What changed in this filing

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Item 1. Financial Statements

2020-11-04 compared with 2020-08-04 · 185 added, 136 removed, 441 unchanged (42% of the section changed)

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HAEMONETICS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited in thousands, except per share data)

Three Months Ended

2020 June 29,

Three Months Ended Six Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Net revenues $ 209,486 $ 252,566 $ 405,063 $ 491,017

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Impairment of assets — — 1,028 48,721

Gains on divestitures and sale of assets ( 31,498 ) ( 8,083 ) ( 31,498 ) ( 8,083 )

Total operating expenses 46,962 77,261 125,277 206,469

Operating income (loss) 11,715 ( 13,302 )

Operating income 58,782 49,739 70,497 36,437

Interest and other expense, net ( 3,826 ) ( 4,651 ) ( 7,561 ) ( 9,074 )

Income (loss) before provision for income taxes 7,980 ( 17,725 )

Benefit for income taxes ( 2,547 ) ( 9,246 )

Net income (loss) $ 10,527 $ ( 8,479 )

Net income (loss) per share - basic $ 0.21 $ ( 0.17 )

Net income (loss) per share - diluted $ 0.21 $ ( 0.17 )

Income before provision for income taxes 54,956 45,088 62,936 27,363

Provision (benefit) for income taxes 6,855 7,602 4,308 ( 1,644 )

Net income $ 48,101 $ 37,486 $ 58,628 $ 29,007

Net income per share - basic $ 0.95 $ 0.74 $ 1.16 $ 0.57

Net income per share - diluted $ 0.94 $ 0.72 $ 1.15 $ 0.56

Weighted average shares outstanding

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Diluted 51,093 52,046 51,170 52,174

Comprehensive income (loss) $ 11,956 $ ( 12,097 )

Comprehensive income $ 53,335 $ 35,378 $ 65,291 $ 23,281

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(Unaudited in thousands, except share data)

September 26,

2020 March 28,

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Cash and cash equivalents $ 279,169 $ 137,311

Accounts receivable, less allowance of $3,446 at June 27, 2020 and $3,824 at March 28, 2020 141,094 165,207

Accounts receivable, less allowance of $2,699 at September 26, 2020 and $3,824 at March 28, 2020 141,533 165,207

Inventories, net 305,224 270,276

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Property, plant and equipment, net 240,405 253,399

Intangible assets, less accumulated amortization of $299,039 at June 27, 2020 and $296,942 at March 28, 2020 137,520 133,106

Intangible assets, less accumulated amortization of $299,450 at September 26, 2020 and $296,942 at March 28, 2020 127,210 133,106

Goodwill 214,594 210,652

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Authorized — 150,000,000 shares;

Issued and outstanding — 50,671,442 shares at June 27, 2020 and 50,322,930 shares at March 28, 2020 507 503

Issued and outstanding — 50,703,343 shares at September 26, 2020 and 50,322,930 shares at March 28, 2020 507 503

Additional paid-in capital 568,748 553,229

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Balance, June 27, 2020 50,671 $ 507 $ 562,729 $ 89,039 $ ( 43,706 ) $ 608,569

Exercise of stock options 2 — 67 — — 67

Issuance of restricted stock, net of cancellations 30 — — — — —

Share-based compensation expense — — 5,952 — — 5,952

Net income — — — 48,101 — 48,101

Other comprehensive income — — — — 5,234 5,234

Balance, September 26, 2020 50,703 $ 507 $ 568,748 $ 137,140 $ ( 38,472 ) $ 667,923

Common Stock Additional

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Balance, June 29, 2019 50,771 $ 508 $ 525,038 $ 99,418 $ ( 33,998 ) $ 590,966

Exercise of stock options 64 1 2,409 — — 2,410

Shares repurchased ( 360 ) ( 4 ) 1,274 ( 51,270 ) — ( 50,000 )

Issuance of restricted stock, net of cancellations 133 1 ( 1 ) — — —

Share-based compensation expense — — 5,000 — — 5,000

Net income — — — 37,486 — 37,486

Other comprehensive loss — — — — ( 2,108 ) ( 2,108 )

Balance, September 28, 2019 50,608 $ 506 $ 533,720 $ 85,634 $ ( 36,106 ) $ 583,754

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(Unaudited in thousands)

Three Months Ended

2020 June 29,

Six Months Ended

September 26,

2020 September 28,

Cash Flows from Operating Activities:

Net income (loss) $ 10,527 $ ( 8,479 )

Net income $ 58,628 $ 29,007

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

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Provision for losses on accounts receivable and inventory 1,057 ( 1,857 )

Gains on divestitures and sale of assets ( 31,498 ) ( 8,083 )

Other non-cash operating activities 362 140

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Acquisition ( 16,606 ) —

Proceeds from divestiture — 9,808

Proceeds from divestitures 44,978 9,808

Proceeds from sale of property, plant and equipment 902 15,739

Net cash (used in) provided by investing activities ( 23,896 ) 1,861

Net cash provided by investing activities 13,239 7,825

Cash Flows from Financing Activities:

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Other ( 20 ) 72

Net cash provided by financing activities 148,951 16,090

Net cash provided by (used in) financing activities 84,633 ( 96,427 )

Effect of exchange rates on cash and cash equivalents 3,019 ( 1,248 )

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All intercompany transactions have been eliminated.

Operating results for the three months ended June 27, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 3, 2021 or any other interim period.

Operating results for the six months ended September 26, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 3, 2021 or any other interim period.

The Company has assessed its ability to continue as a going concern.

As of June 27, 2020, the Company has concluded that substantial doubt about its ability to continue as a going concern does not exist.

As of September 26, 2020, the Company has concluded that substantial doubt about its ability to continue as a going concern does not exist.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the annual report on Form 10-K for the fiscal year ended March 28, 2020.

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

Refer to Note 5, Divestitures and to Note 11, Notes Payable and Long-Term Debt , for information pertaining to three divestitures and a payment on the Company's revolving credit facility, respectively, that occurred subsequent to June 27, 2020.

There were no other material recognized or unrecognized subsequent events as of or for the three months ended June 27, 2020.

Refer to Note 11, Notes Payable and Long-term Debt , for information pertaining to a payment made on the Company's revolving credit facility that occurred subsequent to September 26, 2020.

There were no other material recognized or unrecognized subsequent events as of or for the six months ended September 26, 2020.

RECENT ACCOUNTING PRONOUNCEMENTS

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These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2023.

During the three months ended June 27, 2020, the Company incurred $ 3.5 million of restructuring and turnaround costs under this program.

During the three and six months ended September 26, 2020, the Company incurred $ 4.4 million and $ 8.0 million, respectively, of restructuring and turnaround costs under this program.

During both the three and six months ended September 28, 2019, the Company incurred $ 2.9 million of restructuring and turnaround costs under this program.

Total cumulative charges under this program are $ 19.8 million.

There were no restructuring and turnaround costs incurred during the three months ended June 29, 2019 under this program.

During fiscal 2018, the Company launched a Complexity Reduction Initiative (the "2018 Program"), a company-wide restructuring program designed to improve operational performance and reduce cost, freeing up resources to invest in accelerated growth.

During the three months ended June 27, 2020 and June 29, 2019, the Company incurred $ 0.5 million and $ 2.0 million, respectively, of restructuring and turnaround costs under this program.

During the three months ended September 26, 2020, the Company incurred minimal charges of restructuring and turnaround costs under this program.

During the six months ended September 26, 2020, the Company incurred $ 0.5 million of restructuring and turnaround costs under this program.

During the three and six months ended September 28, 2019, the Company incurred $ 0.9 million and $ 2.9 million, respectively, of restructuring and turnaround costs under this program.

Total cumulative charges under this program are $ 58.7 million.

The 2018 Program is substantially complete.

The following table summarizes the activity for restructuring reserves related to the 2020 Program and the 2018 and Prior Programs for the three months ended June 27, 2020, substantially all of which relates to employee severance and other employee costs:

(In thousands) 2020 Program 2018 and Prior Programs Total

The following table summarizes the activity for restructuring reserves related to the 2020 Program and the 2018 Program and prior programs for the six months ended September 26, 2020, substantially all of which relates to employee severance and other employee costs:

(In thousands) 2020 Program 2018 Program and Prior Programs Total

Balance at March 28, 2020 $ 1,136 $ 1,512 $ 2,648

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Payments ( 1,145 ) ( 815 ) ( 1,960 )

Balance at June 27, 2020 $ 1,761 $ 778 $ 2,539

The following presents the restructuring costs by line item within our accompanying unaudited condensed consolidated statements of income (loss) and comprehensive income (loss):

Three Months Ended

(In thousands) June 27,

2020 June 29,

Balance at September 26, 2020 $ 1,091 $ 589 $ 1,680

The following presents the restructuring costs by line item within our accompanying unaudited condensed consolidated statements of income and comprehensive income:

Three Months Ended Six Months Ended

(In thousands) September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Cost of goods sold $ ( 236 ) $ 283 $ 267 $ 442

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$ ( 73 ) $ 1,343 $ 992 $ 2,312

As of June 27, 2020, the Company had a restructuring liability of $ 2.5 million, of which $ 2.1 million is payable within the next twelve months.

In addition to the restructuring costs included in the table above, the Company also incurred costs of $ 2.9 million that do not constitute restructuring under ASC 420, Exit and Disposal Cost Obligations, and which the Company instead refers to as turnaround costs.

As of September 26, 2020, the Company had a restructuring liability of $ 1.7 million, of which $ 1.2 million is payable within the next twelve months.

In addition to the restructuring costs included in the table above, the Company also incurred costs that do not constitute restructuring under ASC 420, Exit and Disposal Cost Obligations, and which the Company instead refers to as turnaround costs.

These costs consist primarily of expenditures directly related to the restructuring actions and include program management costs associated with the 2020 Program and operational performance improvement initiatives.

The tables below present restructuring and turnaround costs by reportable segment:

Restructuring costs Three Months Ended

(In thousands) June 27, 2020 June 29, 2019

Restructuring costs Three Months Ended Six Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Plasma $ ( 87 ) $ 395 $ 481 $ 548

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Total $ ( 73 ) $ 1,343 $ 992 $ 2,312

Turnaround costs Three Months Ended

(In thousands) June 27, 2020 June 29, 2019

Turnaround costs Three Months Ended Six Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Plasma $ 804 $ 31 $ 804 $ 79

Blood Center 490 — 506 —

Hospital 1 — 10 —

Corporate 3,218 2,383 6,128 3,393

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Purchase Price Allocation

The Company accounted for the acquisition of enicor GmbH as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations ( Topic 805 ), recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date.

The Company accounted for the acquisition of enicor as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations ( Topic 805 ), recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date.

The final determination of the fair value of certain assets and liabilities will be completed within the measurement period as required by Topic 805.

As of June 27, 2020, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including the projection of the underlying cash flows used to determine the fair value of the identified tangible, intangible and financial assets and liabilities.

The following amounts represent the preliminary determination of the fair value of the identifiable assets acquired and liabilities assumed for enicor completed during the first three months of fiscal 2021:

(In thousands) June 27, 2020

As of September 26, 2020, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including the projection of the underlying cash flows used to determine the fair value of the identified tangible, intangible and financial assets and liabilities.

(In thousands) September 26, 2020

Inventory $ 634

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Net assets acquired $ 16,606

The Company determined the identifiable intangible assets were completed technology, customer relationships and trademark.

The Company determined the identifiable intangible assets were completed technology, customer relationships and a trademark.

The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a rate of 20%.

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Acquisition-Related Costs

The amount of acquisition-related costs incurred associated the acquisition was $ 0.2 million for three months ended June 27, 2020.

The amount of acquisition-related costs incurred associated with the acquisition was $ 0.2 million for the three and six months ended September 26, 2020.

Unaudited Pro Forma Financial Information

enicor had an immaterial impact to the Company's net sales and net income for the period post acquisition through June 27, 2020.

Enicor had an immaterial impact to the Company's net revenues and net income for the period post acquisition through September 26, 2020.

The unaudited estimated pro forma impact of the results of the acquisition of enicor as if it was consummated on March 29, 2020 are immaterial.

Subsequent to the first quarter, which ended on June 27, 2020, the Company completed or announced the following divestitures.

Fajardo, Puerto Rico Manufacturing Operations

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The Company also agreed to provide certain transition services to GVS, generally for a period of up to three months depending on the nature of the service.

As a result of this transaction, Haemonetics recognized a pre-tax impairment charge of $ 1.0 million in the first quarter of fiscal 2021, as the carrying value of the assets and liabilities in the asset transfer exceeded the net of the $ 15.5 million of cash proceeds and the expected costs to sell of $ 1.5 million.

As of June 27, 2020, $ 7.6 million of assets, consisting of the property, plant and equipment included in the transaction and goodwill, were treated as assets held for sale and reclassified to other current assets.

As a result of this transaction, Haemonetics recognized a pre-tax impairment charge of $ 1.0 million in the first quarter of fiscal 2021 within the Blood Center business unit, as the carrying value of the assets and liabilities in the asset transfer exceeded the net of the $ 15.5 million of cash proceeds and an additional contingent liability of $ 1.5 million.

The disposal group consisted of $ 3.3 million of inventory, $ 7.2 million of fixed assets, $ 3.1 million of other liabilities, and $ 0.4 million of goodwill allocated based on fair value to the business.

Blood Donor Management Software

On July 1, 2020, the Company sold certain U.S.

In addition to the cash received upon closing, the Company could receive up to $ 14.0 million in additional consideration contingent on the achievement of commercial milestones over the twelve month period immediately following the closing of the transaction.

blood donor management software solution assets within its Blood Center business unit to the GPI Group ("GPI") for an upfront cash payment of $ 14.0 million ($ 13.6 million, net of working capital adjustments) and up to $ 14.0 million in additional consideration contingent on the achievement of commercial milestones over the twelve month period immediately following the closing of the transaction.

The disposal group consisted $ 1.4 million of accounts receivable, $ 0.9 million of intangible assets, other liabilities of $ 1.8 million and $ 1.4 million of goodwill allocated based on fair value to the business.

The Company recognized an $ 11.7 million gain upon closing of the transaction in the second quarter of fiscal 2021 and to the extent the additional contingent consideration is earned and realized in a future period then such amounts will be recorded as additional gains in such future period.

The Company also agreed to provide certain transition services to GPI, generally for a period of one to nine months depending on the nature of the service.

As of June 27, 2020, the intellectual property and certain other related assets, including goodwill, associated with the transferred assets totaling $ 2.3 million were treated as assets held for sale and reclassified to other current assets.

Inlog Holdings France

On July 23, 2020, the Company entered into a definitive agreement to sell its wholly-owned subsidiary Inlog Holdings France SAS to Abénex Capital ("Abénex"), a private equity firm based in France.

On September 18, 2020, the Company sold its wholly-owned subsidiary Inlog Holdings France SAS to Abénex Capital ("Abénex"), a private equity firm based in France for $ 30.5 million ($ 24.5 million, net of cash transferred), of which $ 29.2 million was received at closing and $ 1.3 million will be received one-year from the closing date.

Inlog Holdings France SAS, through its subsidiary In Log SAS, develops and sells blood bank and hospital software solutions used predominantly in France and in several other countries outside of the U.S.

This transaction is expected to close in the second quarter of fiscal 2021, subject to Abénex's receipt of financing and the satisfaction of other customary closing conditions.

The disposal group included $ 2.2 million of intangible assets, $ 2.2 million accounts receivable, $ 0.3 million other assets, $ 3.3 million of liabilities and $ 3.3 million of goodwill allocated based on the fair value of the business which impacted both the Blood Center and Hospital business units.

The Company recognized a gain of $ 19.8 million upon closing of the transaction in the second quarter of fiscal 2021.

The Company conducts business globally and reports its results of operations in a number of foreign jurisdictions in addition to the United States.

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statutory tax rate.

For the three months ended June 27, 2020, the Company reported an income tax benefit of $ 2.5 million, representing an effective tax rate benefit of 31.9 %.

The effective tax rate for the three months ended June 27, 2020 includes discrete tax benefits recognized from excess stock compensation deductions of $ 4.0 million.

The effective tax rates were also impacted by the jurisdictional mix of earnings.

During the three months ended June 27, 2020, the Company transferred certain intangible assets amongst its wholly-owned subsidiaries prior to the divestiture of its Fajardo, Puerto Rico manufacturing operations.

The tax expense on the intercompany sale and the establishment of deferred tax assets (including the associated valuation allowance impacts) were included in the computation of the annual effective tax rate.

For the three months ended June 29, 2019, the Company reported an income tax benefit of $ 9.2 million, representing an effective tax rate of 52.2 %.

The effective tax rate for the three months ended June 29, 2019 was higher than the U.S.

statutory tax rate primarily due to the jurisdictional mix of earnings, as well as the impact of the divestiture of the Union liquid solutions

operation recorded in pretax income which resulted in a worldwide pretax loss for the quarter.

The tax rate for the three months ended June 29, 2019 benefited from a discrete stock compensation windfall benefit of $ 4.9 million.

For the three and six months ended September 26, 2020, the Company reported income tax expense of $ 6.9 million and $ 4.3 million, respectively, representing effective tax rates of 12.5 % and 6.8 %, respectively.

The effective tax rate for the three and six months ended September 26, 2020 includes discrete tax benefits recognized from excess stock compensation deductions of $ 0.1 million and $ 4.1 million, respectively.

The effective tax rates were also impacted by the jurisdictional mix of earnings including divestiture transactions.

During the three and six months ended September 26, 2020, the Company sold its Fajardo, Puerto Rico manufacturing operations, certain U.S.

blood donor management software solution assets, and its wholly-owned subsidiary Inlog Holdings France SAS.

The tax expense on divestitures, including the associated valuation allowance impacts, were included in the computation of the annual effective tax rate.

Refer to Note 5, Divestitures , for information pertaining to these divestitures.

For the three and six months ended September 28, 2019, the Company reported an income tax provision of $ 7.6 million and a benefit of $ 1.6 million, respectively, representing effective tax rates of 16.9 % and ( 6.0 )%, respectively.

The effective tax rate

for the six months ended September 28, 2019 was lower than the U.S.

statutory tax rate primarily due to a discrete tax benefit recognized from excess stock compensation deductions of $ 4.4 million and $ 9.3 million, respectively.

The effective tax rates were also impacted by the jurisdictional mix of earnings and the impact of the divestiture of the Union, South Carolina facility.

EARNINGS PER SHARE

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.

Three Months Ended

(In thousands, except per share amounts) June 27,

2020 June 29,

Net income (loss) $ 10,527 $ ( 8,479 )

Three Months Ended Six Months Ended

(In thousands, except per share amounts) September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Net income $ 48,101 $ 37,486 $ 58,628 $ 29,007

Weighted average shares 50,696 50,791 50,557 50,901

Basic income (loss) per share $ 0.21 $ ( 0.17 )

Net income (loss) $ 10,527 $ ( 8,479 )

Basic income per share $ 0.95 $ 0.74 $ 1.16 $ 0.57

Net income $ 48,101 $ 37,486 $ 58,628 $ 29,007

Basic weighted average shares 50,696 50,791 50,557 50,901

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Diluted weighted average shares 51,093 52,046 51,170 52,174

Diluted income (loss) per share $ 0.21 $ ( 0.17 )

Diluted income per share $ 0.94 $ 0.72 $ 1.15 $ 0.56

Basic earnings per share is calculated using the Company's weighted-average outstanding common stock.

Diluted earnings per share is calculated using its weighted-average outstanding common stock including the dilutive effect of stock awards as determined under the treasury stock method.

For the three months ended June 27, 2020, weighted average shares outstanding, assuming dilution, excludes the impact of 0.5 million anti-dilutive shares.

For the three months ended June 29, 2019, the Company recognized a net loss;

therefore it excluded the impact of outstanding stock awards from the diluted loss per share calculation as its inclusion would have an anti-dilutive effect.

For the three and six months ended September 26, 2020, weighted average shares outstanding, assuming dilution, excludes the impact of 0.8 million and 0.6 million anti-dilutive shares, respectively.

For the three and six months ended September 28, 2019, weighted average shares outstanding, assuming dilution, excludes the impact of 12,421 shares and 0.2 million anti-dilutive shares, respectively.

The Company's revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 606, Revenue from Contracts with Customers .

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For goods or services for which observable standalone selling prices are not available, the Company uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

As of June 27, 2020, the Company had $ 21.9 million of its transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more.

As of September 26, 2020, the Company had $ 19.1 million of its transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more.

The Company expects to recognize approximately 61 % of this amount as revenue within the next twelve months and the remaining balance thereafter.

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the condensed consolidated balance sheets.

The difference in timing between billing and revenue recognition primarily occurs in software licensing arrangements, resulting in contract assets and contract liabilities.

As of June 27, 2020 and March 28, 2020, the Company had contract assets of $ 6.1 million and $ 5.0 million, respectively.

As of September 26, 2020 and March 28, 2020, the Company had contract assets of $ 6.7 million and $ 5.0 million, respectively.

The change is primarily due to the delay in billings compared to the revenue recognized.

Contract assets are classified as other current assets and other long-term assets on the condensed consolidated balance sheets.

As of June 27, 2020 and March 28, 2020, the Company had contract liabilities of $ 21.5 million and $ 20.8 million, respectively.

During the three months ended June 27, 2020, the Company recognized $ 8.9 million of revenue that was included in the above March 28, 2020 contract liability balance.

As of September 26, 2020 and March 28, 2020, the Company had contract liabilities of $ 17.5 million and $ 20.8 million, respectively.

During the three and six months ended September 26, 2020, the Company recognized $ 4.8 million and $ 13.7 million, respectively, of revenue that was included in the above March 28, 2020 contract liability balance.

Contract liabilities decreased by an additional $ 2.5 million during the three and six months ended September 26, 2020 as a result of the sale of certain U.S.

blood donor management software solution assets and the Company's wholly-owned subsidiary Inlog Holdings France SAS.

Refer to Note 5, Divestitures for additional detail.

Contract liabilities are classified as other liabilities and other long-term liabilities on the condensed consolidated balance sheets.

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Cost is determined using the first-in, first-out method.

(In thousands) June 27,

(In thousands) September 26,

2020 March 28,

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In addition, the Company recorded a $ 4.1 million lease incentive receivable associated with this lease agreement.

Lessor Activity

Assets on the Company's balance sheet classified as Haemonetics equipment primarily consists of medical devices installed at customer sites but owned by Haemonetics.

These devices are leased to customers under contractual arrangements that typically include an operating or sales-type lease as well as the purchase and consumption of a certain level of disposable products.

Sales-type leases are not significant.

Contract terms vary by customer and may include options to terminate the contract or options to extend the contract.

Where devices are provided under operating lease arrangements, a substantial majority of the entire lease revenue is variable and subject to subsequent non-lease component (disposable products) sales.

The allocation of revenue between the lease and non-lease components is based on stand-alone selling prices.

Operating lease revenue represents less than 3 percent of the Company's total net sales.

NOTES PAYABLE AND LONG-TERM DEBT

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Under the Credit Facilities, the Company is required to maintain certain leverage and interest coverage ratios specified in the credit agreement as well as other customary non-financial affirmative and negative covenants.

At June 27, 2020, $ 319.4 million was outstanding under the Term Loan with an effective interest rate of 1.4 % and $ 210.0 million was outstanding on the Revolving Credit Facility.

On July 15, 2020, subsequent to the balance sheet date, the Company reduced its borrowings on the Revolving Credit Facility by $ 60.0 million.

The Company also has $ 26.2 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of June 27, 2020.

At September 26, 2020, $ 315.0 million was outstanding under the Term Loan with an effective interest rate of 1.4 % and $ 150.0 million was outstanding on the Revolving Credit Facility.

On October 8, 2020, subsequent to the balance sheet date, the Company reduced its borrowings on the Revolving Credit Facility by $ 150.0 million.

The Company also has $ 26.2 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of September 26, 2020.

The Company has required scheduled principal payments of $ 13.1 million during the remainder of fiscal 2021, $ 17.5 million during fiscal 2022, $ 214.4 million during fiscal 2023 and $ 70.0 million during fiscal 2024.

The Company was in compliance with the leverage and interest coverage ratios specified in the Credit Facilities as well as all other bank covenants as of June 27, 2020.

The Company was in compliance with the leverage and interest coverage ratios specified in the Credit Facilities as well as all other bank covenants as of September 26, 2020.

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company manufactures, markets and sells its products globally.

During the three months ended June 27, 2020, 43.2 % of the Company's sales were generated outside the U.S., generally in foreign currencies.

During the three and six months ended September 26, 2020, 40.8 % and 42.0 %, respectively, of the Company's sales were generated outside the U.S., generally in foreign currencies.

The Company also incurs certain manufacturing, marketing and selling costs in international markets in local currency.

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Designated Foreign Currency Hedge Contracts

All of the Company's designated foreign currency hedge contracts as of June 27, 2020 and March 28, 2020 were cash flow hedges under ASC 815, Derivatives and Hedging ("ASC 815").

All of the Company's designated foreign currency hedge contracts as of September 26, 2020 and March 28, 2020 were cash flow hedges under ASC 815, Derivatives and Hedging ("ASC 815").

The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs.

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In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company would reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time.

The Company had designated foreign currency hedge contracts outstanding in the contract amount of $ 67.5 million as of June 27, 2020 and $ 93.8 million as of March 28, 2020.

At June 27, 2020, a gain of $ 1.9 million, net of tax, will be reclassified to earnings within the next twelve months.

Substantially all currency cash flow hedges outstanding as of June 27, 2020 mature within twelve months.

The Company had designated foreign currency hedge contracts outstanding in the contract amount of $ 42.5 million as of September 26, 2020 and $ 93.8 million as of March 28, 2020.

At September 26, 2020, a gain of $ 1.6 million, net of tax, will be reclassified to earnings within the next twelve months.

Substantially all currency cash flow hedges outstanding as of September 26, 2020 mature within twelve months.

Non-Designated Foreign Currency Contracts

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These forward contracts are marked-to-market with changes in fair value recorded to earnings.

The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $ 131.7 million as of June 27, 2020 and $ 98.0 million as of March 28, 2020.

The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $ 94.7 million as of September 26, 2020 and $ 98.0 million as of March 28, 2020.

Interest Rate Swaps

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The Company designated the Swaps as cash flow hedges of variable interest rate risk associated with $ 345.6 million of indebtedness.

For the three months ended June 27, 2020, a loss of $ 2.1 million, net of tax, was recorded in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges.

For the six months ended September 26, 2020, a gain of $ 2.2 million, net of tax, was recorded in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges.

Trade Receivables

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To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns as a result of the pandemic.

The following is a rollfoward of the allowance for credit losses:

Three Months Ended

(In thousands) June 27, 2020 June 29, 2019

The following is a rollforward of the allowance for credit losses:

Three Months Ended Six Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Beginning balance $ 3,446 $ 3,624 $ 3,824 $ 3,937

Credit loss expense ( 259 ) ( 299 )

Credit (gain) loss ( 483 ) 586 ( 742 ) 286

Write-offs ( 264 ) ( 102 ) ( 383 ) ( 115 )

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Fair Value of Derivative Instruments

The following table presents the effect of the Company's derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in its condensed consolidated statements of income (loss) and comprehensive income (loss) for the three months ended June 27, 2020:

The following table presents the effect of the Company's derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in its condensed consolidated statements of income and comprehensive income for the six months ended September 26, 2020:

(In thousands) Amount of Gain

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Earnings Location in

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Amount of Gain (Loss) Excluded from

Condensed Consolidated Statements of Income and Comprehensive Income Amount of Gain (Loss) Excluded from

Effectiveness

Testing Location in

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

Condensed Consolidated Statements of Income and Comprehensive Income

Designated foreign currency hedge contracts, net of tax $ ( 1,610 ) $ ( 728 ) Net revenues, COGS and SG&A $ ( 469 ) Interest and other expense, net

1 unchanged sentence

Designated interest rate swaps, net of tax $ 22 $ ( 2,178 ) Interest and other expense, net $ —

The Company did not have fair value hedges or net investment hedges outstanding as of June 27, 2020 or March 28, 2020.

As of June 27, 2020, no material deferred tax assets were recognized for designated foreign currency hedges.

The Company did not have fair value hedges or net investment hedges outstanding as of September 26, 2020 or March 28, 2020.

As of September 26, 2020, no material deferred tax assets were recognized for designated foreign currency hedges.

ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet.

The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures , by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities.

instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities.

In certain instances, the Company may utilize financial models to measure fair value.

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and inputs derived principally from, or corroborated by, observable market data by correlation or other means.

As of June 27, 2020, the Company has classified its derivative assets and

liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.

The following tables present the fair value of the Company's derivative instruments as they appear in its condensed consolidated balance sheets as of June 27, 2020 and March 28, 2020:

As of September 26, 2020, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.

The following tables present the fair value of the Company's derivative instruments as they appear in its condensed consolidated balance sheets as of September 26, 2020 and March 28, 2020:

(In thousands) Location in Condensed Consolidated

Balance Sheets As of As of

June 27, 2020 March 28, 2020

September 26, 2020 March 28, 2020

Derivative Assets:

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Fair Value Measured on a Recurring Basis

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of June 27, 2020 and March 28, 2020.

As of June 27, 2020

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of September 26, 2020 and March 28, 2020.

As of September 26, 2020

(In thousands) Level 1 Level 2 Level 3 Total

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The Company does not believe that the fair value of these derivative instruments differs significantly from the amount that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows.

Interest rate swaps - The fair value of interest rate swaps are measured using the present value of expected future cash flows using market-based observable inputs, including credit risk and interest rate yield curves.

Interest rate swaps - The fair values of interest rate swaps are measured using the present value of expected future cash flows using market-based observable inputs, including credit risk and interest rate yield curves.

The Company does not believe that the fair values of these derivative instruments differ significantly from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows.

Contingent consideration - The fair value of contingent consideration liabilities is based on significant unobservable inputs, including management estimates and assumptions, and are measured based on the probability-weighted present value of the payments expected to be made.

Contingent consideration - The fair value of contingent consideration liabilities is based on significant unobservable inputs, including management estimates and assumptions, and is measured based on the probability-weighted present value of the payments expected to be made.

Accordingly, the fair value of contingent consideration has been classified as level 3 within the fair value hierarchy.

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Fair Value at Valuation Unobservable

(In thousands) June 27, 2020 Technique Input Range

(In thousands) September 26, 2020 Technique Input Range

Revenue-based payments $ 1,920 Discounted cash flow Discount rate 8.5 %

Projected year of payment 2021 - 2023

Regulatory-based payments $ 2,000 Discounted cash flow Discount rate 4.9 %

Regulatory-based payment $ 2,000 Discounted cash flow Discount rate 4.9 %

Probability of payment 0% - 100%

Projected year of payment 2021 - 2023

As of June 27, 2020, the maximum potential contingent consideration that the Company could be required to pay is $ 4.5 million.

The fair value of contingent consideration associated with acquisitions was $ 3.9 million at June 27, 2020.

As of June 27, 2020, $ 0.5 million was included in other current liabilities and $ 3.4 million was included in other liabilities on the condensed consolidated balance sheet.

Reconciliation of the change in the fair value of contingent consideration are included in the following table:

As of September 26, 2020, the maximum potential contingent consideration that the Company could be required to pay is $ 4.5 million.

The fair value of contingent consideration associated with acquisitions was $ 3.9 million at September 26, 2020.

As of September 26, 2020, $ 0.5 million was included in other current liabilities and $ 3.4 million was included in other liabilities on the condensed consolidated balance sheet.

A reconciliation of the change in the fair value of contingent consideration is included in the following table:

(In thousands)

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Acquisition date fair value of contingent consideration 3,920

Balance at June 27, 2020 $ 3,920

Change in fair value —

Balance at September 26, 2020 $ 3,920

Other Fair Value Disclosures

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In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items.

These items include restructuring and turnaround costs, deal amortization, asset impairments, accelerated depreciation and related costs, costs related to compliance with the European Union Medical Device Regulation, transaction costs and certain legal charges.

Although these amounts are excluded from segment operating income, as applicable, they are included in the reconciliations that follow.

These items include restructuring and turnaround costs, deal amortization, gains on divestitures and sale of assets, asset impairments and other related charges, accelerated depreciation and related costs, costs related to compliance with the European Union Medical Device Regulation, transaction costs and certain legal charges.

Although these amounts are excluded from segment operating income, as applicable, they are included in the reconciliations

Management measures and evaluates the Company's net revenues and operating income using internally derived standard currency exchange rates that remain constant from year to year;

1 unchanged sentence

Selected information by reportable segment is presented below:

Three Months Ended

(In thousands) June 27,

2020 June 29,

Three Months Ended Six Months Ended

(In thousands) September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Plasma $ 78,718 $ 116,381 $ 147,433 $ 227,144

2 unchanged sentences

Net revenues by business unit 204,455 249,710 398,055 485,656

5,342 5,276 10,424 10,142

Effect of exchange rates ( 311 ) ( 2,420 ) ( 3,416 ) ( 4,781 )

1 unchanged sentence

(1) Reflects revenue for service, maintenance and parts

Three Months Ended

(In thousands) June 27,

2020 June 29,

Three Months Ended Six Months Ended

(In thousands) September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Segment operating income

6 unchanged sentences

Effect of exchange rates 3,647 2,501 4,358 5,270

Impairment of assets and other related charges ( 964 ) ( 51,166 )

Deal amortization ( 8,136 ) ( 5,935 ) ( 16,399 ) ( 11,909 )

PCS2 accelerated depreciation and related costs ( 1,542 ) ( 5,528 )

Restructuring and turnaround costs ( 4,440 ) ( 3,757 ) ( 8,440 ) ( 5,784 )

European Medical Device Regulation costs and other ( 753 ) ( 33 )

Transaction costs ( 1,773 ) — ( 3,063 ) —

Operating income (loss) $ 11,715 $ ( 13,302 )

PCS2 accelerated depreciation and related costs ( 644 ) ( 6,534 ) ( 2,186 ) ( 12,062 )

European Medical Device Regulation costs and other ( 736 ) 180 ( 1,489 ) 147

Impairment of assets and other related charges 68 ( 54 ) ( 896 ) ( 51,220 )

Gains on divestitures and sale of assets 31,498 8,083 31,498 8,083

Operating income $ 58,782 $ 49,739 $ 70,497 $ 36,437

(1) Reflects shared service expenses including quality and regulatory, customer and field service, research and development, manufacturing and supply chain, as well as other corporate support functions.

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Net revenues by product line are as follows:

Three Months Ended

(In thousands) June 27,

2020 June 29,

Three Months Ended Six Months Ended

(In thousands) September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Plasma products and services $ 97,710 $ 135,849 $ 186,423 $ 265,594

3 unchanged sentences

Net revenues generated in the Company's principle operating regions on a reported basis are as follows:

Three Months Ended

(In thousands) June 27,

2020 June 29,

Three Months Ended Six Months Ended

(In thousands) September 26,

2020 September 28,

2019 September 26,

2020 September 28,

United States $ 123,984 $ 161,880 $ 234,993 $ 318,255

12 unchanged sentences

— — 2,906 2,906

Net current period other comprehensive income (loss) 1,534 — ( 105 ) 1,429

Balance as of June 27, 2020 $ ( 29,566 ) $ ( 209 ) $ ( 13,931 ) $ ( 43,706 )

Net current period other comprehensive income 5,345 — 1,318 6,663

Balance as of September 26, 2020 $ ( 25,755 ) $ ( 209 ) $ ( 12,508 ) $ ( 38,472 )

(1) Presented net of income taxes, the amounts of which are insignificant.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements