EX-99.3 5 a2225389zex-99_3.htm EX-99.3
QuickLinks -- Click here to rapidly navigate through this document


Exhibit 99.3


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF APRIL 4, 2015 AND DECEMEBER 31, 2014

(In thousands, except share and per share amounts)

 
   2015   2014  
 
   (Unaudited)
  

ASSETS

              

CURRENT ASSETS:

              

Cash and cash equivalents

   $ 174,485   $ 178,448  

Trade receivables, less allowances of $2,387 in 2015 and $2,451 in 2014

     70,823     67,674  

Inventories

     57,535     57,623  

Other current assets

     15,162     13,488  

Deferred income taxes

     16,702     16,716  
​ ​ ​ ​ ​ ​ ​ ​

Total current assets

     334,707     333,949  
​ ​ ​ ​ ​ ​ ​ ​

OTHER ASSETS:

              

Intangible assets, net

     28,706     30,012  

Goodwill

     107,417     108,643  

Noncurrent deferred income taxes

     13,301     12,524  

Other assets

     174,361     163,217  

NET PROPERTY, PLANT, AND EQUIPMENT:

     94,917     99,015  
​ ​ ​ ​ ​ ​ ​ ​

TOTAL ASSETS

   $ 753,409   $ 747,360  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

1


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF APRIL 4, 2015 AND DECEMBER 31, 2014

(In thousands, except share and per share amounts)

 
   2015   2014  
 
   (Unaudited)
  

LIABILITIES AND STOCKHOLDERS' EQUITY

              

CURRENT LIABILITIES:

              

Accounts payable

   $ 22,467   $ 21,123  

Accrued expenses

     82,016     89,980  

Accrual for restructuring charges

     3,073     4,764  

Accrued income taxes

     4,573     3,585  
​ ​ ​ ​ ​ ​ ​ ​

Total current liabilities

     112,129     119,452  

OTHER NON CURRENT LIABILITIES

     5,327     2,589  

ACCRUED POSTRETIREMENT BENEFITS

     15,178     15,042  

LONG-TERM RESTRUCTURING ACCRUAL

     —     16  

LONG-TERM INCENTIVE OBLIGATION

     41,067     33,731  

DEFERRED COMPENSATION OBLIGATION

     31,087     31,341  
​ ​ ​ ​ ​ ​ ​ ​

Total liabilities

     204,788     202,171  
​ ​ ​ ​ ​ ​ ​ ​

STOCKHOLDERS' EQUITY:

              

Common stock, with a par value of $.01 per share:

              

Class A—voting: 107,442,600 shares authorized, 107,412,876 issued, and 107,156,303 outstanding; including 256,573 shares in treasury in 2015 and 254,638 in 2014

     1,069     1,069  

Class B—nonvoting: authorized 50,000,000 shares, issued 486,345 shares, including 157,675 shares in treasury in 2015 and 157,675 in 2014

     3     3  

Accumulated other comprehensive income

     14,417     14,226  

Retained earnings

     685,411     682,139  
​ ​ ​ ​ ​ ​ ​ ​

    700,900     697,437  

Less cost of shares in treasury

     152,279     152,248  
​ ​ ​ ​ ​ ​ ​ ​

Total stockholders' equity

     548,621     545,189  
​ ​ ​ ​ ​ ​ ​ ​

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

   $ 753,409   $ 747,360  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

   

See notes to unaudited condensed consolidated financial statements.

2


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014

(In thousands)

 
   2015   2014  
 
   (Unaudited)
  

NET SALES

   $ 164,534   $ 160,566  

COST OF GOODS SOLD

     81,883     81,354  

RESTRUCTURING COST OF GOODS SOLD

     346     2,234  
​ ​ ​ ​ ​ ​ ​ ​

GROSS MARGIN

     82,305     76,978  

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     77,494     66,256  

RESTRUCTURING CHARGES

           2,212  
​ ​ ​ ​ ​ ​ ​ ​

OPERATING INCOME

     4,811     8,510  

INVESTMENT INCOME—Net of interest expense

     170     118  

OTHER EXPENSE

     (56 )   (157 )
​ ​ ​ ​ ​ ​ ​ ​

INCOME BEFORE PROVISION FOR INCOME TAXES

     4,925     8,471  

PROVISION FOR INCOME TAXES

     1,655     2,982  
​ ​ ​ ​ ​ ​ ​ ​

NET INCOME

     3,270     5,489  
​ ​ ​ ​ ​ ​ ​ ​

OTHER COMPREHENSIVE INCOME (EXPENSE)—Net of tax:

              

Change in unrealized gains on available-for-sales securities

     2,857     (578 )

Foreign currency translation adjustments

     (2,829 )   (723 )

Change in fair value of derivatives

     163     (112 )
​ ​ ​ ​ ​ ​ ​ ​

Other comprehensive income (expense)

     191     (1,413 )
​ ​ ​ ​ ​ ​ ​ ​

COMPREHENSIVE INCOME

   $ 3,461   $ 4,076  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

   

See notes to unaudited condensed consolidated financial statements.

3


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014

(In thousands)

 
   2015   2014  
 
   (Unaudited)
  

OPERATING ACTIVITIES:

              

Net income

   $ 3,270   $ 5,489  

Adjustments to reconcile net income to net cash provided by operating activities:

              

Provision for depreciation and amortization

     7,210     6,175  

Provision for bad debts

     (8 )   (21 )

Provision for deferred income taxes

     (4,472 )   (1,419 )

Change in long-term incentive and deferred compensation

     7,292     (532 )

Change in cash surrender value of Company-owned life insurance

     (1,035 )   (150 )

Income on equity method investments

     (105 )   0  

Change in operating assets and liabilities:

              

Accounts receivable

     (2,929 )   15,273  

Inventories

     (66 )   (319 )

Other assets

     (2,171 )   (1,162 )

Accounts payable and accrued expenses

     (5,998 )   (17,686 )

Restructuring reserve

     (1,687 )   (2,545 )

Accrued pension and postretirement benefits

     136     0  

Accrued income taxes

     990     325  
​ ​ ​ ​ ​ ​ ​ ​

Net cash provided by operating activities

     427     3,428  
​ ​ ​ ​ ​ ​ ​ ​

INVESTING ACTIVITIES:

              

Purchases of investments

     (11 )   (157 )

Sales of investments

           147  

Additions to property, plant and equipment

     (1,774 )   (3,035 )

Advances to related-party trust

     (1,224 )   (1,131 )

Investments in businesses

     —     (500 )
​ ​ ​ ​ ​ ​ ​ ​

Net cash used in investing activities

     (3,009 )   (4,676 )
​ ​ ​ ​ ​ ​ ​ ​

FINANCING ACTIVITIES—Acquisition of treasury stock

     (31 )   0  
​ ​ ​ ​ ​ ​ ​ ​

Net cash used in financing activities

     (31 )   0  
​ ​ ​ ​ ​ ​ ​ ​

EFFECT OF EXCHANGE RATE CHANGES

     (1,350 )   (783 )
​ ​ ​ ​ ​ ​ ​ ​

CHANGE IN CASH AND CASH EQUIVALENTS

     (3,963 )   (2,031 )

CASH AND CASH EQUIVALENTS—Beginning of period

     178,448     145,149  
​ ​ ​ ​ ​ ​ ​ ​

CASH AND CASH EQUIVALENTS—End of period

   $ 174,485   $ 143,118  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION—Cash paid during the period for:

              

Interest

   $ 54   $ 64  

Income taxes

     5,185     4,063  

Noncash investing and financing activities—property, plant, and equipment unpaid at end of period

     237     180  

Accrued contingent consideration for purchases of businesses

     5,233     —  

Accrued investment obligation

     1,000     —  

   

See notes to unaudited condensed consolidated financial statements.

4


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014

(In thousands, except share and per share amounts)

1. BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information (Accounting Standards Codification ("ASC") 270, Interim Reporting). Accordingly, they do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of Welch Allyn Holdings, Inc. and subsidiaries (the "Company"), for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ materially from these estimates. The December 31, 2014 condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes included in the audited financial statements for the year ended December 31, 2014. The Company utilizes a fifty-two week fiscal year ending on December 31. The first quarter of 2015 and 2014 each contained 13 weeks and ended on April 4, and March 29, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Description of Business—Operations of the Company involve the development, manufacture, marketing, and service of quality innovative illumination and diagnostic products throughout the world. The Company's significant manufacturing operations are located in the United States and Mexico. The Company also has sales distribution centers in Europe, Africa, Asia, and Australia. Principal products include reusable and disposable medical diagnostic instruments and equipment as well as miniature lamps. The Company generally sells its products on open account and performs periodic credit evaluations on its customers.

5


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (Continued)

(In thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Accumulated Other Comprehensive Income—The amounts in accumulated other comprehensive income as of April 4, 2015 and December 31, 2014, are as follows:

 
   2015   2014  

Unrealized gains on available-for-sale securities—net of deferred tax expense of $5,832 in 2015 and $4,154 in 2014

   $ 9,930   $ 7,073  

Foreign currency translation adjustments

     3,810     6,638  

Adjustment for other postretirement benefit plan—net of deferred tax (benefit) of $(784) in 2015 and 2014

     (1,335 )   (1,335 )

Changes in fair value of derivatives—net of deferred tax expense of $1,182 in 2015 and $1,087 in 2014

     2,012     1,850  
​ ​ ​ ​ ​ ​ ​ ​

  $ 14,417   $ 14,226  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

        Changes in accumulated other comprehensive income, including amounts reclassified into earnings, are as follows:

 
   Unrealized
Gains on
Available-For-Sale
Securities 		  Foreign Currency Translation Adjustment   Adjustment for Postretirement Benefit Plan   Changes in Fair Value of Derivatives(1)   Total  

Balance at December 31, 2013—net of deferred taxes

   $ 6,964   $ 12,992   $ 44   $ 286   $ 20,286  

Gross changes

     1,718     (6,354 )   (2,189 )   2,767     (4,058 )

Reclassification into earnings

     (1,545 )               (286 )   (1,831 )

Tax

     (64 )         810     (917 )   (171 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at December 31, 2014—net of deferred taxes

     7,073     6,638     (1,335 )   1,850     14,226  

Gross changes

     4,535     (2,829 )         899     2,605  

Reclassification into earnings

                       (641 )   (641 )

Tax

     (1,678 )               (95 )   (1,773 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at April 4, 2015—net of deferred taxes

   $ 9,930   $ 3,809   $ (1,335 ) $ 2,013   $ 14,417  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)
Reclassified from accumulated other comprehensive income into net sales and cost of goods sold.

6


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (Continued)

(In thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Intangible Assets:    Amortizing intangible assets, net are comprised of the following (in thousands):

 
   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount  

Customer base

   $ 47,379   $ (23,388 ) $ 23,991  

Patents

     2,606   $ (1,887 ) $ 719  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total amortizing intangible assets at December 31, 2014

   $ 49,985   $ (25,275 ) $ 24,710  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Customer base

   $ 47,379   $ (24,566 ) $ 22,813  

Patents

     2,607   $ (2,016 ) $ 591  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total amortizing intangible assets at April 4, 2015

   $ 49,986   $ (26,582 ) $ 23,404  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

        Trademarks are not included on this table as they have indefinite lives. At April 4, 2015 and December 31, 2014 trademarks totaled $5, 302 and $5,302, respectively and are included within intangible assets on the balance sheet.

3. INVENTORIES

        The composition of inventories, net of reserves, is as follows as of April 4, 2015 and December 31, 2014:

 
   2015   2014  

Raw material

   $ 18,312   $ 17,712  

Work-in-process

     14,735     14,998  

Finished goods

     24,488     24,913  
​ ​ ​ ​ ​ ​ ​ ​

  $ 57,535   $ 57,623  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

4. INCOME TAXES

        The effective tax rate was 33.6 percent for the three months ended April 4, 2015 compared to 35.2 percent for the comparable prior year period.

        The effective rate for the three months ended April 4, 2015 is lower than the comparable period primarily due to the favorable impact of corporate owned life insurance and foreign rate differential.

        As of April 4, 2015, the balance of unrecognized tax benefits is approximately $2.7 million. It is reasonably possible that a reduction of up to $0.4 million of the balance of unrecognized tax benefits will occur within the next twelve months as a result of potential audit settlements.

7


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (Continued)

(In thousands, except share and per share amounts)

5. TRANSACTIONS WITH RELATED COMPANIES

        Selling expense in the accompanying unaudited condensed consolidated financial statements includes a commission of $4,950 and $4,807 as of April 4, 2015 and March 29, 2014, respectively, which is paid to a Domestic International Sales Corporation affiliated by common ownership.

        The Company has advanced $35,391 and $34,365 at April 4, 2015 and December 31, 2014, respectively, to related-parties, under a split dollar agreement, for the purpose of funding life insurance policies on key stockholders (Note 7). The cash value of these policies has been assigned to the Company as collateral for the trusts' obligations to repay the advance. In 2012, this split dollar agreement was converted from an economic regime to a loan regime which converted the advanced monies to an interest-bearing loan. Interest accrued totaled $1,643 and $1,445 at April 4, 2015 and December 31, 2014, respectively.

6. EMPLOYEE BENEFITS

        Postretirement Benefits—The Company provides a contributory retiree health care plan covering all eligible employees who retired prior to January 1, 1990, and all eligible employees who have retired at normal retirement age between January 1, 1990 and December 31, 2014, with at least five years of active service.

        Benefit obligations and funding policies are at the discretion of the Company's management. Retiree contributions are adjusted annually and the plan contains other cost-sharing features such as deductibles and coinsurance, all of which vary based on the retiree's date of retirement. The accounting for the plan anticipates future cost-sharing changes to the written plan that are consistent with the Company's expressed intent to cap its contribution for all employees who retire after 1998 at the level in effect in 1998.

        The change in the benefit obligation is as follows:

At December 31, 2014

   $ 16,392  

Net periodic postretirement benefit cost

     136  
​ ​ ​ ​ ​

At April 4, 2015

   $ 16,528  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

        Net periodic postretirement benefit cost is comprised of the following:

 
   Three Months Ended  
 
   April 4, 2015   March 29, 2014  

Service cost

   $ —   $ 1  

Interest cost

     136     133  

Amortization of unrecognized prior service cost

     —     36  
​ ​ ​ ​ ​ ​ ​ ​

Net periodic postretirement benefit cost

   $ 136   $ 170  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

8


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (Continued)

(In thousands, except share and per share amounts)

7. OTHER ASSETS

        The composition of other non-current assets is as follows as of April 4, 2015 and December 31, 2014:

 
   2015   2014  

Cash advanced to related party trusts for split dollar agreements (Note 5)

   $ 37,034   $ 35,810  

Trading account investments related to deferred compensation plan

     31,024     31,327  

Available-for-sale securities

     34,181     29,633  

Corporate owned life insurance

     32,492     31,457  

Capitalized software

     13,559     7,052  

Cost and equity method investments

     18,658     18,554  

Advance payments to investee

     5,389     5,389  

Prepaid royalty

     2,000     2,000  

Advance payment to Hubble

     —     1,960  

Other

     25     35  
​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 174,361   $ 163,217  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

        The cost basis of trading account investments related to deferred compensation assets held was $28,428 and $28,931 at April 4, 2015 and December 31, 2014, respectively. These assets are primarily invested in mutual funds. The Company intends to use our investments in available-for-sale equity securities and corporate-owned life insurance to settle long-term incentive plan obligations. Gross unrealized gains and losses accumulated in other comprehensive income are as follows:

 
   April 4, 2015  
 
   Cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated Fair Value  

Available-for-sale securities

   $ 18,424   $ 15,756   $     $ 34,180  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 18,424   $ 15,756   $     $ 34,180  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

 
   December 31, 2014  
 
   Cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated Fair Value  

Available-for-sale securities

   $ 18,412   $ 11,221   $ —   $ 29,633  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  $ 18,412   $ 11,221   $ —   $ 29,633  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

9


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (Continued)

(In thousands, except share and per share amounts)

8. ACCRUED EXPENSES

        The composition of accrued expenses as of April 4, 2015 and December 31, 2014 are as follows:

 
   2015   2014  

Accrued payroll and other employee related expenses

   $ 14,385   $ 29,102  

Current portion of long-term incentive obligation

     12,717     11,441  

Accrued rebates

     22,333     21,171  

Other

     32,581     28,266  
​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 82,016   $ 89,980  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

9. COMMITMENTS AND CONTINGENCIES

        The Company is involved in various pending and threatened actions arising from its normal business operations. Management believes that the Company has meritorious defenses or claims and it will vigorously protect itself in these actions. In the opinion of management, the outcome of these actions will not have a material effect on the Company's financial position and results of operations.

        The Company offers warranties for its products. The specific terms and conditions of those warranties vary depending upon the product sold. For products sold in the United States, the Company provides a basic limited warranty, including parts and labor, for periods ranging generally from one to five years. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim.

        Changes in the Company's product liability, included in accrued expenses in the accompanying unaudited condensed consolidated balance sheet, during the period are as follows:

 
   2015  

At December 31, 2014

   $ 3,465  

Warranties issued

     795  

Changes in estimates

        

Settlements made

     (601 )
​ ​ ​ ​ ​

At April 4, 2015

   $ 3,659  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

10. ACQUISITIONS

        On June 3, 2014, the Company acquired certain assets of PediaVision Holdings, LLC ("PediaVision"), a leading developer of vision technology and inventor of a new generation of user-friendly vision assessment technology that transcends age, developmental capacity and mobility. This acquisition offers the Company a unique opportunity to better serve its customers by offering them a state of the art diagnostic device for conducting eye examinations in a variety of settings. It also complements the Company's existing vision screening technology, specifically, the Welch Allyn SureSight® Vision Screener and Autorefractor.

10


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (Continued)

(In thousands, except share and per share amounts)

10. ACQUISITIONS (Continued)

        The purchase price was $8,112, including a holdback of $1,500. Additional contingent consideration totaling $500 was recognized at the acquisition date to accrue for future payments to the previous owner. Results of this acquisition are included in our consolidated results of operations from the date of acquisition. The cost of the acquisition was allocated to the assets acquired and liabilities assumed from PediaVision based on their fair values as of the close of the acquisition, with the amount exceeding the fair value of the net assets acquired being recorded as goodwill. Goodwill will be deducted for tax purposes utilizing the straight-line method over a period of 15 years.

        The following table summarizes the fair value of the assets acquired and liabilities assumed:

Current assets

   $ 235  

Fixed assets

     109  

Intangible assets

     8,244  
​ ​ ​ ​ ​

Total asset acquired

     8,588  

Current liabilities

     (476 )
​ ​ ​ ​ ​

Net assets acquired

   $ 8,112  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

        As the estimate values of certain assets acquired and liabilities assumed are preliminary in nature, they are subject to adjustment as additional information is obtained, including, but not limited to, the finalization of our intangible asset valuation. The valuations will be finalized in 2015. When the valuations are finalized, any changes to the preliminary valuation of assets acquired or liabilities assumed may result in material adjustments to the fair value of the intangible assets acquired, as well as goodwill.

        The fair values of the assets acquired were determined using the income approach. The income approach estimates the value for a subject asset based on the present value of cash flows projected to be generated by the asset. The projected cash flows were discounted using the Company weighted average cost of capital. The projected cash flows for each asset considered multiple factors from the perspective of a marketplace participant including revenue projections from existing customers, attrition trends, marginal tax rates and expected profit margins giving consideration to historical and expected margins. The income fair value measurement approach is based on significant unobservable inputs, including management estimates and assumptions.

        The amounts assigned to major classes of intangible assets are shown below:

Customer base

   $ 155  

Goodwill

     7,022  

In-process R&D

     157  

Trademarks

     910  
​ ​ ​ ​ ​

Total intangible assets

   $ 8,244  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

        On November 7, 2014, the Company acquired certain assets of HealthInterlink, LLC ("HealthInterlink"), a business engaged in researching, developing, manufacturing, marketing, distributing and selling software and other products and solutions for remote patient monitoring. In keeping with the Company's vision to transform care wherever patients and healthcare professionals

11


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (Continued)

(In thousands, except share and per share amounts)

10. ACQUISITIONS (Continued)

connect, this acquisition will enable the Company to help clinicians prioritize patient care, allowing for early intervention and facilitating communications with patients outside traditional healthcare settings.

        The purchase price was $4,000, including a holdback of $600. Additional consideration totaling $200 was recognized at the acquisition date to accrue for future payments due to the previous owner over the next 2 years. Results of this acquisition are included in our consolidated results of operations from the date of acquisition. The cost of the acquisition was allocated to the assets acquired and liabilities assumed from HealthInterlink based on their fair values as of the close of the acquisition, with the amount exceeding the fair value of the net assets acquired being recorded as goodwill. Goodwill will be deducted for tax purposes utilizing the straight-line method over a period of 15 years.

        The following table summarizes the fair value of the assets acquired and liabilities assumed:

Current assets

   $ 48  

Intangible assets

     3,968  
​ ​ ​ ​ ​

Total asset acquired

     4,016  

Current liabilities

     (16 )
​ ​ ​ ​ ​

Net assets acquired

   $ 4,000  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

        The fair values of the assets acquired were determined using the income approach.

        The amounts assigned to major classes of intangible assets are shown below:

Software

   $ 1,379  

Goodwill

     2,589  
​ ​ ​ ​ ​

Total intangible assets

   $ 3,968  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

        Software is accounted for within other non current assets.

        On January 1, 2015, the Company acquired Hubble Telemedical, Inc. ("Hubble"), a privately-held company that enables remote diabetic retinopathy screening and analysis in primary care and other convenient settings. The acquisition of Hubble further strengthens the Company's leadership position in delivering sight-saving solutions into primary care settings where they can have the largest impact on improving population health while also lowering the cost of care.

        The purchase price totaled $5,217, including a holdback of $200 and contingent consideration of $3,057. The holdback is due on or before the 30th day following the one-year anniversary of the closing date. The fair value of accrued contingent consideration recorded by the Company represents the estimated fair value of the contingent consideration the Company expects to pay to the former shareholders upon the achievement of certain financial milestones. The fair value of the contingent consideration liability was estimated by discounting to present value the contingent payments expected to be made utilizing a risk adjusted discount rate.

        Results of this acquisition are included in our consolidated results of operations from the date of acquisition. The cost of the acquisition was allocated to the assets acquired and liabilities assumed from Hubble based on their fair values as of the close of the acquisition.

12


WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (Continued)

(In thousands, except share and per share amounts)

10. ACQUISITIONS (Continued)

        The following table summarizes the fair value of the assets acquired and liabilities assumed:

Current assets

   $ 932  

Deferred tax asset

     244  

Fixed assets

     11  

Intangible assets-software

     6,929  
​ ​ ​ ​ ​

Total asset acquired

     8,116  

Current liabilities

     (718 )

Non current deferred tax liability

     (2,181 )
​ ​ ​ ​ ​

Net assets acquired

   $ 5,217  
​ ​ ​ ​ ​
​ ​ ​ ​ ​
​ ​ ​ ​ ​

        As the estimated values of certain assets acquired and liabilities assumed are preliminary in nature, they are subject to adjustment as additional information is obtained, including, but not limited to, the finalization of our intangible asset valuation. The valuations will be finalized in 2015. When the valuations are finalized, any changes to the preliminary valuation of assets acquired or liabilities assumed may result in material adjustments to the fair value of the intangible assets acquired, as well as goodwill.

        The fair values of the assets acquired were determined using the income approach. The income approach estimates the value for a subject asset based on the present value of cash flows projected to be generated by the asset. The projected cash flows were discounted using the Company weighted average cost of capital. The projected cash flows for each asset considered multiple factors from the perspective of a marketplace participant including revenue projections from existing customers, attrition trends, marginal tax rates and expected profit margins giving consideration to historical and expected margins. The income fair value measurement approach is based on significant unobservable inputs, including management estimates and assumptions.

11. SUBSEQUENT EVENTS

        The Company has evaluated the impact of subsequent events through July 13, 2015, representing the date at which the consolidated financial statements were available to be issued.

        On May 4, 2015, the Company acquired substantially all assets of Scale-Tronix, Inc ("Scale-Tronix") for $40 million. The initial purchase price accounting is incomplete at the time these unaudited condensed consolidated interim financial statements were issued.

        Scale-Tronix is a leading manufacturer of medical scales and patient weighing systems for hospitals, clinics and extended-care facilities around the world. This acquisition gives the Company an opportunity to better serve its hospital and physician customers by offering a variety of clinical-grade scales that capture a vital piece of patient-specific information at the point-of-care.

        On June 17, 2015, Hill-Rom Holdings, Inc. (NYSE: HRC) ("Hill-Rom") and the Company announced that the Boards of Directors of both companies have unanimously approved a definitive agreement under which Hill-Rom will acquire Welch Allyn for approximately $2.05 billion in cash and stock.

******

13



QuickLinks

WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF APRIL 4, 2015 AND DECEMEBER 31, 2014 (In thousands, except share and per share amounts)
WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 (In thousands, except share and per share amounts)
WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (In thousands)
WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (In thousands)
WELCH ALLYN HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF APRIL 4, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE MONTHS ENDED APRIL 4, 2015 AND MARCH 29, 2014 (In thousands, except share and per share amounts)