NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
. Accounting Policies
Background and Basis of Presentation
Halyard Health, Inc. is a medical technology company focused on delivering clinically superior breakthrough medical device solutions to improve patients’ quality of life. We are committed to addressing some of today’s most important healthcare needs, such as reducing the use of opioids while helping patients move from surgery to recovery. We operate through our Medical Devices business segment. References to “Halyard,” “Company,” “we,” “our” and “us” refer to Halyard Health, Inc.
Interim Financial Statements
We prepared the accompanying condensed consolidated financial statements according to accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and the condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2017
. Our unaudited interim condensed consolidated financial statements contain all necessary material adjustments, which are of a normal and recurring nature, to fairly state our financial condition, results of operations and cash flows for the periods presented.
Use of Estimates
Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Estimates are used in accounting for, among other things, distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies, and deferred tax assets and potential income tax assessments. Actual results could differ from these estimates, and the effect of the change could be material to our financial statements. Changes in these estimates are recorded when known.
Revenue Recognition
Sales revenue is recognized at a point in time, which is upon shipment or upon delivery of our products to unaffiliated customers, depending on shipping terms. Accordingly, control of the products transfers to the customer in accordance with the transaction's shipping terms. Sales revenue is recognized for the amount of consideration that we expect to be entitled to in exchange for our products. Sales are reported net of estimated cash discounts, returns, rebates and incentives, each as described below, and freight allowed. Taxes imposed by governmental authorities, such as sales taxes or value-added taxes, are excluded from net sales.
We provide medical products to distributors or end-user customers under supply agreements under which customers may place purchase orders for a variety of our products at specified pricing over a specified term, usually
three years
. While our sales and marketing efforts are directed to hospitals or other healthcare providers, our products are generally sold through third-party distribution channels.
Under our contracts with customers, our performance obligations are normally limited to shipment or delivery of products to a customer upon receipt of a purchase order. We bill our customers, depending on shipping terms, upon shipment or delivery of the products to the customer.
Amounts billed are typically due within
30 days
, with a
1%
discount allowed for distributors if payment is made within
15 days
. We estimate cash discounts based on historical experience and record the cash discounts as an allowance to trade receivables. The differences between estimated and actual cash discounts are normally not material.
We allow for returns within a specified period of time following the customers' receipt of the goods and estimate an allowance to trade receivables for returns based on historical experience. The differences between estimated and actual returns are normally not material.
Our contracts provide for forms of variable consideration including rebates, incentives and pricing tiers, each of which are described below:
Rebates -
We provide for rebates to distributors for estimated historical differences between list prices and average end-user customer prices and the quantity of products expected to be sold to specific end-user customers. We maintain a liability for the estimated rebates that have been earned but unpaid. Differences between estimated and actual rebates are normally not material.
Incentives -
Incentives include fees paid to group purchasing organizations ("GPOs") or distributors in conjunction with the sales of our products to end-user customers. We estimate our incentive liability based on historical experience. Differences between estimated and actual incentives are normally not material.
Pricing tiers -
In certain of our contracts, pricing is dependent on volumes purchased. Pricing is lower for customers who purchase higher volumes. Customers are placed in a pricing tier based on expected purchase volume, which is developed primarily using the customer's purchase history. Depending on the customer's purchases, we may move the customer up or down a tier. Pricing in the new pricing tier is applied to purchase orders prospectively. There are no retrospective adjustments based on moving between pricing tiers.
See
Note 4
, "Supplemental Balance Sheet Information" for disclosure of our allowances for cash discounts, sales returns and doubtful accounts, and accrued rebates and incentives as of
March 31, 2018
and
December 31, 2017
.
Recently Adopted Accounting Pronouncements
Effective January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers,
which provides a principles-based, five-step approach to measure and recognize revenue from contracts with customers. Adoption of this ASU requires substantial additional disclosures, but did not have a material effect on our financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In
February 2018
, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-02,
Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
This ASU is intended to help companies reclassify certain stranded income tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (the “Act”), which was enacted in
December 2017
. ASU 2018-02 provides for the elimination of stranded tax effects of the Act by allowing reclassification of stranded tax effects from AOCI to retained earnings. This ASU is applicable only to tax effects relating to the Act, and the existing guidance regarding effects of other changes in tax laws is not affected. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted in any interim period for which financial statements have not yet been issued. Adoption of this ASU is not expected to have a material effect on our financial position, results of operations and cash flows.
In
August 2017
, the FASB issued ASU No. 2017-12,
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities.
This ASU is intended to improve the financial reporting and presentation of hedging relationships and the economic results of risk management activities in financial statements. The amendments in ASU 2017-12 better align risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. In addition, the amendments permit hedge accounting for risk components involving non-financial and interest rate risks and contains other targeted improvements to simplify the application of hedge accounting. This ASU is effective for annual periods, and interim periods within those annual periods beginning after
December 15, 2018
, with early adoption permitted in any interim period following the issuance of this ASU. The provisions of this ASU should be applied to existing hedging relationships as of the beginning of the fiscal year of adoption. All other presentation and disclosure requirements are to be applied prospectively. We do not expect adoption of this ASU to have a material effect on our financial position, results of operations and cash flows.
In
February 2016
, the FASB issued ASU No. 2016-02,
Leases.
This ASU requires the recognition of assets and liabilities for leases with lease terms of more than
twelve months
. The recognition, measurement and presentation of expenses and cash flows arising from a lease will depend primarily on its classification as a finance or an operating lease, with the classification criteria for distinguishing between the two being similar to the classification criteria for distinguishing between capital and operating leases under current GAAP. However, unlike current GAAP, recognition of finance and operating leases on the balance sheet is required, and additional disclosures are required to help financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases. This ASU requires modified retrospective application for existing leases. This ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018
, however, earlier application is permitted. The adoption of this ASU will have a material effect on our financial position, requiring us to recognize assets and liabilities for operating leases we have entered into for our principal executive offices as well as certain warehouse, manufacturing and distribution facilities globally. We are in the process of determining the full impact recognition of such assets and liabilities will have on our financial position, results of operations and cash flows.
Note 2
.
Discontinued Operations
On
April 30, 2018
, we closed the sale of substantially all of our S&IP business, as well as our name “Halyard Health” (and all variations of our name and related intellectual property rights) and our information technology (“IT”) system (the
“Divestiture”) pursuant to an Amended and Restated Purchase Agreement (“Amended and Restated Purchase Agreement”) dated
April 30, 2018
by and among us and certain of our affiliates and Owens & Minor, Inc. (“Buyer”). The purchase price paid for the Divestiture was
$710 million
in cash, subject to certain adjustments as provided in the Amended and Restated Purchase Agreement. The net proceeds will be used to retire the remainder of our senior secured term loan (see
Note 6
, “Debt”) and reinvest in the business through acquisition and organic growth.
We have entered into certain commercial agreements, including a transition services agreements with the Buyer, pursuant to which we and the Buyer, and each company’s respective affiliates will provide to each other various transitional services. The services will terminate no later than
two years
after the Divestiture. We have also entered into distribution agreements with the Buyer under which we will remain a limited risk distributor for S&IP products on the Buyer’s behalf for sales outside of the United States and Canada.
As a result of the Divestiture, the results of operations from our S&IP business are reported in the accompanying condensed consolidated income statements as “Income from discontinued operations, net of tax” for the
three months
ended
March 31, 2018
and
2017
, and the related assets and liabilities are classified as held-for-sale as of
March 31, 2018
and
December 31, 2017
in the accompanying balance sheet. The remaining business is managed with
one
reportable business segment, the Medical Devices business.
The following table summarizes the financial results of our discontinued operations for all periods presented herein (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
|
Net Sales
|
$
|
264.0
|
|
|
$
|
249.9
|
|
|
Cost of products sold
|
194.5
|
|
|
188.5
|
|
|
Research and development
|
0.9
|
|
|
0.7
|
|
|
Selling, general and other expenses
|
27.2
|
|
|
16.4
|
|
|
Other expense, net
|
0.3
|
|
|
0.4
|
|
|
Income from discontinued operations before income taxes
|
41.1
|
|
|
43.9
|
|
|
Tax provision from discontinued operations
|
(9.6
|
)
|
|
(16.2
|
)
|
|
Income from Discontinued Operations, net
|
$
|
31.5
|
|
|
$
|
27.7
|
|
In accordance with accounting principles generally accepted in the United States (“GAAP”), only expenses specifically identifiable and related to a business to be disposed may be allocated to discontinued operations. Accordingly, certain expenses that were historically presented as a component of the S&IP were kept in continuing operations. These expenses, on a pre-tax basis, were
$27.9 million
and
$28.9 million
in the
three months
ended
March 31, 2018
and
2017
, respectively.
Details on assets and liabilities classified as held for sale in the accompanying condensed consolidated balance sheets are presented in the following table (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
|
Assets held for sale - discontinued operations
|
|
|
|
|
Accounts receivable, net of allowances
|
$
|
1.6
|
|
|
$
|
1.5
|
|
|
Inventories
|
215.1
|
|
|
198.3
|
|
|
Prepaid and other current assets
|
4.2
|
|
|
2.3
|
|
|
Current assets held for sale - discontinued operations
|
220.9
|
|
|
202.1
|
|
|
Property, plant and equipment, net
|
149.3
|
|
|
150.8
|
|
|
Goodwill
|
267.2
|
|
|
267.3
|
|
|
Other intangible assets, net
|
0.9
|
|
|
0.9
|
|
|
Non-current deferred tax assets
|
7.1
|
|
|
7.1
|
|
|
Other assets
|
0.4
|
|
|
0.4
|
|
|
Total assets held for sale - discontinued operations
|
645.8
|
|
|
628.6
|
|
|
Other assets classified as held for sale
|
4.6
|
|
|
3.9
|
|
|
Total assets classified as held for sale
|
$
|
650.4
|
|
|
$
|
632.5
|
|
|
Liabilities held for sale - discontinued operations
|
|
|
|
|
Accounts payable
|
$
|
14.2
|
|
|
$
|
15.5
|
|
|
Accrued expenses
|
14.6
|
|
|
11.2
|
|
|
Current liabilities held for sale - discontinued operations
|
28.8
|
|
|
26.7
|
|
|
Deferred tax liabilities
|
0.3
|
|
|
0.3
|
|
|
Other long-term liabilities
|
8.8
|
|
|
6.9
|
|
|
Total liabilities held for sale - discontinued operations
|
$
|
37.9
|
|
|
$
|
33.9
|
|
Assets and liabilities held for sale as of
March 31, 2018
and
December 31, 2017
are classified as current since we anticipated the closing of the Divestiture within
one year
. Other assets and liabilities held for sale that are not related to discontinued operations relate primarily to our IT system.
The following table provides operating and investing cash flow information for our discontinued operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
|
Operating Activities:
|
|
|
|
|
Depreciation and amortization
|
$
|
—
|
|
|
$
|
6.0
|
|
|
Stock-based compensation expense
|
0.2
|
|
|
0.3
|
|
|
Investing Activities:
|
|
|
|
|
Capital expenditures
|
0.5
|
|
|
0.4
|
|
Note 3
.
Restructuring Activities
Organizational Alignment
In
December 2017
, in conjunction with the Divestiture (see
Note 2
, “Discontinued Operations”), we initiated the initial phase of a multi-year restructuring plan (the “Plan”). The initial phase of the Plan is intended to align our organizational and management structure with our remaining Medical Devices business.
We expect to incur between
$8 million
and
$10 million
of pre-tax costs, of which
$6 million
to
$7 million
is for employee severance and benefits and the remainder for third-party services and other related costs. These are cash costs that will be incurred as we execute the Plan, which we expect to substantially complete by the end of
2019
.
We incurred
$1.0 million
of costs, primarily for consulting services in the
three months
ended
March 31, 2018
, which are included in “Selling and general expenses” in the accompanying condensed consolidated income statement. In the
three months
ended
March 31, 2018
,
no
severance and benefits payments have been made and the remaining liability in “Accrued expenses”
and “Other long-term liabilities” for employee severance and benefits was
$5.0 million
in the accompanying condensed consolidated balance sheet as of
March 31, 2018
.
Information Technology Systems
The purchase price the Company will receive upon closing the Divestiture includes the sale of the Company’s IT systems. The sale of the IT systems enables the Company to migrate to an IT platform that is more appropriate for its business and size. Accordingly, in
March 2018
, the phase of the Plan to restructure and enhance the Company’s IT systems (the “ITS Plan”) was approved.
The Company expects to incur between
$40 million
and
$50 million
to implement the ITS Plan, of which
$30 million
to
$35 million
is expected to qualify for capitalization and the remainder, primarily consulting and other costs, will be expensed as incurred. The Company expects to substantially complete the ITS Plan by the end of
2019
. We have incurred
$1.9 million
of costs related to the ITS Plan in the
three months
ended
March 31, 2018
which are included in “Selling and general expenses” in the accompanying condensed consolidated income statement.
No
amounts were capitalized in the
three months
ended
March 31, 2018
.
Note 4
. Supplemental Balance Sheet Information
Accounts Receivable
Accounts receivable consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Accounts receivable
|
$
|
201.3
|
|
|
$
|
204.9
|
|
|
Allowances and doubtful accounts
|
(1.8
|
)
|
|
(1.9
|
)
|
|
Accounts receivable, net
|
$
|
199.5
|
|
|
$
|
203.0
|
|
Allowances and doubtful accounts includes allowances of
$0.8 million
and
$0.9 million
for doubtful accounts,
$0.8 million
and
$0.8 million
for sales discounts and
$0.2 million
and
$0.2 million
for sales returns as of
March 31, 2018
and
December 31, 2017
, respectively.
Inventories
Inventories at the lower of cost (determined on the LIFO/FIFO or weighted-average cost methods) or market consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
LIFO
|
|
Non-
LIFO
|
|
Total
|
|
LIFO
|
|
Non-
LIFO
|
|
Total
|
|
Raw materials
|
$
|
28.9
|
|
|
$
|
1.0
|
|
|
$
|
29.9
|
|
|
$
|
26.6
|
|
|
$
|
1.5
|
|
|
$
|
28.1
|
|
|
Work in process
|
23.5
|
|
|
0.2
|
|
|
23.7
|
|
|
20.4
|
|
|
0.3
|
|
|
20.7
|
|
|
Finished goods
|
36.8
|
|
|
9.6
|
|
|
46.4
|
|
|
40.0
|
|
|
9.6
|
|
|
49.6
|
|
|
Supplies and other
|
—
|
|
|
6.3
|
|
|
6.3
|
|
|
—
|
|
|
5.7
|
|
|
5.7
|
|
|
|
89.2
|
|
|
17.1
|
|
|
106.3
|
|
|
87.0
|
|
|
17.1
|
|
|
104.1
|
|
|
Excess of FIFO or weighted-average cost over LIFO cost
|
(14.0
|
)
|
|
—
|
|
|
(14.0
|
)
|
|
(13.0
|
)
|
|
—
|
|
|
(13.0
|
)
|
|
Total
|
$
|
75.2
|
|
|
$
|
17.1
|
|
|
$
|
92.3
|
|
|
$
|
74.0
|
|
|
$
|
17.1
|
|
|
$
|
91.1
|
|
Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Land
|
$
|
1.0
|
|
|
$
|
1.0
|
|
|
Buildings
|
41.7
|
|
|
41.0
|
|
|
Machinery and equipment
|
128.1
|
|
|
124.4
|
|
|
Construction in progress
|
21.1
|
|
|
21.5
|
|
|
|
191.9
|
|
|
187.9
|
|
|
Less accumulated depreciation
|
(74.4
|
)
|
|
(78.0
|
)
|
|
Total
|
$
|
117.5
|
|
|
$
|
109.9
|
|
Depreciation expense was
$3.2 million
and
$4.9 million
for the
three months
ended
March 31, 2018
and
2017
, respectively.
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by business segment are as follows (in millions):
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Balance at December 31, 2017
|
$
|
764.7
|
|
|
Currency translation adjustment
|
(0.1
|
)
|
|
Balance at March 31, 2018
|
$
|
764.6
|
|
Intangible assets subject to amortization consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
|
Trademarks
|
$
|
125.9
|
|
|
$
|
(98.6
|
)
|
|
$
|
27.3
|
|
|
$
|
125.9
|
|
|
$
|
(97.6
|
)
|
|
$
|
28.3
|
|
|
Patents and acquired technologies
|
253.3
|
|
|
(149.4
|
)
|
|
103.9
|
|
|
253.0
|
|
|
(146.1
|
)
|
|
106.9
|
|
|
Other
|
43.2
|
|
|
(35.5
|
)
|
|
7.7
|
|
|
43.1
|
|
|
(35.1
|
)
|
|
8.0
|
|
|
Total
|
$
|
422.4
|
|
|
$
|
(283.5
|
)
|
|
$
|
138.9
|
|
|
$
|
422.0
|
|
|
$
|
(278.8
|
)
|
|
$
|
143.2
|
|
As of each period ended
March 31, 2018
and
December 31, 2017
, we had
$5.7 million
of acquired in-process research and development projects. Amortization expense for intangible assets was
$4.5 million
and
$5.3 million
for the
three months
ended
March 31, 2018
and
March 31, 2017
, respectively. We estimate amortization expense for the remainder of
2018
and the following four years and beyond will be as follows (in millions):
|
|
|
|
|
|
|
|
|
For the years ending December 31,
|
|
|
|
2018
|
|
$
|
13.9
|
|
|
2019
|
|
15.3
|
|
|
2020
|
|
13.1
|
|
|
2021
|
|
10.9
|
|
|
2022
|
|
10.4
|
|
|
Thereafter
|
|
75.3
|
|
|
Total
|
|
$
|
138.9
|
|
Accrued Expenses
Accrued expenses consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Accrued rebates
|
$
|
60.2
|
|
|
$
|
64.4
|
|
|
Accrued salaries and wages
|
21.6
|
|
|
44.5
|
|
|
Accrued taxes - income and other
|
14.4
|
|
|
6.8
|
|
|
Other
|
32.1
|
|
|
29.2
|
|
|
Total
|
$
|
128.3
|
|
|
$
|
144.9
|
|
Accrued rebates represents amounts accrued for estimated incentives earned by customers.
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Taxes payable
|
$
|
9.5
|
|
|
$
|
10.0
|
|
|
Accrued compensation benefits
|
4.7
|
|
|
4.6
|
|
|
Other
|
16.0
|
|
|
17.2
|
|
|
Total
|
$
|
30.2
|
|
|
$
|
31.8
|
|
Note 5
. Fair Value Information
The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:
Level 1: Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3: Prices or valuations that require inputs that are significant to the valuation and are unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
In the
three months
ended
March 31, 2018
, there were no transfers among Level 1, 2 or 3 fair value determinations.
The following table includes the fair value of our financial instruments for which disclosure of fair value is required (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
Fair Value
Hierarchy
Level
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
1
|
|
$
|
203.1
|
|
|
$
|
203.1
|
|
|
$
|
219.7
|
|
|
$
|
219.7
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Senior Unsecured Notes
|
1
|
|
247.3
|
|
|
257.9
|
|
|
247.1
|
|
|
259.7
|
|
|
Senior Secured Term Loan
|
2
|
|
294.7
|
|
|
301.2
|
|
|
333.8
|
|
|
341.1
|
|
Cash equivalents are recorded at cost, which approximates fair value due to their short-term nature. The fair value of the senior unsecured notes was based on observable market prices based on trading activity on a primary exchange. The fair value of our senior secured term loan was based on observed trading prices in a secondary market.
Note 6
. Debt
As of
March 31, 2018
and
December 31, 2017
, our debt balances were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Interest Rate
|
|
Maturities
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Senior Secured Term Loan
|
4.30
|
%
|
|
2021
|
|
$
|
299.0
|
|
|
$
|
339.0
|
|
|
Senior Unsecured Notes
|
6.25
|
%
|
|
2022
|
|
250.0
|
|
|
250.0
|
|
|
Total long-term debt
|
|
|
|
|
549.0
|
|
|
589.0
|
|
|
Unamortized Debt Discounts and Issuance Costs
|
|
|
|
|
|
|
|
|
Senior Secured Term Loan
|
|
|
|
|
(4.3
|
)
|
|
(5.2
|
)
|
|
Senior Unsecured Notes
|
|
|
|
|
(2.7
|
)
|
|
(2.9
|
)
|
|
Total Debt, net
|
|
|
|
|
542.0
|
|
|
580.9
|
|
|
Less current portion of long-term debt
|
|
|
|
|
—
|
|
|
(39.8
|
)
|
|
Total long-term debt
|
|
|
|
|
$
|
542.0
|
|
|
$
|
541.1
|
|
Senior Secured Term Loan and Revolving Credit Facility
The senior secured term loan (the “Term Loan Facility”) is under a credit agreement that also includes a senior secured revolving credit facility that matures on October 31, 2019 which allows for borrowings up to
$250 million
, with a letter of credit sub-facility in an amount of
$75 million
and a swingline sub-facility in an amount of
$25 million
(the “Revolving Credit Facility,” and together with the Term Loan Facility, the “Senior Credit Facilities”). The Senior Credit Facilities are secured by substantially all of our assets located in the United States and a certain percentage of our foreign subsidiaries’ capital stock. Unamortized debt discount and issuance costs are being amortized to interest expense over the life of the Term Loan Facility using the interest method, resulting in an effective interest rate of
4.82%
as of
March 31, 2018
. The interest rate in effect as of
March 31, 2018
was
4.40%
.
The credit agreement contains an excess cash flow provision that requires a mandatory principal prepayment of our Term Loan Facility if we generate cash in excess of a defined measure of cash flow (“Excess Cash”). We paid
$40 million
under this prepayment requirement in the first quarter of
2018
as we generated Excess Cash for the year ended
December 31, 2017
. This prepayment is classified as “Current portion of long-term debt” in the accompanying condensed consolidated balance sheet as of
December 31, 2017
. In conjunction with the prepayment we incurred an early debt extinguishment loss of
$0.6 million
.
We intend to repay the remaining amount owed on the Term Loan Facility using the net proceeds from the Divestiture soon after closing. The repayment will result in an early-extinguishment loss of
$4.1 million
, which represents the unamortized debt discounts and issuance costs expected to be remaining when the Term Loan Facility is repaid.
Borrowings under the Revolving Credit Facility bear interest, at our option, at either (i) a reserve-adjusted LIBOR rate, plus a margin ranging between
1.75%
to
2.50%
per annum, depending on our consolidated total leverage ratio, or (ii) the base rate plus a margin ranging between
0.75%
to
1.50%
per annum, depending on our consolidated total leverage ratio. The unused portion of the Revolving Credit Facility is subject to a commitment fee equal to (i)
0.25%
per annum, when our consolidated total leverage ratio is less than
2.25
to 1.00 or (ii)
0.40%
per annum, otherwise.
To the extent we remain in compliance with certain financial covenants in our credit agreement, we have the ability to access our Revolving Credit Facility. As of
March 31, 2018
, we had
no
borrowings and letters of credit of
$3 million
outstanding under the Revolving Credit Facility.
Senior Unsecured Notes
The senior unsecured notes (the “Notes”) will mature on
October 15, 2022
and interest accrues at a rate of
6.25%
per annum and is payable semi-annually in arrears on
April 15
and
October 15
of each year. Unamortized debt discount and issuance costs are being amortized over the life of the Notes using the interest method, resulting in an effective interest rate of
6.52%
as of
March 31, 2018
.
Note 7
. Income Taxes
On
December 22, 2017
, new federal tax reform, the Tax Cuts and Jobs Act (the “Act”), was enacted in the United States, resulting in significant changes from previous tax law. The new legislation reduced the federal corporate income tax rate to
21%
from
35%
effective
January 1, 2018
. In the fourth quarter of
2017
, we recorded a net benefit of
$10.0 million
on the date of enactment of the new legislation. The provisional amount related to the re-measurement of certain deferred tax assets and
liabilities based on the rates at which they are expected to reverse in the future was
$16.0 million
of benefit. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was
$7.0 million
based on cumulative foreign earnings of
$101 million
. We also recorded a
$1 million
benefit related to the treatment of current year cash dividends in relation to the repatriation tax.
The adjustments to the deferred tax assets and liabilities, and the liability related to the transition tax are provisional amounts based on information available as of
March 31, 2018
. These amounts are subject to change as we obtain information necessary to complete the calculations. We continue to evaluate the provisional estimates, but as of
March 31, 2018
, we have not modified our original estimates made as of
December 31, 2017
. We will update the provisional amounts as we refine our estimates of cumulative temporary differences and our interpretations of the application of the new legislation. We expect to complete our analysis of the provisional items during the second half of
2018
.
On
December 22, 2017
, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, we have determined that the
$16.0 million
of deferred tax benefit recorded in connection with the re-measurement of certain deferred tax assets and liabilities, the
$7.0 million
of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings and the
$1 million
benefit related to the treatment of current year cash dividends in relation to the repatriation tax are provisional amounts and reasonable estimates at
December 31, 2017
. The impact of the Act may differ from this estimate, possibly materially, due to, among other things, changes in interpretations we have made, guidance that may be issued and actions we may take as a result of the Act. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments.
The Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for GILTI, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined its accounting policy. As of
March 31, 2018
, the Company has included estimated GILTI effects in our calculation of tax expense for the quarter. The Company has not provided deferred taxes related to GILTI as of
March 31, 2018
.
At
December 31, 2017
, prior to the calculation of the transition tax on the mandatory deemed repatriation, U.S. income taxes and foreign withholding taxes had not been provided on
$151 million
of current and prior year undistributed earnings of subsidiaries operating outside the U.S. These earnings, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends, were lent to one of our U.S. entities or if we were to sell our stock in the subsidiaries.
While the provisional transition tax of approximately
$7.0 million
resulted in the reduction of the excess amount of financial reporting over the tax basis in our foreign subsidiaries, we have not completed our analysis of the Act’s impact as an actual repatriation from our non-U.S. subsidiaries could still be subject to additional foreign withholding taxes and U.S. state taxes. We have not completed our analysis of our global working capital and cash requirements and the potential tax liabilities attributable to a repatriation. Therefore, we have not made a provisional estimate of the deferred taxes attributable to repatriation. We will record the tax effects of any change in our prior assertion with respect to these investments, and disclose any unrecognized deferred tax liability for temporary differences related to our foreign investments, if practicable, in the period that we are first able to make a reasonable estimate, no later than
December 2018
. While we otherwise intend to maintain the indefinite reinvestment exception, we have provided for a deferred tax asset of
$5.3 million
representing our tax basis over book basis in our investment in certain investments in connection with the divestiture of our S&IP business.
The income tax benefit was
$3.5 million
and
$9.9 million
for the
three months
ended
March 31, 2018
and
March 31, 2017
, respectively. Our effective tax rate for the
three months
ended
March 31, 2018
was
24%
compared to
40%
in the prior year due primarily to the effects of the Act.
Note 8
. Accumulated Other Comprehensive Income
The changes in the components of Accumulated Other Comprehensive Income (“AOCI”), net of tax, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Translation
|
|
Defined Benefit
Pension Plans
|
|
Cash Flow
Hedges
|
|
Accumulated
Other
Comprehensive
Income
|
|
Balance, December 31, 2017
|
$
|
(31.6
|
)
|
|
$
|
0.8
|
|
|
$
|
(0.5
|
)
|
|
$
|
(31.3
|
)
|
|
Other comprehensive income (loss)
|
9.3
|
|
|
(0.3
|
)
|
|
0.5
|
|
|
9.5
|
|
|
Balance, March 31, 2018
|
$
|
(22.3
|
)
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
(21.8
|
)
|
The changes in the components of AOCI, including the tax effect, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
Unrealized translation
|
$
|
9.3
|
|
|
$
|
9.8
|
|
|
Defined benefit pension plans
|
(0.3
|
)
|
|
0.2
|
|
|
Tax effect
|
—
|
|
|
—
|
|
|
Defined benefit pension plans, net of tax
|
(0.3
|
)
|
|
0.2
|
|
|
Cash flow hedges
|
0.6
|
|
|
0.9
|
|
|
Tax effect
|
(0.1
|
)
|
|
(0.2
|
)
|
|
Cash flow hedges, net of tax
|
0.5
|
|
|
0.7
|
|
|
Change in AOCI
|
$
|
9.5
|
|
|
$
|
10.7
|
|
Note 9
.
Stock-Based Compensation
Aggregate stock-based compensation expense for the
three months
ended
March 31, 2018
and
2017
was
$3.5 million
and
$4.4 million
, respectively.
Stock-based compensation expense related to stock options in the
three months
ended
March 31, 2018
and
2017
was
$0.5 million
and
$1.1 million
, respectively.
Expense related to time-based restricted share units in the
three months
ended
March 31, 2018
and
2017
was
$2.0 million
and
$2.3 million
, respectively.
Stock-based compensation expense related to performance-based restricted share units was
$1.0 million
and
$1.1 million
for the
three months
ended
March 31, 2018
and
2017
, respectively.
The stock-based compensation expense amounts above include amounts allocated to discontinued operations, which was
$0.2 million
and
$0.3 million
for the
three months
ended
March 31, 2018
and
2017
, respectively.
Note 10
. Commitments and Contingencies
We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, governmental regulations, employment and other matters, including the matters described below. Under the terms of the distribution agreement we entered into with Kimberly-Clark Corporation (“Kimberly-Clark”) prior to the spin-off, legal proceedings, claims and other liabilities that are primarily related to our business are generally our responsibility and we are obligated to indemnify and hold Kimberly-Clark harmless for such matters (“Indemnification Obligation”). For the
three months
ended
March 31, 2018
and
2017
, we have incurred expenses of
$1.7 million
and
$8.0 million
, respectively, related to these matters.
Chondrolysis Litigation
An exception to our Indemnification Obligation relates to the pain pump litigation referenced in this paragraph. We are one of several manufacturers of continuous infusion medical devices, such as our ON-Q PAINBUSTER pain pumps, that are involved in several different pending or threatened litigation matters from multiple plaintiffs alleging that use of the continuous infusion device to deliver anesthetics directly into a synovial joint after surgery resulted in postarthroscopic glenohumeral chondrolysis, or a disintegration of the cartilage covering the bones in the joint (typically, in the shoulder). Plaintiffs generally seek monetary damages and attorneys’ fees. Although Kimberly-Clark generally retained the liabilities related to these matters, the distribution
agreement between us and Kimberly-Clark provides that we will indemnify Kimberly-Clark for any such claims or causes of action arising after the Spin-off.
Surgical Gown Litigation and Related Matters
Bahamas Surgery Center
We have an Indemnification Obligation for, and have assumed the defense of, the matter styled
Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation and Halyard Health, Inc.,
No. 2:14-cv-08390-DMG-SH (C.D. Cal.) (
“Bahamas”
), filed on October 29, 2014. In that case, the plaintiff brought a putative class action asserting claims for common law fraud (affirmative misrepresentation and fraudulent concealment) and violation of California’s Unfair Competition Law (“UCL”) in connection with our marketing and sale of MicroCool surgical gowns.
On April 7, 2017, a jury returned a verdict for the plaintiff, finding that Kimberly-Clark was liable for
$4 million
in compensatory damages (not including prejudgment interest) and
$350 million
in punitive damages, and that Halyard was liable for
$0.3 million
in compensatory damages (not including prejudgment interest) and
$100 million
in punitive damages. Subsequently, the court also ruled on the plaintiff’s UCL claim and request for injunctive relief. The court found in favor of the plaintiff on the UCL claim but denied the plaintiff’s request for restitution. The court also denied the plaintiff’s request for injunctive relief.
On May 25, 2017, we filed
three
post-trial motions: a renewed motion for judgment as a matter of law; a motion to decertify the class; and a motion for new trial, remittitur, or amendment of the judgment. On March 30, 2018, the court ruled on the post-trial motions. The court denied all three, except it granted in part the motion to reduce the award of punitive damages to a 5 to 1 ratio with compensatory damages.
On April 11, 2018, the court issued an Amended Judgment in favor of the plaintiff and against us and Kimberly-Clark. The judgment against us is
$0.3 million
in compensatory damages and pre-judgment interest and
$1.3 million
in punitive damages. The judgment against Kimberly-Clark is
$3.9 million
in compensatory damages,
$1.3 million
in pre-judgment interest and
$19.4 million
in punitive damages.
On April 12, 2018, we filed a notice of appeal to the Ninth Circuit Court of Appeals. We intend to continue our vigorous defense of the Bahamas matter.
Kimberly-Clark Corporation
We have notified Kimberly-Clark that we have reserved our rights to challenge any purported obligation to indemnify Kimberly-Clark for the punitive damages awarded against them. In connection with our reservation of rights, on May 1, 2017, we filed a complaint in the matter styled
Halyard Health, Inc. v. Kimberly-Clark Corporation
, Case No. BC659662 (County of Los Angeles, Superior Court of California). In that case, we seek a declaratory judgment that we have no obligation, under the Distribution Agreement or otherwise, to indemnify, pay, reimburse, assume, or otherwise cover punitive damages assessed against Kimberly-Clark in
Bahamas Surgery Center, LLC, et al. v. Kimberly-Clark Corporation and Halyard Health, Inc.
, No. 14-CV-08390 (C.D. Cal., originally filed on October 29, 2014), or any Expenses or Losses (as defined in the distribution agreement) associated with an award of punitive damages. On May 2, 2017, Kimberly-Clark filed a complaint in the matter styled
Kimberly-Clark Corporation v. Halyard Health, Inc.,
Case No. 2017-0332-AGB (Court of Chancery of the State of Delaware). In that case, Kimberly-Clark seeks a declaratory judgment that (1) we must indemnify them for all damages, including punitive damages, assessed against them in the
Bahamas
matter, (2) we have anticipatorily and materially breached the Distribution Agreement by our failure to indemnify them, and (3) we are estopped from asserting, or have otherwise waived, any claim that we are not required to indemnify them for all damages, including punitive damages, that may be awarded in the
Bahamas
matter. On May 26, 2017, we moved to dismiss or stay Kimberly-Clark’s Delaware complaint, and on June 16, 2017, Kimberly-Clark moved for summary judgment. On September 12, 2017, the Delaware court granted our motion to stay Kimberly-Clark’s complaint and therefore did not take any action on Kimberly-Clark’s motion for summary judgment. We intend to vigorously pursue our case against Kimberly-Clark in California and to vigorously defend against their case against us.
Government Investigation
In June 2015, we were served with a subpoena from the Department of Veterans Affairs Office of the Inspector General (“VA OIG”) seeking information related to the design, manufacture, testing, sale and promotion of MicroCool and other Company surgical gowns, and, in July 2015, we also became aware that the subpoena and an earlier VA OIG subpoena served on Kimberly-Clark requesting information about gown sales to the federal government are related to a United States Department of Justice (“DOJ”) investigation. In May 2016 and April 2017, we received additional subpoenas from the DOJ seeking further information related to Company gowns. The Company is cooperating with the DOJ investigation.
Shahinian
On October 12, 2016, after the DOJ and various States declined to intervene, a qui tam matter was unsealed and a complaint subsequently served on us in a matter styled
U.S. ex rel. Shahinian, et al. v. Kimberly-Clark Corporation,
No. 2:14-cv-08313-JAK-JPR (C. D. Cal.) (“
Shahinian”
), filed on October 27, 2014. The case alleges, among other things, violations of the federal and various state False Claims Acts in connection with the marketing and sale of certain surgical gowns. On March 8, 2017, Kimberly-Clark moved to dismiss the Shahinian complaint, and on July 14, 2017, the California court granted Kimberly-Clark’s motion. The plaintiff then filed a second amended complaint, and on August 11, 2017, Kimberly-Clark moved to dismiss that one as well. On November 30, 2017, the California court again granted Kimberly-Clark’s motion. The plaintiff then filed a third amended complaint. On January 18, 2018, Kimberly-Clark moved to dismiss that one too.
We may have an Indemnification Obligation for the
Shahinian
matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to vigorously defend the remaining claims.
Kromenaker
On March 17, 2017, the DOJ submitted a filing declining to intervene in another qui tam matter, and the complaint was unsealed and subsequently served on Kimberly-Clark and Halyard. That matter is styled
U.S. ex rel. Kromenaker v. Kimberly-Clark Corporation and Halyard Health, Inc.,
No. 1:15-cv-04413-SCJ (N. D. Ga.) (“Kromenaker”), filed on December 21, 2015. In that case, the plaintiff alleges, among other things, violations of the federal False Claims Act in connection with the marketing and sale of certain products, including feminine hygiene products, surgical gowns and endotracheal tubes. On June 12, 2017, Kimberly-Clark and Halyard moved to dismiss the complaint. On August 21, 2017, Kromenaker filed an amended complaint, and Kimberly-Clark and Halyard filed motions to dismiss the amended complaint on September 20, 2017. We may have an Indemnification Obligation for certain parts of this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to vigorously defend this matter.
Jackson
We were served with a complaint in a matter styled
Jackson v. Halyard Health, Inc., Robert E. Abernathy, Steven E. Voskuil, et al.,
No. 1:16-cv-05093-LTS (S.D.N.Y.), filed on June 28, 2016. In that case, the plaintiff brings a putative class action against the Company, our Chief Executive Officer, our Chief Financial Officer and other defendants, asserting claims for violations of the Securities Exchange Act, Sections 10(b) and 20(a). The plaintiff alleges that the defendants made misrepresentations and failed to disclose certain information about the safety and effectiveness of our MicroCool gowns and thereby artificially inflated the Company’s stock prices during the respective class periods. The alleged class period for purchasers of Kimberly-Clark securities who subsequently received Halyard Health securities is February 25, 2013 to October 21, 2014, and the alleged class period for purchasers of Halyard Health securities is October 21, 2014 to April 29, 2016. On February 16, 2017, we moved to dismiss the case. On March 30, 2018, the court granted our motion to dismiss and entered judgment in our favor. The plaintiff has 30 days from the entry of judgment to file his notice of appeal. On April 27, 2018, the plaintiff filed a Motion for Relief from the Judgment and for Leave to Amend. We intend to continue our vigorous defense of this matter.
Richardson, Chiu and Pick
We were also served with a complaint in a matter styled
Margaret C. Richardson Trustee of the Survivors Trust Dated 6/12/84 for the Benefit of the H&M Richardson Revocable Trust v. Robert E. Abernathy, Steven E. Voskuil, et al.,
No. 1:16-cv-06296 (S. D. N. Y.) (
“Richardson”
), filed on August 9, 2016. In that case, the plaintiff sues derivatively on behalf of Halyard Health, Inc., and alleges that the defendants breached their fiduciary duty, were unjustly enriched, and violated Section 14(A) of the Securities and Exchange Act in connection with Halyard Health, Inc.’s marketing and sale of MicroCool gowns. We were also served with a complaint in a matter styled
Kai Chiu v. Robert E. Abernathy, Steven E. Voskuil, et al
, No. 2:16-cv-08768 (C.D. Cal.), filed on November 23, 2016. In that case, the plaintiff sues derivatively on behalf of Halyard Health, Inc., and makes allegations and brings causes of action similar to those in
Richardson
, but the plaintiff also adds causes of action for abuse of control, gross mismanagement, and waste of corporate assets. We were also served with a complaint in a matter styled
Lukas Pick v. Robert E. Abernathy, Steven E. Voskuil, et al.
No. e:18-cv-00295 (D. Del.) filed on February 21, 2018. In that case, the plaintiff sues derivatively on behalf of Halyard Health, Inc. and makes allegations and brings causes of action similar to those in
Richardson
and
Chiu
. We intend to vigorously defend these matters.
Medline Industries
We were also served with a complaint in the matter styled
Medline Industries, Inc. v. Kimberly-Clark Corporation, Halyard Health, Inc., et al.
, No. 2:16-cv-08571 (C. D. Cal.), filed on November 17, 2016. In that case, the plaintiff makes allegations similar to those in
Bahamas
and
Shahinian
and brings causes of action under federal and state false advertising laws and state
unfair competition laws. On March 31, 2017 we moved to dismiss certain of Medline’s claims and to transfer any surviving claims from California to Georgia. On June 2, 2017 the court granted our motion to transfer the case to Georgia and denied without prejudice our motion to dismiss. On June 30, 2017 now before the court in Georgia and with the case re-styled as
Medline Industries, Inc. v. Kimberly-Clark Corporation, Halyard Health, Inc., et al.
, No. 1:17-cv-02032 (N. D. Ga.), Kimberly-Clark and Halyard filed renewed motions to dismiss certain of Medline’s claims. On February 28, 2018, the court granted our motion to dismiss. On March 14, 2018, Medline filed a second amended complaint. On March 28, 2018, we filed our answer and counterclaims. The counterclaims are for false advertising law and state unfair competition laws.
We may have an Indemnification Obligation for this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to vigorously defend this matter.
Naeyaert
On April 13, 2017, Kimberly-Clark was served with a complaint in the matter styled
Christopher Naeyaert v. Kimberly-Clark Corporation, et al.,
No. PSC 1603503 (County of Riverside, Superior Court of California), filed on July 21, 2016. In that case, the plaintiff makes allegations similar to those in
Bahamas
and brings causes of action similar to those in
Bahamas,
except the allegations and causes of action relate to the Ultra surgical gown. On June 5, 2017, Kimberly-Clark moved to dismiss the complaint. On August 21, 2017, Naeyaert filed an amended complaint and on September 18, 2017, Kimberly-Clark filed a motion to dismiss the amended complaint. We may have an Indemnification Obligation for this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to vigorously defend this matter.
Patent Litigation
We operate in an industry characterized by extensive patent litigation and competitors may claim that our products infringe upon their intellectual property. Resolution of patent litigation or other intellectual property claims is typically time consuming and costly and can result in significant damage awards and injunctions that could prevent the manufacture and sale of the affected products or require us to make significant royalty payments in order to continue selling the affected products. At any given time we may be involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.
General
While we maintain general and professional liability, product liability and other insurance, our insurance policies may not cover all of these matters and may not fully cover liabilities arising out of these matters. In addition, we may be obligated to indemnify our directors and officers against these matters.
Although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate resolution of these matters will not materially impact our liquidity, access to capital markets or ability to conduct our daily operations.
As of
March 31, 2018
, we have an accrued liability for the matters described herein. The accrued liability is included in “Accrued Expenses” in the accompanying condensed consolidated balance sheet. Our estimate of these liabilities is based on facts and circumstances existing at this time, along with other variables. Factors that may affect our estimate include, but are not limited to: (i) changes in the number of lawsuits filed against us, including the potential for similar, duplicate or “copycat” lawsuits filed in multiple jurisdictions, including lawsuits that bring causes or action or allege violations of law with regard to additional products; (ii) changes in the legal costs of defending such claims; (iii) changes in the nature of the lawsuits filed against us, (iv) changes in the applicable law governing any legal claims against us; (v) a determination that our assumptions used in estimating the liability are no longer reasonable; and (vi) the uncertainties associated with the judicial process, including adverse judgments rendered by courts or juries. Thus, the actual amount of these liabilities for existing and future claims could be different than the accrued amount. Additionally, the above matters, regardless of the outcome, could disrupt our business and result in substantial costs and diversion of management attention.
Environmental Compliance
We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.
Note 11
. Earnings Per Share (“EPS”)
Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period, as determined using the treasury stock method.
The calculation of basic and diluted earnings per share for the
three months
ended
March 31, 2018
and
2017
is set forth in the following table (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
Net loss from continuing operations
|
$
|
(11.3
|
)
|
|
$
|
(14.9
|
)
|
|
Net income from discontinued operations
|
31.5
|
|
|
27.7
|
|
|
Net income
|
$
|
20.2
|
|
|
$
|
12.8
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
Basic weighted average shares outstanding
|
46.9
|
|
|
46.7
|
|
|
Dilutive effect of stock options and restricted share unit awards
|
—
|
|
|
—
|
|
|
Diluted weighted average shares outstanding
|
46.9
|
|
|
46.7
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share
|
|
|
|
|
Continuing operations
|
$
|
(0.24
|
)
|
|
$
|
(0.32
|
)
|
|
Discontinued operations
|
$
|
0.67
|
|
|
$
|
0.59
|
|
|
Net income
|
$
|
0.43
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share
|
|
|
|
|
Continuing operations
|
$
|
(0.24
|
)
|
|
$
|
(0.32
|
)
|
|
Discontinued operations
|
$
|
0.67
|
|
|
$
|
0.59
|
|
|
Net income
|
$
|
0.43
|
|
|
$
|
0.27
|
|
Restricted share units (“RSUs”) contain provisions allowing for the equivalent of any dividends paid on common stock during the restricted period to be reinvested into additional RSUs at the then fair market value of the common stock on the date the dividends are paid. Such awards are to be included in the EPS calculation under the two-class method. Currently, we do not anticipate any cash dividends for the foreseeable future and our outstanding RSU awards are not material in comparison to our weighted average shares outstanding. Accordingly, all EPS amounts reflect shares as if they were fully vested and the disclosures associated with the two-class method are not presented herein.
For the
three months
ended
March 31, 2018
,
one million
of potentially dilutive stock options and restricted share unit awards were excluded from the computation of earnings per share as their effect would have been anti-dilutive.
Note 12
. Business Segment Information
Information concerning unaudited consolidated operations by business segment is presented in the following table (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
Net Sales
|
|
|
|
|
Medical Devices
|
$
|
156.4
|
|
|
$
|
145.7
|
|
|
Corporate and Other
|
—
|
|
|
—
|
|
|
Total Net Sales
|
156.4
|
|
|
145.7
|
|
|
Operating Profit
|
|
|
|
|
Medical Devices
|
40.1
|
|
|
38.0
|
|
|
Corporate and Other
(a)
|
(45.3
|
)
|
|
(48.6
|
)
|
|
Other expense, net
(b)
|
(1.8
|
)
|
|
(7.0
|
)
|
|
Total Operating Profit
|
(7.0
|
)
|
|
(17.6
|
)
|
|
Interest income
|
1.0
|
|
|
0.4
|
|
|
Interest expense
|
(8.8
|
)
|
|
(7.6
|
)
|
|
Income before Income Taxes
|
$
|
(14.8
|
)
|
|
$
|
(24.8
|
)
|
______________________________
|
|
|
|
(a)
|
Corporate and Other for the
three months
ended
March 31, 2018
includes
$27.9 million
of costs formerly included in the S&IP business,
$14.5 million
of general expenses and
$2.9 million
of restructuring costs (see
Note 3
, “Restructuring Activities”). Corporate and Other for the
three months
ended
March 31, 2017
includes
$28.9 million
of costs formerly included in the S&IP business,
$17.6 million
of general expenses and
$1.6 million
of acquisition-related expenses and
$0.5 million
of post-spin related rebranding costs.
|
|
|
|
|
(b)
|
Other expense includes amounts incurred related to litigation matters. See
Note 10
, “Commitments and Contingencies.”
|
Disaggregated Revenue
Our management evaluates the product category sales within our reportable business segment. Net sales by product category is presented in the following table (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
Net Sales
|
|
|
|
|
Chronic care
|
$
|
97.1
|
|
|
$
|
88.6
|
|
|
Pain management
|
59.3
|
|
|
57.1
|
|
|
Total net sales
|
$
|
156.4
|
|
|
$
|
145.7
|
|
Due to the nature of our business, we receive purchase orders for products under supply agreements which are normally fulfilled within three to four weeks. Our performance obligations under purchase orders are satisfied and revenue is recognized at a point in time, which is upon shipment or upon delivery of our products to unaffiliated customers, depending on shipping terms. Accordingly, we normally do not have transactions that give rise to material unfulfilled performance obligations.
Note 13
. Supplemental Guarantor Financial Information
In October 2014, Halyard Health, Inc. (referred to below as “Parent”) issued the Notes (described in
Note 6
, “Debt”). The Notes are guaranteed, jointly and severally by each of our domestic subsidiaries that guarantees the Senior Credit Facilities (each, a “Guarantor Subsidiary” and collectively, the “Guarantor Subsidiaries”). The guarantees are full and unconditional, subject to certain customary release provisions as defined in the Indenture dated
October 17, 2014
. Each Guarantor Subsidiary is directly or indirectly
100%
-owned by Halyard Health, Inc. Each of the guarantees of the Notes is a general unsecured obligation of each Guarantor Subsidiary and ranks equally in right of payment with all existing and future indebtedness and all other obligations (except subordinated indebtedness) of each Guarantor Subsidiary.
The following condensed consolidating balance sheets as of
March 31, 2018
and
December 31, 2017
, the condensed consolidating statements of income and cash flows for the
three months
ended
March 31, 2018
and
2017
provide condensed consolidating financial information for Halyard Health, Inc. (“Parent”), the Guarantor Subsidiaries on a combined basis, the non-guarantor subsidiaries on a combined basis and the Parent and its subsidiaries on a consolidated basis.
The Parent and the Guarantor Subsidiaries use the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation. Eliminating entries in the following condensed consolidating financial information represent adjustments to (i) eliminate intercompany transactions between or among the Parent, the Guarantor Subsidiaries and the non-guarantor subsidiaries and (ii) eliminate the investments in subsidiaries.
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net Sales
|
$
|
—
|
|
|
$
|
173.3
|
|
|
$
|
74.9
|
|
|
$
|
(91.8
|
)
|
|
$
|
156.4
|
|
|
Cost of products sold
|
—
|
|
|
84.5
|
|
|
72.6
|
|
|
(91.8
|
)
|
|
65.3
|
|
|
Gross Profit
|
—
|
|
|
88.8
|
|
|
2.3
|
|
|
—
|
|
|
91.1
|
|
|
Research and development
|
—
|
|
|
9.9
|
|
|
—
|
|
|
—
|
|
|
9.9
|
|
|
Selling and general expenses
|
11.9
|
|
|
62.4
|
|
|
12.1
|
|
|
—
|
|
|
86.4
|
|
|
Other expense and (income), net
|
0.3
|
|
|
4.2
|
|
|
(2.7
|
)
|
|
—
|
|
|
1.8
|
|
|
Operating (Loss) Profit
|
(12.2
|
)
|
|
12.3
|
|
|
(7.1
|
)
|
|
—
|
|
|
(7.0
|
)
|
|
Interest income
|
0.4
|
|
|
—
|
|
|
1.4
|
|
|
(0.8
|
)
|
|
1.0
|
|
|
Interest expense
|
(8.9
|
)
|
|
(0.7
|
)
|
|
—
|
|
|
0.8
|
|
|
(8.8
|
)
|
|
(Loss) Income Before Income Taxes
|
(20.7
|
)
|
|
11.6
|
|
|
(5.7
|
)
|
|
—
|
|
|
(14.8
|
)
|
|
Income tax benefit (provision)
|
7.9
|
|
|
(3.2
|
)
|
|
(1.2
|
)
|
|
—
|
|
|
3.5
|
|
|
Equity in earnings of consolidated subsidiaries
|
33.0
|
|
|
8.5
|
|
|
—
|
|
|
(41.5
|
)
|
|
—
|
|
|
Net Income (Loss) from Continuing Operations
|
20.2
|
|
|
16.9
|
|
|
(6.9
|
)
|
|
(41.5
|
)
|
|
(11.3
|
)
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
16.9
|
|
|
14.6
|
|
|
—
|
|
|
31.5
|
|
|
Net Income
|
20.2
|
|
|
33.8
|
|
|
7.7
|
|
|
(41.5
|
)
|
|
20.2
|
|
|
Total other comprehensive income, net of tax
|
9.5
|
|
|
8.5
|
|
|
8.1
|
|
|
(16.6
|
)
|
|
9.5
|
|
|
Comprehensive Income
|
$
|
29.7
|
|
|
$
|
42.3
|
|
|
$
|
15.8
|
|
|
$
|
(58.1
|
)
|
|
$
|
29.7
|
|
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net Sales
|
$
|
—
|
|
|
$
|
162.1
|
|
|
$
|
64.6
|
|
|
$
|
(81.0
|
)
|
|
$
|
145.7
|
|
|
Cost of products sold
|
—
|
|
|
84.9
|
|
|
60.3
|
|
|
(81.0
|
)
|
|
64.2
|
|
|
Gross Profit
|
—
|
|
|
77.2
|
|
|
4.3
|
|
|
—
|
|
|
81.5
|
|
|
Research and development
|
—
|
|
|
7.3
|
|
|
—
|
|
|
—
|
|
|
7.3
|
|
|
Selling and general expenses
|
10.0
|
|
|
64.0
|
|
|
10.8
|
|
|
—
|
|
|
84.8
|
|
|
Other expense and (income), net
|
0.2
|
|
|
9.6
|
|
|
(2.8
|
)
|
|
—
|
|
|
7.0
|
|
|
Operating Loss
|
(10.2
|
)
|
|
(3.7
|
)
|
|
(3.7
|
)
|
|
—
|
|
|
(17.6
|
)
|
|
Interest income
|
0.2
|
|
|
—
|
|
|
1.0
|
|
|
(0.8
|
)
|
|
0.4
|
|
|
Interest expense
|
(7.8
|
)
|
|
(0.6
|
)
|
|
—
|
|
|
0.8
|
|
|
(7.6
|
)
|
|
Loss Before Income Taxes
|
(17.8
|
)
|
|
(4.3
|
)
|
|
(2.7
|
)
|
|
—
|
|
|
(24.8
|
)
|
|
Income tax benefit (provision)
|
1.2
|
|
|
9.2
|
|
|
(0.5
|
)
|
|
—
|
|
|
9.9
|
|
|
Equity in earnings of consolidated subsidiaries
|
23.9
|
|
|
3.1
|
|
|
—
|
|
|
(27.0
|
)
|
|
—
|
|
|
Net Income (Loss) from Continuing Operations
|
7.3
|
|
|
8.0
|
|
|
(3.2
|
)
|
|
(27.0
|
)
|
|
(14.9
|
)
|
|
Income from discontinued operations, net of tax
|
5.5
|
|
|
16.5
|
|
|
5.7
|
|
|
—
|
|
|
27.7
|
|
|
Net Income
|
12.8
|
|
|
24.5
|
|
|
2.5
|
|
|
(27.0
|
)
|
|
12.8
|
|
|
Total other comprehensive income, net of tax
|
10.7
|
|
|
8.5
|
|
|
9.7
|
|
|
(18.2
|
)
|
|
10.7
|
|
|
Comprehensive Income
|
$
|
23.5
|
|
|
$
|
33.0
|
|
|
$
|
12.2
|
|
|
$
|
(45.2
|
)
|
|
$
|
23.5
|
|
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
85.1
|
|
|
$
|
19.6
|
|
|
$
|
98.4
|
|
|
$
|
—
|
|
|
$
|
203.1
|
|
|
Accounts receivable, net of allowances
|
1.1
|
|
|
640.1
|
|
|
262.1
|
|
|
(703.8
|
)
|
|
199.5
|
|
|
Inventories
|
—
|
|
|
77.6
|
|
|
14.7
|
|
|
—
|
|
|
92.3
|
|
|
Prepaid expenses and other current assets
|
3.6
|
|
|
10.0
|
|
|
2.2
|
|
|
—
|
|
|
15.8
|
|
|
Assets held for sale
|
0.3
|
|
|
561.3
|
|
|
88.8
|
|
|
—
|
|
|
650.4
|
|
|
Total Current Assets
|
90.1
|
|
|
1,308.6
|
|
|
466.2
|
|
|
(703.8
|
)
|
|
1,161.1
|
|
|
Property, Plant and Equipment, net
|
—
|
|
|
96.6
|
|
|
20.9
|
|
|
—
|
|
|
117.5
|
|
|
Investment in Consolidated Subsidiaries
|
2,204.6
|
|
|
409.8
|
|
|
—
|
|
|
(2,614.4
|
)
|
|
—
|
|
|
Goodwill
|
—
|
|
|
738.0
|
|
|
26.6
|
|
|
—
|
|
|
764.6
|
|
|
Other Intangible Assets, net
|
—
|
|
|
135.1
|
|
|
9.5
|
|
|
—
|
|
|
144.6
|
|
|
Other Assets
|
0.3
|
|
|
8.8
|
|
|
6.0
|
|
|
—
|
|
|
15.1
|
|
|
TOTAL ASSETS
|
$
|
2,295.0
|
|
|
$
|
2,696.9
|
|
|
$
|
529.2
|
|
|
$
|
(3,318.2
|
)
|
|
$
|
2,202.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
480.1
|
|
|
$
|
364.3
|
|
|
$
|
45.1
|
|
|
$
|
(695.1
|
)
|
|
$
|
194.4
|
|
|
Accrued expenses
|
13.7
|
|
|
98.3
|
|
|
25.0
|
|
|
(8.7
|
)
|
|
128.3
|
|
|
Liabilities held for sale
|
—
|
|
|
8.5
|
|
|
29.4
|
|
|
—
|
|
|
37.9
|
|
|
Total Current Liabilities
|
493.8
|
|
|
471.1
|
|
|
99.5
|
|
|
(703.8
|
)
|
|
360.6
|
|
|
Long-Term Debt
|
542.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
542.0
|
|
|
Other Long-Term Liabilities
|
7.4
|
|
|
36.6
|
|
|
4.5
|
|
|
—
|
|
|
48.5
|
|
|
Total Liabilities
|
1,043.2
|
|
|
507.7
|
|
|
104.0
|
|
|
(703.8
|
)
|
|
951.1
|
|
|
Total Equity
|
1,251.8
|
|
|
2,189.2
|
|
|
425.2
|
|
|
(2,614.4
|
)
|
|
1,251.8
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
2,295.0
|
|
|
$
|
2,696.9
|
|
|
$
|
529.2
|
|
|
$
|
(3,318.2
|
)
|
|
$
|
2,202.9
|
|
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
114.5
|
|
|
$
|
16.0
|
|
|
$
|
89.2
|
|
|
$
|
—
|
|
|
$
|
219.7
|
|
|
Accounts receivable, net of allowances
|
1.1
|
|
|
623.0
|
|
|
266.3
|
|
|
(687.4
|
)
|
|
203.0
|
|
|
Inventories
|
—
|
|
|
76.0
|
|
|
15.1
|
|
|
—
|
|
|
91.1
|
|
|
Prepaid expenses and other current assets
|
0.6
|
|
|
11.7
|
|
|
2.1
|
|
|
—
|
|
|
14.4
|
|
|
Assets held for sale
|
0.3
|
|
|
546.7
|
|
|
85.5
|
|
|
—
|
|
|
632.5
|
|
|
Total Current Assets
|
116.5
|
|
|
1,273.4
|
|
|
458.2
|
|
|
(687.4
|
)
|
|
1,160.7
|
|
|
Property, Plant and Equipment, net
|
—
|
|
|
92.9
|
|
|
17.0
|
|
|
—
|
|
|
109.9
|
|
|
Investment in Consolidated Subsidiaries
|
2,154.3
|
|
|
403.2
|
|
|
—
|
|
|
(2,557.5
|
)
|
|
—
|
|
|
Goodwill
|
—
|
|
|
738.1
|
|
|
26.6
|
|
|
—
|
|
|
764.7
|
|
|
Other Intangible Assets, net
|
—
|
|
|
139.5
|
|
|
9.4
|
|
|
—
|
|
|
148.9
|
|
|
Other Assets
|
0.3
|
|
|
6.0
|
|
|
5.4
|
|
|
—
|
|
|
11.7
|
|
|
TOTAL ASSETS
|
$
|
2,271.1
|
|
|
$
|
2,653.1
|
|
|
$
|
516.6
|
|
|
$
|
(3,244.9
|
)
|
|
$
|
2,195.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
39.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39.8
|
|
|
Trade accounts payable
|
454.0
|
|
|
347.0
|
|
|
49.8
|
|
|
(679.6
|
)
|
|
171.2
|
|
|
Accrued expenses
|
11.6
|
|
|
113.9
|
|
|
27.4
|
|
|
(8.0
|
)
|
|
144.9
|
|
|
Liabilities held for sale
|
—
|
|
|
7.8
|
|
|
26.1
|
|
|
—
|
|
|
33.9
|
|
|
Total Current Liabilities
|
505.4
|
|
|
468.7
|
|
|
103.3
|
|
|
(687.6
|
)
|
|
389.8
|
|
|
Long-Term Debt
|
541.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
541.1
|
|
|
Other Long-Term Liabilities
|
9.2
|
|
|
36.1
|
|
|
4.3
|
|
|
—
|
|
|
49.6
|
|
|
Total Liabilities
|
1,055.7
|
|
|
504.8
|
|
|
107.6
|
|
|
(687.6
|
)
|
|
980.5
|
|
|
Total Equity
|
1,215.4
|
|
|
2,148.3
|
|
|
409.0
|
|
|
(2,557.3
|
)
|
|
1,215.4
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
2,271.1
|
|
|
$
|
2,653.1
|
|
|
$
|
516.6
|
|
|
$
|
(3,244.9
|
)
|
|
$
|
2,195.9
|
|
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Cash (Used in) Provided by Operating Activities
|
$
|
(24.4
|
)
|
|
$
|
41.4
|
|
|
$
|
9.3
|
|
|
$
|
—
|
|
|
$
|
26.3
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(6.8
|
)
|
|
(2.8
|
)
|
|
—
|
|
|
(9.6
|
)
|
|
Intercompany contributions
|
—
|
|
|
(32.0
|
)
|
|
(0.1
|
)
|
|
32.1
|
|
|
—
|
|
|
Cash Used in Investing Activities
|
—
|
|
|
(38.8
|
)
|
|
(2.9
|
)
|
|
32.1
|
|
|
(9.6
|
)
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Intercompany contributions
|
31.7
|
|
|
—
|
|
|
0.4
|
|
|
(32.1
|
)
|
|
—
|
|
|
Debt repayments
|
(40.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40.0
|
)
|
|
Purchase of treasury stock
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
Proceeds from the exercise of stock options
|
3.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.4
|
|
|
Cash (Used in) Provided by Financing Activities
|
(5.0
|
)
|
|
—
|
|
|
0.4
|
|
|
(32.1
|
)
|
|
(36.7
|
)
|
|
Effect of Exchange Rate on Cash and Cash Equivalents
|
—
|
|
|
1.0
|
|
|
2.4
|
|
|
—
|
|
|
3.4
|
|
|
(Decrease) Increase in Cash and Cash Equivalents
|
(29.4
|
)
|
|
3.6
|
|
|
9.2
|
|
|
—
|
|
|
(16.6
|
)
|
|
Cash and Cash Equivalents, Beginning of Period
|
114.5
|
|
|
16.0
|
|
|
89.2
|
|
|
—
|
|
|
219.7
|
|
|
Cash and Cash Equivalents, End of Period
|
$
|
85.1
|
|
|
$
|
19.6
|
|
|
$
|
98.4
|
|
|
$
|
—
|
|
|
$
|
203.1
|
|
HALYARD HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Cash (Used in) Provided by Operating Activities
|
$
|
(14.2
|
)
|
|
$
|
39.9
|
|
|
$
|
11.3
|
|
|
$
|
—
|
|
|
$
|
37.0
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(8.4
|
)
|
|
(1.8
|
)
|
|
—
|
|
|
(10.2
|
)
|
|
Intercompany contributions
|
—
|
|
|
(32.3
|
)
|
|
(0.2
|
)
|
|
32.5
|
|
|
—
|
|
|
Cash Used in Investing Activities
|
—
|
|
|
(40.7
|
)
|
|
(2.0
|
)
|
|
32.5
|
|
|
(10.2
|
)
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Intercompany contributions
|
35.5
|
|
|
—
|
|
|
(3.0
|
)
|
|
(32.5
|
)
|
|
—
|
|
|
Proceeds from the exercise of stock options
|
0.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
Cash Provided by (Used in) Financing Activities
|
36.0
|
|
|
—
|
|
|
(3.0
|
)
|
|
(32.5
|
)
|
|
0.5
|
|
|
Effect of Exchange Rate on Cash and Cash Equivalents
|
—
|
|
|
0.5
|
|
|
1.6
|
|
|
—
|
|
|
2.1
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
21.8
|
|
|
(0.3
|
)
|
|
7.9
|
|
|
—
|
|
|
29.4
|
|
|
Cash and Cash Equivalents, Beginning of Period
|
54.2
|
|
|
9.5
|
|
|
50.0
|
|
|
—
|
|
|
113.7
|
|
|
Cash and Cash Equivalents, End of Period
|
$
|
76.0
|
|
|
$
|
9.2
|
|
|
$
|
57.9
|
|
|
$
|
—
|
|
|
$
|
143.1
|
|