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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,			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 Each 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.

Large accelerated filer

x

Accelerated 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

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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 26, 2020 and December 28, 2019			3
Unaudited Condensed Consolidated Balance Sheet - December 26, 2020 and Consolidated Balance Sheet - March 28, 2020			4
Unaudited Condensed Consolidated Statements of Stockholders' Equity - Three and Nine Months Ended December 26, 2020 and December 28, 2019			5
Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months Ended December 26, 2020 and December 28, 2019			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			34
ITEM 4. Controls and Procedures			35
PART II. OTHER INFORMATION			36
ITEM 1. Legal Proceedings			36
ITEM 1A. Risk Factors			36
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
ITEM 3. Defaults upon Senior Securities			37
ITEM 4. Mine Safety Disclosures			37
ITEM 5. Other Information			37
ITEM 6. Exhibits			38
SIGNATURES			39

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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 26, 2020						December 28, 2019						December 26, 2020						December 28, 2019
Net revenues			$	240,371					$	258,970					$	645,434					$	749,987
Cost of goods sold			120,114						130,920						329,403						379,031
Gross profit			120,257						128,050						316,031						370,956
Operating expenses:
Research and development			7,501						7,000						22,014						21,909
Selling, general and administrative			73,446						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 expenses			79,832						87,143						205,109						293,612
Operating income			40,425						40,907						110,922						77,344
Interest and other expense, net			(3,051)						(3,078)						(10,612)						(12,152)
Income before provision for income taxes			37,374						37,829						100,310						65,192
Provision for income taxes			5,492						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
Basic			50,789						50,630						50,634						50,810
Diluted			51,363						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.

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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, 2020			146,939						165,207
Inventories, net			299,710						270,276
Prepaid expenses and other current assets			32,697						30,845
Total current assets			668,348						603,639
Property, plant and equipment, net			240,009						253,399
Intangible assets, less accumulated amortization of $309,951 at December 26, 2020 and $296,942 at March 28, 2020			119,716						133,106
Goodwill			215,508						210,652
Deferred tax asset			4,558						3,930
Other long-term assets			69,929						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 payable			42,979						50,730
Accrued payroll and related costs			35,127						49,471
Other liabilities			99,223						97,641
Total current liabilities			194,384						274,822
Long-term debt, net of current maturities			292,721						305,513
Deferred tax liability			9,803						10,562
Other long-term liabilities			102,008						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, 2020			508						503
Additional paid-in capital			579,480						553,229
Retained earnings			169,022						78,512
Accumulated other comprehensive loss			(29,858)						(45,135)
Total stockholders’ equity			719,152						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.

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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
Balance, March 28, 2020			50,323						$	503					$	553,229					$	78,512					$	(45,135)					$	587,109
Employee stock purchase plan			22						—						2,144						—						—						2,144
Exercise of stock options			28						1						1,192						—						—						1,193
Issuance of restricted stock, net of cancellations			298						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, 2020			50,671						$	507					$	562,729					$	89,039					$	(43,706)					$	608,569
Exercise of stock options			2						—						67						—						—						67
Issuance of restricted stock, net of cancellations			30						—						—						—						—						—
Share-based compensation expense			—						—						5,952						—						—						5,952
Net income			—						—						—						48,101						—						48,101
Other comprehensive income			—						—						—						—						5,234						5,234
Balance, September 26, 2020			50,703						$	507					$	568,748					$	137,140					$	(38,472)					$	667,923
Employee stock purchase plan			22						—						1,868						—						—						1,868
Exercise of stock options			50						—						2,578						—						—						2,578
Issuance of restricted stock, net of cancellations			42						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, 2020			50,817						$	508					$	579,480					$	169,022					$	(29,858)					$	719,152

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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
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

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

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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 amortization			62,377						81,524
Impairment of assets			1,028						50,597
Share-based compensation expense			18,406						15,055
Deferred tax benefit			(3,953)						(4,747)
Provision for losses on accounts receivable and inventory			2,942						(2,246)
Gains on divestitures and sale of assets			(32,613)						(8,083)
Other non-cash operating activities			1,351						1,945
Change in operating assets and liabilities:
Change in accounts receivable			18,588						13,807
Change in inventories			(33,728)						(68,251)
Change in prepaid income taxes			1,181						(273)
Change in other assets and other liabilities			2,687						(8,829)
Change in accounts payable and accrued expenses			(21,518)						(17,590)
Net cash provided by operating activities			107,258						111,811
Cash Flows from Investing Activities:
Capital expenditures			(25,408)						(38,112)
Acquisition			(16,606)						—
Proceeds from divestitures			44,587						9,808
Proceeds from sale of property, plant and equipment			1,085						16,263
Net cash provided by (used in) investing activities			3,658						(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 plan			4,012						3,368
Proceeds from exercise of stock options			3,838						7,712
Other			(32)						90
Net cash used in financing activities			(65,307)						(142,580)
Effect of exchange rates on cash and cash equivalents			6,082						(124)
Net Change in Cash and Cash Equivalents			51,691						(42,934)
Cash and Cash Equivalents at Beginning of Period			137,311						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.

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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.

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In July 2019, the Board of Directors of the Company approved a new Operational Excellence Program (the “2020 Program”) and delegated authority to the Company's management to determine the detail of the initiatives that will comprise the program. The 2020 Program is designed to improve operational performance and reduce cost principally in our manufacturing and supply chain operations. The Company estimates that it will incur aggregate charges between $60 million and $70 million in connection with the 2020 Program. These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2023. During the three 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 Program						2018 Program and Prior Programs						Total
Balance at March 28, 2020						$	1,136					$	1,512					$	2,648
Costs incurred, net of reversals						1,005						(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 Ended												Nine 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.

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

Restructuring costs			Three Months Ended												Nine Months Ended
(In thousands)			December 26, 2020						December 28, 2019						December 26, 2020						December 28, 2019
Plasma			$	(27)					$	4					$	454					$	552
Blood Center			66						18						240						154
Hospital			—						58						(18)						295
Corporate			(131)						537						224						1,928
Total			$	(92)					$	617					$	900					$	2,929
Turnaround costs			Three Months Ended												Nine Months Ended
(In thousands)			December 26, 2020						December 28, 2019						December 26, 2020						December 28, 2019
Plasma			$	431					$	108					$	1,235					$	187
Blood Center			518						293						1,024						293
Hospital			4						—						14						—
Corporate			2,282						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.

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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 assets						685
Property, plant and equipment						289
Intangible assets						14,090
Goodwill						8,153
Total assets acquired						$	23,851
Other current liabilities						289
Contingent consideration (current)						504
Contingent consideration (non-current)						3,416
Deferred tax liability						3,036
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.

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Intangible assets acquired consist of the following:

(In thousands)						Amount						Weighted-Average Amortization Period
Completed technology						$	13,441					10
Customer relationships						347						10
Trademark						302						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

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$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 Ended												Nine 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 shares			50,789						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 shares			50,789						50,630						50,634						50,810
Net effect of common stock equivalents			574						1,008						600						1,185
Diluted weighted average shares			51,363						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-process						22,030						11,021
Finished goods						203,243						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 Ended												Nine Months Ended
(In thousands)			December 26, 2020						December 28, 2019						December 26, 2020						December 28, 2019
Beginning balance			$	2,699					$	4,108					$	3,824					$	3,937
Credit (gain) loss			(95)						229						(838)