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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: October 1, 2022
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 November 4, 2022: 50,608,362



HAEMONETICS CORPORATION
INDEX
 PAGE
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
2



ITEM 1. FINANCIAL STATEMENTS

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

 Three Months EndedSix Months Ended
October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Net revenues$297,485 $239,897 $558,943 $468,425 
Cost of goods sold139,607 117,356 258,802 237,799 
Gross profit157,878 122,541 300,141 230,626 
Operating expenses:    
Research and development10,896 10,853 21,798 23,554 
Selling, general and administrative92,411 75,778 184,638 166,996 
Amortization of intangible assets8,221 11,400 16,588 23,779 
Gains on divestiture(382) (382)(9,603)
Total operating expenses111,146 98,031 222,642 204,726 
Operating income46,732 24,510 77,499 25,900 
Interest and other expense, net(5,673)(4,588)(10,946)(8,986)
Income before provision for income taxes41,059 19,922 66,553 16,914 
Provision for income taxes7,862 5,066 13,479 6,512 
Net income$33,197 $14,856 $53,074 $10,402 
Net income per share - basic$0.65 $0.29 $1.04 $0.20 
Net income per share - diluted$0.64 $0.29 $1.03 $0.20 
Weighted average shares outstanding     
Basic50,953 51,039 51,089 50,989 
Diluted51,558 51,458 51,620 51,358 
Comprehensive income$25,659 $14,420 $38,773 $10,413 

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)
October 1,
2022
April 2,
2022
ASSETS  
Current assets:  
Cash and cash equivalents$241,200 $259,496 
Accounts receivable, less allowance for credit losses of $2,495 at October 1, 2022 and $2,475 at April 2, 2022
171,532 159,376 
Inventories, net254,680 293,027 
Prepaid expenses and other current assets48,377 44,132 
Total current assets715,789 756,031 
Property, plant and equipment, net307,844 258,482 
Intangible assets, less accumulated amortization of $395,822 at October 1, 2022 and $376,552 at April 2, 2022
292,595 310,261 
Goodwill464,987 467,287 
Deferred tax asset4,282 4,468 
Other long-term assets79,615 63,205 
Total assets$1,865,112 $1,859,734 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Notes payable and current maturities of long-term debt$58,194 $214,148 
Accounts payable61,484 58,371 
Accrued payroll and related costs44,596 48,540 
Other current liabilities97,901 121,207 
Total current liabilities262,175 442,266 
Long-term debt, net of current maturities759,552 559,441 
Deferred tax liability35,974 28,727 
Other long-term liabilities78,402 79,876 
Total stockholders’ equity  
Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 50,605,499 shares at October 1, 2022 and 51,124,240 shares at April 2, 2022
506 511 
Additional paid-in capital564,394 572,476 
Retained earnings204,364 202,391 
Accumulated other comprehensive loss(40,255)(25,954)
Total stockholders’ equity729,009 749,424 
Total liabilities and stockholders’ equity$1,865,112 $1,859,734 
    
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, April 2, 202251,124 $511 $572,476 $202,391 $(25,954)$749,424 
Employee stock purchase plan57 — 2,459 — — 2,459 
Exercise of stock options3 1 126 — — 127 
Issuance of restricted stock, net of cancellations131 1 (1)— —  
Share-based compensation expense— — 5,299 — — 5,299 
Net income— — — 19,877 — 19,877 
Other comprehensive loss— — — — (6,763)(6,763)
Balance, July 2, 202251,315 $513 $580,359 $222,268 $(32,717)$770,423 
Exercise of stock options50 1 2,191 — — 2,192 
Shares repurchased(786)(8)(23,891)(51,101)— (75,000)
Issuance of restricted stock, net of cancellations26 — — — — — 
Share-based compensation expense— — 5,735 — — 5,735 
Net income— — — 33,197 — 33,197 
Other comprehensive loss— — — (7,538)(7,538)
Balance, October 1, 202250,605 $506 $564,394 $204,364 $(40,255)$729,009 

 Common StockAdditional
Paid-in Capital
Retained EarningsAccumulated
Other
Comprehensive Loss
Total
Stockholders’ Equity
 SharesPar Value
Balance, April 3, 202150,869 $509 $602,727 $157,981 $(29,547)$731,670 
Employee stock purchase plan39 — 2,210 — — 2,210 
Exercise of stock options14  500 — — 500 
Issuance of restricted stock, net of cancellations91 1 (1) —  
Cumulative effect of change in accounting standards  (61,156)1,035  (60,121)
Share-based compensation expense— — 6,828 — — 6,828 
Net loss— — — (4,454)— (4,454)
Other comprehensive income— — —  447 447 
Balance, July 3, 202151,013 $510 $551,108 $154,562 $(29,100)$677,080 
Exercise of stock options28 1 1,069 — — 1,070 
Issuance of restricted stock, net of cancellations19 — — — — — 
Share-based compensation expense— — 5,979 — — 5,979 
Net income— — — 14,856 — 14,856 
Other comprehensive loss— — — — (436)(436)
Balance, October 2, 202151,060 $511 $558,156 $169,418 $(29,536)$698,549 

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)
 Six Months Ended
October 1,
2022
October 2,
2021
Cash Flows from Operating Activities:  
Net income$53,074 $10,402 
Adjustments to reconcile net income to net cash provided by operating activities:  
Non-cash items:
Depreciation and amortization45,883 48,567 
Impairment of assets94 5,144 
Share-based compensation expense11,034 12,807 
Amortization of deferred finance costs313 1,813 
(Benefit) provision for losses on inventory(1,529)114 
Gains on divestiture(382)(9,603)
Contingent consideration expense(504)9,345 
Other non-cash operating activities(1,186)7,054 
Change in operating assets and liabilities:
Change in accounts receivable(17,043)(14,574)
Change in inventories35,990 (5,475)
Change in prepaid income taxes2,145 2,477 
Change in other assets and other liabilities(7,724)(842)
Change in accounts payable and accrued expenses8,867 (25,449)
Net cash provided by operating activities129,032 41,780 
Cash Flows from Investing Activities: 
Capital expenditures(81,424)(34,731)
Acquisition(2,850)(2,500)
Proceeds from divestiture850  
Proceeds from sale of property, plant and equipment7,537 860 
Other investments(13,395) 
Net cash used in investing activities(89,282)(36,371)
Cash Flows from Financing Activities:  
Term loan borrowings280,000  
Term loan redemption(280,000) 
Proceeds from revolving facility50,000  
Repayment of term loan borrowings(6,125)(8,750)
Debt issuance costs(1,118) 
Share repurchases(75,000) 
Contingent consideration payments(21,593) 
Proceeds from employee stock purchase plan2,459 2,210 
Proceeds from exercise of stock options2,319 1,569 
Other(23)22 
Net cash used in financing activities(49,081)(4,949)
Effect of exchange rates on cash and cash equivalents(8,965)(345)
Net Change in Cash and Cash Equivalents(18,296)115 
Cash and Cash Equivalents at Beginning of Period259,496 192,305 
Cash and Cash Equivalents at End of Period$241,200 $192,420 
Supplemental Disclosures of Cash Flow Information:  
Non-Cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placement of Haemonetics equipment$66,452 $10,139 
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 six months ended October 1, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 1, 2023 or any other interim period. 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 April 2, 2022.

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. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events as of or for the six months ended October 1, 2022, except those listed below. In November 2022, the Company made a €20 million investment in Vivasure Medical LTD, bringing the Company's total investment to €30 million. The investment will also be classified as other long-term assets on the Company’s Condensed Consolidated Balance Sheets.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Standards Implemented

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2019-12 — Income Taxes (Topic 740). The new guidance improves consistent application of and simplifies the accounting for income taxes by removing certain exceptions to the general principals in Topic 740. The Company adopted ASC Update No. 2019-12 effective April 4, 2021. The adoption did not have a material impact on the Company’s financial position or results of operations.

In August 2020, the FASB issued ASC Update No. 2020-06 — Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company early adopted ASC Update No. 2020-06 effective April 4, 2021 using the modified retrospective method, which resulted in a decrease of $61.2 million to additional paid-in capital, a decrease to non-current deferred tax liabilities of $20.0 million, and an increase of $80.3 million to non-current convertible notes, net, on the condensed consolidated balance sheets. Additionally, retained earnings was adjusted to remove amortization expense recognized in prior periods related to the debt discount and the convertible notes no longer have a debt discount that will be amortized, net of taxes. The impact to retained earnings on the condensed consolidated balance sheets as of April 4, 2021 is an increase of $1.0 million.

In July 2021, the FASB issued ASC Update No. 2021-05 — Leases (Topic 842). The new guidance requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria of ASC 842 and the lessor would have otherwise recognized a day-one loss. The Company prospectively adopted ASC Update No. 2021-05 effective in the second quarter of fiscal year 2022. The adoption did not have a material impact on the Company’s financial position or results of operations.

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 the 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. During fiscal 2022, the Company revised the program to improve product and service quality, reduce cost principally in its manufacturing and supply chain operations and ensure sustainability while helping to offset impacts from a previously announced customer loss, rising inflationary pressures and effects of the COVID-19 pandemic. The Company now expects to incur aggregate charges between $95 million and $105 million by the end of fiscal 2025 under the program. The majority of charges will result in cash outlays, including severance and other employee costs, and will be incurred as the specific actions required to execute these initiatives are identified and approved. During the three and six months ended October 1, 2022, the Company incurred $3.1 million and $6.6 million, respectively, of restructuring and restructuring related costs under this program. During the three and six months ended October 2, 2021, the Company incurred $4.6 million and $14.5 million, respectively, of restructuring and restructuring related costs under this program. Total cumulative charges under this program are $62.3 million.

The following table summarizes the activity for restructuring reserves related to the 2020 Program and prior programs for the six months ended October 1, 2022, substantially all of which relates to employee severance and other employee costs:
(In thousands)2020 ProgramPrior ProgramsTotal
Balance at April 2, 2022$2,460 $345 $2,805 
Costs incurred, net of reversals59 62 121 
Payments(1,038)(101)(1,139)
Balance at October 1, 2022$1,481 $306 $1,787 

The following presents the restructuring costs by line item within our accompanying unaudited Condensed Consolidated Statements of Income and Comprehensive Income:
 Three Months EndedSix Months Ended
(In thousands) October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Cost of goods sold$29 $210 $(177)$2,463 
Research and development 3  108 
Selling, general and administrative expenses136 482 298 1,544 
$165 $695 $121 $4,115 

As of October 1, 2022, the Company had a restructuring liability of $1.8 million, of which $1.5 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 restructuring related costs. These costs consist primarily of expenditures directly related to the restructuring actions and include program management costs associated with the implementation of outsourcing initiatives and recent accounting standards.

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The tables below present restructuring and restructuring related costs by reportable segment:
Restructuring costsThree Months EndedSix Months Ended
(In thousands) October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Plasma$ $411 $(211)$2,699 
Blood Center   3 
Hospital (53) (91)
Corporate165 337 332 1,504 
Total$165 $695 $121 $4,115 
Restructuring related costsThree Months EndedSix Months Ended
(In thousands) October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Plasma$108 $1,403 $748 $3,141 
Blood Center16 40 18 530 
Hospital111 32 200 165 
Corporate2,794 2,343 5,585 6,617 
Total$3,029 $3,818 $6,551 $10,453 
Total restructuring and restructuring related costs$3,194 $4,513 $6,672 $14,568 

4. 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 and six months ended October 1, 2022, the Company reported income tax expense of $7.9 million and $13.5 million, respectively, representing effective tax rates of 19.1% and 20.3%, respectively. The effective tax rate for the six months ended October 1, 2022 includes a discrete tax benefit of $0.5 million related to tax rate changes enacted in the quarter and $0.3 million of discrete tax expense relating to stock compensation shortfalls. The effective tax rate for the three months ended October 1, 2022, the effective tax rate includes a discrete tax benefit of $0.5 million related to tax rate changes enacted in the quarter and $0.3 million of discrete tax benefit relating to stock compensation windfalls.

For the three and six months ended October 2, 2021, the Company reported income tax expense of $5.1 million and $6.5 million, respectively, representing effective tax rates of 25.4% and 38.5%, respectively. The effective tax rates for the three and six months ended October 2, 2021 include discrete tax expense relating to stock compensation shortfalls of $0.1 million and $0.9 million, respectively.

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5. 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 EndedSix Months Ended
 (In thousands, except per share amounts)October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Basic EPS  
Net income$33,197 $14,856 $53,074 $10,402 
Weighted average shares50,953 51,039 51,089 50,989 
Basic income per share$0.65 $0.29 $1.04 $0.20 
Diluted EPS    
Net income$33,197 $14,856 $53,074 $10,402 
Basic weighted average shares50,953 51,039 51,089 50,989 
Net effect of common stock equivalents605 419 531 369 
Diluted weighted average shares51,558 51,458 51,620 51,358 
Diluted income per share$0.64 $0.29 $1.03 $0.20 

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 and the convertible senior notes as determined under the net share settlement method. From the time of the issuance of the convertible senior notes, the average market price of the Company's common shares has been less than the initial conversion price, and consequently no shares have been included in diluted earnings per share for the conversion value of the convertible senior notes. For the three and six months ended October 1, 2022, weighted average shares outstanding, assuming dilution, excludes the impact of 0.7 million and 0.8 million anti-dilutive shares, respectively. For the three and six months ended October 2, 2021, weighted average shares outstanding, assuming dilution, excludes the impact of 0.9 million anti-dilutive shares.

Share Repurchase Program

In August 2022, the Company's Board of Directors authorized the repurchase of up to $300 million of Haemonetics common stock over the next three years. Under the share repurchase program, the Company is authorized to repurchase, from time to time, outstanding shares of common stock in accordance with applicable laws on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions. The actual timing, number and value of shares repurchased will be determined by the Company at its discretion and will depend on a number of factors, including market conditions, applicable legal requirements and compliance with the terms of loan covenants. The share repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program.

Subsequent to the Company’s announcement of the share repurchase program, in August 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) with Citibank N.A. (“Citibank”) to repurchase $75.0 million of the Company's common stock. Pursuant to the terms of the ASR, in August 2022, the Company paid Citibank $75.0 million in cash and received an initial delivery of 0.8 million shares of the Company's common stock based on a closing market price on the New York Stock Exchange on August 16, 2022 of $76.32. This initial delivery of shares represented approximately 80% of the notional amount of the ASR. The ASR was completed in November 2022 and approximately 0.2 million additional shares were delivered upon settlement.

As of October 1, 2022, the total remaining authorization for repurchases of the Company's common stock under the share repurchase program was $225 million.
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6. 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 October 1, 2022, the Company had $23.0 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 74% of this amount as revenue within the next twelve months and the remaining balance thereafter.

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 October 1, 2022 and April 2, 2022, the Company had contract assets of $7.6 million and $5.5 million, respectively. Contract assets are classified as other current assets and other long-term assets on the Condensed Consolidated Balance Sheets.

As of October 1, 2022 and April 2, 2022, the Company had contract liabilities of $24.4 million and $26.8 million, respectively. During the three and six months ended October 1, 2022, the Company recognized $6.8 million and $18.5 million of revenue, respectively, that was included in the above April 2, 2022 contract liability balance.

7. INVENTORIES

Inventories are stated at the lower of cost or net realizable value and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method.
(In thousands)October 1,
2022
April 2,
2022
Raw materials$83,602 $88,886 
Work-in-process21,853 17,187 
Finished goods149,225 186,954 
Total inventories$254,680 $293,027 

8. LEASES

Lessor Activity

Assets on the Company’s balance sheet classified as Haemonetics equipment primarily consist 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 approximately 3 percent of the Company’s total net sales.

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9. NOTES PAYABLE AND LONG-TERM DEBT

Convertible Senior Notes

In March 2021, the Company issued $500.0 million aggregate principal amount of 0% convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are governed by the terms of the Indenture between the Company and U.S. Bank National Association, as trustee (the “Indenture”). The total net proceeds from the sale of the 2026 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $486.7 million. The 2026 Notes will mature on March 1, 2026, unless earlier converted, redeemed or repurchased.

During the second quarter of fiscal 2023, the conditions allowing holders of the 2026 Notes to convert have not been met. The 2026 Notes were therefore not convertible as of October 1, 2022 and were classified as long-term debt on the Company’s Condensed Consolidated Balance Sheets.

On April 4, 2021, the Company adopted ASC Update No. 2020-06 using the modified retrospective method, which resulted in a decrease of $61.2 million to additional paid-in capital, a decrease to non-current deferred tax liabilities of $20.0 million, and an increase of $80.3 million to non-current convertible notes, net, on the Condensed Consolidated Balance Sheets. Additionally, retained earnings was adjusted to remove amortization expense recognized in prior periods related to the debt discount and the convertible notes no longer have a debt discount that will be amortized, net of taxes. The impact to retained earnings on the Condensed Consolidated Balance Sheets as of April 4, 2021 is an increase of $1.0 million.

As of October 1, 2022, the $500.0 million principal balance was netted down by $9.2 million of remaining debt issuance costs, resulting in a net convertible note payable of $490.8 million. Interest expense related to the 2026 Notes was $0.7 million and $1.3 million, for the three and six months ended October 1, 2022, respectively, which is entirely attributable to the amortization of the debt issuance costs. The debt issuance costs are amortized at an effective interest rate of 0.5%.

Credit Facilities

On June 15, 2018, the Company entered into a credit agreement with certain lenders that provided for a $350.0 million term loan and a $350.0 million revolving loan (together with the term loan, as amended from time to time, the “2018 Credit Facilities”) that were each scheduled to mature on June 15, 2023 with applicable interest rates during the period established using LIBOR plus 1.13% - 1.75%, depending on the Company’s leverage ratio.

On July 26, 2022, the Company entered into an amended and restated credit agreement with certain lenders to refinance the 2018 Credit Facilities and extend their maturity date through June 2025. The amended and restated credit agreement provides for a $280.0 million senior unsecured term loan, the proceeds of which have been used to settle the balance of the term loan under the 2018 Credit Facilities, and a $420.0 million senior unsecured revolving credit facility (together, the “Revised Credit Facilities”). Loans under the Revised Credit Facilities bear interest at an annual rate equal to the Adjusted Term SOFR Rate (as specified in the amended and restated credit agreement), which is subject to a floor of 0%, plus an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio (as specified in the amended and restated credit agreement) at the applicable measurement date. Adjusted Term SOFR Rate loans are also subject to a credit spread adjustment of 0.10% per annum. The revolving credit facility carries an unused fee that ranges from 0.125% to 0.250% annually based on the Company’s consolidated net leverage ratio at the applicable measurement date. Under the Revised Credit Facilities, the Company is required to maintain certain leverage and interest coverage ratios specified in the amended and restated credit agreement as well as other customary non-financial affirmative and negative covenants. The Revised Credit Facilities mature on June 15, 2025. The principal amount of the term loan under the Revised Credit Facilities is repayable quarterly through the maturity date at a rate of 2.5% for the first year and 5% thereafter, with the unpaid balance due at maturity.

The Company applied modification accounting for the credit facility refinancing. For the term loan under the Revised Credit facilities, for the three and six months ended October 1, 2022, the Company recognized interest expense of $0.5 million for third party fees incurred and capitalized $0.2 million of lender fees related to the term loan. For the three and six months ended October 1, 2022, the Company capitalized $1.1 million of lender fees and third-party costs incurred in the refinancing related to the revolving credit facility under the Revised Credit Facilities.

At October 1, 2022, $278.3 million was outstanding under the term loan with an effective interest rate of 4.2%. The Company has scheduled principal payments of $8.8 million required during the 12 months following October 1, 2022. There was $50.0 million outstanding under the revolving credit facility at October 1, 2022. The Company also has $19.6 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of October 1, 2022.
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The Company was in compliance with the leverage and interest coverage ratios specified in the Revised Credit Facilities as well as all other bank covenants as of October 1, 2022.

10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company manufactures, markets and sells its products globally. During the three and six months ended October 1, 2022, 28.8% and 29.6%, respectively, of the Company’s sales were generated outside the U.S. in local currencies. The Company also incurs certain manufacturing, marketing and selling costs in international markets in local currency.

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, Chinese Yuan 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 October 1, 2022 and April 2, 2022 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 will 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 $30.9 million as of October 1, 2022 and $67.3 million as of April 2, 2022. At October 1, 2022, a gain of $2.4 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of October 1, 2022 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 $45.2 million as of October 1, 2022 and $39.5 million as of April 2, 2022.

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Interest Rate Swaps

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.

On June 15, 2018, the Company entered into the 2018 Credit Facilities, which provided for a $350.0 million term loan and a $350.0 million revolving credit facility. Under the terms of the 2018 Credit Facilities, interest was established using LIBOR plus the applicable rate ranging from 1.13% to 1.75% based on the Company's leverage ratio. In August 2018, the Company entered into two interest rate swap agreements to pay an average fixed rate of 2.80% plus the applicable rate on a total notional value of $241.9 million of debt, or 70% of the notional value of the unsecured term loan. The 2018 interest rate swaps mature on June 15, 2023. As a result of the refinancing in August 2022, the 2018 interest rate swaps were amended in September 2022 to align with the Term Secured Overnight Financing Rate (“SOFR”) rate rather than LIBOR (the “Amended Swaps”). The Company concluded that the Amended Swaps were still effective such that hedge accounting was continued on these swaps.

On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance the 2018 Credit Facilities and extend their maturity date through June 2025. The Revised Credit Facilities include a $280.0 million senior unsecured term loan and a $420.0 million senior unsecured revolving credit facility. Loans under the Revised Credit Facilities bear interest at an annual rate equal to the 1-month USD Term SOFR plus 0.10% and an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio. In September 2022, the Company entered into four additional interest rate swaps, which when combined with the Amended Swaps, result in an average blended fixed interest rate of 3.57% plus the applicable rate on 70% of the notional value of the unsecured term loan until mid-June 2023 and 4.12% plus the applicable rate thereafter on 80% of the notional until the maturity date in June 2025. The Company has concluded that each of these four additional interest rate swaps are effective and qualify for hedge accounting treatment.

The Company held the following interest rate swaps as of October 1, 2022:

Hedged ItemOriginal Notional AmountNotional Amount as of October 1, 2022Designation DateEffective DateTermination DateFixed Interest RateEstimated Fair Value Assets (Liabilities)
(In thousands)
1-month USD Term SOFR$140,719 $85,500 9/23/20229/30/20226/15/20232.67%$502 
1-month USD Term SOFR101,219 61,500 9/23/20229/30/20226/15/20232.76%348 
1-month USD Term SOFR23,888 23,888 9/23/20229/30/20226/15/20234.44%(78)
1-month USD Term SOFR23,888 23,888 9/23/20229/30/20226/15/20234.46%(82)
1-month USD Term SOFR109,900  9/23/20226/15/20236/15/20254.08%(237)
1-month USD Term SOFR109,900  9/23/20226/15/20236/15/20254.15%(315)
Total$509,514 $194,776 $138 

For the six months ended October 1, 2022, a gain of $3.2 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

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. To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns.

The following is a roll forward of the allowance for credit losses:

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Three Months EndedSix Months Ended
(In thousands)October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Beginning balance$2,495 $2,236 $2,475 $2,226 
    Credit loss59 504 204 532 
    Write-offs(59)(39)(184)(57)
Ending balance$2,495 $2,701 $2,495 $2,701 

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 unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended October 1, 2022:

(In thousands)Amount of Gain 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 and Comprehensive Income
Amount of Gain Excluded from
Effectiveness
Testing
Location in
Condensed Consolidated Statements of Income and Comprehensive Income
Designated foreign currency hedge contracts, net of tax$2,388 $2,923 Net revenues, COGS and SG&A$282 Interest and other expense, net
Non-designated foreign currency hedge contracts$ $  $2,463 Interest and other expense, net
Designated interest rate swaps, net of tax$2,190 $(1,030)Interest and other expense, net$ 

The Company did not have fair value hedges or net investment hedges outstanding as of October 1, 2022 or April 2, 2022. As of October 1, 2022, no material deferred taxes 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 October 1, 2022, 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.

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The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of October 1, 2022 and April 2, 2022:

(In thousands)Location in Condensed Consolidated
Balance Sheets
As ofAs of
October 1, 2022April 2, 2022
Derivative Assets:   
Designated foreign currency hedge contractsOther current assets$4,228 $3,133 
Non-designated foreign currency hedge contractsOther current assets85 99 
Designated interest rate swapsOther current assets1,114  
  $5,427 $3,232 
Derivative Liabilities:   
Designated foreign currency hedge contractsOther current liabilities$296 $56 
Non-designated foreign currency hedge contractsOther current liabilities