Align Technology Inc 10-Q for FY2022 Q2

Align Technology Inc (ALGN)

10-Q 2022-08-04 For: 2022-06-30

Added on April 11, 2026

About this 10-Q

Align Technology Inc filed this 10-Q on August 4, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).

Headline figures

Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $969.55M; down 4.1% from $1.01B a year earlier
Net income: $112.8M; down 43.5% from net income of $199.71M a year earlier
Diluted EPS: $1.44; down 42.6% from $2.51 a year earlier

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Delaware			94-3267295
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	ALGN	The NASDAQ Stock Market LLC
		(NASDAQ Global Select Market)


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



PART I	F INANCIAL INFORMATION	3
Item 1.	F inancial S tatements (U naudited ):	3
	Condensed Consolidated Statements of Operations	3
	C ondensed C onsolidated S tatements of C omprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II	O THER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
Signatures		62


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net revenues	$	969,553	$	1,010,808	$	1,942,772	$	1,905,579
Cost of net revenues	281,994		252,270		545,867		469,943
Gross profit	687,559		758,538		1,396,905		1,435,636
Operating expenses:
Selling, general and administrative	426,398		431,921		865,855		829,036
Research and development	72,965		57,715		144,772		112,252
Total operating expenses	499,363		489,636		1,010,627		941,288
Income from operations	188,196		268,902		386,278		494,348
Interest income and other income (expense), net:
Interest income	245		383		922		2,026
Other income (expense), net	(14,832)		(483)		(26,105)		34,049
Total interest income and other income (expense), net	(14,587)		(100)		(25,183)		36,075
Net income before provision for income taxes	173,609		268,802		361,095		530,423
Provision for income taxes	60,809		69,088		113,997		130,333
Net income	$	112,800	$	199,714	$	247,098	$	400,090

Net income per share:
Basic	$	1.44	$	2.53	$	3.15	$	5.06
Diluted	$	1.44	$	2.51	$	3.13	$	5.02
Shares used in computing net income per share:
Basic	78,395		79,008		78,568		79,004
Diluted	78,545		79,638		78,840		79,737


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	877,501	$	1,099,370
Marketable securities, short-term	22,138		71,972
Accounts receivable, net of allowance for doubtful accounts of $9,520 and $9,245, respectively	931,854		897,198
Inventories	310,046		230,230
Prepaid expenses and other current assets	235,265		195,305
Total current assets	2,376,804		2,494,075
Marketable securities, long-term	77,551		125,320
Property, plant and equipment, net	1,182,444		1,081,926
Operating lease right-of-use assets, net	117,912		121,257
Goodwill	390,100		418,547
Intangible assets, net	93,817		109,709
Deferred tax assets	1,518,648		1,533,767
Other assets	52,843		57,509
Total assets	$	5,810,119	$	5,942,110

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	145,607	$	163,886
Accrued liabilities	416,459		607,315
Deferred revenues	1,242,348		1,152,870
Total current liabilities	1,804,414		1,924,071
Income tax payable	116,414		118,072
Operating lease liabilities	98,332		102,656
Other long-term liabilities	191,878		174,597
Total liabilities	2,211,038		2,319,396
Commitments and contingencies (Notes 6 and 7)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)	—		—
Common stock, $0.0001 par value (200,000 shares authorized; 78,059 and 78,710 issued and outstanding, respectively)	8		8
Additional paid-in capital	1,016,882		999,006
Accumulated other comprehensive income (loss), net	(19,770)		4,326
Retained earnings	2,601,961		2,619,374
Total stockholders’ equity	3,599,081		3,622,714
Total liabilities and stockholders’ equity	$	5,810,119	$	5,942,110


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss), Net		Retained Earnings		Total
Three Months Ended June 30, 2022	Shares	Amount
Balance as of March 31, 2022	78,805	$	8	$	992,287	$	(5,713)	$	2,680,270	$	3,666,852
Net income	—	—		—		—		112,800		112,800
Net change in unrealized gains (losses) from investments	—	—		—		(301)		—		(301)
Net change in foreign currency translation adjustment	—	—		—		(13,756)		—		(13,756)
Issuance of common stock relating to employee equity compensation plans	11	—		—		—		—		—
Tax withholdings related to net share settlements of equity awards	—	—		(654)		—		—		(654)
Common stock repurchased and retired	(757)	—		(8,891)		—		(191,109)		(200,000)
Stock-based compensation	—	—		34,140		—		—		34,140
Balance as of June 30, 2022	78,059	$	8	$	1,016,882	$	(19,770)	$	2,601,961	$	3,599,081


									Reported as:
June 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable securities, short-term		Marketable securities, long-term
Cash	$	758,365	$	—	$	—	$	758,365	$	758,365	$	—	$	—
Money market funds	119,148		—		(12)		119,136		119,136		—		—
Corporate bonds	70,808		—		(2,812)		67,996		—		8,488		59,508
U.S. government treasury bonds	18,609		—		(495)		18,114		—		6,490		11,624
Asset-backed securities	7,042		—		(59)		6,983		—		3,113		3,870
Municipal bonds	5,541		—		(100)		5,441		—		4,047		1,394
U.S. government agency bonds	1,201		—		(46)		1,155		—		—		1,155

Total	$	980,714	$	—	$	(3,524)	$	977,190	$	877,501	$	22,138	$	77,551


									Reported as:
December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable securities, short-term		Marketable securities, long-term
Cash	$	754,802	$	—	$	—	$	754,802	$	754,802	$	—	$	—
Money market funds	343,012		—		(2)		343,010		343,010		—		—
Corporate bonds	115,507		9		(398)		115,118		1,042		35,065		79,011
U.S. government treasury bonds	42,976		—		(48)		42,928		—		22,251		20,677
Asset-backed securities	32,031		—		(40)		31,991		—		10,999		20,992
Municipal bonds	7,628		—		(15)		7,613		516		3,657		3,440
U.S. government agency bonds	1,201		—		(1)		1,200		—		—		1,200

Total	$	1,297,157	$	9	$	(504)	$	1,296,662	$	1,099,370	$	71,972	$	125,320


	June 30, 2022		December 31, 2021
Due in 1 year or less	$	17,185	$	59,737
Due in 1 year through 5 years	82,504		139,113
Total	$	99,689	$	198,850


Description	Balance as of June 30, 2022		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	119,136	$	119,136	$	—	$	—





Short-term investments:


U.S. government treasury bonds	6,490		6,490		—		—
Corporate bonds	8,488		—		8,488		—
Municipal bonds	4,047		—		4,047		—
Asset-backed securities	3,113		—		3,113		—
Long-term investments:
U.S. government treasury bonds	11,624		11,624		—		—
Corporate bonds	59,508		—		59,508		—
Municipal bonds	1,394		—		1,394		—

U.S. government agency bonds	1,155		—		1,155		—
Asset-backed securities	3,870		—		3,870		—

Other assets:
Investments in privately held companies	11,793		—		—		11,793
	$	230,618	$	137,250	$	81,575	$	11,793


Description	Balance as of December 31, 2021		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	343,010	$	343,010	$	—	$	—

Corporate bonds	1,042		—		1,042		—
Municipal bonds	516		—		516		—

Short-term investments:
U.S. government treasury bonds	22,251		22,251		—		—
Corporate bonds	35,065		—		35,065		—
Municipal bonds	3,657		—		3,657		—
Asset-backed securities	10,999		—		10,999		—



Long-term investments:
U.S. government treasury bonds	20,677		20,677		—		—
Corporate bonds	79,011		—		79,011		—
Municipal bonds	3,440		—		3,440		—
U.S. government agency bonds	1,200		—		1,200		—
Asset-backed securities	20,992		—		20,992		—
Prepaid expenses and other current assets:
Israeli funds	3,841		—		3,841		—


Other assets:
Investments in privately held companies	8,621		—		—		8,621
	$	554,322	$	385,938	$	159,763	$	8,621


	June 30, 2022
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€147,830	$	154,164
Chinese Yuan	¥719,300	107,297
Polish Zloty	PLN351,500	77,556
Canadian Dollar	C$95,200	73,748
Brazilian Real	R$317,000	59,913
Japanese Yen	¥6,081,000	44,744
British Pound	£34,097	41,333
Swiss Franc	CHF22,500	23,536
Mexican Peso	M$282,700	13,988
Israeli Shekel	ILS43,160	12,380
Australian Dollar	A$4,600	3,170
		$	611,829


	Six Months Ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	247,098	$	400,090
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	14,747		39,961
Depreciation and amortization	59,907		51,527
Stock-based compensation	65,761		56,096
Non-cash operating lease cost	15,075		12,413

Arbitration award gain	—		(43,403)
Other non-cash operating activities	16,172		13,174
Changes in assets and liabilities:
Accounts receivable	(53,462)		(164,822)
Inventories	(91,060)		(49,070)
Prepaid expenses and other assets	(14,219)		(70,132)
Accounts payable	(23,944)		(5,736)
Accrued and other long-term liabilities	(212,896)		65,650
Long-term income tax payable	(1,657)		7,535
Deferred revenues	136,021		231,408
Net cash provided by operating activities	157,543		544,691
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property, plant and equipment	(163,348)		(167,668)
Purchase of marketable securities	(20,466)		—
Proceeds from maturities of marketable securities	21,690		—
Proceeds from sales of marketable securities	92,235		—
Repayment on unsecured promissory note	—		4,594
Proceeds from arbitration award	—		43,403
Other investing activities	(2,189)		(4,249)
Net cash used in investing activities	(72,078)		(123,920)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	14,827		13,133
Common stock repurchases	(275,036)		(160,000)
Payments for equity forward contracts related to accelerated share repurchase agreements	—		(40,000)
Payroll taxes paid upon the vesting of equity awards	(52,187)		(104,889)
Net cash used in financing activities	(312,396)		(291,756)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	4,978		(3,511)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(221,953)		125,504


	June 30, 2022		December 31, 2021
Raw materials	$	159,037	$	123,234
Work in process	82,292		51,706
Finished goods	68,717		55,290
Total inventories	$	310,046	$	230,230


	Six Months Ended June 30,
	2022		2021
Balance at beginning of period	$	16,169	$	12,615
Charged to cost of net revenues	7,660		8,936
Actual warranty expenditures	(7,334)		(7,105)
Balance at end of period	$	16,495	$	14,446


	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of June 30, 2022		Accumulated Amortization		Accumulated Impairment Loss		Net Carrying Value as of June 30, 2022
Existing technology	10	$	104,531	$	(27,640)	$	(4,328)	$	72,563
Customer relationships	10	21,500		(4,838)		—		16,662
Trademarks and tradenames	10	17,200		(5,466)		(4,179)		7,555
Patents	8	6,511		(4,891)		—		1,620
		$	149,742	$	(42,835)	$	(8,507)	98,400
Foreign currency translation adjustments								(4,583)
Total intangible assets, net 1								$	93,817


	June 30, 2022		December 31, 2021
Value added tax receivables	$	110,988	$	93,610
Prepaid expenses	61,628		70,218
Other current assets	62,649		31,477
Total prepaid expenses and other current assets	$	235,265	$	195,305


	June 30, 2022		December 31, 2021
Accrued payroll and benefits	$	152,849	$	288,355
Accrued expenses	74,281		67,169
Accrued sales and marketing expenses	37,250		41,387
Accrued property, plant and equipment	35,563		46,561
Current operating lease liabilities	24,613		22,719
Accrued professional fees	18,433		31,457

Other accrued liabilities	73,470		109,667
Total accrued liabilities	$	416,459	$	607,315


	June 30, 2022		December 31, 2021
Deferred revenues - current	$	1,242,348	$	1,152,870
Deferred revenues - long-term 1	$	155,510	$	136,684


	Clear Aligner		Systems and Services		Total
Balance as of December 31, 2021	$	112,208	$	306,339	$	418,547

Foreign currency translation adjustments	(3,804)		(24,643)		(28,447)
Balance as of June 30, 2022	$	108,404	$	281,696	$	390,100


	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of December 31, 2021		Accumulated Amortization		Accumulated Impairment Loss		Net Carrying Value as of December 31, 2021
Existing technology	10	$	104,531	$	(22,495)	$	(4,328)	$	77,708
Customer relationships	11	55,000		(25,891)		(10,751)		18,358
Trademarks and tradenames	10	17,200		(4,547)		(4,179)		8,474
Patents	8	6,511		(4,495)		—		2,016
		$	183,242	$	(57,428)	$	(19,258)	106,556
Foreign currency translation adjustments								3,153
Total intangible assets, net								$	109,709


Fiscal Year Ending December 31,	Amortization
Remainder of 2022	$	7,536
2023	14,997
2024	13,831
2025	13,455
2026	12,849
Thereafter	35,732
Total	$	98,400


	Number of Shares Underlying RSUs (in thousands)	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Unvested as of December 31, 2021	492	$	369.17
Granted	232	485.01
Vested and released	(189)	333.28
Forfeited	(22)	429.13
Unvested as of June 30, 2022	513	$	432.28	1.6	$	121,475


	Number of Shares Underlying MSUs (in thousands)	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Unvested as of December 31, 2021	174	$	551.57
Granted 1	101	607.96
Vested and released	(128)	396.10
Forfeited	(3)	744.39
Unvested as of June 30, 2022	144	$	725.73	1.5	$	34,097


Agreement Date	Repurchase Program	Amount Paid (in millions)		Completion Date	Total Shares Received	Average Price per Share
Q2 2021	May 2018	$	100.0	Q3 2021	171,322	$	583.70
Q2 2021	May 2021	$	100.0	Q3 2021	161,707	$	618.40
Q2 2022	May 2021	$	200.0	Q2 2022	756,502	$	264.37


	June 30, 2022		December 31, 2021
Long-lived assets 1:
Switzerland	$	499,626	$	444,205
U.S.	212,071		210,582
China	123,180		125,346

Other International	465,479		423,050
Total long-lived assets	$	1,300,356	$	1,203,183


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Programs(1)
April 1, 2022 through April 30, 2022	—	$	—	—	$	649,926,094
May 1, 2022 through May 31, 2022	551,895	$	289.91	551,895	$	449,926,094
June 1, 2022 through June 30, 2022	204,607	$	195.50	204,607	$	449,926,094
Total	756,502			756,502



	ALIGN TECHNOLOGY, INC.

August 4, 2022	By:	/s/ JOSEPH M. HOGAN
		Joseph M. Hogan President and Chief Executive Officer

August 4, 2022	By:	/s/ JOHN F. MORICI
		John F. Morici Chief Financial Officer and Executive Vice President, Global Finance


To:			Align Technology, Inc. 410 N. Scottsdale Road, Suite 1300 Tempe, Arizona 85281
A/C:			________________
From:			Citibank, N.A.
Re:			Fixed Dollar Accelerated Share Repurchase Transaction
Date:			April 29, 2022


Trade Date:			As specified in Schedule I
Buyer:			Issuer
Seller:			Dealer
Shares:			Common Stock, par value USD 0.0001 per share, of Issuer (Ticker: ALGN)
Forward Price:			A price per Share (as determined by the Calculation Agent) equal to the greater of (A) (i) the arithmetic mean (not a weighted average, subject to “Market Disruption Event” below) of the 10b-18 VWAP on each Observation Date that is a Trading Day during the Calculation Period minus (ii) the Discount and (B) $5.00.
Discount:			As specified in Schedule I
10b-18 VWAP:			On any Trading Day, a price per Share equal to the volume- weighted average price of the Rule 10b-18 eligible trades in the Shares for the entirety of such Trading Day as determined by the Calculation Agent by reference to the screen entitled “ALGN <Equity> AQR SEC” or any successor page as reported by Bloomberg L.P. or any successor (excluding (i) trades that do not settle regular way, (ii) opening (regular way) reported trades in the consolidated system on such Scheduled Trading Day (including, for the avoidance of doubt, the first reported trade on the Exchange following the scheduled open of trading on the Exchange), (iii) trades that occur in the last ten minutes before the scheduled close of trading on the Exchange on such Scheduled Trading Day and ten minutes before the scheduled close of the primary trading in the market where the trade is effected, and (iv) trades on such Scheduled Trading Day that do not satisfy the requirements of Rule 10b-18(b)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on such Trading Day) or, if the price displayed on such screen is clearly erroneous, as determined by the Calculation Agent in good faith and in a commercially reasonable manner.
Observation Dates:			As specified in Schedule I
Calculation Period:			The period from, and including, the first Observation Date that is a Trading Day that occurs on or after the Prepayment Date to, but excluding, the relevant Valuation Date; provided, however, that if the Valuation Date is the Scheduled Valuation Date, then the Valuation Date shall be included in the Calculation Period; provided further that in no event shall any Scheduled Valuation Date be postponed to a date later than the Final Termination Date.
Final Termination Date:			As specified in Schedule I; provided that if a Market Disruption Event has occurred pursuant to Section 7 of this Confirmation, such Final Termination Date shall be postponed by one Trading Day for every Trading Day that is a Disrupted Day as a result of such Merger Transaction during the Calculation Period
Trading Day:			Any Exchange Business Day that is not a Disrupted Day in whole


Initial Shares:			As specified in Schedule I; provided that if Dealer is unable to borrow or otherwise acquire a number of Shares equal to the Initial Shares for delivery to Issuer on the Initial Share Delivery Date, the Initial Shares delivered on the Initial Share Delivery Date shall be reduced to such number of Shares that Dealer is able to so borrow or otherwise acquire, and thereafter Dealer shall continue to use commercially reasonable efforts to borrow or otherwise acquire a number of Shares, at a stock borrow cost no greater than the Initial Stock Loan Rate, equal to the shortfall in the Initial Shares and to deliver such additional Shares as soon as reasonably practicable. For the avoidance of doubt, the aggregate of all shares delivered to Dealer in respect of the Transaction pursuant to this paragraph shall be the “Initial Shares” for purposes of determining the “Settlement Amount” below.
Initial Share Delivery Date:			One Exchange Business Day following the Trade Date. On the Initial Share Delivery Date, Seller shall deliver to Buyer a number of Shares equal to the Initial Shares in accordance with Section 9.4 of the Equity Definitions, with the Initial Share Delivery Date being deemed to be a “Settlement Date” for purposes of such Section 9.4.
Prepayment:			Applicable
Prepayment Amount:			As specified in Schedule I
Prepayment Date:			One Exchange Business Day following the Trade Date. On the Prepayment Date, Buyer shall pay to Seller the Prepayment Amount.
Exchange:			The Nasdaq Global Select Market
Related Exchange:			All Exchanges; provided that Section 1.26 of the Equity Definitions shall be amended to add the words “United States” before the word “exchange” in the tenth line of such Section.


Market Disruption Event:			The definition of “Market Disruption Event” in Section 6.3(a) of the Equity Definitions is hereby amended by deleting the words “at any time during the one-hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be,” starting in the third line thereof. Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the term “Scheduled Closing Time” in the fourth line thereof. Notwithstanding anything to the contrary in the Equity Definitions, if any Exchange Business Day in the Calculation Period or the Buyer Settlement Valuation Period is a Disrupted Day, the Calculation Agent shall have the option, in its reasonable discretion, to take one or more of the following actions in a good faith and commercially reasonable manner: (i) determine that such Exchange Business Day is a Disrupted Day in part, in which case the Calculation Agent shall (x) determine the 10b-18 VWAP on such Exchange Business Day based on Rule 10b-18 eligible trades in the Shares on such day taking into account the nature and duration of the relevant Market Disruption Event and (y) determine the Forward Price or Buyer Settlement Price, as applicable, using an appropriately weighted average of 10b-18 VWAPs instead of an arithmetic mean, and/or (ii) elect to (x) postpone the Scheduled Valuation Date (in the case of a Disrupted Day during the Calculation Period) or (y) extend the Buyer Settlement Valuation Period (in the case of a Disrupted Day during the Buyer Settlement Valuation Period) by up to one Observation Date for every Observation Date that is a Disrupted Day during the Calculation Period or Buyer Settlement Valuation Period, as applicable; provided that in no event shall any Scheduled Valuation Date be postponed to a date later than the Final Termination Date. For the avoidance of doubt, if the Calculation Agent takes the action described in clause (i) above, then such Disrupted Day shall be a Trading Day for purposes of calculating the Forward Price or Buyer Settlement Price, as applicable. Any Exchange Business Day on which, as of the date hereof, the Exchange is scheduled to close prior to its normal close of trading shall be deemed not to be an Exchange Business Day; if a closure of the Exchange prior to its normal close of trading on any Exchange Business Day is scheduled following the date hereof, then such Exchange Business Day shall be deemed to be a Disrupted Day in full. If a Disrupted Day occurs during the Calculation Period or the Buyer Settlement Valuation Period and each of the nine immediately following Scheduled Trading Days is a Disrupted Day, then the Calculation Agent may, in its good faith and commercially reasonable discretion, deem such ninth Scheduled Trading Day to be an Exchange Business Day that is not a Disrupted Day and determine the 10b-18 VWAP for such ninth Scheduled Trading Day using its good faith and commercially reasonable estimate of the value of the Shares on such ninth Scheduled Trading Day based on the volume, historical trading patterns and trading price of the Shares.
VALUATION:


Valuation Date:			The earlier of (i) the Scheduled Valuation Date and (ii) any earlier accelerated Valuation Date as a result of Dealer’s election in accordance with the immediately succeeding paragraph. Dealer shall have the right, in its absolute discretion but subject to the limitation set forth in the immediately succeeding paragraph, to accelerate the Valuation Date, in whole or in part (an “Acceleration”), to any Exchange Business Day that is on or after the Lock-Out Date and prior to the Scheduled Valuation Date by notice (each such notice, an “Acceleration Notice”) to Issuer by 9:00 p.m., New York City time, on the Exchange Business Day immediately following the accelerated Valuation Date; provided that if at any time after the Lock-Out Date Dealer expects the Settlement Amount to be a negative number, then Dealer shall provide Issuer notice of any such expectation. Dealer shall specify in each Acceleration Notice the portion of the Prepayment Amount that is subject to acceleration (which may be less than the full Prepayment Amount, but only so long as such portion is not less than USD 25,000,000). If the portion of the Prepayment Amount that is subject to acceleration is less than the full Prepayment Amount, then the Calculation Agent shall adjust the terms of the Transaction as appropriate in order to take into account the occurrence of such accelerated Valuation Date (including cumulative adjustments to take into account all prior accelerated Valuation Dates). On each Valuation Date, the Calculation Agent shall calculate the Settlement Amount.
Scheduled Valuation Date:			As specified in Schedule I, subject to postponement in accordance with “Market Disruption Event” above
Lock-Out Date:			As specified in Schedule I
SETTLEMENT TERMS:
Physical Settlement:			Applicable. On the Settlement Date, Seller shall deliver to Buyer a number of Shares equal to (a) (i) the Prepayment Amount divided by (ii) the Forward Price minus (b) the Initial Shares (such number of Shares, the “Settlement Amount”), rounded to the nearest whole number of Shares; provided, however, that if the Settlement Amount is less than zero, then the Buyer Settlement Provisions in Annex A hereto shall apply.
Settlement Currency:			USD
Settlement Date:			The date that falls one Settlement Cycle after the relevant Valuation Date.
Other Applicable Provisions:			The last sentence of Section 9.2, Sections 9.8, 9.9, 9.10 and 9.11 (except that the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws arising as a result of the fact that Buyer is the issuer of the Shares) and Section 9.12 of the Equity Definitions will be applicable to the Transaction.
SHARE ADJUSTMENTS:


Potential Adjustment Event:			Notwithstanding anything to the contrary in Section 11.2(e) of the Equity Definitions, an Extraordinary Dividend shall not constitute a Potential Adjustment Event. It shall constitute a Potential Adjustment Event if a Disrupted Day occurs or, pursuant to Section 9 below, is deemed to occur (in whole or in part) on any Trading Day on or prior to the Valuation Date.
Extraordinary Dividend:			Any dividend or distribution on the Shares with an ex- dividend date occurring during the period from, and including, the Trade Date to, and including, the last day of the Potential Purchase Period (as defined below) (other than any dividend or distribution of the type described in Section 11.2(e)(i), Section 11.2(e)(ii)(A) or Section 11.2(e)(ii)(B) of the Equity Definitions).
Method of Adjustment:			Calculation Agent Adjustment; provided that the parties hereto agree that any Share repurchases by the Issuer, whether pursuant to Rule 10b-18 of the Exchange Act, Rule 10b5-1 of the Exchange Act on customary terms, at prevailing market prices, or VWAP (subject to any discounts thereto) shall not be considered Potential Adjustment Events; provided further that adjustments for any Potential Adjustment Event (other than pursuant to any Potential Adjustment Event defined in Sections 11.2(e)(i), 11.2(e)(ii)(A) and 11.2(e)(iii) of the Equity Definitions) may be made to account for changes in volatility, stock loan rate or liquidity relevant to the Shares or the Transaction.
EXTRAORDINARY EVENTS:
Consequences of Merger Events:
Share-for-Share:			Modified Calculation Agent Adjustment
Share-for-Other:			Cancellation and Payment on that portion of the Other Consideration that consists of cash; Modified Calculation Agent Adjustment on the remainder of the Other Consideration
Share-for-Combined:			Component Adjustment
Tender Offer:			Applicable; provided that the definition of “Tender Offer” in Section 12.1 of the Equity Definitions will be amended by replacing the phrase “greater than 10% and less than 100% of the outstanding voting shares of the Issuer” in the third and fourth line thereof with “(a) greater than 15% and less than 100% of the outstanding Shares of the Issuer in the event that such Tender Offer is being made by any entity or person other than the Issuer or any subsidiary thereof or (b) greater than 20% and less than 100% of the outstanding Shares of the Issuer in the event that such Tender Offer is being made by the Issuer or any subsidiary thereof”.
Consequences of Tender Offers:
Share-for-Share:			Modified Calculation Agent Adjustment
Share-for-Other:			Modified Calculation Agent Adjustment
Share-for-Combined:			Modified Calculation Agent Adjustment
New Shares:			In the definition of New Shares in Section 12.1(i) of the Equity Definitions, the text in clause (i) thereof shall be deleted in its entirety and replaced with “publicly quoted, traded or listed on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors)”.


Composition of Combined Consideration:			Not Applicable
Nationalization, Insolvency or Delisting:			Cancellation and Payment; provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re- traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Market or The NASDAQ Global Select Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall thereafter be deemed to be the Exchange.
Additional Disruption Events:
Change in Law:			Applicable; provided that (i) any determination as to whether (A) the adoption of or any change in any applicable law or regulation (including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute) or (B) the promulgation of or any change in the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law or regulation (including any action taken by a taxing authority), in each case, constitutes a “Change in Law” shall be made without regard to Section 739 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any similar legal certainty provision in any legislation enacted, or rule or regulation promulgated, on or after the Trade Date, (ii) Section 12.9(a)(ii) of the Equity Definitions is hereby amended by replacing the parenthetical beginning after the word “regulation” in the second line thereof the words “(including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute)” and (iii) by, immediately following the word “Transaction” in clause (x) thereof, adding the phrase “in the manner contemplated by the Hedging Party on the Trade Date”.
Failure to Deliver:			Applicable
Insolvency Filing:			Applicable


Hedging Disruption:			Applicable
Increased Cost of Hedging:			Not Applicable
Loss of Stock Borrow:			Applicable
Maximum Stock Loan Rate:			200 bps
Increased Cost of Stock Borrow:			Applicable
Initial Stock Loan Rate:			25 bps
Determining Party:			For all applicable events, Dealer; provided that, when making any determination or calculation as “Determining Party,” Dealer shall be bound by the same obligations relating to required acts of the Calculation Agent as set forth in Section 1.40 of the Equity Definitions and this Confirmation as if Determining Party were the Calculation Agent. All calculations and determinations made by the Determining Party shall be made in good faith and in a commercially reasonable manner. Following any determination or calculation by Determining Party hereunder, upon a written request by Issuer, Determining Party will promptly (but in any event within five Scheduled Trading Days) provide to Issuer in writing a report (in a commonly used file format for the storage and manipulation of financial data) displaying in reasonable detail the basis for such determination or calculation (including any assumptions used in the making of such determination or calculation), it being understood that in no event will Determining Party be obligated to share with Issuer any proprietary or confidential data or information or any proprietary or confidential models used by it in making such determination or calculation or any information that is subject to an obligation not to disclose such information.
Hedging Party:			For all applicable events, Dealer
Non-Reliance:			Applicable
Agreements and Acknowledgements Regarding Hedging Activities:			Applicable