
177.4
|
|
|
$
|
13.1
|
|
|
$
|
190.5
|
|
Depreciation and amortization
|
|
|
5.4
|
|
|
|
1.2
|
|
|
|
6.6
|
|
Segment operating income (loss)
|
|
|
59.2
|
|
|
|
(16.6
|
)
|
|
|
42.6
|
|
Three months ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
173.0
|
|
|
$
|
7.0
|
|
|
$
|
180.0
|
|
Depreciation and amortization
|
|
|
5.2
|
|
|
|
1.2
|
|
|
|
6.4
|
|
Segment operating income (loss)
|
|
|
55.2
|
|
|
|
(19.5
|
)
|
|
|
35.7
|
|
Nine months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
532.0
|
|
|
$
|
35.4
|
|
|
$
|
567.4
|
|
Depreciation and amortization
|
|
|
16.2
|
|
|
|
3.8
|
|
|
|
20.0
|
|
Segment operating income (loss)
|
|
|
186.3
|
|
|
|
(55.1
|
)
|
|
|
131.2
|
|
Nine months ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
516.6
|
|
|
$
|
16.6
|
|
|
$
|
533.2
|
|
Depreciation and amortization
|
|
|
15.2
|
|
|
|
3.2
|
|
|
|
18.4
|
|
Segment operating income (loss)
|
|
|
159.3
|
|
|
|
(61.3
|
)
|
|
|
98.0
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Total operating income for reportable segments
|
|
$
|
42.6
|
|
|
$
|
35.7
|
|
|
$
|
131.2
|
|
|
$
|
98.0
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.3
|
|
Other
|
|
|
0.2
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
43.1
|
|
|
|
35.5
|
|
|
|
131.7
|
|
|
|
99.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
10.5
|
|
|
|
14.1
|
|
|
|
42.1
|
|
|
|
37.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32.6
|
|
|
$
|
21.4
|
|
|
$
|
89.6
|
|
|
$
|
61.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16)
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash paid during the period for income taxes
|
|
$
|
28.5
|
|
|
$
|
22.7
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Fair value adjustment on marketable investment securities recorded to stockholders
equity
|
|
$
|
0.2
|
|
|
$
|
(0.3
|
)
|
16