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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 27, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14041
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
125 Summer Street 
Boston,Massachusetts02110
(Address of principal executive offices)(Zip Code)
(781848-7100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, $.01 par value per shareHAENew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No x
The number of shares of $0.01 par value common stock outstanding as of July 31, 2020: 50,699,118



HAEMONETICS CORPORATION
INDEX
 PAGE
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
2



ITEM 1. FINANCIAL STATEMENTS

HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Unaudited in thousands, except per share data)

 Three Months Ended
June 27,
2020
June 29,
2019
Net revenues$195,577  $238,451  
Cost of goods sold105,547  122,545  
Gross profit90,030  115,906  
Operating expenses:  
Research and development7,750  7,487  
Selling, general and administrative69,537  73,000  
Impairment of assets1,028  48,721  
Total operating expenses78,315  129,208  
Operating income (loss)11,715  (13,302) 
Interest and other expense, net(3,735) (4,423) 
Income (loss) before provision for income taxes7,980  (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) 
Weighted average shares outstanding   
Basic50,418  51,010  
Diluted51,247  51,010  
Comprehensive income (loss)$11,956  $(12,097) 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
June 27,
2020
March 28,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$275,725  $137,311  
Accounts receivable, less allowance of $3,446 at June 27, 2020 and $3,824 at March 28, 2020141,094  165,207  
Inventories, net294,510  270,276  
Prepaid expenses and other current assets48,081  30,845  
Total current assets759,410  603,639  
Property, plant and equipment, net242,969  253,399  
Intangible assets, less accumulated amortization of $299,039 at June 27, 2020 and $296,942 at March 28, 2020137,520  133,106  
Goodwill217,298  210,652  
Deferred tax asset4,088  3,930  
Other long-term assets71,888  62,384  
Total assets$1,433,173  $1,267,110  
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Notes payable and current maturities of long-term debt$231,364  $76,980  
Accounts payable48,459  50,730  
Accrued payroll and related costs36,409  49,471  
Other liabilities91,595  97,641  
Total current liabilities407,827  274,822  
Long-term debt, net of current maturities296,893  305,513  
Deferred tax liability13,116  10,562  
Other long-term liabilities106,768  89,104  
Total stockholders’ equity  
Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 50,671,442 shares at June 27, 2020 and 50,322,930 shares at March 28, 2020507  503  
Additional paid-in capital562,729  553,229  
Retained earnings89,039  78,512  
Accumulated other comprehensive loss(43,706) (45,135) 
Total stockholders’ equity608,569  587,109  
Total liabilities and stockholders’ equity$1,433,173  $1,267,110  
        
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited in thousands)
 Common StockAdditional
Paid-in Capital
Retained EarningsAccumulated
Other
Comprehensive Loss
Total
Stockholders’ Equity
 SharesPar Value
Balance, March 28, 202050,323  $503  $553,229  $78,512  $(45,135) $587,109  
Employee stock purchase plan22  —  2,144  —  —  2,144  
Exercise of stock options28  1  1,192  —  —  1,193  
Issuance of restricted stock, net of cancellations298  3  (3) —  —    
Share-based compensation expense—  —  6,167  —  —  6,167  
Net income—  —  —  10,527  —  10,527  
Other comprehensive income—  —  —  —  1,429  1,429  
Balance, June 27, 202050,671  $507  $562,729  $89,039  $(43,706) $608,569  
 Common StockAdditional
Paid-in Capital
Retained EarningsAccumulated
Other
Comprehensive Loss
Total
Stockholders’ Equity
 SharesPar Value
Balance, March 30, 201951,020  $510  $536,320  $161,418  $(30,380) $667,868  
Employee stock purchase plan25    1,830  —  —  1,830  
Exercise of stock options85  1  3,634  —  —  3,635  
Shares repurchased(616) (6) (21,473) (53,521) —  (75,000) 
Issuance of restricted stock, net of cancellations257   (3) —  —    
Share-based compensation expense—  —  4,730  —  —  4,730  
Net loss—  —  —  (8,479) —  (8,479) 
Other comprehensive loss—  —  —  —  (3,618) (3,618) 
Balance, June 29, 201950,771  $508  $525,038  $99,418  $(33,998) $590,966  

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

5


HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
 Three Months Ended
June 27,
2020
June 29,
2019
Cash Flows from Operating Activities:  
Net income (loss)$10,527  $(8,479) 
Adjustments to reconcile net income to net cash provided by operating activities:  
Non-cash items:
Depreciation and amortization20,724  27,437  
Impairment of assets1,028  48,721  
Share-based compensation expense6,167  4,730  
Deferred tax benefit(501) (5,309) 
Provision for losses on accounts receivable and inventory1,193  (1,378) 
Other non-cash operating activities66  50  
Change in operating assets and liabilities:
Change in accounts receivable25,067  22,518  
Change in inventories(24,557) (37,414) 
Change in prepaid income taxes(3,544) (3,228) 
Change in other assets and other liabilities865  (8,208) 
Change in accounts payable and accrued expenses(25,223) (36,812) 
Net cash provided by operating activities11,812  2,628  
Cash Flows from Investing Activities: 
Capital expenditures(7,696) (8,249) 
Acquisition(16,606)   
Proceeds from divestiture  9,808  
Proceeds from sale of property, plant and equipment406  302  
Net cash (used in) provided by investing activities(23,896) 1,861  
Cash Flows from Financing Activities:  
Net increase in short-term loans150,000  90,000  
Repayment of term loan borrowings(4,375) (4,375) 
Share repurchases  (75,000) 
Proceeds from employee stock purchase plan2,144  1,830  
Proceeds from exercise of stock options1,193  3,635  
Other(11)   
Net cash provided by financing activities148,951  16,090  
Effect of exchange rates on cash and cash equivalents1,547  304  
Net Change in Cash and Cash Equivalents138,414  20,883  
Cash and Cash Equivalents at Beginning of Period137,311  169,351  
Cash and Cash Equivalents at End of Period$275,725  $190,234  
Supplemental Disclosures of Cash Flow Information:  
Interest paid$2,780  $3,535  
Income taxes paid$2,063  $3,078  
Non-Cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placement of Haemonetics equipment$2,364  $2,973  
The accompanying notes are an integral part of these condensed consolidated financial statements.
6


HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Haemonetics Corporation ("Haemonetics" or the "Company") presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company's management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. 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. 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. 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.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Standards Implemented

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326). ASC Update No. 2016-13 is intended to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The Company adopted ASC Update No. 2016-13 during the first quarter of fiscal 2021. The adoption did not have a material impact on the Company's unaudited condensed consolidated financial statements.

In August 2018, the FASB issued ASC Update No. 2018-15, Intangibles, Goodwill and Other - Internal-Use Software (Subtopic 350-40). The new guidance aligns the accounting implementation costs incurred in a cloud computing arrangement that is a service contract with the accounting for internal-use software licenses. The Company adopted ASC Update No. 2018-15 during the first quarter of fiscal 2021. The adoption did not have a material impact on the Company's unaudited condensed consolidated financial statements.

3. RESTRUCTURING

On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify opportunities for efficiencies, enhance commercial capabilities, align its resources and offer its customers better solutions. In order to realize these opportunities, the Company undertakes restructuring-type activities to transform its business.

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In July 2019, the Board of Directors of the Company approved a new Operational Excellence Program (the "2020 Program") and delegated authority to the Company's management to determine the detail of the initiatives that will comprise the program. The 2020 Program is designed to improve operational performance and reduce cost principally in our manufacturing and supply chain operations. The Company estimates that it will incur aggregate charges between $60 million and $70 million in connection with the 2020 Program. 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. Total cumulative charges under this program are $15.4 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. 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 Program2018 and Prior ProgramsTotal
Balance at March 28, 2020$1,136  $1,512  $2,648  
Costs incurred, net of reversals1,166  (101) 1,065  
Payments(541) (633) (1,174) 
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,
2019
Cost of goods sold$503  $159  
Research and development319  14  
Selling, general and administrative expenses243  796  
$1,065  $969  

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. 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.










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The tables below present restructuring and turnaround costs by reportable segment:
Restructuring costsThree Months Ended
(In thousands) June 27, 2020June 29, 2019
Plasma$568  $153  
Blood Center154  42  
Hospital129  203  
Corporate214  571  
Total$1,065  $969  
Turnaround costsThree Months Ended
(In thousands) June 27, 2020June 29, 2019
Plasma$  $48  
Blood Center16    
Hospital9    
Corporate2,910  1,010  
Total$2,935  $1,058  
Total restructuring and turnaround costs$4,000  $2,027  

4. ACQUISITION

On April 1, 2020, the Company acquired all of the outstanding equity of enicor GmbH ("enicor"), the manufacturer of ClotPro®, a new generation whole blood coagulation testing system that is currently available in select European and Asia Pacific markets, for total consideration of $20.5 million, which consisted of upfront payments of $16.6 million and the fair value of contingent consideration of $3.9 million. The contingent consideration, which could total a maximum of $4.5 million, consists of payments related to the achievement of certain revenue and regulatory milestones. The acquisition of this viscoelastic diagnostic device augments the Company's portfolio of hemostasis analyzers within the Hospital business unit.

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 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.

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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
Inventory$634  
Other current assets685  
Property, plant and equipment289  
Intangible assets14,090  
Goodwill8,153  
Total assets acquired$23,851  
Other current liabilities289  
Contingent consideration (current)504  
Contingent consideration (non-current)3,416  
Deferred tax liability3,036  
Total liabilities assumed$7,245  
Net assets acquired$16,606  

The Company determined the identifiable intangible assets were completed technology, customer relationships and 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%. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The benefits of adding a viscoelastic diagnostic device to the Company’s portfolio of hemostasis analyzers within the Hospital business unit contributed to an acquisition price in excess of the fair value of net assets acquired for enicor, which resulted in the establishment of goodwill. In addition, the benefits of lower cost manufacturing and complementary sales channels also contributed to the establishment of goodwill for this acquisition. None of the goodwill is expected to be deductible for income tax purposes.

Intangible assets acquired consist of the following:

(In thousands)AmountWeighted-Average Amortization Period
Completed technology$13,441  10
Customer relationships347  10
Trademark302  10
Total$14,090  10

Acquisition-Related Costs

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

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5. DIVESTITURES

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

Fajardo, Puerto Rico Manufacturing Operations

On June 29, 2020, the Company sold its Fajardo, Puerto Rico, manufacturing operations to GVS, S.p.A ("GVS"), a leading provider of advanced filtration solutions for critical applications for $15.5 million ($8.1 million, net of cash transferred). Under the terms of the agreement, Haemonetics retained all intellectual property rights to its proprietary blood filters currently manufactured at its Fajardo facility and GVS acquired certain assets consisting primarily of property, plant and equipment, inventory and cash and has assumed certain related liabilities. In connection with this transaction, the Company and GVS also entered into a long-term supply and development agreement that, among other things, grants GVS exclusive rights to manufacture and supply the blood filters currently produced at the Fajardo facility for Haemonetics. 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.

U.S. Blood Donor Management Software

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


6. INCOME TAXES

The Company conducts business globally and reports its results of operations in a number of foreign jurisdictions in addition to the United States. The Company's reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which it operates have tax rates that differ from the U.S. 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
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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.

7. 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,
2019
Basic EPS  
Net income (loss)$10,527  $(8,479) 
Weighted average shares50,418  51,010  
Basic income (loss) per share$0.21  $(0.17) 
Diluted EPS  
Net income (loss)$10,527  $(8,479) 
Basic weighted average shares50,418  51,010  
Net effect of common stock equivalents829    
Diluted weighted average shares51,247  51,010  
Diluted income (loss) per share$0.21  $(0.17) 

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.

8. REVENUE

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. Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; this occurs with the transfer of control of the Company’s goods or services. The Company considers revenue to be earned when all of the following criteria are met: it has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the consideration it expects to receive for transferring goods or providing services, is determinable and it has transferred control of the promised items to the customer. A promise in a contract to transfer a distinct good or service to the customer is identified as a performance obligation. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of the Company’s contracts have multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the estimated standalone selling prices of the good or service in the contract. 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. The Company expects to recognize approximately 62% 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.

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As of June 27, 2020 and March 28, 2020, the Company had contract assets of $6.1 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. Contract liabilities are classified as other liabilities and other long-term liabilities on the condensed consolidated balance sheets.

9. INVENTORIES

Inventories are stated at the lower of cost or market and include the cost of material, labor and manufacturing overhead. Cost is determined using the first-in, first-out method.
(In thousands)June 27,
2020
March 28,
2020
Raw materials$76,224  $76,867  
Work-in-process11,351  11,021  
Finished goods206,935  182,388  
Total inventories$294,510  $270,276  


10. LEASES

Lessee Activity

During the first quarter of fiscal 2021, the Company entered into a lease for manufacturing space in Clinton, PA. The Company's current manufacturing operations in Leetsdale, PA will be relocated. The lease term associated with the new manufacturing facility is 15 years and 7 months and includes two five year renewal options followed by one four year renewal option. During the first quarter of fiscal 2021, the Company recorded a right-of-use asset of $11.3 million and corresponding liabilities of $15.4 million upon commencement of the lease term in May 2020. In addition, the Company recorded a $4.1 million lease incentive receivable associated with this lease agreement.

11. NOTES PAYABLE AND LONG-TERM DEBT

On June 15, 2018, the Company entered into a credit agreement with certain lenders which provided for a $350.0 million term loan (the "Term Loan") and a $350.0 million revolving loan (the "Revolving Credit Facility" and together with the Term Loan, the "Credit Facilities"). The Credit Facilities expire on June 15, 2023. Interest on the Credit Facilities is established using LIBOR plus 1.13% - 1.75%, depending on the Company's leverage ratio. 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.

The Company has required scheduled principal payments of $17.5 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.

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

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Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, the Company's reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily the Japanese Yen and the Euro, and to a lesser extent the Swiss Franc, Australian Dollar, Canadian Dollar and the Mexican Peso. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation.

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"). 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. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. 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.

Non-Designated Foreign Currency Contracts

The Company manages its exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. It uses foreign currency forward contracts as a part of its strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These foreign currency forward contracts are entered into for periods consistent with currency transaction exposures, generally one month. They are not designated as cash flow or fair value hedges under ASC 815. 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.

Interest Rate Swaps

On June 15, 2018, the Company entered into Credit Facilities which provided for a $350.0 million Term Loan and a $350.0 million Revolving Credit Facility. Under the terms of the Credit Facilities, interest is established using LIBOR plus 1.13% - 1.75%. As a result, the Company's earnings and cash flows are exposed to interest rate risk from changes to LIBOR. Part of the Company's interest rate risk management strategy includes the use of interest rate swaps to mitigate its exposure to changes in variable interest rates. The Company's objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations.

In August 2018, the Company entered into two interest rate swap agreements (the "Swaps") to pay an average fixed rate of 2.80% on a total notional value of $241.9 million of debt. As a result of the Swaps, 70% of the Term Loan previously exposed to interest rate risk from changes in LIBOR is now fixed at a rate of 4.05%. The Swaps mature on June 15, 2023. 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.

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Trade Receivables

In the ordinary course of business, the Company grants trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all customers, (ii) performs ongoing credit evaluations of customers’ financial condition, (iii) monitors the payment history and aging of customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance.

The Company's allowance for credit losses is maintained for trade accounts receivable based on the expected collectability, the historical collection experience, the length of time an account is outstanding, the financial position of the customer and information provided by credit rating services. Effective March 29, 2020, the Company adopted Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which requires consideration of events or circumstances indicating historic collection rates may not be indicative of future collectability. For example, potential adverse changes to customer liquidity from new macroeconomic events such as the COVID-19 pandemic must be taken into consideration. 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, 2020June 29, 2019
Beginning balance$3,824  $3,937  
    Credit loss expense(259) (299) 
    Write-offs(119) (14) 
Ending balance$3,446  $3,624  

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:

(In thousands)Amount of Gain
(Loss) Recognized
in Accumulated Other Comprehensive Loss
Amount of Gain (Loss) Reclassified
from Accumulated Other Comprehensive Loss into
Earnings
Location in
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
Amount of Gain (Loss) Excluded from
Effectiveness
Testing
Location in
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
Designated foreign currency hedge contracts, net of tax$1,883  $(129) Net revenues, COGS and SG&A$(248) Interest and other expense, net
Non-designated foreign currency hedge contracts$  $   $(1,842) Interest and other expense, net
Designated interest rate swaps, net of tax$(3,131) $(1,013) Interest and other expense, net$  

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.

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. In certain instances, the Company may utilize financial models to measure fair value. Generally, it uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; 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
15


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:
(In thousands)Location in Condensed Consolidated
Balance Sheets
As ofAs of
June 27, 2020March 28, 2020
Derivative Assets:   
Designated foreign currency hedge contractsOther current assets$227  $839  
Non-designated foreign currency hedge contractsOther current assets164  $377  
  $391  $1,216  
Derivative Liabilities:   
Designated foreign currency hedge contractsOther current liabilities$1,073  $1,854  
Non-designated foreign currency hedge contractsOther current liabilities68  1,435  
Designated interest rate swapsOther current liabilities5,875  5,581  
Designated interest rate swapsOther long-term liabilities9,243  9,475  
  $16,259  $18,345  

Other Fair Value Measurements

Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes the following three-level hierarchy used for measuring fair value:

Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.

The Company's money market funds carried at fair value are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

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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
(In thousands)Level 1Level 2Level 3Total
Assets   
Money market funds$171,313  $  $—  $171,313  
Designated foreign currency hedge contracts  227  —  227  
Non-designated foreign currency hedge contracts  164  —  164  
 $171,313  $391  $—  $171,704  
Liabilities   
Designated foreign currency hedge contracts$  $1,073  $—  $1,073  
Non-designated foreign currency hedge contracts  68  —  68  
Designated interest rate swaps  15,118  —  15,118  
Contingent consideration—  —  3,920  3,920  
 $  $16,259  $3,920  $20,179  
As of March 28, 2020
Level 1Level 2Level 3Total
Assets
Money market funds$44,564  $  $—  $44,564  
Designated foreign currency hedge contracts  839  —  839  
Non-designated foreign currency hedge contracts  377  —  377  
 $44,564  $1,216  $—  $45,780  
Liabilities   
Designated foreign currency hedge contracts$  $1,854  $—  $1,854  
Non-designated foreign currency hedge contracts  1,435  —  1,435  
Designated interest rate swaps  15,056