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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: December 26, 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 January 29, 2021: 50,821,698



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 EndedNine Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Net revenues$240,371 $258,970 $645,434 $749,987 
Cost of goods sold120,114 130,920 329,403 379,031 
Gross profit120,257 128,050 316,031 370,956 
Operating expenses:    
Research and development7,501 7,000 22,014 21,909 
Selling, general and administrative73,446 78,267 214,680 229,189 
Impairment of assets 1,876 1,028 50,597 
Gains on divestitures and sale of assets(1,115) (32,613)(8,083)
Total operating expenses79,832 87,143 205,109 293,612 
Operating income40,425 40,907 110,922 77,344 
Interest and other expense, net(3,051)(3,078)(10,612)(12,152)
Income before provision for income taxes37,374 37,829 100,310 65,192 
Provision for income taxes5,492 7,934 9,800 6,290 
Net income$31,882 $29,895 $90,510 $58,902 
Net income per share - basic$0.63 $0.59 $1.79 $1.16 
Net income per share - diluted$0.62 $0.58 $1.77 $1.13 
Weighted average shares outstanding     
Basic50,789 50,630 50,634 50,810 
Diluted51,363 51,638 51,234 51,995 
Comprehensive income$40,496 $32,296 $105,787 $55,577 
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)
December 26,
2020
March 28,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$189,002 $137,311 
Accounts receivable, less allowance of $2,525 at December 26, 2020 and $3,824 at March 28, 2020146,939 165,207 
Inventories, net299,710 270,276 
Prepaid expenses and other current assets32,697 30,845 
Total current assets668,348 603,639 
Property, plant and equipment, net240,009 253,399 
Intangible assets, less accumulated amortization of $309,951 at December 26, 2020 and $296,942 at March 28, 2020119,716 133,106 
Goodwill215,508 210,652 
Deferred tax asset4,558 3,930 
Other long-term assets69,929 62,384 
Total assets$1,318,068 $1,267,110 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Notes payable and current maturities of long-term debt$17,055 $76,980 
Accounts payable42,979 50,730 
Accrued payroll and related costs35,127 49,471 
Other liabilities99,223 97,641 
Total current liabilities194,384 274,822 
Long-term debt, net of current maturities292,721 305,513 
Deferred tax liability9,803 10,562 
Other long-term liabilities102,008 89,104 
Total stockholders’ equity  
Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 50,817,222 shares at December 26, 2020 and 50,322,930 shares at March 28, 2020508 503 
Additional paid-in capital579,480 553,229 
Retained earnings169,022 78,512 
Accumulated other comprehensive loss(29,858)(45,135)
Total stockholders’ equity719,152 587,109 
Total liabilities and stockholders’ equity$1,318,068 $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 
Exercise of stock options2  67 — — 67 
Issuance of restricted stock, net of cancellations30   — —  
Share-based compensation expense— — 5,952 — — 5,952 
Net income— — — 48,101 — 48,101 
Other comprehensive income— — — — 5,234 5,234 
Balance, September 26, 202050,703 $507 $568,748 $137,140 $(38,472)$667,923 
Employee stock purchase plan22  1,868 — — 1,868 
Exercise of stock options50 — 2,578 — — 2,578 
Issuance of restricted stock, net of cancellations42 1 (1)— —  
Share-based compensation expense— — 6,287 — — 6,287 
Net income— — — 31,882 — 31,882 
Other comprehensive income— — — — 8,614 8,614 
Balance, December 26, 202050,817 $508 $579,480 $169,022 $(29,858)$719,152 






















5


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 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 (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 
Exercise of stock options64 1 2,409 — — 2,410 
Shares repurchased(360)(4)1,274 (51,270)— (50,000)
Issuance of restricted stock, net of cancellations133 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, 201950,608 $506 $533,720 $85,634 $(36,106)$583,754 
Employee stock purchase plan20 1 1,537 — — 1,538 
Exercise of stock options60  1,667 — — 1,667 
Shares repurchased(411)(4)(4,335)(45,661)— (50,000)
Issuance of restricted stock, net of cancellations114 1 (1)— —  
Share-based compensation expense— — 5,325 — — 5,325 
Net income— — — 29,895 — 29,895 
Other comprehensive income— — — — 2,401 2,401 
Balance, December 28, 201950,391 $504 $537,913 $69,868 $(33,705)$574,580 

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

6


HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
 Nine Months Ended
December 26,
2020
December 28,
2019
Cash Flows from Operating Activities:  
Net income$90,510 $58,902 
Adjustments to reconcile net income to net cash provided by operating activities:  
Non-cash items:
Depreciation and amortization62,377 81,524 
Impairment of assets1,028 50,597 
Share-based compensation expense18,406 15,055 
Deferred tax benefit(3,953)(4,747)
Provision for losses on accounts receivable and inventory2,942 (2,246)
Gains on divestitures and sale of assets(32,613)(8,083)
Other non-cash operating activities1,351 1,945 
Change in operating assets and liabilities:
Change in accounts receivable18,588 13,807 
Change in inventories(33,728)(68,251)
Change in prepaid income taxes1,181 (273)
Change in other assets and other liabilities2,687 (8,829)
Change in accounts payable and accrued expenses(21,518)(17,590)
Net cash provided by operating activities107,258 111,811 
Cash Flows from Investing Activities: 
Capital expenditures(25,408)(38,112)
Acquisition(16,606) 
Proceeds from divestitures44,587 9,808 
Proceeds from sale of property, plant and equipment1,085 16,263 
Net cash provided by (used in) investing activities3,658 (12,041)
Cash Flows from Financing Activities:  
Net (decrease) increase in short-term loans(60,000)30,000 
Repayment of term loan borrowings(13,125)(8,750)
Share repurchases (175,000)
Proceeds from employee stock purchase plan4,012 3,368 
Proceeds from exercise of stock options3,838 7,712 
Other(32)90 
Net cash used in financing activities(65,307)(142,580)
Effect of exchange rates on cash and cash equivalents6,082 (124)
Net Change in Cash and Cash Equivalents51,691 (42,934)
Cash and Cash Equivalents at Beginning of Period137,311 169,351 
Cash and Cash Equivalents at End of Period$189,002 $126,417 
Supplemental Disclosures of Cash Flow Information:  
Interest paid$6,070 $10,739 
Income taxes paid$5,612 $9,888 
Non-Cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placement of Haemonetics equipment$5,878 $10,705 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


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 nine months ended December 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 December 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 4, Acquisitions for information pertaining to acquisitions that were signed or closed subsequent to December 26, 2020. There were no other material recognized or unrecognized subsequent events as of or for the three and nine months ended December 26, 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.

8


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 and nine months ended December 26, 2020, the Company incurred $3.1 million and $11.1 million, respectively, of restructuring and turnaround costs under this program. During the three and nine months ended December 28, 2019, the Company incurred $3.9 million and $6.8 million, respectively, of restructuring and turnaround costs under this program. Total cumulative charges under this program are $22.9 million.

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 December 26, 2020, the Company incurred minimal charges of restructuring and turnaround costs under this program. During the nine months ended December 26, 2020, the Company incurred $0.5 million of restructuring and turnaround costs under this program. During the three and nine months ended December 28, 2019, the Company incurred $3.9 million and $6.8 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 Program and prior programs for the nine months ended December 26, 2020, substantially all of which relates to employee severance and other employee costs:
(In thousands)2020 Program2018 Program and Prior ProgramsTotal
Balance at March 28, 2020$1,136 $1,512 $2,648 
Costs incurred, net of reversals1,005 (105)900 
Payments(1,546)(887)(2,433)
Balance at December 26, 2020$595 $520 $1,115 

The following presents the restructuring costs by line item within our accompanying unaudited condensed consolidated statements of income and comprehensive income:
 Three Months EndedNine Months Ended
(In thousands) December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Cost of goods sold$(49)$2 $218 $444 
Research and development(2)139 108 708 
Selling, general and administrative expenses(41)476 574 1,777 
$(92)$617 $900 $2,929 

As of December 26, 2020, the Company had a restructuring liability of $1.1 million, of which $0.7 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.






9






The tables below present restructuring and turnaround costs by reportable segment:
Restructuring costsThree Months EndedNine Months Ended
(In thousands) December 26, 2020December 28, 2019December 26, 2020December 28, 2019
Plasma$(27)$4 $454 $552 
Blood Center66 18 240 154 
Hospital 58 (18)295 
Corporate(131)537 224 1,928 
Total$(92)$617 $900 $2,929 
Turnaround costsThree Months EndedNine Months Ended
(In thousands) December 26, 2020December 28, 2019December 26, 2020December 28, 2019
Plasma$431 $108 $1,235 $187 
Blood Center518 293 1,024 293 
Hospital4  14  
Corporate2,282 6,780 8,410 10,173 
Total$3,235 $7,181 $10,683 $10,653 
Total restructuring and turnaround costs$3,143 $7,798 $11,583 $13,582 

4. ACQUISITIONS

Cardiva Medical, Inc.

On January 17, 2021, the Company entered into an Agreement and Plan of Merger with Cardiva Medical, Inc., (“Cardiva”), an industry-leading manufacturer of vascular closure systems based in Santa Clara, California. In connection with this acquisition, the Company will pay upfront consideration of $475.0 million in cash, subject to customary working capital and certain other adjustments as of the closing of the transaction, as well as up to $35.0 million in additional contingent consideration payable over the next two years based on sales growth. The transaction is not subject to a financing contingency, and the Company expects to finance the transaction through a combination of its cash on hand, revolving credit facility and an additional $150.0 million term loan anticipated to be borrowed under its existing credit facility. The transaction is expected to close in the fourth quarter of fiscal 2021.

Cardiva’s portfolio includes two catheter-based vascular access site closure devices. The VASCADE® vascular closure system is designed for “small-bore” femoral arterial and venous closure, generally used in interventional cardiology and peripheral vascular procedures. The VASCADE MVP® vascular closure system is designed for “mid-bore” multi-access femoral venous closure, generally used in electrophysiology procedures, and is the only U.S. Food and Drug Administration (“FDA”) approved closure device for use following cardiac ablation procedures requiring two or more access sites within the same vessel. The addition of the VASCADE portfolio to the Hospital business unit includes products with demonstrated benefits and enhances penetration into the large and growing interventional cardiology and electrophysiology markets.

HAS Intellectual Property

In January 2021, the Company entered into an agreement to acquire certain intellectual property owned by HemoAssay Science and Technology (Suzhou) Co. Ltd., a China-incorporated company, and its affiliates (collectively, “HemoAssay”) underlying their HAS viscoelastic diagnostic devices, related assays and disposables. The Company previously entered into exclusive manufacturing and distribution agreements with HemoAssay pursuant to which it has exclusive rights to commercialize HemoAssay’s HAS devices in China. In connection with the transaction, the Company has agreed to pay up to $15.0 million to HemoAssay in contingent consideration based on certain developmental and manufacturing based milestones. These products augment the Company's portfolio of hemostasis analyzers within the Hospital business unit.
10



enicor GmbH

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 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 December 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.

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 nine months of fiscal 2021:

(In thousands)December 26, 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 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%. 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.
11


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 with the acquisition was $0.2 million for the three and nine months ended December 26, 2020.

Unaudited Pro Forma Financial Information

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

5. 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 $15.1 million ($7.8 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 in its Blood Center business unit of $1.0 million in the first quarter of fiscal 2021 and an incremental loss of $0.4 million based on closing adjustments during the third quarter of fiscal 2021, as the carrying value of the assets and liabilities in the asset transfer exceeded the net of the $15.1 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, $3.2 million of other liabilities, and $0.4 million of goodwill allocated based on fair value to the business.

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) 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 of $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 an additional $1.5 million gain in the third quarter of fiscal 2021. 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.

Inlog Holdings 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
12


$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. 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.

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 and nine months ended December 26, 2020, the Company reported income tax expense of $5.5 million and $9.8 million, respectively, representing effective tax rates of 14.7% and 9.8%, respectively. The effective tax rate for the three and nine months ended December 26, 2020 includes discrete tax benefits recognized from excess stock compensation deductions of $1.0 million and $5.1 million, respectively. The effective tax rates were also impacted by the jurisdictional mix of earnings including divestiture transactions. During the nine months ended December 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 nine months ended December 28, 2019, the Company reported an income tax provision of $7.9 million and $6.3 million, respectively, representing effective tax rates of 21.0% and 9.6%, respectively. The effective tax rate for the nine months ended December 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 $3.1 million and $12.4 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.

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 EndedNine Months Ended
 (In thousands, except per share amounts)December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Basic EPS  
Net income$31,882 $29,895 $90,510 $58,902 
Weighted average shares50,789 50,630 50,634 50,810 
Basic income per share$0.63 $0.59 $1.79 $1.16 
Diluted EPS    
Net income$31,882 $29,895 $90,510 $58,902 
Basic weighted average shares50,789 50,630 50,634 50,810 
Net effect of common stock equivalents574 1,008 600 1,185 
Diluted weighted average shares51,363 51,638 51,234 51,995 
Diluted income per share$0.62 $0.58 $1.77 $1.13 

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 and nine months ended December 26, 2020, weighted average shares outstanding, assuming dilution, excludes the impact of 0.4 million and 0.6 million anti-dilutive shares, respectively. For both the three and nine months ended December 28, 2019, weighted average shares outstanding, assuming dilution, excludes the impact of 0.2 million anti-dilutive shares.

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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 December 26, 2020, the Company had $17.9 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 59% 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 December 26, 2020 and March 28, 2020, the Company had contract assets of $5.4 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 December 26, 2020 and March 28, 2020, the Company had contract liabilities of $16.7 million and $20.8 million, respectively. During the three and nine months ended December 26, 2020, the Company recognized $2.5 million and $16.3 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 nine months ended December 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.

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)December 26,
2020
March 28,
2020
Raw materials$74,437 $76,867 
Work-in-process22,030 11,021 
Finished goods203,243 182,388 
Total inventories$299,710 $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
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million lease incentive receivable associated with this lease agreement which was received during the third quarter of fiscal 2021.

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.

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 December 26, 2020, $310.6 million was outstanding under the Term Loan with an effective interest rate of 1.4%. There were no borrowings outstanding on the Revolving Credit Facility. 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 December 26, 2020.

The Company has required scheduled principal payments of $8.7 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 December 26, 2020.

12. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company manufactures, markets and sells its products globally. During the three and nine months ended December 26, 2020, 38.6% and 40.7%, 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.

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.

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Designated Foreign Currency Hedge Contracts

All of the Company's designated foreign currency hedge contracts as of December 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. 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 $78.8 million as of December 26, 2020 and $93.8 million as of March 28, 2020. At December 26, 2020, a loss of $1.4 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of December 26, 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 $90.5 million as of December 26, 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 nine months ended December 26, 2020, a gain of $0.3 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 rollforward of the allowance for credit losses:

Three Months EndedNine Months Ended
(In thousands)December 26, 2020December 28, 2019December 26, 2020December 28, 2019
Beginning balance$2,699 $4,108 $3,824 $3,937 
    Credit (gain) loss(95)229 (838)515 
    Write-offs(79)(240)(461)(355)
Ending balance$2,525 $4,097 $2,525 $4,097 

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 and comprehensive income for the nine months ended December 26, 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 and Comprehensive Income
Amount of Gain (Loss) Excluded from
Effectiveness
Testing
Location in
Condensed Consolidated Statements of Income and Comprehensive Income
Designated foreign currency hedge contracts, net of tax$1,378 $(1,538)Net revenues, COGS and SG&A$(671)Interest and other expense, net
Non-designated foreign currency hedge contracts$ $  $(5,218)Interest and other expense, net
Designated interest rate swaps, net of tax$(2,996)$(3,326)Interest and other expense, net$ 

The Company did not have fair value hedges or net investment hedges outstanding as of December 26, 2020 or March 28, 2020. As of December 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. 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 December 26, 2020, the Company has classified its derivative
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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 December 26, 2020 and March 28, 2020:
(In thousands)Location in Condensed Consolidated
Balance Sheets
As ofAs of
December 26, 2020March 28, 2020
Derivative Assets:   
Designated foreign currency hedge contracts