SEC Filing | Haemonetics Corporation

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Document

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 28, 2019



☐	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,
Massachusetts		02110
(Address of principal executive offices)		(Zip Code)

(781) 848-7100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Exchange on Which Registered
Common stock, $.01 par value per share	HAE	New 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.

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 31, 2020: 50,298,046

HAEMONETICS CORPORATION

INDEX



	PAGE
PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Unaudited Condensed Consolidated Statements of Income and Comprehensive Income - Three and Nine Months Ended December 28, 2019 and December 29, 2018	3
Unaudited Condensed Consolidated Balance Sheet - December 28, 2019 and Audited Consolidated Balance Sheet - March 30, 2019	4
Unaudited Condensed Consolidated Statements of Stockholders' Equity - Three and Nine Months Ended December 28, 2019 and December 29, 2018	5
Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months Ended December 28, 2019 and December 29, 2018	7
Notes to Unaudited Condensed Consolidated Financial Statements	8

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	22

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	33

ITEM 4. Controls and Procedures	33

PART II. OTHER INFORMATION	34

ITEM 1. Legal Proceedings	34

ITEM 1A. Risk Factors	34

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	34

ITEM 3. Defaults upon Senior Securities	35

ITEM 4. Mine Safety Disclosures	35

ITEM 5. Other Information	35

ITEM 6. Exhibits	36

SIGNATURES	37

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 Ended						Nine Months Ended
	December 28, 2019			December 29, 2018			December 28, 2019			December 29, 2018
Net revenues	$	258,970		$	247,356		$	749,987		$	718,284
Cost of goods sold	130,920			136,181			379,031			411,958
Gross profit	128,050			111,175			370,956			306,326
Operating expenses:
Research and development	7,000			8,978			21,909			26,967
Selling, general and administrative	78,267			73,877			221,106			219,670
Impairment of assets	1,876			—			50,597			—
Total operating expenses	87,143			82,855			293,612			246,637
Operating income	40,907			28,320			77,344			59,689
Interest and other expense, net	(3,078		)	(2,858		)	(12,152		)	(7,875		)
Income before provision for income taxes	37,829			25,462			65,192			51,814
Provision for income taxes	7,934			7,185			6,290			17,630
Net income	$	29,895		$	18,277		$	58,902		$	34,184

Net income per share - basic	$	0.59		$	0.36		$	1.16		$	0.66
Net income per share - diluted	$	0.58		$	0.35		$	1.13		$	0.64

Weighted average shares outstanding
Basic	50,630			51,401			50,810			51,708
Diluted	51,638			52,822			51,995			53,184

Comprehensive income	$	32,296		$	13,214		$	55,577		$	24,079

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

HAEMONETICS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited in thousands, except share data)



	December 28, 2019			March 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	126,417		$	169,351
Accounts receivable, less allowance of $4,097 at December 28, 2019 and $3,937 at March 30, 2019	170,753			185,027
Inventories, net	254,167			194,337
Prepaid expenses and other current assets	31,238			27,406
Total current assets	582,575			576,121
Property, plant and equipment, net	268,104			343,979
Intangible assets, less accumulated amortization of $287,526 at December 28, 2019 and $263,479 at March 30, 2019	107,307			127,693
Goodwill	211,062			210,819
Deferred tax asset	4,428			4,359
Other long-term assets	64,273			11,796
Total assets	$	1,237,749		$	1,274,767
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	61,966		$	27,666
Accounts payable	52,298			63,361
Accrued payroll and related costs	44,425			53,200
Other liabilities	98,003			91,532
Total current liabilities	256,692			235,759
Long-term debt, net of current maturities	309,738			322,454
Deferred tax liability	14,576			19,906
Other long-term liabilities	82,163			28,780
Total stockholders’ equity
Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 50,390,614 shares at December 28, 2019 and 51,019,918 shares at March 30, 2019	504			510
Additional paid-in capital	537,913			536,320
Retained earnings	69,868			161,418
Accumulated other comprehensive loss	(33,705		)	(30,380		)
Total stockholders’ equity	574,580			667,868
Total liabilities and stockholders’ equity	$	1,237,749		$	1,274,767

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

HAEMONETICS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited in thousands)



	Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares		Par Value			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance, March 30, 2019	51,020		$	510		$	536,320		$	161,418		$	(30,380	)	$	667,868
Employee stock purchase plan	25		—			1,830			—			—			1,830
Exercise of stock options	85		1			3,634			—			—			3,635
Shares repurchased	(616	)	(6		)	(21,473		)	(53,521		)	—			(75,000		)
Issuance of restricted stock, net of cancellations	257		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, 2019	50,771		$	508		$	525,038		$	99,418		$	(33,998	)	$	590,966
Exercise of stock options	64		1			2,409			—			—			2,410
Shares repurchased	(360	)	(4		)	1,274			(51,270		)	—			(50,000		)
Issuance of restricted stock, net of cancellations	133		1			(1		)	—			—			—
Share-based compensation expense	—		—			5,000			—			—			5,000
Net income	—		—			—			37,486			—			37,486
Other comprehensive loss	—		—			—			—			(2,108		)	(2,108		)
Balance, September 28, 2019	50,608		$	506		$	533,720		$	85,634		$	(36,106	)	$	583,754
Employee stock purchase plan	20		1			1,537			—			—			1,538
Exercise of stock options	60		—			1,667			—			—			1,667
Shares repurchased	(411	)	(4		)	(4,335		)	(45,661		)	—			(50,000		)
Issuance of restricted stock, net of cancellations	114		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, 2019	50,391		$	504		$	537,913		$	69,868		$	(33,705	)	$	574,580



	Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares		Par Value			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance, March 31, 2018	52,343		$	523		$	503,955		$	266,942		$	(18,991	)	$	752,429
Employee stock purchase plan	45		1			1,779			—			—			1,780
Exercise of stock options	75		1			2,830			—			—			2,831
Shares repurchased	(888	)	(9		)	(4,552		)	(75,439		)	—			(80,000		)
Issuance of restricted stock, net of cancellations	67		—			—			—			—			—
Share-based compensation expense	—		—			3,379			—			—			3,379
Cumulative effect of change in accounting principles	—		—			—			1,177			—			1,177
Net loss	—		—			—			(2,819		)	—			(2,819		)
Other comprehensive loss	—		—			—			—			(4,719		)	(4,719		)
Balance, June 30, 2018	51,642		$	516		$	507,391		$	189,861		$	(23,710	)	$	674,058
Exercise of stock options	125		1			4,294			—			—			4,295
Shares repurchased	(182	)	(2		)	14,213			(14,211		)	—			—
Issuance of restricted stock, net of cancellations	40		1			—			—			—			1
Share-based compensation expense	—		—			4,582			—			—			4,582
Net income	—		—			—			18,726			—			18,726
Other comprehensive loss	—		—			—			—			(323		)	(323		)
Balance, September 29, 2018	51,625		$	516		$	530,480		$	194,376		$	(24,033	)	$	701,339
Employee stock purchase plan	22		—			1,474			—			—			1,474
Exercise of stock options	66		1			2,320			—			—			2,321
Shares repurchased	(771	)	(7		)	(7,924		)	(72,069		)	—			(80,000		)
Issuance of restricted stock, net of cancellations	51		—			(1		)	—			—			(1		)
Share-based compensation expense	—		—			4,782			—			—			4,782
Net income	—		—			—			18,277			—			18,277
Other comprehensive loss	—		—			—			—			(5,063		)	(5,063		)
Balance, December 29, 2018	50,993		$	510		$	531,131		$	140,584		$	(29,096	)	$	643,129

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

HAEMONETICS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited in thousands)



	Nine Months Ended
	December 28, 2019			December 29, 2018
Cash Flows from Operating Activities:
Net income	$	58,902		$	34,184
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items:
Depreciation and amortization	81,524			79,637
Impairment of assets	50,597			21,170
Share-based compensation expense	15,055			12,743
Deferred tax benefit	(4,747		)	12,330
Provision for losses on accounts receivable and inventory	(2,246		)	3,220
Gain on sale of assets	(8,083		)	—
Other non-cash operating activities	1,945			1,038
Change in operating assets and liabilities:
Change in accounts receivable	13,807			(19,752		)
Change in inventories	(68,251		)	(11,624		)
Change in other assets and other liabilities	(9,102		)	(231		)
Change in accounts payable and accrued expenses	(17,590		)	5,928
Net cash provided by operating activities	111,811			138,643
Cash Flows from Investing Activities:
Capital expenditures	(38,112		)	(105,245		)
Proceeds from divestiture	9,808			—
Proceeds from sale of property, plant and equipment	16,263			2,314
Net cash used in investing activities	(12,041		)	(102,931		)
Cash Flows from Financing Activities:
Net increase in short-term loans	30,000			—
Term loan borrowings	—			347,780
Repayment of term loan borrowings	(8,750		)	(258,103		)
Share repurchases	(175,000		)	(160,000		)
Proceeds from employee stock purchase plan	3,368			3,254
Proceeds from exercise of stock options	7,712			9,446
Other	90			—
Net cash used in financing activities	(142,580		)	(57,623		)
Effect of exchange rates on cash and cash equivalents	(124		)	(3,387		)
Net Change in Cash and Cash Equivalents	(42,934		)	(25,298		)
Cash and Cash Equivalents at Beginning of Period	169,351			180,169
Cash and Cash Equivalents at End of Period	$	126,417		$	154,871
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	10,739		$	9,492
Income taxes paid	$	9,888		$	6,233
Non-Cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placement of Haemonetics equipment	$	10,705		$	12,100
Right-of-use assets and lease incentive acquired	$	41,826		$	—

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

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. Certain immaterial reclassifications have been made to prior years' amounts to conform to the current year's presentation. Operating results for the nine months ended December 28, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 28, 2020 or any other interim period. The Company has assessed its ability to continue as a going concern. As of December 28, 2019, 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 30, 2019.

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 for the three and nine months ended December 28, 2019 and are disclosed in Note 17, Subsequent Event.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Standards Implemented

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") Update No. 2016-02, Leases (Topic 842). ASC Update No. 2016-02 is intended to increase the transparency and comparability among organizations by recognizing lease asset and lease liabilities on the balance sheet, including those previously classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. In July 2018, the FASB issued an update to the leasing guidance to allow an additional transition option which would allow companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented. The Company adopted the new standard on March 31, 2019.

Upon transition, the Company applied the package of practical expedients permitted under ASC Update No. 2016-02 transition guidance to its entire lease portfolio at March 31, 2019. As a result, the Company is not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases, and (iii) initial direct costs for any existing leases. The Company also elected to account for each lease component and the associated non-lease components as a single lease component and also elected not to recognize a lease liability or right-of-use asset for any lease that, at commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

As a result of adopting ASC Update No. 2016-02, the Company recognized additional right-of-use assets of $22.9 million and corresponding liabilities of $22.7 million for its existing lease portfolio on the condensed consolidated balance sheets, with no material impact to the condensed consolidated statements of operations or condensed consolidated statements of cash flows. Additionally, the Company implemented a new lease administration and lease accounting system and has updated controls and procedures for maintaining and accounting for its lease portfolio under the new standard.

In March 2017, the FASB issued ASC Update No. 2017-07, Compensation - Retirement Benefits (Topic 715). The guidance revises the presentation of net periodic pension cost and net periodic post-retirement benefit cost. The Company adopted ASC Update No. 2017-07 during the first quarter of fiscal 2020. The adoption of ASC Update No. 2017-07 did not have a material impact on the Company's condensed consolidated financial statements.

In June 2018, the FASB issued ASC Update No. 2018-07, Compensation - Stock Compensation (Topic 718). The new guidance aligns the accounting for non-employee share-based payments with the existing employee share-based transactions guidance.

The Company adopted ASC Update No. 2018-07 during the first quarter of fiscal 2020. The adoption of ASC Update No. 2018-07 did not have a material impact on the Company's financial position and 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.

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 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 $6.8 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 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. During the three and nine months ended December 29, 2018, the Company incurred $1.9 million and $7.3 million, respectively, of restructuring and turnaround costs under this program. Total cumulative charges under this program are $57.0 million.

The following table summarizes the activity for restructuring reserves for the nine months ended December 28, 2019, substantially all of which relates to employee severance and other employee costs:



(In thousands)	2020 Program			2018 Program and Prior Programs
Balance at March 30, 2019	$	—		$	7,479
Costs incurred, net of reversals	1,409			1,520
Payments	(966		)	(6,440		)
Non-cash adjustments	—			(147		)
Balance at December 28, 2019	$	443		$	2,412

As of December 28, 2019, the Company had a restructuring liability of $2.9 million, of which $2.4 million is payable within the next twelve months.

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



	Three Months Ended					Nine Months Ended
(In thousands)	December 28, 2019		December 29, 2018			December 28, 2019		December 29, 2018
Cost of goods sold	$	2	$	—		$	444	$	—
Research and development	139		56			708		112
Selling, general and administrative expenses	476		(750		)	1,777		(1,131		)
	$	617	$	(694	)	$	2,929	$	(1,019	)

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, which the Company refers to as turnaround costs. These costs, substantially all of which have been included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of income, 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.

The tables below present restructuring and turnaround costs by the Company's three reportable segments as well as the Company's other corporate restructuring and turnaround costs:



Restructuring costs	Three Months Ended					Nine Months Ended
(In thousands)	December 28, 2019		December 29, 2018			December 28, 2019		December 29, 2018
Plasma	$	4	$	47		$	552	$	(36	)
Blood Center	18		6			154		51
Hospital	58		132			295		(91		)
Corporate	537		(879		)	1,928		(943		)
Total	$	617	$	(694	)	$	2,929	$	(1,019	)

Turnaround costs	Three Months Ended					Nine Months Ended
(In thousands)	December 28, 2019		December 29, 2018			December 28, 2019		December 29, 2018
Plasma	$	108	$	80		$	187	$	123
Blood Center	293		182			293		182
Hospital	—		(68		)	—		(207		)
Corporate	6,780		2,254			10,173		8,142
Total	$	7,181	$	2,448		$	10,653	$	8,240

Total restructuring and turnaround costs	$	7,798	$	1,754		$	13,582	$	7,221

4. DIVESTITURE

On May 21, 2019, the Company transferred to CSL Plasma Inc. (“CSL”) substantially all of its tangible assets held relating to the manufacture of anti-coagulant and saline (together, “Liquids”) at its Union, South Carolina facility (“Union”), which consist primarily of property, plant and equipment and inventory, and CSL assumed certain related liabilities (the “Asset Transfer”) pursuant to the terms of a settlement, release and asset transfer agreement between the parties dated May 13, 2019. The Asset Transfer excludes all other assets related to Union, including accounts receivable, customer contracts and the Company's U.S. Food and Drug Administration (“FDA”) product approvals for manufacturing Liquids.

At closing, Haemonetics received $9.8 million of proceeds for the Asset Transfer and was concurrently released from its obligations to supply Liquids under a 2014 supply agreement with CSL. In connection with the Asset Transfer, CSL and Haemonetics also entered into related transition services, supply and manufacturing services and quality agreements that, among other things, permit CSL to manufacture Liquids under the Company's FDA product approvals, exclusively for Haemonetics and CSL, until CSL obtains independent product approvals from the FDA to manufacture the Liquids.

In connection with the Company's and CSL's entry into the May 13, 2019 agreement for the Asset Transfer, the Company recognized a pre-tax impairment charge of $48.7 million in the first quarter of fiscal 2020, primarily related to the carrying balances of the property, plant and equipment exceeding the consideration received under the terms of the Agreement. The charge will not result in any future cash expenditures.

5. 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 28, 2019, the Company reported an income tax provision of $7.9 million and $6.3 million, respectively, representing an effective tax rate of 21.0% and 9.6%, respectively. The effective tax rate for the three and nine months ended December 28, 2019 includes discrete tax benefits 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 liquid solutions operation in the first quarter of fiscal 2020. Refer to Note 4, Divestiture, for additional details related to the divestiture of the Union liquid solutions operation.

For the three and nine months ended December 29, 2018, the Company reported an income tax provision of $7.2 million and $17.6 million, representing an effective tax rate of 28.2% and 34.0%, respectively. The tax rate for the three and nine months ended December 29, 2018 includes a discrete stock compensation windfall benefit of $1.8 million and $5.8 million, respectively. The effective tax rate for the nine months ended December 29, 2018 was higher than the U.S. statutory tax rate primarily due to an asset impairment of $21.2 million recorded in pretax income for which no tax benefit was recognized as a result of the valuation allowance maintained against its deferred tax assets in the impacted jurisdiction.

6. EARNINGS PER SHARE (“EPS”)

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



	Three Months Ended				Nine Months Ended
(In thousands, except per share amounts)	December 28, 2019		December 29, 2018		December 28, 2019		December 29, 2018
Basic EPS
Net income	$	29,895	$	18,277	$	58,902	$	34,184
Weighted average shares	50,630		51,401		50,810		51,708
Basic income per share	$	0.59	$	0.36	$	1.16	$	0.66
Diluted EPS
Net income	$	29,895	$	18,277	$	58,902	$	34,184
Basic weighted average shares	50,630		51,401		50,810		51,708
Net effect of common stock equivalents	1,008		1,421		1,185		1,476
Diluted weighted average shares	51,638		52,822		51,995		53,184
Diluted income per share	$	0.58	$	0.35	$	1.13	$	0.64

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 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. For the three and nine months ended December 29, 2018, weighted average shares outstanding, assuming dilution, excludes the impact of 0.2 million and 0.1 million anti-dilutive shares, respectively.

Share Repurchase Program

In May 2019, the Company's Board of Directors authorized the repurchase of up to $500 million of Haemonetics common shares over the next two years.

In July 2019, the Company completed a $75.0 million repurchase of its common stock pursuant to an accelerated share repurchase agreement ("ASR") entered into with Citibank N.A. ("Citibank") in June 2019. The total number of shares repurchased under the ASR was 0.6 million at an average price per share upon final settlement of $116.33.

In October 2019, the Company completed an additional $50.0 million repurchase of its common stock pursuant to an ASR entered into with Morgan Stanley & Co. LLC ("Morgan Stanley") in September 2019. The total number of shares repurchased under the ASR was 0.4 million at an average price per share upon final settlement of $124.37.

In December 2019, the Company entered into an ASR with Bank of America, N.A. ("Bank of America") to repurchase $50.0 million of the Company’s common stock. Pursuant to the terms of the ASR, in December 2019, the Company paid Bank of America $50.0 million in cash and received an initial delivery of 0.3 million shares of the Company's common stock based on a closing market price on the New York Stock Exchange on December 11, 2019 of $117.55. This initial delivery of shares represented approximately 80% of the notional amount of the ASR. On January 23, 2020, the ASR was completed and an additional 0.1 million shares were delivered upon settlement. The total number of shares repurchased under the ASR was 0.4 million at an average price per share upon final settlement of $114.73.

As of December 28, 2019, the total remaining authorization for repurchases of the Company's common stock under the share repurchase program was $325 million.

7. 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 28, 2019, the Company had $22.1 million of its transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more. The Company expects to recognize approximately 56% of this amount as revenue within the next twelve months and the remaining balance thereafter.

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the condensed consolidated balance sheets. The difference in timing between billing and revenue recognition primarily occurs in software licensing arrangements, resulting in contract assets and contract liabilities.

As of December 28, 2019 and March 30, 2019, the Company had contract assets of $8.0 million and $5.6 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 28, 2019 and March 30, 2019, the Company had contract liabilities of $17.4 million and $20.3 million, respectively. During the three and nine months ended December 28, 2019, the Company recognized $3.1 million and $16.5 million, respectively, of revenue that was included in the above March 30, 2019 contract liability balance. Contract liabilities are classified as other liabilities and other long-term liabilities on the condensed consolidated balance sheets.

8. 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 28, 2019		March 30, 2019
Raw materials	$	73,834	$	69,420
Work-in-process	11,628		12,610
Finished goods	168,705		112,307
Total inventories	$	254,167	$	194,337

9. PROPERTY, PLANT AND EQUIPMENT

In December 2018, the Company entered into a lease for office space in Boston, MA to serve as its new corporate headquarters and replace its prior corporate headquarters located in Braintree, MA. As a result of this lease agreement, the Company received a lease incentive in the form of property, plant and equipment totaling $5.6 million which was recorded upon commencement of the lease term in October 2019. Refer to Note 11, Leases, for additional information regarding this lease.

During the second quarter of fiscal 2020, the Company sold $7.8 million of real estate and other assets associated with the Braintree corporate headquarters and entered into a lease with the buyer that allowed the Company to leaseback the facility on a rent-free basis through December 31, 2019 until the completion of its relocation to Boston, MA, which occurred during the third quarter of fiscal 2020. As a result of this transaction, the Company received net cash proceeds of $15.0 million and non-cash consideration of $0.9 million related to a free rent period ending in December 2019. The transaction resulted in a net gain of $8.1 million.

During the first quarter of fiscal 2019, the Company recorded impairment charges of $21.2 million, which consisted of $19.8 million of charges related to the discontinued use of the HDC filter media manufacturing line and $1.4 million of charges related to non-core and underperforming assets. These impairments were included within cost of goods sold on the condensed consolidated statements of income and impacted the Blood Center reporting segment.

10. GOODWILL AND INTANGIBLE ASSETS

Subsequent to the annual goodwill impairment test performed in the fourth quarter of fiscal 2019, the Company revised the composition of its reportable segments to align with its three global business units, Plasma, Blood Center and Hospital. Refer to Note 15, Segment and Enterprise-Wide Information, for additional information regarding the change in the Company's reportable segments.

A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component. The Company aggregates components within an operating segment that have similar economic characteristics. Consistent with its reportable segments, reporting units for purposes of assessing goodwill impairment have also been reorganized based on business unit and include: Plasma, Blood Center and Hospital.

To determine the amount of goodwill within each of the new reporting units, the Company reallocated, on a relative fair value basis, $84.0 million of goodwill previously allocated to the former Europe, APAC and Japan reporting units to the new global reporting units. In addition, the $126.8 million of goodwill previously allocated to the former North America reporting units was reallocated to each new respective global reporting unit.

The following represents our goodwill balance by new global reportable segment. The prior period information has been restated to conform to the current presentation:



(In thousands)	Plasma		Blood Center		Hospital		Total
Carrying amount as of March 30, 2019	$	28,828	$	37,319	$	144,672	$	210,819
Currency translation	—		50		193		243
Carrying amount as of December 28, 2019	$	28,828	$	37,369	$	144,865	$	211,062

11. LEASES

Lessee Activity

The Company has operating leases for office space, land, warehouse and manufacturing space, R&D laboratories, vehicles and certain equipment. Finance leases are not significant. Leases with an initial term of 12 months or less are generally not recorded on the balance sheet and expense for these leases is recognized on a straight-line basis over the lease term. For leases executed in fiscal 2020 and later, the Company accounts for the lease components and the non-lease components as a single lease component. The Company's leases have remaining lease terms of 1 year to approximately 30 years, some of which may include options to extend the leases for up to 10 years and some include options to terminate early. These options have been included in the determination of the lease liability when it is reasonably certain that the option will be exercised. The Company does not have any leases that include residual value guarantees.

The Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of an arrangement. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. For operating leases that commenced prior to the Company's adoption of ASC 842, the Company measured the

lease liabilities and right-of-use assets using the incremental borrowing rate as of March 31, 2019. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

During the third quarter of fiscal 2020, the Company entered into a lease for office space in Boston, MA to serve as its new corporate headquarters and completed the relocation to this new office from its previous corporate headquarters located in Braintree, MA. The lease term associated with the new corporate headquarters extends through June 30, 2032 and includes two five year renewal options. During the third quarter of fiscal 2020, the Company recorded a right-of-use asset of $36.2 million and corresponding liabilities of $41.8 million upon commencement of the lease term in October 2019. In addition, the Company recorded $5.6 million of property, plant and equipment as a result of a lease incentive received associated with this lease agreement.

The following table presents supplemental balance sheet information related to the Company's operating leases:



(In thousands)	December 28, 2019
Assets
Operating lease right-of-use assets in Other long-term assets	$	54,158
Liabilities
Operating lease liabilities in Other current liabilities	$	5,947
Operating lease liabilities in Other long-term liabilities	$	54,446

The following table presents the weighted average remaining lease term and discount rate information related to our operating leases:



	December 28, 2019
Weighted average remaining lease term	10.1 Years
Weighted average discount rate	4.00	%

During the three and nine months ended December 28, 2019 the Company's operating lease cost was $3.8 million and $8.4 million, respectively.

The following table presents supplemental cash flow information related to our operating leases:



(In thousands)	Three Months Ended December 28, 2019		Nine Months Ended December 28, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows used for operating leases	$	1,326	$	5,160

The following table presents the maturities of our operating lease liabilities as of December 28, 2019:



Fiscal Year (In thousands)	Operating Leases
2020 (excluding the first nine months of 2020)	$	1,528
2021	9,484
2022	8,322
2023	7,422
2024	5,678
Thereafter	40,962
Total future minimum operating lease payments	73,396
Less: imputed interest	(13,003		)
Present value of operating lease liabilities	$	60,393

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.

12. 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 28, 2019, $328.1 million was outstanding under the Term Loan with an effective interest rate of 3.0% and $45.0 million was outstanding on the Revolving Credit Facility. The Company also has $25.4 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of December 28, 2019.

The Company has required scheduled principal payments of $4.4 million during the remainder of fiscal 2020, $21.9 million during fiscal 2021, $17.5 million during fiscal 2022, $214.4 million during fiscal 2023 and $70.0 million thereafter.

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 28, 2019.

13. DERIVATIVES AND FAIR VALUE MEASUREMENTS

The Company manufactures, markets and sells its products globally. During the three and nine months ended December 28, 2019, 35.4% and 35.3%, 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.

Designated Foreign Currency Hedge Contracts

All of the Company's designated foreign currency hedge contracts as of December 28, 2019 and March 30, 2019 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 $23.1 million as of December 28, 2019 and $81.5 million as of March 30, 2019. At December 28, 2019, a gain of $1.2 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of December 28, 2019 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 $87.4 million as of December 28, 2019 and $37.4 million as of March 30, 2019.

Interest Rate Swaps

On June 15, 2018, the Company entered into Credit Faciliti