UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 1, 2017March 28, 2020
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-14041
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
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| Massachusetts | | 04-2882273 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| 125 Summer Street, | | 02110 |
| Boston, | Massachusetts | | (Zip Code) |
(Address of principal executive offices) | | (I.R.S. Employer
Identification No.)
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| (781) | 848-7100 | | |
400 Wood Road,
Braintree, Massachusetts 02184-9114
(Address of principal executive offices)Registrant's telephone number, including area code) | | (781) 848-7100
(Registrant’s telephone number)
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Securities registered pursuant to Section 12(b) of the Act:
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(Title of Each Class)Class | | (Trading Symbol | | Name of Exchange on Which Registered)Registered |
| Common stock, $.01 par value per share | | HAE | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yesþ☑ No o☐
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes oNoþ☑
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 thesuch filing requirements for at least the past 90 days. Yesþ☑ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yesþ☑ No o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. 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. (Check one): |
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Large accelerated filer þ Accelerated Filer | ☑ | | | | | Accelerated filero | ☐ |
Non-accelerated filero | (Do not check if a smaller reporting company)☐ | | | | Smaller reporting company | ☐ |
| | | | | | Smaller reporting company o
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| | | | | Emerging growth companyo | ☐ |
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Act). Yes o☐ No þ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming for these purposes that all executive officers and directors are “affiliates” of the registrant) as of October 1, 2016,September 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter was $1,866,084,197$6,235,150,197 (based on the closing sale price of the registrant’s common stock on that date as reported on the New York Stock Exchange).
The number of shares of $0.01 par value common stock outstanding as of May 19, 201718, 2020 was 52,464,290.50,386,681.
Documents Incorporated By Reference
Portions of the definitive proxy statement for our Annual Meeting of Shareholders to be held on July 27, 201721, 2020 are incorporated by reference in Part III of this report.
TABLE OF CONTENTS
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ITEM 1. BUSINESS
Company Overview
Haemonetics is a global healthcare company dedicated to providing a suite of innovative hematology products and solutions to customers to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets including blood and plasma component collection, the surgical suite, and hospital transfusion services. When used in this report, the terms “we,” “us,” “our” and “the Company” mean Haemonetics.
Haemonetics was founded in 1971 as
Blood is essential to a medical device company and is a pioneer and market leader in developing and manufacturing automated blood component collection devices and surgical blood salvage devices.
modern healthcare system. Blood and its components (plasma, platelets and red cells) have many vital and frequently life-saving clinical applications. Plasma is used for patients with major blood loss and is manufactured into biopharmaceuticals to treat a variety of illnesses, including immune diseases and coagulation disorders. Red cells treat trauma patients or patients undergoing surgery with high blood loss, such as open heart surgery or organ transplant. Platelets have many uses in patient care, including supporting cancer patients undergoing chemotherapy. Blood is essential to a modern healthcare system.
Haemonetics develops and markets a wide range of devices and solutions to serve our customers. We provideOur Plasma business unit provides plasma collection systemsdevices and disposables and plasma donor management software whichthat enable the collection of plasma fractionatorsused by biopharmaceutical companies to make life saving pharmaceuticals. We provide analytical devices for measuring hemostasis which enable healthcare providers to better manage their patients’ bleeding risk. Haemonetics makes blood processing systems and software which make blood donation more efficient and track life giving blood components. Finally, Haemonetics supplies systems and software which facilitate blood transfusions and cell processing.
Market and Products
Product Lines
In fiscal 2017, we organized our products into four categories for purposes of evaluating and developing their growth potential: Plasma, Hemostasis Management,Our Blood Center and Cell Processing. For that purpose, “Plasma” included plasma collection devices and disposables, plasma donor management software, and anticoagulant and saline sold to plasma customers. “Hemostasis Management” included devices and methodologies for measuring coagulation characteristics of blood, such as our TEG® Hemostasis Analyzer. “Blood Center” includedbusiness unit offers blood collection and processing devices and disposables for red cells, platelets and whole blood as well as related donor management software. “Cell Processing” included
software that make blood donation more efficient and track life giving blood components. Our Hospital Business unit, which is comprised of Hemostasis Management, Cell Salvage and Transfusion Management products, includes devices and methodologies for measuring the coagulation of blood that enable healthcare providers to better manage their patients’ bleeding risk, as well as surgical blood salvage systems, specialized blood cell processing systems and disposables and blood transfusion management software.software that facilitate blood transfusions and cell processing.
Market and Products
Product Lines
We view our operations and manage our business in three principal reporting segments: Plasma, Blood Center and Hospital. We believe that Plasma and Hemostasis ManagementHospital have the greatest growth potential, while Cell Processing innovation offers an opportunity to increase market share and expand into new segments. Blood Center competes in challenging markets whichthat require us to manage the business differently, including by reducing costs, shrinking the scope of the current product line, and evaluating opportunities to exit unfavorable customer contracts. We are progressing toward a streamlined operating model with a management and cost structure that can bring about sustainable productivity improvement across the organization. Overall implementationFinancial information concerning these segments is provided in Note 18 to our audited consolidated financial statements contained in Item 8 of our new model began in fiscal 2017 and will continue into fiscal 2018 and 2019.this Annual Report on Form 10-K.
The following describes our principal products in each of our segments.
Plasma
The
Our Plasma business offers automated plasma collection and donor management software systems that improve the plasma centers’ yield, efficiency, quality, safety and overall plasma donor experience. We continue to invest in technology that lowers the overall cost to collect plasma while maintaining high standards of quality and safety.
Plasma Collection Market for Fractionation —Human plasma is collected for two purposes. First, it is used for transfusions in patients, such as trauma victims who need to compensate for extreme blood loss, and second, it is processed by biopharmaceutical companies into therapeutic and diagnostic productspharmaceuticals that aid in the treatment of immune diseases and coagulation disorders. While
Plasma for transfusion is almost exclusively collected by blood centers as part of their broader mission to supply blood components. Plasma that is fractionated and manufactured into pharmaceuticals - frequently referred to as "source plasma" - is mainly collected by vertically integrated biopharmaceutical companies who operate their own collection centers and recruit donors specifically for source plasma donation. The markets for transfusion plasma and source plasma have different participants, product requirements and growth profiles. We serve the market for transfusion plasma through our Blood Center products.
One of the distinguishing features of the source plasma market is the method of collection. There are three primary ways to collect plasma. The first is to collect it from whole blood donations. When whole blood is processed, plasma can be separated at the same time as red cells and platelets and stored for future use. The second is as part of an apheresis procedure that also collects another blood component. These two methods are mainly used by blood centers
to aid patients with extremecollect plasma for transfusions. The third method is a dedicated apheresis procedure that only collects plasma and returns the other blood loss,components to the donor. This third method is mainly used for source plasma collection.
Our Plasma business unit focuses on the collection of source plasma by pharmaceutical manufacturers using apheresis devices that collect plasma and software solutions that support the efficient operation of dedicated source plasma collection centers. Our Blood Center business unit supports the collection of plasma for blood collectors, such as trauma victims,the American Red Cross, using both whole blood and multi-component apheresis collection devices and software solutions that support efficient operation of these types of centers.
Over the last 20 years, the collection of source plasma has increasingly been done by vertically integrated biopharmaceutical companies solely focus on the pharmaceutical uses of plasma.
Many biopharmaceuticalsuch as CSL Behring, Grifols S.A. ("Grifols"), Octapharma AG and Takeda's BioLife business. With their global operations and management expertise, these companies are vertically integrated and are now collecting and fractionating the plasma required to manufacture pharmaceuticals. The vertical integration of these customers paved the way for highlyfocused on efficient plasma supply chain management and leveraging information technology to manage operations from the point of plasma donation to fractionation to the production of the final product.
Haemonetics'
Demand for source plasma has continued to grow as an expanding end user market for plasma-derived biopharmaceuticals. In particular, therapies that require a significant quantity of plasma to create has fueled an increase in the number of donations and dedicated source plasma collection centers. A significant portion of this growth has occurred in the United States with U.S. produced plasma now meeting an increasing percentage of plasma volume demand worldwide. The U.S. has regulations that are significantly more favorable relative to other markets for plasma collectors. The frequency with which a donor may donate, the volume of plasma that may be donated each time and the ability to remunerate donors are all optimal in the U.S., leading to approximately 80% of worldwide source plasma collections occurring in the U.S. Plasma collectors have long sought changes to plasma collection regulations outside of the U.S. to allow for greater frequency, volume per donation and remuneration but achievements have been limited and no changes are foreseen in the prevalence of U.S. collections.
Plasma Products — Built around our automated plasma collection devices, and related disposables and software, our portfolio of products and services is designed to support multiple facets of plasma collector operations. We have a long-standing commitment to understanding our customers' collection and manufacturing processes. As a result, we aim to design equipment that is durable, dependable and easy to use and to provide comprehensive training and support to our plasma collection customers.
Today, the vast majority of plasma collections worldwide are performed using automated collection technology because it is safer and more cost-effective. With our PCS® (Plasma Collection System) brand automated plasma collection technology, more plasma can be collected during any one donation event because the other blood components are returned to the donor through the sterile disposable sets used for the plasma donation procedure.
at dedicated facilities. We offer multiple products necessary forto support these dedicated source plasma collectionoperations, including our NexSys PCS® and storage, including PCSPCS2® brand plasma collectionplasmapheresis equipment, andrelated disposables plasma collection containers and intravenous solutions. We also offer a portfolio of integrated information technology platforms for plasma customers to manage their donors, operations and supply chain. Our software products, including our latest NexLynk DMS® donor management system, automate the donor interview and qualification process, streamline the workflow process in the plasma center, provide the controls necessary to evaluate donor suitability, determine the ability to release units collected and manage unit distribution. With our software solutions, plasma collectors can manage processes across the plasma supply chain, ensure quality and compliance business process support, react quickly to business changes and implement opportunities to reduce costs.
With our PCS brand, we have provided an automated platform dedicated to the collection of plasma for over 20 years. In April, 2017,fiscal 2018, we submitted a new plasmapheresis device, the PCS® 300, for 510(k) regulatory clearance with the United Statesreceived U.S. Food and Drug Administration ("FDA") 510(k) clearance for our next generation device, the NexSys PCS and continuefor the enhancement of our NexSys PCS embedded software that activates YESTM technology, a yield-enhancing solution that enables increases in plasma yield per collection by an additional 18-26 mL per donation, on average. We also received CE mark clearance of the NexSys PCS device in the European Union and Australia, subject to work on futureadditional local requirements, during fiscal 2018. We expect to pursue further regulatory clearances for additional enhancements to this importantthe overall product someoffering.
NexSys PCS is designed to enable higher plasma yield collections, improve productivity in our customers’ centers, enhance the overall donor experience and provide safe and reliable collections that will become life-changing medicines for patients. NexSys PCS includes bi-directional connectivity to the NexLynk DMS donor management system to improve operational efficiency within plasma centers, through automated programming of which may require additional clearances.donation procedures and automated data capture of procedure data.
We have entered into long-term commercial contracts and are continuing the rollout and support of NexSys PCS devices and NexLynk DMS donor management software for these Plasma customers.
Our Plasma business unit represented 46.4%, 42.0%,44.1% and 38.8%40.2% of our total revenue in fiscal 2017, 20162020, 2019 and 2015,2018, respectively.
Blood Center
Our Blood Center business offers a range of solutions that improve donor collection centers' ability to acquire blood, filter blood and separate blood components. We continue to look for solutions to improve donor safety and control costs through the existing product portfolio. Our products and technologies help donor collection centers optimize blood collection capabilities and donor processing management.
Blood Center Market — There are millions of blood donations throughout the world every year that produce blood products for transfusion to surgical, trauma, or chronically ill patients. Patients typically receive only the blood components necessary to treat a particular clinical condition. Platelet therapy is frequently used to alleviate the effects of chemotherapy and to help patients with bleeding disorders. Red cells are often transfused to patients to replace blood lost during surgery and transfused to patients with blood disorders, such as sickle cell anemia or aplastic anemia. Plasma, in addition to its role in creating life-saving pharmaceuticals, is frequently transfused to replace blood volume in trauma victims and surgical patients.
When collecting blood components there are two primary collection methods, manual whole blood donations and automated component blood collections. While most donations are manual whole blood, the benefit of automated component blood collections is the ability to collect more than one unit of the targeted blood component. Manual whole blood donations are collected from the donor and then transported to a laboratory where the blood is separated into its components. Automated component blood collections separate the blood component real-time while a person is donating blood. In this method, only the specific target blood component is collected and the remaining components are returned to the blood donor.
While overall we expect total demand for blood to remain stable to slightly declining, demand in individual markets can vary greatly. The development in mature markets of more minimally invasive procedures with lower associated blood loss, as well as hospitals' improved blood management techniques and protocols have more than offset the increasing demand for blood from aging populations. Emerging markets are seeing demand growth with expanded healthcare coverage and greater access to more advanced medical treatments.
Blood Center Products—We offer automated blood component and manual whole blood collection systems to blood collection centers to collect blood products efficiently and cost effectively. In addition, we offer software solutions that help blood collection centers with blood drive planning, donor recruitment and retention, blood collection, component manufacturing and distribution.
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| • | We market the MCS® brand apheresis equipment which is designed to collect specific blood components from the donor. Utilizing the MCS automated platelet collection protocols, blood centers collect one or more therapeutic “doses” of platelets during a single donation. |
Our portfolio of disposable whole blood collection and component storage sets offer flexibility in collecting a unit of whole blood and the subsequent production and storage of blood components, including options for in-line or dockable filters for leukoreduction.
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| • | Our SafeTrace® and El-Dorado Donor® donation and blood unit management systems span blood center operations and automate and track operations from the recruitment of the blood donor to the disposition of the blood product. |
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| • | Our Hemasphere® software solution provides support for more efficient blood drive planning and Donor Doc® and e-Donor® software help to improve donor recruitment and retention. |
Our Blood Center business unit represented 32.1%, 34.1% and 37.8% of our total revenue in fiscal 2020, 2019 and 2018, respectively.
Hospital
Hospitals are called upon to provide the highest standard of patient care while at the same time reduce operating costs. Haemonetics' Hospital business has three product lines - Hemostasis Management, Cell Salvage and Transfusion Management - that help decision makers in hospitals optimize blood acquisition, storage and usage in critical settings.
Hemostasis Management
The Hemostasis Management Market — Hemostasis refers to a patient's ability to form and maintain blood clots. The clinical management of hemostasis requires that physicians have the most complete information to make decisions on how to best maintain a patient’s coagulation equilibrium between hemorrhage (bleeding) and thrombosis (clotting). Hemostasis Management playsis a rolecritical challenge in various medical procedures, including liver transplant, cardiovascular procedures,surgery, organ transplantation, trauma, post-partum hemorrhage and percutaneous coronary intervention (PCI).intervention. By understanding a patient’s clotting ability,hemostasis status, clinicians can better plan for the patient’s care deciding in advancepathway. For example, they may decide whether to start or discontinue the use of certain drugs or determine the likelihood of the patient's need for a transfusion and which specific blood components willwould be most effective in minimizing blood loss and reducing clotting risk. Such planning supports better care, which can lead to lower hospital costs through a reduction in unnecessary donor blood product transfusions, reduced adverse transfusion reactions and shorter intensive care unit and hospital stays.
Haemonetics’ Hemostasis Management Products — Our portfolio of hemostasis diagnostic systems enables clinicians to assess holistically the coagulation status of a patient at the point-of-care or laboratory setting. We have twothree device platforms whichthat we market to hospitals and laboratories as an alternative to less comprehensiveroutine blood tests: the TEG® 5000 hemostasis analyzer which we acquired insystem, the 2007 acquisition of Haemoscope Corporation,TEG 6s hemostasis analyzer system, and the TEGClotPro® 6s device, which we license from Cora Healthcare, Inc., a company established by Haemoscope's founders. Under hemostasis analyzer system (acquired in April 2020).
Each hemostasis diagnostic system consists of an analyzer that is used with single-use reagents and disposables. In addition, TEG Manager® software connects multiple TEG 5000 and TEG 6S analyzers throughout the license from Cora Healthcare, we have exclusive rightshospital, providing clinicians remote access to manufactureboth active and commercialize TEG® 6s in hospitals and hospital laboratory fields.historical test results that inform treatment decisions.
Both of our TEG® systems are blood diagnostic instruments that measure a patient's hemostasis. This information enables caregivers to decide the best blood-related clinical treatment for the patient in order to minimize blood loss and reduce clotting risk.
The TEG® 5000 analyzersystem is approved for a broad set of indications in all of our markets. The TEG® 6s and TEG® Manager aresystem is approved for the same set of indications as the TEG® 5000 in Europe, Australia and Japan. In the U.S., TEG® 6s is approved for limited indications, including cardiovascular surgery and cardiology. We are pursuingcontinue to pursue a broader set of indications for the TEG® 6s in the U.S., including trauma.
Our Hemostasis Management business unit represented 7.5%, 6.5%, During fiscal 2020, we received FDA clearance for the use of TEG 6s in adult trauma settings. This clearance builds on the current indication for the TEG 6s system in cardiovascular surgery and 5.6% of our total revenuecardiology procedures, making it the first cartridge-based system available in fiscal 2017, 2016the U.S. to evaluate the hemostasis condition in adult trauma patients. The ClotPro system received CE mark clearance in March 2019 and 2015, respectively.is currently available in select European and Asia Pacific markets.
Cell ProcessingSalvage
Cell Salvage Market — The Cell Processing Market —Salvage market is mainly comprised of devices designed to transfuse back a patient’s own blood during or after surgery. Loss of blood is common in many surgical procedures, including open heart, trauma, transplant, vascular and orthopedic procedures, and the need for transfusion of oxygen-carrying red cells to make up for lost blood volume is routine. Patients commonly receive donor (or allogeneic) blood which carries various risks including transfusion with the wrong blood type, transfusion of a blood-borne disease or infectious agent,for transfusion reactions including death, but more commonly chills, fevers or other side effects that can prolong a patient’s recovery.
An alternative to allogeneic blood is surgical cell salvage, also known as autotransfusion, which reduces or eliminates a patient’s need for blood donated from others and ensures that the patient receives the freshest and safest blood possible —- his or her own. Surgical cell salvage involves the collection of a patient’s own blood during or after surgery for reinfusion of red cells to that patient. Blood is suctioned from the surgical site or collected from a wound or chest drain, processed and washed through a centrifuge-based system that yields concentrated red cells available for transfusion back to the patient. This process occurs in a sterile, closed-circuit, single-use consumable set that is fitted
into an electromechanical device. We market our surgical blood salvage products to surgical specialists, primarily cardiovascular, orthopedic and trauma surgeons, and to anesthesiologists and surgical suite service providers.
In recent years, more efficient
Cell Salvage Products — Our Cell Saver® Elite®+ autologous blood use and less invasive cardiovascular surgeries have reduced demand for autotransfusion in these procedures and contributed to intense competition in mature markets, while increased access to healthcare in emerging economies has provided new markets and sources of growth.
Orthopedic procedures have seen similar to the changes with improved blood management practices, including the use of tranexamic acid to treat and prevent post-operative bleeding, have significantly reduced the number of transfusions and autotransfusion.
Haemonetics’ Cell Processing Products — Haemonetics offers a range of solutions that improve a hospital's systems for acquiring blood, storing it in the hospital, and dispensing it efficiently and correctly. Over the last few years, hospitals have become increasingly focused on of their need to control costs and improve patient safety by managing blood more effectively. Our products and integrated solution platforms help hospitals optimize performance of blood acquisition, storage, and distribution.
The Cell Saver®recovery system is a surgical blood salvage system targeted to procedures that involve midmedium to high-volumehigh blood loss procedures, such as cardiovascular, or orthopedic, surgeries. It has become the standard of care for thesetrauma, transplant, vascular, obstetrical and gynecological surgeries. The Cell Saver® Elite® system + is our most advanced autotransfusion optiondesigned to minimize allogeneic blood use for surgeriesand reliably recover and transfuse a patient’s own high-quality blood.
Transfusion Management
Transfusion Management Market — Hospital transfusion services professionals and clinicians are facing cost restraints in addition to the pressure to enhance patient safety, compliance and operational efficiency. Managing the safety and traceability of the blood supply chain and comprehensive management of patients, orders, specimens, blood products, derivatives and accessories across the hospital network is challenging. In addition, providing clinicians with mediumthe vital access to high blood loss.when needed most while maintaining traceability is a key priority. Frequently when blood products leave the blood bank, the transfusion management staff loses control and visibility of the blood components. They often do not know if the blood was handled, stored or transfused properly, which may lead to negative effects on patient safety, product quality, inventory availability and staff efficiency as well as increased waste.
The OrthoPAT® surgical blood salvage system is targeted to orthopedic procedures, such as hip and knee replacements, which involve slower, lower volume blood loss that often occurs well after surgery. The system is
Transfusion Management Products — Our Transfusion Management solutions are designed to remain with the patient following surgery, to recover bloodhelp provide safety, traceability and produce a washed red cell product for autotransfusion.
Our Cell Processing software products help hospitals track and safely deliver stored blood products. SafeTrace Tx® is our software solution that helps manage blood product inventory, perform patient cross-matching, and manage transfusions. In addition, our BloodTrack® suite of solutions manages tracking and control of blood productscompliance from the hospital blood center through transfusionbank to the patient.patient bedside and enable consistent care across the hospital network. Our SafeTrace Tx® transfusion management software is considered the system of record for all hospital blood bank and transfusion service information. BloodTrack® blood management software is a modular suite of blood management and bedside transfusion solutions that combines software with hardware components and acts as an extension of the hospital’s blood bank information system. The software is designed to work with blood storage devices, including the BloodTrack HaemoBank®.
Our Cell ProcessingHospital business unit represented 11.9%19.6%, 12.4%,19.9% and 13.2%19.8% of our total revenue in fiscal 2017, 20162020, 2019 and 2015,2018, respectively.
Blood Center
The Blood Center Market — There are millions of blood donations throughout the world every year that produce blood products for transfusion to surgical, trauma, or chronically ill patients. Patients typically receive only the blood components necessary to treat a particular clinical condition. Platelet therapy is frequently used to alleviate the effects of chemotherapy and help patients with bleeding disorders and to stop bleeding. Red cells are often transfused to patients to replace blood lost during surgery. Red cells are also transfused to patients with blood disorders, such as sickle cell anemia or aplastic anemia. Plasma, in addition to its role in creating life-saving pharmaceuticals, is frequently transfused to replace blood volume in trauma victims and surgical patients.
The demand for blood components varies across the world. While overall we expect total demand to remain stable, demand in individual markets can vary greatly. Highly populated emerging market countries are seeing demand growth as they expand healthcare coverage. As greater numbers of people gain access to more advanced medical treatment, demand for blood components, plasma-derived drugs, and surgical procedures increases. In more mature markets, the development of less invasive procedures with lower associated blood loss and better blood management have offset the demand increases from aging populations.
Most donations worldwide are manual whole blood donations. In this process, whole blood is collected from the donor and then transported to a laboratory where it is separated into its components: red cells, platelets and/or plasma.
In addition to manual collections, there is a significant market for automated component blood collections. In this procedure, the blood separation process is automated and occurs in real-time while a person is donating blood. In this separation method, only the specific blood component targeted is collected, and the remaining components are returned to the blood donor. Automated blood component collection allows significantly more of the targeted blood component to be collected during a donation event.
Haemonetics’ Blood Center Products—Today, Haemonetics offers automated blood component and manual whole blood collection systems to blood collection centers to collect blood products efficiently and cost effectively.
We market the MCS® (Multicomponent Collection System) brand apheresis equipment which is designed to collect specific blood components integrated from the donor. Utilizing the MCS® automated platelet collection protocols, blood centers collect one or more therapeutic “doses” of platelets during a single donation. The MCS® two-unit protocol or double red cell collection device helps blood collectors optimize the collection of red cells by automating the blood separation function, eliminating the need for laboratory processing, and enabling the collection of two units of red cells from a single donor thus maximizing the amount of red cells collected per eligible donor and helping to mitigate red cell shortages in countries where this problem exists. Blood collectors can also use the MCS® system to collect one unit of red cells and a "jumbo" (double) unit of plasma, or one unit of red cells and one unit of platelets from a single donor. The MCS® plasma protocol, which provides the possibility of collecting 600-800ml of plasma for either transfusion to patients or for use by the pharmaceutical industry, completes the comprehensive portfolio of different blood component collection options on this device.
Haemonetics also offers a portfolio of products for manual whole blood collection and processing. Haemonetics' portfolio of disposable whole blood collection and component storage sets offer flexibility in collecting a unit of whole blood and the subsequent production and storage of the red blood cell, platelet or plasma products, including options for in-line or dockable filters for leukoreduction of any blood component.
With the ACP® (Automated Cell Processor) brand, Haemonetics offers a solution to automate the washing and freezing of red cell components. The automated red cell washing procedure removes plasma proteins within the red cell units to provide a safer product for transfusion to frequently transfused patients, neonates, or patients with a history of transfusion reactions. The automated glycerolization and deglycerolization steps are required to prepare red cells for frozen storage. Freezing the red cell units can expand the shelf life of these products up to 10 years. Customers utilize this technology to implement strategic red cell inventories for large scale catastrophes, storage of rare blood types, or enhanced inventory management.
Blood Center software solutions help blood center collectors improve efficiencies of blood collection and supply and help ensure donor safety. This includes solutions for blood drive planning, donor recruitment and retention, blood collection, component manufacturing and distribution. Our products SafeTrace® and El Dorado Donor® donation and blood unit management systems span blood center operations and automate and track operations from the recruitment of the blood donor to the disposition of the blood product. Our Hemasphere® software solution provides support for more efficient blood drive planning, and Donor Doc® and e-Donor® software help to improve recruitment and retention.
Our Blood Center business unit represented 34.3%, 39.1%, and 42.4% of our total revenue in fiscal 2017, 2016 and 2015, respectively.
Although we address our customers' needs through multiple product lines, we manage our business as five operating segments based primarily on geography: (a) North America Plasma, (b) Americas Blood Center and Hospital, (c) Europe, Middle East and Africa (collectively "EMEA"), (d) Asia Pacific and (e) Japan. The North America Plasma reporting unit is a separate operating segment with dedicated segment management due the size and scale of the Plasma business unit.
For financial reporting purposes, we aggregate our five operating segments into four reportable segments which include:
Japan
EMEA
North America Plasma
All Other
We have aggregated the Americas Blood Center and Hospital and Asia - Pacific operating segments into the All Other reportable segment based upon their similar operational and economic characteristics, including similarity of operating margin.
Segment Assets
Our assets by segment are set forth below:
|
| | | | | | | | | | | |
| (In thousands) | April 1,
2017 | | April 2,
2016 | | March 28,
2015 |
| Japan | $ | 91,346 |
| | $ | 129,551 |
| | $ | 146,765 |
|
| EMEA | 259,863 |
| | 249,504 |
| | 305,540 |
|
| North America Plasma | 313,934 |
| | 453,212 |
| | 467,249 |
|
| All Other | 573,566 |
| | 486,861 |
| | 565,863 |
|
| Total assets | $ | 1,238,709 |
| | $ | 1,319,128 |
| | $ | 1,485,417 |
|
The financial information required for segments is included herein in Note 14, Segment Information, to our consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K.
Marketing/Sales/Distribution
We market and sell our products to biopharmaceutical companies, blood collection groups and independent blood centers, hospitals and hospital service providers, group purchasing organizations and national health organizations through our own direct sales force (including full-time sales representatives and clinical specialists) as well as independent distributors. Sales representatives target the primary decision-makers within each of those organizations.
United States
In fiscal 2017, 2016 and 2015, 59.0%, 57.2%, and 54.4%, respectively, of consolidated net revenues were generated in the U.S., where we primarily use a direct sales force to sell our products. See Note 14, Segment Information, to our consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K for additional information.
Outside the United States
In fiscal 2017, 2016 and 2015, 41.0%, 42.8%, and 45.6%, respectively, of consolidated net revenues were generated through sales to non-U.S. customers. Outside the United States, we use a combination of direct sales force and distributors. See Note 14, Segment Information, to our consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K for additional information.
Research and Development
Our research and development centers in the United States and SwitzerlandU.S. ensure that protocol variations are incorporated to closely match local customer requirements. In addition, Haemonetics maintains software development operations in Canada and France.
Customer collaborations are also an important part of our technical strength and competitive advantage. These collaborations with customers and transfusion experts provide us with ideas for new products and applications, enhanced protocols and potential test sites as well as objective evaluations and expert opinions regarding technical and performance issues.
The development of blood component separation products, hemostasis analyzers and software has required us to maintain technical expertise in various engineering disciplines, including mechanical, electrical, software, and biomedical engineering and material science.chemistry. Innovations resulting from these various engineering efforts enable us to develop systems that are faster, smaller and more user-friendly, or that incorporate additional features important to our customer base.
In fiscal 2017,2020, research and development resources were primarily allocated to supportingsupport innovation across our portfolio, including investments in clinical programs for our Hemostasis Management product line. A key element of our strategy in the U.S. for our Hemostasis Management product line has been to invest in clinical trials to support expanded FDA labeling including a trauma indication for our TEG 6s. In May 2019, we received FDA clearance for the use of TEG 6s in adult trauma settings. This clearance builds on the current indication for the TEG 6s system in cardiovascular surgery and cardiology procedures, making it the first cartridge-based system available in the U.S. to evaluate the hemostasis condition in adult trauma patients. In November 2019, we announced global commercial availability for the four-channel TEG 6s PlateletMapping® ADP & AA assay cartridge, which is used by clinicians to assess a patient’s bleeding and thrombotic risk due to inhibition of platelet function caused by anticoagulants such as aspirin.
In December 2019, we also announced the North America commercial availability for the next generation of SafeTrace Tx Transfusion Management Software. This software version features significant improvements to the user experience and workflow efficiency.
Additionally, we continue to invest resources in next generation plasma collection and software systems.
Manufacturing
We will continueendeavor to invest resources in clinical programssupply products that are both high quality and cost competitive for our Hemostasis Management business unit, most notably a global registry study forcustomers by leveraging continuous improvement methodologies, focusing on our TEG® platform.core competencies and partnering with strategic suppliers that complement our
Manufacturing
Our principal manufacturing operations are located in the United States, Mexico, and Malaysia.
capabilities. In general, we design our equipment and consumables and use contract manufacturers to build the devices, while the majority of consumables are manufactured by us.
Our production activities occur in controlled settings or “clean room” environments. Each step ofenvironments and have built-in quality checks throughout the manufacturing processes. Our manufacturing teams are focused on continuously improving our productivity, product cost and assembly process isproduct quality checked, qualified,through change control procedures, validations and validated. Critical process stepsstrong supplier management programs. We regularly review our logistics capabilities, inventory and materialssafety stock levels and maintain business continuity plans to address supply disruptions that may occur.
Our primary consumable manufacturing operations are documentedlocated in North America and Malaysia. Contract manufacturers also supply component sets and liquid solutions according to ensure that every unit is produced consistentlyour specifications and meets performance requirements.manufacture in Mexico, Japan, Singapore, Thailand and the Philippines. Our equipmentdevices are principally manufactured in Malaysia, Australia and disposable manufacturingthe U.S.
sites are certified to the ISO 13485 standard and to the Medical Device Directive allowing placement of the CE mark of conformity.
Plastics and other petroleum-based products are the principal component of our disposable products.products and can be affected by oil and gas prices. Contracts with our suppliers help to mitigate some of the short-termshort term effects of price volatility in this market. However, increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials.
Contractors manufacture some component sets, equipment, and liquid solutions according to our specifications. We maintain important relationships with two Japanese manufacturers that produce finished disposables in Singapore, Japan, and Thailand. We have also engaged Sanmina Corporation to be the sole manufacturer of certain equipment. Certain parts and components are purchased from sole source vendors. We believe that, if necessary, alternative sources of supply are available in most cases, and could be secured within a relatively short period of time. Nevertheless, an interruption in supply could temporarily interfere with production schedules and affect our operations.
Our equipment is designed in-house and assembled by us or our contracted manufacturers from components that are manufactured to our specifications. The completed instruments are programmed, calibrated, and tested to ensure compliance with our engineering and quality assurance specifications. Inspection checks are conducted throughout the manufacturing process to verify proper assembly and functionality. When mechanical and electronic components are sourced from outside vendors, those vendors must meet detailed qualification and process control requirements.
Intellectual Property
We consider our intellectual property rights to be important to our business. We rely on a combination of patent, trademark, copyright and trade secret laws, as well as provisions in our agreements with third parties, to protect our intellectual property rights.
We hold numerous patents in the United States and many international jurisdictions on some ofhave applied for numerous additional U.S. patents relating to our machines, processes, disposablesproducts and related technologies. We also own or have applied for corresponding patents in selected foreign countries. These patents cover certain elements of our systems,products and processes, including protocols employed in our equipment and certain aspects of certain of our processing chambers and disposables. Our patents may cover current products, products in markets we plan to enter, or products in markets we plan to license or theto others. Certain patents may also be defensive in that they are directed to technologies not currently embodied in our current products. We may also license patent rights from third parties that cover technologies that we use or plan to use in our business. To maintain our competitive position, we rely on the technical expertise and know-how of our personnel and on our patent rights. We pursue an active and formal program of invention disclosure and patent application in both the United States and foreign jurisdictions.
We own various trademarks that have been registered in the United States and certain other countries.
Our policy is to obtain patent and trademark rights in the U.S. and foreign countries where such rights are available and we believe it is commercially advantageous to do so. However, the standards for international protection of intellectual property vary widely. We cannot assure that pending patent and trademark applications will result in issued patents and registered trademarks, that patents issued to or licensed by us will not be challenged or circumvented by competitors, or that our patents will not be determined invalid.
To maintain our competitive position, we also rely on the technical expertise and know-how of our personnel. We believe that unpatented know-how and trade secrets relied upon in connection with our business and products are generally as important as patent protection in establishing and maintaining a competitive advantage.
Competition
To remain competitive, we must continue to develop and acquire new cost-effective products, information technology platforms and business services. We believe that our ability to maintain a competitive advantage will continue to depend on a combination of factors. Some factors are largely within our control such as: (i) maintenance of a positive reputation among our customers, (ii) development of new products whichthat meet our customer's needs, (iii) obtaining regulatory approvals for our products in key markets, (iv) obtaining patents whichthat protect our innovations, (v) development and protection of proprietary know-how in important technological areas, (vi) product quality, safety and cost effectiveness and (vii) continual and rigorous documentation of clinical performance. Other factors are outside of our control. We could see changes in regulatory standards or clinical practice whichthat favor a competitor's technology or reduce revenues in key areas of our business.
Our technical staff is highly skilled, but certain competitors have substantially greater financial resources and larger technical staff at their disposal. There can be no assurance that competitors will not direct substantial efforts and resources toward the development and marketing of products competitive with those of Haemonetics.
In addition, we face competition from several large, global companies with product offerings similar to ours, such asours. Terumo BCT LivaNova Plc and Fresenius SE & Co. KGaA. Terumo and Fresenius,KGaA, in particular, have significantly greater financial and other resources than we do and are strong competitors in a number of our businesses. The following provides an overview of the key competitors in each of our fourthree global product enterprises.
Plasma
In the automated plasma collection market, we principally compete with the Fresenius' Fenwal Aurora and Aurora Xi product line,lines on the basis of speed, plasma yield per donation, quality, reliability, ease of use, services and technical features of the collection systems and on the long-term cost-effectiveness of equipment and disposables. In China, the market is populated by local producers of a product that is intended to be similar to ours. Recently, those competitors have expanded to markets beyond China, including
European and South American countries. In the field of plasma related software, MAK Systems is the primary commercial competitor along with applications developed internally by our customers.
Blood Center
Most donations worldwide are traditional manual whole blood collections and approximately 30% of the Blood Center portfolio competes in this space. We face intense competition in our whole blood business on the basis of quality and price. Our main competitors are Fresenius, MacoPharma and Terumo.
Our MCS automated component blood collections, which represents approximately 65% of the Blood Center portfolio, not only compete against the traditional manual whole blood collection market (particularly in red cells) but also compete with products from Terumo and Fresenius. Technology is the key differentiator in automated component blood collections, as measured by the time to collect more than one unit of a specific targeted blood component. While not all donors are eligible to donate more than one unit, it continues to become more prevalent in markets with a significant number of eligible donors. Therefore, both Haemonetics and our competitors continue to experience downward pressure on collection through single platelet collection procedures.
In Blood Center software, MAK Technologies is a competitor along with systems developed internally by our customers. Our software portfolio is predominately a U.S. based business.
Hospital
Hemostasis Management
The TEG® Thrombelastograph Hemostasis Analyzer is
Our hemostasis analyzer systems are used primarily in surgical applications. Our principal competitor in Europe and the United States is ROTEM analyzers. ROTEM was recently acquired by a subsidiary of Werfen, Instrumentation Laboratories, which is a United States based laboratory instrument manufacturer. Instrumentation Laboratories has also recently acquired Accriva Diagnostics, the owner of Hemochron and Verifynow hemostasis management products. Other competitive technologies include standardCompetition includes routine coagulation tests, such as prothrombin time, partial thromboplastin time and platelet function testing. There are also additional technologies being explored to assess viscoelasticcount marketed by various manufacturers, such as Instrumentation Laboratory, Diagnostica Stago SAS and other characteristics that can provide insights into the coagulation status of a patient.Sysmex. The TEG® analyzer competes with otherthese routine laboratory tests based on its ability to provide a more complete picture of a patient's hemostasis at a single point in time and the ability to measure the clinically relevant platelet function for an individual patient.
In addition, TEG and ClotPro systems compete more directly with other advanced blood test systems, including ROTEM® analyzers, the VerifyNow® System and HemoSonics Quantra™. ROTEM and VerifyNow instruments are marketed by Instrumentation Laboratory, a subsidiary of Werfen. HemoSonics is owned and offered by Diagnostica Stago. There are also additional technologies being explored to assess viscoelasticity and other characteristics that can provide insights into the coagulation status of a patient.
Cell ProcessingSalvage
In the intraoperative surgical blood salvageautotransfusion market, competition is based on reliability, ease of use, service, support and price. For high-volume platforms, each manufacturer's technology is similar and our Cell Saver technology competes principally with products offered by LivaNova Plc,PLC, Medtronic and Fresenius.
In the perioperative surgical blood salvage market, our OrthoPAT system competes primarily against (i) non-automated processing systems whose end product is an unwashed red blood cell unit for transfusion to the patient, (ii) transfusions of donated bloodTransfusion Management
SafeTrace Tx and (iii) coagulation therapies, principally tranexamic acid.
The competition for processing cells for frozen storage is based on the level of automation, labor-intensiveness and system type (open versus closed). Open systems may be weaker in good manufacturing process compliance. Moreover, blood processed after freezing through open systems has a 24-hour shelf life.
BloodTrack's primary competition are manual cross-matching and delivery systems. However, both Mediware in the United States and MSoft, based in England, have competitive software offerings.
Blood Center
We have several competitors in the Blood Center product lines, some of which compete across all blood components and others that are more specialized.
Terumo and Fresenius are our major competitors in platelet collection. In platelet collections, there are two areas of competition - automated collection and pooled random donor. In the automated collection area, competition is based on continual performance improvement, as measured by the time and efficiency of platelet collection and the quality of the platelets collected. Each of these companies has taken a different technological approach from ours in designing their systems for automated platelet collection. A key point of competition is speed, particularly in collecting two units of platelets from a single donor. While not all donors are eligible to donate two units, we have seen our competitors gain an advantage in markets with a significant number of eligible donors. Terumo, in particular, has an advantage in the collection of two units of platelets from a single donor. In addition to automated platelet collection offerings, we now alsoBloodTrack compete in the pooled random donor platelet segment from wholetransfusion management software market within the broader category of hospital information systems. SafeTrace Tx is an FDA regulated blood collections from which pooled platelets are derivedbank information system ("BBIS") that integrates and communicates with other healthcare information systems such as the Acrodose product or buffy coat pooling sets.electronic health record and laboratory information system within the hospital. The BloodTrack software, also FDA regulated, is an extension of the BBIS and provides secure, traceable blood units at the point-of-care, including trauma, surgery, outpatient and critical care settings. Growth drivers for these markets include patient safety, operational efficiencies and compliance.
Terumo
SafeTrace Tx competition primarily consists of stand-alone BBIS including WellSky and Fresenius are also competitorssome Electronic Health Record software that includes a built-in transfusion management solution including Cerner. Global competition for BloodTrack varies by country including MSoft in the automated red cell collection market. However, it is important to note that most double red cell collection is doneEurope and established blood practices in the U.S. such as using standard refrigerators and less than 10%manual movement of the red cells collected in the U.S. annually are collected via automation. Therefore, we also competeblood products. BloodTrack integrates with the traditional method of collecting red cells from the manual collection of whole blood. We compete on the basis of total cost, type-specific collection, process control, product quality, and inventory management.
We face intense competition in our wholehospital’s existing lab or blood business on the basis of quality and price. In North America, Europe and Asia-Pacific our main competitors are Fresenius, MacoPharma and Terumo. We do not have significant whole blood revenues in Japan today. With the ACP® (Automated Cell Processor) brand, Haemonetics offers a closedbank system cell processor which gives blood processed through it a 14-day shelf life after being removed from frozen storage. We compete with Terumo's open systems in this market.
In Blood Center software, MAK Technologies is a competitor along with systems developed internally by our customers.allowing for greater market acceptance.
Our technical staff is highly skilled, but certain competitors have substantially greater financial resources and larger technical staffing at their disposal. There can be no assurance that competitors will not direct substantial efforts and resources toward the development and marketing of products competitive with those of Haemonetics.
Significant Customers
In fiscal 2017, 20162020, 2019 and 2015,2018, our ten largest customers accounted for approximately 42%54%, 36%52% and 48%45% of our net revenues, respectively. In fiscal 20172020, 2019 and 2016, one plasma collection customer2018, two of our Plasma customers, CSL Plasma Inc. ("CSL") and Grifols, each were greater than 10% of total net revenues and in total accounted for approximately 14%27%, 27% and 11%26% of our net revenues, respectively. There were no significantAdditionally, one of our customers that accounted for greater than 10% of our Blood Center segment’s net revenues in fiscal 2015.2020, 2019 and 2018.
Government Regulation
Due to the variety of products that we manufacture, we and our products are subject to a wide variety of regulations by numerous government agencies, including the FDA, and similar agencies outside the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our products.
Medical Device Regulation
The products we manufacture and market are subject to regulation by the Center of Biologics Evaluation and Research (“CBER”), Center for Devices and Radiological Health (“CDRH”) and the Center for Drug Evaluation and Research ("CDER") of the FDA, and other non-United States regulatory bodies.
AllPremarket Requirements - U.S.
Unless an exemption applies, all medical devices introduced to the United StatesU.S. market since 1976 are required by the FDA, as a condition of marketing, to secure either clearance of a 510(k) pre-market notification, clearancede novo authorization, or an approvedapproval of premarket approval application, (“PMA”). Inor PMA. The FDA classifies medical devices into one of three classes. Devices deemed to pose a low or moderate risk are placed in class I or II, which requires the United States, software usedmanufacturer to automate blood center operations and blood collections andsubmit to track those components through the system are consideredFDA a 510(k) premarket notification requesting clearance for commercial distribution, unless the device type is exempt from this requirement. Devices deemed by the FDA to be medicalpose the greatest risk or devices subject to 510(k) pre-market notification. Intravenous solutions (blood anticoagulants, solutions for storage of red blood cells, and saline) marketed by us for use with our manual collection and automated systems requires us to obtain an approved New Drug Application (“NDA”) or Abbreviated New Drug Application (“ANDA”) from CBER or CDER. A 510(k) pre-market clearance indicates the FDA’s agreement with an applicant’s determination that the product for which clearance is sought isdeemed not substantially equivalent to another legally marketed medical device.a previously cleared 510(k) device are placed in class III, requiring submission and approval of a PMA or risk-based classification through the de novo process. The process of obtaining a 510(k) clearance, may involvede novo authorization, and PMA processes can be resource intensive, expensive, lengthy and require payment of significant user fees.
To obtain 510(k) clearance, we must submit a premarket notification demonstrating that the proposed device is “substantially equivalent” to a previously 510(k)-cleared device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of clinical dataPMAs, or a device that has been the subject of a de novo authorization. The FDA’s 510(k) clearance pathway usually takes from three to 12 months from the date the notification is submitted, but it can take longer, depending on the extent of the FDA's requests for additional information and supporting information.the amount of time a sponsor takes to fulfill them. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance or could require premarket approval.
Another procedure for obtaining marketing authorization for a medical device is the de novo authorization process. The de novo process of obtaining an NDA approvalis a route to market for solutionsnovel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device. Once a de novo application is likely to take much longer than 510(k) clearances becausereviewed and authorized by the FDA, reviewit results in the device having a Class I or II status and future devices from the company or a competitor may use the device as a 510(k) predicate.
A PMA must be submitted if a device cannot be cleared through the 510(k) clearance process or authorized as a class II device through the de novo process. The PMA process is generally more complicated.detailed, lengthier and more expensive than the 510(k) and de novo processes. To date, we have no PMA approved products and do not have any class III products on our product pipeline.
Postmarket Requirements - U.S.
After the FDA permits a device to enter commercial distribution, numerous regulatory requirements continue to apply. These include, among others:
The FDA’sFDA's Quality System Regulation, or QSR, which requires manufacturers, including third party device manufacturers, to follow quality assurance procedures during all aspects of the manufacturing process;
Labeling regulations set forth standardsincluding unique device identification;
Clearance of a 510(k) for ourcertain product designmodifications;
Medical device reporting, or MDR, regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; and
Medical device correction and removal (recall) reporting regulations
Additionally, we and the manufacturing processes, requires the maintenance of certain records and provides for inspectionsfacilities of our facilities. Theresuppliers are also certain requirements of state, local and foreign governments that must be complied with insubject to unannounced inspections by the manufacturing and marketing ofFDA to determine our products. We maintain customer complaint files, record all lot numbers of disposable products, and conduct periodic audits to assure compliance with the QSR and other applicable regulations. We place special emphasis on customer training and advise all customers that device operation should be undertaken only by qualified personnel.
regulations described above. The FDA can issue warning letters or untitled letters, seek a court order detaining or seizing certain devices, seek an injunctions, suspend regulatory clearance or approvals, ban certain medical devices, detain or seize adulterated or misbranded medical devices, order repair, replacement or refund of thesethose devices and require notification of health professionals and others with regard to medical devices that present unreasonable risks of substantial harm to the public health. The FDA may also enjoin and restrain certain violations of the Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical devices, or initiate action for criminal prosecution of such violations.
We
Requirements Outside the U.S.
The regulatory review process varies from country to country and may in some cases require the submission of clinical data. Our international sales are also subject to regulationregulatory requirements in the countries outside the United States in which we market our products.products are sold. These regulations will be significantly modified in the next couple of years. For example, in May 2017, the EU Medical Devices Regulation (Regulation 2017/745) was adopted. The member states ofEU Medical Devices Regulation, or EU MDR, repeals and replaces the EU Medical Devices Directive. The EU MDR, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the European Union (EU) have adopted the European Medical Device Directive, which creates a single set of medical device regulationsEconomic Area for all EU member countries. These regulations require companies that wish to manufacture and distribute medical devices in EU member countriesand ensure a high level of safety and health while supporting innovation. Manufacturers of currently approved medical devices will have until May 2021 to obtain CE Marking for their products. Outsidemeet the requirements of the EU manyMDR, which reflects the EU’s decision in April 2020 to postpone the implementation date one year due to the impact of COVID-19. Once applicable, the new regulations applicablewill among other things:
strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
establish explicit provisions on manufacturers’ responsibilities;
improve the traceability of medical devices;
set up a central database to ourprovide comprehensive information on products are similar to those ofavailable in the FDA. However,EU; and
strengthen rules for the national health or social security organizationsassessment of certain countries require our productshigh-risk devices before they are placed on the market.
In the meantime, the current EU Medical Devices Directive continues to be registered by those countriesapply.
The corresponding regulation for in vitro diagnostics, the EU In Vitro Diagnostic Devices Regulation (Regulation 2017/746), or EU IVDR, becomes applicable in May 2022. In the meantime, the current EU In Vitro Diagnostic Directive continues to apply.
Drug Regulation
Development and Approval
Under the Federal Food, Drug and Cosmetic Act, FDA approval of a new drug application, or NDA, is generally required before theyany new drug can be marketed in those countries.the U.S. Under the Public Health Service Act, or PHSA, FDA licensure of a biologics license application, or BLA, is required before a biologic can be marketed in the U.S. NDAs and BLAs require extensive studies and submission of a large amount of data by the applicant.
A generic version of an approved drug is approved by means of an abbreviated new drug application, or ANDA, by which the sponsor demonstrates that the proposed product is the same as the approved, brand-name drug, which is referred to as the “reference listed drug,” or RLD. Generally, an ANDA must contain data and information showing that the proposed generic product and RLD have the same active ingredient, in the same strength and dosage form, to be delivered via the same route of administration, are intended for the same uses and are bioequivalent. This more limited data set is in lieu of independently demonstrating the proposed product’s safety and effectiveness, which are inferred from the fact that the product is the same as the RLD, which the FDA previously found to be safe and effective.
We have compliedcurrently hold NDAs and ANDAs for liquid solutions (including anticoagulants, intravenous saline and a red blood cell storage solution), which we sell with theseour blood component and whole blood collection systems.
Post-Approval Regulation
After the FDA permits a drug to enter commercial distribution, numerous regulatory requirements continue to apply. These include the FDA's current Good Manufacturing Practices, which include a series of requirements relating to organization and training of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, quality control and quality assurance, packaging and labeling controls, holding and distribution, and laboratory controls and records and reports. The FDA has also established labeling regulations, advertising and have obtained such registrations where we market our products. Federal, state and foreign regulations regarding the manufacture and sale of products such as ours are subject to change. We cannot predict what impact, if any, such changes might have on our business.
promotion requirements and restrictions; regulations regarding conducting recalls of product and requirements relating to the reporting of adverse events.
Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse publicity, such as warning letters, and enforcement action by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug or biological products.
Requirements Outside the U.S.
We must obtain the requisite marketing authorizations from regulatory authorities in foreign countries prior to marketing of a product in those countries. The requirements and process governing product licensing vary from country to country. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, warning letters or untitled letters, injunctions, civil, administrative, or criminal penalties, monetary fines or imprisonment, suspension or withdrawal of regulatory approvals, suspension of ongoing clinical studies, refusal to approve pending applications or supplements to applications filed by us, suspension or the imposition of restrictions on operations, product recalls, the refusal to permit the import or export of our products or the seizure or detention of products.
Conflict Minerals
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use of "Conflict Minerals" mined from the Democratic Republic of Congo and adjoining countries in products, whether or not these products are manufactured by third parties. The conflict minerals include tin, tantalum, tungsten and gold and their derivatives. These requirements could affect the pricing, sourcing and availability of minerals used in the manufacture of our products. There willmay be material additional costs associated with complying with the disclosure requirements, such as costs related to determining the source of any conflict minerals used in our products. Our supply chain is complex and we may be unable to verify the origins for all metals used in our products.products as well as costs of possible changes to products processes, or sources of supply as a consequence of such verification activities.
Other Regulation
Fraud and Abuse Laws
We are also subject to various environmental, healthfraud and general safetyabuse and other healthcare laws directives and regulations boththat constrain the business or financial arrangements and relationships through which we market, sell and distribute our products. In addition, we are subject to transparency laws and patient privacy regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business. We have described below some of the key federal, state and foreign healthcare laws and regulations that apply to our business.
The federal healthcare program Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any healthcare item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between manufacturers of federally reimbursed products on one hand and prescribers, purchasers and others in a position to recommend, refer, or order federally reimbursed products on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration to those who prescribe, purchase, or recommend medical devices or pharmaceutical and biological products, including certain discounts, or engaging consultants as speakers or consultants, may be subject to scrutiny if they do not fit squarely within the exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, there are no safe harbors for many common practices, such as educational and research grants. Liability may be established without a person or entity having actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.
The federal civil False Claims Act prohibits, among other things, any person from knowingly presenting, or causing to be presented, a false, fraudulent or materially incomplete claim for payment of government funds, or knowingly making, using, or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government. In recent years, companies in the U.S.healthcare industry have faced enforcement actions under the federal False Claims Act for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product or causing false claims to be submitted because of the company’s marketing the
product for unapproved and outsidethus non-reimbursable, uses. False Claims Act liability is potentially significant in the U.S. Our operations, like thosehealthcare industry because the statute provides for treble damages and mandatory penalties of tens of thousands of dollars per false claim or statement. Healthcare companies also are subject to other federal false claims laws, including, among others, federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, among other things, imposes criminal and civil liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
In addition, the Physician Payment Sunshine Act, implemented as the Open Payments program, requires manufacturers of certain products reimbursed by Medicare, Medicaid, or the Children’s Health Insurance Program to track and report to the federal government payments and transfers of value that they make to physicians and teaching hospitals and ownership interests held by physicians and their family and provides for public disclosures of these data.
Many states have adopted analogous laws and regulations, including state anti-kickback and false claims laws, which may apply to items or services reimbursed under Medicaid and other state programs or, in several states, regardless of the payor. Several states have enacted legislation requiring pharmaceutical and medical device companies involveto, among other things, establish marketing compliance programs; file periodic reports with the usestate, including reports on gifts and payments to individual health care providers; make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities; and/or register their sales representatives. Some states prohibit specified sales and marketing practices, including the provision of substances regulated under environmentalgifts, meals, or other items to certain health care providers and/or offering co-pay support to patients for certain prescription drugs.
Other countries, including a number of EU Member States, have laws primarily in manufacturing and sterilization processes. We believe that sound environmental, health and safety performance contributes to our competitive strength while benefiting our customers, shareholders and employees.of similar application.
Environmental Matters
Failure to comply with international, federal and local environmental protection laws or regulations could have an adverse impact on our business or could require material capital expenditures. We continue to monitor changes in U.S. and international environmental regulations that may present a significant risk to the business, including laws or regulations relating to the manufacture or sale of products using plastics.
Employees
As of April 1, 2017,March 28, 2020, we employed the full-time equivalent of 3,1073,004 persons.
Availability of Reports and Other Information
All of our corporate governance materials, including the Principles of Corporate Governance, Code of Conduct and the charters of the Audit, Compensation, and Governance and Compliance and Technology Committees are published on the Investor Relations section of our website at http://phx.corporate-ir.net/phoenix.zhtml?c=72118&p=irol-IRHomewww.haemonetics.com. On this web site the public can also access, free of charge, our annual, quarterly and current reports and other documents filed or furnished to the Securities and Exchange Commission, or SEC, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file documents electronically.
Cautionary Statement Regarding Forward-Looking Information
Statements
Certain statements that we make from time to time, including statements contained in this Annual Report on Form 10-K and incorporated by reference into this report, as well as oralconstitute “forward looking-statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.Forward-looking statements we make which are prefaced withdo not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “may,” “will,” “expect,“should,” “anticipate,“could,” “continue,“would,” “estimate,“expects,” “project,“plans,” “intend,“anticipates,” “designed,“believes,” “estimates,” “projects,” “predicts,” “potential” and other words of similar expressions, are intended to identify forward looking statements regarding events, conditions,meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial trends that may affect our future plansperformance; impacts of operations, businessthe COVID-19 pandemic; the Company’s strategy resultsfor growth; product development, commercialization and anticipated performance and benefits; regulatory approvals; impact of operations,planned acquisitions or dispositions; market position and financial position. Theseexpenditures.
Because forward-looking statements are based on our current beliefs, expectations and estimates asassumptions regarding future events, they are subject to prospective eventsuncertainties, risks and circumstances aboutchanges that are difficult to predict and many of which we can give no firm assurance. Further,are outside of the Company's control. Investors should realize that if underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, the Company’s actual results and financial condition could vary materially from expectations and projections expressed or implied in its forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements.
The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statement speaks only asstatements. For further discussion of these and other factors, see Item 1A. Risk Factors in this report.
The effect of the dateongoing COVID-19 pandemic, or outbreaks of communicable diseases, on our business, financial conditions and results of operations, which such statement is made,may be heightened if the pandemic and various government responses to it continue for an extended period of time;
Failure to achieve our long-term strategic and financial-improvement goals;
Demand for and market acceptance risks for new and existing products, including material reductions in purchasing from or loss of a significant customer;
Product quality or safety concerns, leading to product recalls, withdrawals, regulatory action by the FDA (or similar non-U.S. regulatory agencies), reputational damage, declining sales or litigation;
Security breaches of our information technology systems or our products, which could impair our ability to conduct business or compromise sensitive information of the Company or its customers, suppliers and other business partners, or of customers' patients;
Pricing pressures resulting from trends toward health care cost containment, including the continued consolidation among health care providers and other market participants;
The continuity, availability and pricing of plastic and other raw materials, finished goods and components used in the manufacturing of our products (including those purchased from sole-source suppliers) and the related continuity of our manufacturing and distribution;
Our ability to develop new products or enhancements on commercially acceptable terms or at all;
Our ability to obtain the anticipated benefits of restructuring programs that we have or may undertake, no obligationincluding the Operational Excellence Program;
The potential that the expected strategic benefits and opportunities from any planned or completed acquisition or divestiture by the Company may not be realized or may take longer to update any forward-looking statementrealize than expected;
The impact of enhanced requirements to reflect eventsobtain regulatory approval in the U.S. and around the world, including the EU MDR and the associated timing and cost of product approval, and
Our ability to comply with established and developing U.S. and foreign legal and regulatory requirements, including the U.S. Foreign Corrupt Practices Act, or circumstances afterFCPA, and similar laws in other jurisdictions, as well as U.S. and foreign export and import restrictions and tariffs;
Our ability to execute and realize anticipated benefits from our investments in emerging economies;
Our ability to retain and attract key personnel;
Costs and risks associated with product liability and other litigation claims;
Our ability to meet our existing debt obligations and raise additional capital when desire on terms reasonably acceptable to us;
The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses, and resulting margins;
The impact of changes in U.S. and international tax laws;
Market conditions impacting our stock price and/or share repurchase program, and the date on which such statement is made. Aspossibility that our share repurchase program may be delayed, suspended or discontinued; and
Our ability to protect intellectual property and the outcome of patent litigation.
Investors should understand that it is not possible to predict every new factor that may emerge, forward-looking statementsor identify all such factors and should not be relied upon as a prediction of our actual future financial condition or results.
These forward-looking statements, like any forward-looking statements, involveconsider the risks described above and uncertainties that could cause actual results to differ materially from those projected or anticipated, including demand for whole blood and blood components, changes in executive management, changes in operations, restructuring and turnaround plans, asset revaluations to reflect current business conditions, asset sales, technological advances in the medical field and standards for transfusion medicine and our ability to successfully offer products that incorporate such advances and standards, product quality, market acceptance, regulatory uncertainties, including in the receipt or timing of regulatory approvals, the effect of economic and political conditions, the impact of competitive products and pricing, blood product reimbursement policies and practices, foreign currency exchange rates, changes in customers’ ordering patterns including single-source tenders, the effect of industry consolidation as seen in the plasma and blood center markets, the effect of communicable diseases and the effect of uncertainties in markets outside the U.S. (including Europe and Asia) in which we operate and other risks detailed under Item 1A. Risk Factors to be a complete statement of this Annual Report on Form 10-K.all potential risks and uncertainties. The foregoing list shouldCompany does not undertake to publicly update any forward-looking statement that may be construedmade from time to time, whether as exhaustive.a result of new information or future events or developments.
ITEM 1A. RISK FACTORS
In addition to the other information contained in this Annual Report on Form 10-K and the exhibits hereto, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, cash flows or results of operations could be materially adversely affected by any of these risks. This section contains forward-looking statements. You shouldPlease refer to the explanation ofcautionary statements made under the qualifications and limitations on forward-looking statementsheading "Cautionary Statement Regarding Forward-Looking Information" at the end of Item 1 of this Annual Report on Form 10-K.10-K for more information on the qualifications and limitations on forward-looking statements.
The ongoing COVID-19 pandemic, or outbreaks of communicable diseases, could have a material adverse impact on our business, financial condition, cash flows and results of operations, which may be heightened if the pandemic and various government responses to it continue for an extended period of time.
The COVID-19 outbreak has significantly impacted economic activity and markets around the world. If the pandemic continues and conditions worsen, we could suffer a material adverse effect on our business, financial condition, cash flows and results of operations in numerous ways, including, but not limited to, those outlined below:
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| • | Product Demand. As a result of COVID-19, we have experienced in the fourth quarter of fiscal 2020, and expect to experience more significantly in fiscal 2021, decreased demand for our products and increased volatility in demand for our products. For example, lower collection volumes at source plasma collection centers due to COVID-19 factors, including stay-at-home and other government orders designed to slow the spread of COVID-19, donor safety concerns, and reduced donor collection capacity due to shutdowns and social distancing requirements, have adversely affected and likely will continue to adversely affect demand for our Plasma disposable products. Additionally, reductions in elective surgeries and trauma cases, restrictions on vendor access at customer sites and the reallocation of hospital resources to address critical intensive care needs during the COVID-19 pandemic have adversely affected and will likely continue to adversely affect demand for our Hospital products, particularly our Cell Saver and TEG devices. We also have experienced, and may continue to experience, in certain markets rapid and unpredictable changes in demand for some of our Blood Center disposable products as blood collectors seek to replenish their blood product inventories and safety stocks. Such changes could impact our ability to meet demand on a timely basis or could result in potential reductions in demand in future periods if the supply of blood held by our customers significantly exceeds the demand for blood from hospitals due to declines of elective surgeries and trauma cases. Finally, we may experience delays in our clinical trials as a result of COVID-19 that may result in delays for new or expanded authorizations for our products, which could adversely affect our development and commercialization plans for our products. |
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| • | Manufacturing, Supply Chain and Distribution System Disruption. COVID-19 and its associated economic disruptions could have an adverse impact on our manufacturing capacity, supply chains and distribution systems, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking and financial difficulties experienced by our third-party manufacturers and suppliers. Although we have not experienced significant manufacturing or supply chain difficulties to date as a result of COVID-19, we may in the future. A reduction or interruption in any of our manufacturing processes could have a material adverse effect on our business. |
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| • | Potential Liquidity and Credit Impacts. While we have significant sources of cash and liquidity and access to committed credit lines, we may be adversely impacted by delays in payments of outstanding receivables if our customers experience financial difficulties or are unable to borrow money to fund their operations, which may adversely impact their ability to pay for our products on a timely basis, if at all, which in turn would adversely affect our financial condition. Moreover, conditions in the financial and credit markets could increase the cost of and our accessibility to capital. If we need to access capital, there can be no assurance that financing may be available on attractive terms, if at all. |
These and other impacts of COVID-19 may also have the effect of heightening many of the other risks described in the Risk Factors section of this Annual Report on Form 10-K. We recently completed a global strategic reviewbelieve the magnitude of the adverse impact of these factors on our business. business, financial condition, cash flows and results of operations will be primarily driven by: the severity and duration of the COVID-19 pandemic; the timing, scope and effectiveness of governmental responses to the COVID-19 pandemic and associated economic disruptions; general confidence about personal health and safety; and the COVID-19 pandemic’s impact on U.S. and international healthcare systems, the U.S. economy and the worldwide economy.
If our new strategic directionbusiness strategy does not yield the expected results or we fail to implement the necessary changes to our operations, we could see material adverse effects on our business, financial condition or results of operations.
In fiscal 2017, we organized
We view our products into four categories for purposes of evaluatingoperations and developing their growth potential:manage our business in three principal reporting segments: Plasma, Hemostasis Management, Blood Center and Cell Processing.Hospital. We believe that Plasma and Hemostasis ManagementHospital have the greatest growth potential, while Cell Processing innovation offers an opportunity to increase market share and expand into new segments. We believe Blood Center competes in challenging markets whichthat require us to manage the business differently, including reducing costs, shrinking the scope of the current product line and evaluating opportunities to exit unfavorable customer contracts.
If we have not correctly identified the product categories with greatest growth potential, we will not allocate our resources appropriately which could have a material adverse effect on our business, financial condition or results of operations. Further, if we are unable to reduce costs and complexity in our Blood Center business unit, we will obtain lower than expected cash flows to fund our future growth and capital needs. This could have a material adverse effect on our liquidity and results of operations.
If we are unable to successfully expand our product lines through internal research and development and acquisitions, our business may be materially and adversely affected.
The risks of missteps and set backs are an inherent part of the innovation and development processesMaterial reductions in the medical device industry.
Continued growth of our business depends on our maintaining a pipeline of profitable new products and successful improvements to our existing products. This requires accurate market analysis and carefully targeted application of intellectual and financial resources toward the developmentpurchasing from or acquisition of new products. The creation and adoption of technological advances is only one step. We must also efficiently develop the technology into a product which confers a competitive advantage, represents a cost effective solution or provides improved patient care. Finally, as a part of the regulatory process of obtaining marketing clearance for new products, we conduct and participate in numerous clinical trials, the results of which may be unfavorable, or perceived as unfavorable by the market, and could have a material adverse effect on our business, financial condition or results of operations.
Lossloss of a significant customer could adversely affect our business.
In fiscal 2017, one plasma collection customer2020, our two largest Plasma customers each accounted for approximately 14%more than 10% of our net revenues and our ten largest customers accounted for approximately 42%54% of our net revenues. If any of our largest customers materially reduce their purchases from us or terminate their relationship with us for any reason, including material decreases in demand for plasma or development of alternative processes, we could experience an adverse effect on our results of operations or financial condition.
Our four
Three of our largest Plasma customers have contracts in place which will expirethat are subject to renewal before the end of fiscal 2019. As a result,2022. In the event that we will need to amenddo not extend our current contracts or enter into new contracts for the PCS® 300. A failure to enter into new contracts with these customers on acceptable terms, our revenues and operating income could be negatively impacted in a manner that could have a material adverse effect on our results of operations or financial condition.
Defects or quality issues associated with our products could adversely affect the results of operations.
Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Manufacturing or design defects, component failures, unapproved or improper use of our products, or inadequate disclosure of risks or other information relating to the use of our products can lead to injury or other serious adverse events. These events could lead to recalls or safety alerts relating to our products (either voluntary or as required by the FDA or similar governmental authorities in other countries), and could result, in certain cases, in the removal of a product from the market. A recall could result in significant costs and lost sales and customers, enforcement actions and/or investigations by state and federal governments or other enforcement bodies, as well as negative publicity and damage to our reputation that could reduce future demand for our products. Personal injuries relating to the use of our products can also result in significant product liability claims being brought against us. In some circumstances, such adverse events could also cause delays in regulatory approval of new products or the imposition of post-market approval requirements.
If we are unable to successfully convert customers to our NexSys platform, meet customer placement demands or negotiate competitive pricing, we may not realize the intended benefits of our investment.
We have focused heavily on the development and commercialization of our NexSys platform, comprised of both the NexSys PCS plasmapheresis system and NexLynk DMS software. Since the commercial launch of our NexSys platform in fiscal 2019, we have entered into long-term customer contracts providing for conversion to NexSys. However, if additional customers do not adopt NexSys or they do and we are unable to procure sufficient NexySys PCS devices from our contract manufacturers to meet demand or receive a price that provides an inadequate return on our investment, or if such customer adoption does not occur within the expected timeframe, we may not realize the full intended benefits of our investment.
We are increasingly dependent on information technology systems and subject to privacy and security laws and a cyber-attack or other breach of these systems could have a material adverse effect on our business, financial condition or results of operations.
We increasingly rely on information technology systems, including cloud-based computing, to process, transmit and store electronic information for our day-to-day operations and for our customers, including sensitive personal information and proprietary or confidential information. Additionally, certain of our products collect data regarding patients and donors and connect to our systems for maintenance and other purposes or are actively managed by Haemonetics on behalf of specific customers. Similar to other large multi-national companies, the size and complexity of our information technology systems makes them vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy, or other significant disruption. We also outsource certain elements of our information technology systems to third parties that, as a result of this outsourcing, could have access to certain confidential information and whose systems may also be vulnerable to these types of attacks or disruptions. Security threats, including cyber and other attacks are becoming increasingly sophisticated, frequent, and adaptive and, like other large multi-national companies, we have experienced cyber incidents in the past and may experience them in the future. Accordingly, our information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information and changing customer patterns. Although prior cyber incidents have not had a material effect on our business and we have invested and continue to invest in the protection of personal information and proprietary or confidential information, there can be no assurance that our efforts will prevent cyber attacks, intrusions, breakdowns or other incidents or ensure compliance with all applicable securities and privacy laws, regulations, standard standards. In addition, third parties may attempt to hack into our products to obtain data relating to patients with our products or our proprietary information. Any failure by us or third parties we work with to maintain or protect our respective information technology systems and data integrity, including from cyber-attacks, intrusions or other breaches, could result in the unauthorized access to patient data and personally identifiable information, theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Any of these events, in turn, may cause us to lose existing customers, have difficulty preventing, detecting and controlling fraud, have disputes with customers, physicians and other healthcare professionals, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition or results of operations.
Additionally, the legal and regulatory environment surrounding information security and privacy is increasingly demanding, with the imposition of new and changing requirements across businesses. We are required to comply with increasingly complex and changing legal and regulatory requirements that govern the collection, use, storage, security, transfer, disclosure and other processing of personal data in the United States and in other countries, including, but not limited to, HIPAA, HITECH, the California Consumer Privacy Act, or CCPA, and the European Union’s General Data Protection Regulation, or GDPR. The GDPR imposes stringent European Union data protection requirements and provides for significant penalties for noncompliance. HIPAA also imposes stringent data privacy and security requirements and the regulatory authority has imposed significant fines and penalties on organizations found to be out of compliance. CCPA provides consumers with a private right of action against companies who have a security breach due to lack of appropriate security measures. We or our third-party providers and business partners may also be subjected to audits or investigations by one or more domestic or foreign government agencies relating to compliance with information security and privacy laws and regulations, and noncompliance with the laws and regulations could results in material fines or litigation.
We outsource certain aspects of our business to a single third-party vendor that subjects us to risks, including disruptions in business and increased costs.
Currently, we rely on a single vendor to support several of our business processes, including customer service and support and elements of enterprise technology, procurement, accounting and human resources. We make diligent efforts to ensure that the provider of these outsourced services is observing proper internal control practices. However, there are no guarantees that failures will not occur. Accordingly, we are subject to the risks associated with the vendor’s ability to successfully provide the necessary services to meet our needs.
If our vendor is unable to adequately protect our data or information is lost, if our ability to deliver our services is interrupted (including as a result of significant outbreaks of disease, including the ongoing COVID-19 pandemic, natural disasters, strikes, terrorism attacks or other adverse events in the countries in which the vendor operates), if our vendor's fees are higher than expected, or if our vendor makes mistakes in the execution of operations support, then our business and operating results may be negatively affected.
A significant portion of our revenue derives from the sale of blood collection supplies. Declines in the number of blood collection procedures have adversely impacted our business and future declines may have an adverse effect on our business, financial condition and results of operations.
The demand for whole blood disposable products in the U.S. continued to decrease in fiscal 2020 due to sustained declines in transfusion rates caused by hospitals' improved blood management techniques and protocols. In response to this trend, U.S. blood center collection groups prefer single source vendors for their whole blood collection products and are primarily focused on obtaining the lowest average selling prices. We expect to see continued declines in transfusion rates and the market to remain price-focused and highly competitive for the foreseeable future. Continued declines in this market could have a material adverse effect on our liquidity and results of operations.
Consolidation of healthcare providers and blood collectors has increased demand for price concessions and caused the exclusion of suppliers from significant market segments, which could have an adverse effect on our business, financial condition and results of operations.
Political, economic and policy influences are causing the healthcare and blood collection industries to make substantial structural and financial changes that affect our results of operations. Government and private sector initiatives limiting the growth of healthcare costs are causing structural reforms in healthcare delivery, including the reduction in blood use and reduced payments for care. These trends have placed greater pricing pressure on suppliers and, in some cases, decreased average selling prices and increased the number of sole source relationships. This pressure impacts our Hospital and Blood Center businesses.
The influence of group purchasing organizations in the U.S., integrated delivery networks and large single accounts has the potential to put price pressure on our Hospital business. It also puts price pressure on our U.S. Blood Center customers who are also facing reduced demand for red cells. Our Blood Center customers have responded to this pressure by creating their own group purchasing organizations and resorting to single source tenders to create incentives for suppliers, including us, to significantly reduce prices.
We expect that market demand, government regulation, third-party reimbursement policies, government contracting requirements and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers and competitors. This may exert further downward pressure on the prices of our products and adversely impact our business, financial condition or results of operations.
An interruption in our ability to manufacture our products, obtain key components or raw materials, or the failure of a sole source supplier may adversely affect our business.
We have a complex global supply chain that involves integrating key suppliers and our manufacturing capacity into a global movement of components and finished goods.
We manufacture certain key disposables at single locations with limited alternate facilities. If an event occurs that results in the closure of or damage to one or more of these facilities, we may be unable to supply the relevant products at previous levels or at all for some period. Additionally, for reasons of quality assurance or cost effectiveness, we purchase certain finished goods, components and raw materials from sole suppliers, notably JMS Co. Ltd., Kawasumi Laboratories, Leica Biosystems Melbourne Pty. Ltd., Sanmina Corporation and Sparton Medical Systems Colorado LLC, who have their own complex supply chains. Any disruption to one or more of our suppliers’ production or delivery of sufficient volumes of components conforming to our specifications, could disrupt or delay our ability to deliver finished products to our customers. For example, we purchase components in Asia for use in manufacturing in the U.S., Puerto Rico and Mexico. We source all of our apheresis equipment from Asia and regularly ship finished goods from the U.S., Puerto Rico and Mexico to the rest of the world.
Due to the high standards and stringent requirements of the FDA and other similar non-U.S. regulatory agencies applicable to manufacturing our products, such as the FDA's Quality System Regulation and Good Manufacturing Practices, we may not be able to quickly establish additional or replacement sources for certain raw materials, components or finished goods. A reduction or interruption in manufacturing, or an inability to secure alternative sources of raw materials, components or finished goods on commercially reasonable terms or in a timely manner, could compromise our ability to manufacture our products on a timely and cost-competitive basis, which may have a material adverse effect on our business, financial condition and results of operations.
Plastics are the principal component of our disposables, which are the main source of our revenues. Any change in the price, composition or availability of the plastics or resins we purchase could adversely affect our business.
We face risks related to price, composition and availability of the plastic raw materials used in our business. Climate change (including laws or regulations passed in response thereto) could increase our costs, in particular our costs of supply, energy and transportation/freight. Material or sustained increases in the price of petroleum or petroleum derivatives could have an adverse impact on the costs to procure plastic raw materials and the costs of our transportation/freight. Increases in the costs of other commodities also may affect our procurement costs to a lesser degree.
The composition of the plastic we purchase is also important. Today, we purchase plastics that contain phthalates, which are used to make plastic malleable. Should plastics with phthalates become unavailable due to regulatory changes, we may be required to obtain regulatory approvals from the FDA and foreign authorities for a number of products.
While we have not experienced shortages in the past, any interruption in the supply for certain plastics could have a material impact on our business by limiting our ability to manufacture and sell the products that represent a significant portion of our revenues. These outcomes may in turn result in customers transitioning to available competitive products, loss of market share, negative publicity, reputational damage, loss of customer confidence or other negative consequences (including a decline in stock price).
If we are unable to successfully expand our product lines through internal research and development, our business may be materially and adversely affected.
A significant element of our strategy is to increase revenue growth by focusing on innovation and new product development. New product development requires significant investment in research and development, clinical trials and regulatory approvals. The results of our product development efforts may be affected by a number of factors, including our ability to anticipate customer needs, innovate and develop new products and technologies, successfully complete clinical trials, obtain regulatory approvals in the United States and abroad, manufacture products in a cost-effective manner, obtain appropriate intellectual property protection for our products, and gain and maintain market acceptance of our products. In addition, patents attained by others could preclude or delay our commercialization of a product. There can be no assurance that any products now in development or that we may seek to develop in the future will achieve technological feasibility, obtain regulatory approval or gain market acceptance.
We may not realize the benefits we expect from our Operational Excellence Program.
In July 2019, our Board of Directors approved a new Operational Excellence Program, also referred to in this report as the 2020 Program, and delegated authority to 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. While cost savings from the 2020 Program to date have been consistent with our expectations, it is possible that events and circumstances, such as financial or strategic difficulties, delays and unexpected costs may occur, including as a direct or indirect result of the COVID-19 pandemic, that could result in our not realizing all of the anticipated benefits or our not realizing the anticipated benefits on our expected timetable. Our inability to realize all of the anticipated benefits from the 2020 Program could have a material adverse effect on our business, results of operations, cash flows and financial condition.
If our business development activities are unsuccessful, we may not realize the intended benefits.
We may seek to supplement our organic growth through strategic acquisitions, investments and alliances. Such transactions are inherently risky and require significant effort and management attention. The success of any acquisition, investment or alliance may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate any business we may acquire into our existing business. Promising partnerships and acquisitions may also not be completed for reasons such as competition among prospective partners or buyers, the inability to reach satisfactory terms, the need for regulatory approvals or the existence of economic conditions affecting our access to capital for acquisitions and other capital investments. If our business development activities are unsuccessful, we may not realize the intended benefits of such activities, including that acquisition and integration costs may be greater than expected or the possibility that expected return on investment synergies and accretion will not be realized or will not be realized within the expected timeframe.
As a medical device manufacturer we operate in a highly regulated industry, and non-compliance with applicable laws or regulations could adversely affect our financial condition and results of operations.
The manufacture, distribution and marketing of our products are subject to regulation by the FDA and other non-U.S. regulatory bodies. Our operations are also subject to continuous review and monitoring by the FDA and other regulatory authorities.
Failure to substantially comply with applicable regulations could subject our products to recall or seizure by government authorities, or an order to suspend manufacturing activities. If our products were determined to have design or manufacturing flaws, this could result in their recall or seizure. Either of these situations could also result in the imposition of fines.
Additionally, the European Union regulatory bodies have adopted the EU MDR and the EU IVDR, each of which impose stricter requirements than prior European Union directives with respect to the marketing and sale of medical devices, including in the area of clinical data requirements, evaluation requirements, quality systems and post-market surveillance. Manufacturers of currently approved medical devices will have until May 2021 to meet the requirements of the EU MDR and until May 2022 to meet the EU IVDR. Complying with the requirements of these regulations may require us to incur significant expenditures. Failure to meet these requirements could adversely impact our business in the European Union and other regions that tie their product registrations to the EU requirements.
If we or our suppliers fail to comply with ongoing regulatory requirements, our products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain clearance or approval, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities for such product, will be subject to continued regulatory review, oversight and periodic inspection by the FDA and other domestic and foreign regulatory bodies. In particular, we and our third-party suppliers must comply with the FDA's Quality System Regulation or current Good Manufacturing Practices requirements (depending on the products at issue).
Any future failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in enforcement actions.
Any FDA sanctions could have a material adverse effect on our reputation, business, results of operations and financial condition. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all.
Our inability to obtain, or any delay in obtaining, any necessary U.S. or foreign regulatory clearances or approvals for our newly developed products or product enhancements could harm our business and prospects.
Our products are subject to a high level of regulatory oversight. Most medical devices cannot be marketed in the U.S. without 510(k) clearance or premarket approval by the FDA. Our inability to obtain, or any delay in obtaining, any necessary U.S. or foreign regulatory clearances or approvals for newly developed products or product enhancements could harm our business and prospects. The process of obtaining clearances and approvals can be costly and time consuming. In addition, there is a risk that any approvals or clearances, once obtained, may be withdrawn or modified.
Most medical devices cannot be marketed in the U.S. without 510(k) clearance or premarket approval by the FDA. We have recently submitted a new plasmapheresis device, the PCS® 300, for 510(k) regulatory clearance with the FDA and continue to work on future enhancements to this important product, some of which may require additional regulatory clearances.
Delays in receipt of, or failure to obtain, necessary clearances or approvals for our new products could delay or preclude realization of product revenues from new products or result in substantial additional costs which could decrease our profitability.
If
Our relationships with customers and third-party payers are subject to applicable anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion, contractual damages, reputational harm and diminished profits and future earnings.
We are subject to fraud and abuse and other healthcare laws and regulations that constrain the business or financial arrangements and relationships through which we market, sell and distribute our products. In addition, we are unablesubject to successfully growtransparency laws and patient privacy regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business through business relationshipsbusiness.
The shifting commercial compliance environment and acquisitions, our business may be materially and adversely affected.
Promising partnerships and acquisitions may not be completed for reasons such as competition among prospective partners or buyers, our inability to reach satisfactory terms, or the need for regulatory approvals. Any acquisitionto build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that we completea healthcare or pharmaceutical company may be dilutive to earnings and require the investment of significant resources. The economic environment may constrain our ability to access the capital needed for acquisitions and other capital investments.
A significant portion of our revenue derives from the sale of blood collection supplies. Declines in the number of blood collection procedures have adversely impacted our business and future declines may have an adverse effect on our business, financial condition and results of operations.
The demand for whole blood disposable products in the U.S. continued to decrease in fiscal 2017 and 2016 due to a sustained decline in transfusion rates and actions taken by hospitals to improve blood management techniques and protocols. In response to this trend, U.S. blood center collection groups prefer single source vendors for their whole blood collection products and are primarily focused on obtaining the lowest average selling prices. While we began to see a moderation in the rate of market decline during fiscal 2017, we expect to see continued declines in transfusion rates and the market to remain price-focused and highly competitive for the foreseeable future. Continued declines in this market could have a material adverse effect on our liquidity and results of operations.
Consolidation of the healthcare providers and blood collectors has increased demand for price concessions and caused the exclusion of suppliers from significant market segments, which could have an adverse effect on our business, financial condition and results of operations.
Political, economic and policy influences are causing the healthcare and blood collection industries to make substantial structural and financial changes that affect our results of operations. Government and private sector initiatives limiting the growth of healthcare costs and causing structural reforms in healthcare delivery, including the reduction in blood use and reduced payments for care. These trends have placed greater pricing pressure on suppliers, decreased average selling prices and increased the number of sole source relationships. This pressure impacts our Hemostasis Management, Cell Processing and Blood Center businesses.
The expansion of group purchasing organizations in the United States, integrated delivery networks and large single accounts puts direct price pressure on our Hospital business. It also puts price pressure on our U.S. Blood Center customers who are also facing reduced demand for red cells. Our Blood Center customers have responded to this pressure by creating their own group purchasing organizations and resorting to single source tenders to create incentives for suppliers, including us, to significantly reduce prices.
We expect that market demand, government regulation, third-party reimbursement policies, government contracting requirements and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers and competitors. This may exert further downward pressure on the prices of our products and adversely impact our business, financial condition or results of operations.
Quality problems with our processes, goods, and services could harm our reputation for producing high-quality products and erode our competitive advantage, sales, and market share.
Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Our quality certifications are critical to the marketing success of our products and services. If we fail to meet these standards or fail to adapt to evolving standards, our reputation could be damaged, we could lose customers, and our revenue and results of operations could decline.
In June 2016, we issued a voluntary recall of certain whole blood collection kits sold to our Blood Center customers in the United States. The recall resulted from some collection sets' filters failing to adequately remove leukocytes from collected blood. Because most U.S. hospitals prefer to transfuse leukoreduced blood, our Blood Center customers may have conducted further tests to confirm the blood was adequately leukoreduced, sold the blood as non-leukoreduced at a lower price or discarded the blood collected using the defective sets. As a result of the recall, we recorded total charges of $7.1 million during fiscal 2017 and have an insurance receivable of $2.9 million as of April 1, 2017. While we believe we have adequate insurance coverage, we may have additional losses in future periods which may or may not be covered by insurance. These losses could have a material impact on our results of operations.
An interruption in our ability to manufacture our products, obtain key components or raw materials, or the failure of a sole source supplier may adversely affect our business.
Certain key products are manufactured at single locationscomply fully with limited alternate facilities. If an event occurs that results in damage to one or more of these facilities,requirements. Efforts to ensure that our business
arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with applicable fraud and abuse or other healthcare laws and regulations or guidance. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be unablesubject to supplysignificant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the relevant products at previous levelscurtailment or at all.
In addition, for reasonsrestructuring of quality assurance or cost effectiveness, we purchase certain finished goods, components and raw materials from sole suppliers, notably JMS Co. Ltd., Kawasumi Laboratories and Sanmina Corporation, which is the sole manufacturer of all our apheresis equipment.
Due to the stringent regulations and requirementsoperations. If any of the FDAphysicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and other similar non-U.S. regulatory agencies regarding the manufacture ofgenerate negative publicity, which could harm our products, we may not be able to quickly establish additional or replacement sources for certain components or materials. A reduction or interruption in manufacturing, or an inability to secure alternative sources of raw materials or components, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Ongoing delays in expanding our liquid solutions production capacity could reduce our revenue, increase our costs, or prevent us from meeting contracted obligations, which could result in financial penaltiesdivert resources and have an adverse effect on our results of operations.
We primarily produce two solutions for use in our apheresis procedures: anti-coagulant and saline. Anti-coagulant is required for each apheresis procedure, including the collection of platelets and plasma. Saline is used by our Plasma customers to provide fluid replacement after a donation.
We have been working to expand the capacityattention of our Union, South Carolina facility to produce both anti-coagulant and saline. We have experienced delays in the completion of the project that have required us and a customer to rely on alternative sources of supply. If we are unable to successfully complete the capacity expansion or obtain additional supplies at an appropriate price, our results of operations could continue to be adversely affected.
Plastics are the principal component of our disposables, which are the main source of our revenues.Any change in the price, composition or availability of the plastics we purchase could adversely affect our business.
We face risks related to price, composition and availability of the plastic raw materials used inmanagement from operating our business.
Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials. Increases in the costs of other commodities also may affect our procurement costs to
As a lesser degree.
The composition of the plastic we purchase is also important. Today, we purchase plastics which contain phthalates, which are used to make plastic malleable. Should plastics with phthalates become unavailable due to regulatory changes, we may be required to obtain regulatory approvals from FDA and foreign authorities for a number of products.
While we have not experienced shortages in the past, any interruption in the supply for certain plastics could have a material impact on our business by limiting our ability to manufacture and sell the products which represent a significant portion of our revenues.
As approximately halfsubstantial amount of our revenue comes from outside the United States,U.S., we are subject to negative impacts on our results of operations from currency fluctuation, geopolitical events, economic volatility, violations of anti-corruption laws, export and import restrictions and tariffs, decisions by local regulatory authorities and the laws and medical practices in foreign jurisdictions.
We do business in over 10085 countries and have distributors in approximately 9070 of these countries. This exposes us to currency fluctuation, geopolitical risk, economic volatility, anti-corruption laws, export and import restrictions, local regulatory authorities and the laws and medical practices in foreign jurisdictions.
If there are sanctions or restrictions on the flow of capital whichthat prevent product importation or receipt of payments in Russia or China, our business could be adversely affected.
Our international operations are governed by the U.S. Foreign Corrupt Practices Act, (FCPA)or FCPA, and other similar anti-corruption laws in other countries. Generally, these laws prohibit companies and their business partners or other intermediaries from
making improper payments to foreign governments and government officials in order to obtain or retain business. Global enforcement of such anti-corruption laws has increased in recent years, including aggressive investigations and enforcement proceedings. While we have an active compliance program and various other safeguards to discourage impermissible practices, we have distributors in approximately 9070 countries, several of which are considered high risk for corruption. As a result, our global operations carry some risk of unauthorized impermissible activity on the part of one of our distributors, employees, agents or consultants. Any alleged or actual violation could subject us to government scrutiny, severe criminal or civil fines, or sanctions on our ability to export product outside the U.S., which could adversely affect our reputation and financial condition.
Export of U.S. technology or goods manufactured in the United StatesU.S. to some jurisdictions requires special U.S. export authorization or local market controls that may be influenced by factors, including political dynamics, outside our control.
Finally, any other significant changes in the competitive, legal, regulatory, reimbursement or economic environments of the jurisdictions in which we conduct our international business could have a material impact on our business.
We sell our products in certain emerging economies which exposes us to less mature regulatory systems, more volatile markets for our products and greater credit risks. A loss of funding for our products or changes to the regulatory regime could lead to lost revenue or account receivables.
There are risks with doing business in emerging economies, such as Brazil, Russia, India and China. These economies tend to have less mature product regulatory systems and more volatile financial markets. In addition, the government controlled healthcare system's ability to invest in our products and systems may abruptly shift due to changing government priorities or funding capacity. Our ability to sell products in these economies is dependent upon our ability to hire qualified employees or agents to represent our products locally and our ability to obtain and maintain the necessary regulatory approvals in a less mature regulatory environment. If we are unable to retain qualified representatives or maintain the necessary regulatory approvals, we will not be able to continue to sell products in these markets. We are exposed to a higher degree of financial risk if we extend credit to customers in these economies.
In many of the international markets in which we do business, including certain parts of Europe, South America, the Middle East and Asia, our employees, agents or distributors offer to sell our products in response to public tenders issued by various governmental agencies.
There is additional risk in selling our products through agents or distributors, particularly in public tenders. If they misrepresent our products, do not provide appropriate service and delivery, or commit a violation of local or U.S. law, our reputation could be harmed and we could be subject to fines, sanctions or both.
Our success depends on our ability to attract and retain key personnel needed to successfully operate the business.
We constantly monitor the dynamics of the economy, the healthcare industry
Our ability to compete effectively depends on our ability to attract and the marketsretain key employees, including people in which we compete;senior management, sales, marketing and we continueR&D positions. Our ability to assess our key personnel that we believe are essential to our long-term success. Over the last year, we have hired a new Chief Executive Officer, Chief Financial Officerrecruit and new personnel inretain such talent will depend on a number of factors, including hiring practices of our competitors, compensation and benefits, work location, work environment and industry economic conditions. In December 2019, we relocated our corporate headquarters to a leased office space in Boston, Massachusetts. Although we believe our move to Boston will help us to attract and retain key executive positions. talent and provide a dynamic space to engage our employees, competition for top talent in the healthcare market, and the increased cost or commuting time for current employees relocating or traveling to Boston could impact our ability to realize the intended results of the move.
We have also effected significant organizational and strategic changes in connection with the addition of these new executives.last several years, including our Complexity Reduction Initiative, which have resulted in workforce reductions. If we fail to effectively manage our ongoing organizational and strategic changes in a manner that allows us to retain and attract talent, our financial condition, results of operations and reputation, as well as our ability to successfully attract, motivate and retain key employees, could be harmed.
Our success also depends upon Additionally, to the extent our ability to attract and retain other qualified managerial and technical personnel. Competition for such personnel is intense. We may not be able to attract and retain personnel necessary for the development of our business.
If we are unable to meet our debt obligations or experience a disruption in our cash flows, it could have an adverse effect on our financial condition, results of operations or cost of borrowing.
We have $315.4 million of debt outstanding at April 1, 2017 due before July 1, 2019. The obligations to pay interest and repay the borrowed amounts may restrict our ability to adjust to adverse economic conditions and our ability to fund working capital, capital expenditures, acquisitionssenior management or other general corporate requirements. The interest rate onkey employees are impacted by the loan is variableCOVID-19 pandemic and subject to change based on market forces. Fluctuations in interest rates could adversely affect our profitability and cash flows.
In addition, as a global corporation, we have significant cash reserves held in foreign countries. These balances mayare not be immediately available to repay our debt.
Our credit facilities contain financial covenants that require us to maintain specified financial ratios and make interest and principal payments. If we are unable to satisfy these covenants, we may be required to obtain waivers from our lenders. No assurance can be made that our lenders would grant such waivers on favorable terms, or at all, andperform their job duties, we could be required to repay any borrowed amounts on short notice.
Our operations and plans for future growth may require additional capital that may not be available to us, or only available to us on unfavorable terms.
Our future capital requirements will depend on many factors, including operating requirements, product placements, current and future acquisitions and the need to refinance existing debt. Our ability to issue additional debt or enter into other financing arrangements on acceptable terms could be adversely affected by our debt levels, unfavorable changesexperiences delays in, economic conditions generally or uncertainties that affect the capital markets. Higher borrowing costs or the inability to access capital markets could adversely affect our ability to support future growthsuspension of, important strategic and operating requirements and, as a result, our business, financial condition and results of operations could be adversely affected. As of April 1, 2017, we had $315.4 million of debt obligations due before July 1, 2019. Refer to Liquidity and Capital Resources within our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 of this Annual Report on Form 10-K for further discussion of our debt obligations.commercial objectives.
We recorded goodwill and other asset impairment charges that reduced our income during the current fiscal year and may record additional charges in future periods.
We evaluate goodwill for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. During the fourth quarter of fiscal 2017, we performed our annual goodwill impairment test and concluded that we had an impairment of $57.0 million in our North America Blood Center reporting unit, which represented the entire goodwill balance associated with this reporting unit. There were no other reporting units at risk of impairment as of the fiscal 2017 annual test date. The impairment charge recorded does not impact our liquidity, cash flows from operations, future operations, or compliance with debt covenants.
During fiscal 2017, we performed a review of certain non-core and underperforming assets that were at risk of being impaired due to the recent changes in our strategic direction. This review resulted in the decision to discontinue the use of and investment in certain long-lived assets, including property, plant and equipment and intangible assets. Accordingly, during fiscal 2017, we recorded asset impairment charges of $18.1 million associated with this review. The impairment charges recorded do not impact our liquidity, cash flows from operations, future operations, or compliance with debt covenants.
Future goodwill impairment charges or other asset impairment charges, if any, could materially adversely impact our results of operations in the period in which they are recorded. We will continue to monitor our intangible assets for potential impairments in future periods. Refer to Critical Accounting Policies within our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 of this Annual Report on Form 10-K for a discussion of key assumptions used in our testing.
As a medical device manufacturer we are subject to a number of laws and regulations. Non-compliance with those laws or regulations could adversely affect our financial condition and results of operations.
The manufacture, distribution and marketing of our products are subject to regulation by the FDA and other non-United States regulatory bodies. We must obtain specific regulatory clearance prior to selling any new product or service, a process which is costly and time consuming. If we are unable to obtain the necessary regulatory clearance we will be unable to introduce new enhanced product. Our operations are also subject to continuous review and monitoring by the FDA and other regulatory authorities. Failure to substantially comply with applicable regulations could subject our products to recall or seizure by government authorities, or an order to suspend manufacturing activities. If our products were determined to have design or manufacturing flaws, this could result in their recall or seizure. Either of these situations could also result in the imposition of fines.
The European Union regulatory bodies are expected to finalize a new Medical Device Regulation (MDR) in calendar year 2017, replacing the existing directives and providing three years for transition and compliance. The MDR is expected to change several aspects of the existing regulatory framework, such as clinical data requirements, and introduce new ones, such as Unique Device Identification. We, and the notified bodies who will oversee compliance to the new MDR, face uncertainties as the MDR is rolled out and enforced, creating risks in several areas including the CE Marking process and data transparency in the upcoming years.
We operate in an industry susceptible to significant product liability claims. Product liability claims could damage our reputation and impairour ability to market our products or obtain professional or product liability insurance, or increase the cost of such insurance.
Our products are relied upon by medical personnel in connection with the treatment of patients and the collection of blood or blood components from donors. In the event that patients or donors sustain injury or death in connection with their condition or treatment, we, along with others, may be sued and whether or not we are ultimately determined to be liable, we may incur significant legal expenses. These claims may be brought by individuals seeking relief on their own behalf or purporting to represent a class. In addition, product liability claims may be asserted against us in the future based on events we are not aware of at the present time.
In addition, such
Such litigation could damage our reputation and, therefore, impair our ability to market our products or obtain professional or product liability insurance, or increase the cost of such insurance. While we believe that our current product liability insurance coverage is sufficient, there is no assurance that such coverage will be adequate to cover incurred liabilities or that we will be able to obtain acceptable product and professional liability coverage in the future.
Many
If we are unable to meet our debt obligations or experience a disruption in our cash flows, it could have an adverse effect on our financial condition, results of operations or cost of borrowing.
On June 15, 2018, we entered into a five-year 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"). As of March 28, 2020, we had $323.8 million of debt outstanding under the Term Loan and $60.0 million outstanding under the Revolving Credit Facility. In April 2020, we borrowed an additional $150 million under our competitors have significantly greater financial meansRevolving Credit Facility. The obligations to pay interest and resources, whichrepay the borrowed amounts may allow them to more rapidly develop new technologies and more quickly address changes in customer requirements.
Ourrestrict our ability to remain competitive dependsadjust to adverse economic conditions and our ability to fund working capital, capital expenditures, acquisitions or other general corporate requirements. The interest rate on a combination of factors. Certain factors are withinborrowings under our control suchCredit Facilities is variable and subject to change based on market forces. Fluctuations in interest rates could adversely affect our profitability and cash flows.
In addition, as reputation, regulatory approvals, patents, unpatented proprietary know-how in several technological areas, product quality, safety, cost effectiveness and continued rigorous documentation of clinical performance. Other factors are outside of our control such as regulatory standards, medical standards, reimbursement policies and practices, and the practice of medicine.
As a global corporation, we have significant cash reserves held in foreign countries. Some of these balances may not be immediately available to repay our debt.
Our Credit Facilities contain financial covenants that require us to maintain specified financial ratios and make interest and principal payments. As of March 28, 2020, we were in compliance with the covenants pursuant to our Credit Facilities, and we currently forecast that we will be in compliance with our credit facility covenants through the period ending April 3, 2021. If the impact of COVID-19 is more severe than currently forecasted this may impact our ability to comply with our Credit Facility covenants, and it not certain that we would be able to renegotiate the terms of our Credit Facility in order to provide relief related to the applicable covenants. If in the future we are unable to satisfy our Credit Facility covenants, and then were unable to renegotiate the terms thereof, we could be required to repay any borrowed amounts on short notice.
Our operations and plans for future growth may require additional capital that may not be available to us, or only available to us on unfavorable terms.
Our operations and plans for future growth may require us to raise additional capital in the future. Our ability to issue additional debt or enter into other financing arrangements on acceptable terms could be adversely affected by our debt levels, unfavorable changes in economic conditions generally or uncertainties that affect the capital markets. Higher borrowing costs or the inability to access capital markets could adversely affect our ability to support future growth and operating requirements and, as a result, our business, financial condition and results of operations could be adversely affected. Refer to Liquidity and Capital Resources within our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 of this Annual Report on Form 10-K for further discussion of our debt obligations.
We are exposed to fluctuations in currency exchange rates, which could adversely affect our cash flows and results of operations.
International revenues and expenses account for a substantial portion of our operations. In fiscal 2017,2020, our international revenues accounted for 41.0%34.6% of our total revenues. The exposure to fluctuations in currency exchange rates takes different forms. Reported revenues, as well as manufacturing and operational costs denominated in foreign currencies by our international businesses, fluctuate due to exchange rate movement when translated into U.S. dollars for financial reporting purposes. Fluctuations in exchange rates could adversely affect our profitability in U.S. dollars of products and services sold by us into international markets, where payment for our products and services and related manufacturing and operational costs is made in local currencies.
We are entrusted with sensitive personal information in the course of operating our business and serving our customers. If we suffer a breach of security, our reputation could be harmed and we could incur costs or liabilities.
Government agencies require that we implement measures to ensure the integrity and security of such personal data and, in the event of a breach of protocol, that we inform affected individuals. If our systems are not properly designed or implemented, or
suffer a breach of security or an intrusion (e.g., “hacking”) by unauthorized persons, our reputation could be harmed, and we could incur costs and liabilities to affected persons and enforcement agencies.
We rely on the proper function, availability and security of information technology systems to operate our business and to serve our customers and a cyber-attack or other breach of these systems could have a material adverse effect on our business, financial condition or results of operations.
We rely on information technology systems to process, transmit, and store electronic information in our day-to-day operations. Similar to other large multi-national companies, the size and complexity of our information technology systems makes them vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy, or other significant disruption. Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information, and changing customer patterns. In addition, third parties may attempt to hack into our products to obtain data relating to patients with our products or our proprietary information. Any failure by us to maintain or protect our information technology systems and data integrity, including from cyber-attacks, intrusions or other breaches, could result in the unauthorized access to patient data and personally identifiable information, theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Any of these events, in turn, may cause us to lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, physicians, and other health care professionals, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition or results of operations.
We are subject to the risks associated with communicable diseases. A significant outbreak of a disease could reduce the demand for our products and affect our ability to provide our customers with products and services.
An eligible donor’s willingness to donate is affected by concerns about their personal health and safety. Concerns about communicable diseases (such as pandemic flu, SARS, or HIV) could reduce the number of donors, and accordingly reduce the demand for our products for a period of time. A significant outbreak of a disease could also affect our employees’ ability to work, which could limit our ability to produce product and service our customers.
There is a risk that our intellectual property may be subject to misappropriation in some countries.
Certain countries, particularly China, do not enforce compliance with laws that protect intellectual property rights with the same degree of vigor as is available under the United States and European systems of justice. Further, certain of our intellectual property rights are not registered in China, or if they were, have since expired. This may permit others to produce copies of products in China that are not covered by currently valid patent registrations. There is also a risk that such products may be exported from China to other countries.
In order to aggressively protect our intellectual property throughout the world, we have a program of patent disclosures and filings in markets where we conduct significant business. While we believe this program is reasonable and adequate, the risk of loss is inherent in litigation as different legal systems offer different levels of protection to IP, and it is still possible that even patented technologies may not be protected absolutely from infringement.
Pending and future intellectual property litigation could be costly and disruptive to us.
We operate in an industry that is susceptible to significant intellectual property litigation. This type of litigation is expensive, complex and lengthy and its outcome is difficult to predict. Patent litigation may result in adverse outcomes and could significantly divert the attention of our technical and management personnel.
Our products may be determined to infringe another party's patent, which could lead to financial losses or adversely affect our ability to market our products.
There is a risk that one or more of our products may be determined to infringe a patent held by another party. If this were to occur, we may be subject to an injunction or to payment of royalties, or both, which may adversely affect our ability to market the affected product(s) or otherwise have an adverse effect on our results of operations. In addition, competitors may patent technological advances which may give them a competitive advantage or create barriers to entry.
We sell our products in certain emerging economies which exposes us to less mature regulatory systems, more volatile markets for our products, and greater credit risks. A loss of funding for our products or changes to the regulatory regime could lead to lost revenue or account receivables.
There are risks with doing business in emerging economies, such as Brazil, Russia, India and China. These economies tend to have less mature product regulatory systems and more volatile financial markets. In addition, the government controlled health care system's ability to invest in our products and systems may abruptly shift due to changing government priorities or funding capacity. Our ability to sell products in these economies is dependent upon our ability to hire qualified employees or agents to represent our products locally, and our ability to obtain and maintain the necessary regulatory approvals in a less mature regulatory environment. If we are unable to retain qualified representatives or maintain the necessary regulatory approvals, we will not be able to continue to sell products in these markets. We are exposed to a higher degree of financial risk if we extend credit to customers in these economies.
In many of the international markets in which we do business, including certain parts of Europe, South America, the Middle East, Russia and Asia, our employees, agents or distributors offer to sell our products in response to public tenders issued by various governmental agencies.
There is additional risk in selling our products through agents or distributors, particularly in public tenders. If they misrepresent our products, do not provide appropriate service and delivery, or commit a violation of local or U.S. law, our reputation could be harmed, and we could be subject to fines, sanctions or both.
We have a complex global supply chain which includes key sole source suppliers. Disruptions to this system could delay our ability to deliver finished products.
We have a complex global supply chain which involves integrating key suppliers and our manufacturing capacity into a global movement of components and finished goods.
We have certain key suppliers, including JMS Co. Ltd., Kawasumi Laboratories and Sanmina Corporation, who have their own complex supply chains throughout Asia.
Any disruption to one or more of our suppliers’ production or delivery of sufficient volumes of components conforming to our specifications could disrupt or delay our ability to deliver finished products to our customers. For example, we purchase components in Asia for use in manufacturing in the United States, Puerto Rico and Mexico. We source all of our apheresis equipment from Asia and regularly ship finished goods from the United States, Puerto Rico and Mexico to the rest of the world.
Due to the high standards and FDA requirements applicable to manufacturing our products, such as the FDA's Quality System Regulation and Good Manufacturing Practices, we may not be able to quickly establish additional or replacement sources for certain raw materials, components or finished goods. We might be forced to purchase substantial inventory, if available, to last until we are able to qualify an alternate supplier.
If we cannot obtain a necessary component, we may need to find, test and obtain regulatory approval or clearance for a replacement component, produce the component ourselves or redesign the related product, which would cause significant delay and could increase our manufacturing costs.
In the event that we are unable to obtain sufficient quantities of raw materials, components or finished goods on commercially reasonable terms or in a timely manner, our ability to manufacture our products on a timely and cost-competitive basis may be compromised, which may have a material adverse effect on our business, financial condition and results of operations.
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of amounts that have been accrued.
As a global company, we
We are subject to taxation in numerous countries, states and other jurisdictions. In preparing our financial statements, we record the amount of tax payable in each of the jurisdictions in which we operate. Our future effective tax rate, however, may be lower or higher than prior years due to numerous factors, including a change in our geographic earnings mix, changes in the measurement of our deferred taxes and recently enacted and future tax law changes in jurisdictions in which we operate. Changes in our operations, including headcount in Switzerland, Puerto Rico or Malaysia, could adversely affect our tax rate due to favorable tax rulings in these jurisdiction.jurisdictions. We are also subject to tax audits in various jurisdictions and tax authorities may disagree with certain positions we have taken and assess additional taxes. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations, which could adversely affect our business, results of operations and cash flows.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition, results of operations and/or liquidity.
We are subject to income taxes, non-income based taxes and tax audits, in both the U.S. and various foreign jurisdictions. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision and have established contingency reserves for material,
known tax exposures. However, the calculation of such tax exposures involves the application of complex tax laws and regulations in many jurisdictions, as well as interpretations as to the legality under various rules in certain jurisdictions. Therefore, there can be no assurance that we will accurately predict the outcomes of these disputes or other tax audits or that issues raised by tax authorities will be resolved at a financial cost that does not exceed our related reserves and the actual outcomes of these disputes and other tax audits could have a material impact on our results of operations or financial condition.
In addition, further changes
Changes in tax laws and regulations, or their interpretation and application, in the jurisdictions where we are subject to tax lawscould materially impact our effective tax rate. For example, in 2017, the U.S. enacted the Tax Cuts and Jobs Act, or the Act, and we expect the U.S. Treasury to issue future notices and regulations under the Act. Certain provisions of foreign jurisdictionsthe Act and the regulations issued thereunder could arise, includinghave a significant impact on our future results of operations as acould interpretations made by the Company in the absence of regulatory guidance and judicial interpretations. The result of the upcoming U.S. presidential and congressional elections may result in additional U.S. tax law changes that could have a material impact on our future effective tax rate.
Additionally, the U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do business and the Organization for Economic Co-operation and Development, or OECD, have recently focused on issues related to the taxation of multinational corporations. The OECD has released its comprehensive plan to create an agreed set of international rules for
fighting base erosion and profit shifting (BEPS) project undertaken byshifting. In addition, the Organisation for Economic CooperationOECD, the European Commission and Development (OECD). The OECD, which represents a coalition of memberindividual countries has issued recommendations that, in some cases, would make substantialare examining changes to numerous long-standinghow taxing rights should be allocated among countries in light of the digital economy. As a result, the tax positionslaws in the U.S. and principles. These contemplated changes, to the extent adopted by OECD members and/or other countries in which we and our affiliates do business could increase tax uncertaintychange on a prospective or retroactive basis and mayany such changes could materially adversely affect our provision for income taxes.business.
Our products are made with materials which areshare price has been volatile and may fluctuate, and accordingly, the value of an investment in our common stock may also fluctuate.
Stock markets in general and our common stock in particular have experienced significant price and trading volume volatility over recent years. The market price and trading volume of our common stock may continue to be subject to regulationsignificant fluctuations due to factors described under this Item 1A. Risk Factors, as well as economic and geopolitical conditions in general and to variability in the prevailing sentiment regarding our operations or business prospects, as well as, among other things, changing investment priorities of our shareholders. Because the market price of our common stock fluctuates significantly, shareholders may not be able sell their shares at attractive prices.
Our share repurchase program could affect the price of our common stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock.
On May 7, 2019, we announced that our Board of Directors authorized the repurchase of up to $500 million of our outstanding common stock over the next two years. Under the share repurchase program, we are authorized to repurchase, from time to time, outstanding shares of common stock in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended and in privately negotiated transactions. The actual timing, number and value of shares repurchased will be determined by governmental agencies. An agency's prohibitionus and will depend on a number of certain compounds could disrupt our manufacturing operationsfactors, including market conditions, applicable legal requirements and deliverycompliance with the terms of finished productsloan covenants. The share repurchase program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of its common stock under the program. Repurchases pursuant to our customers.
Environmental regulationsshare repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. There can be no assurance that any share repurchases will enhance shareholder value because the market price of our common stock may prohibitdecline below the use of certain compounds in productslevels at which we market and sell in regulated markets. If we are unablerepurchased our common stock. Although our share repurchase program is intended to substitute suitable materials into our processes, our manufacturing operations may be disrupted. In addition, we may be obligatedenhance long-term shareholder value, short-term stock price fluctuations could reduce the program’s effectiveness. Refer to disclose the origin of certain materials used in our products, including but not limited to, metals mined from locations which have been the site of human rights violations.
We have disclosed material weaknesses in our internal controls over financial reporting relatingNote 7, Earnings per Share, to our accounting for inventory, which could adversely affect our ability to report ourconsolidated financial condition, results of operations or cash flows accurately and on a timely basis.
In connection with our assessment of internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, we identified a material weakness in our internal controls over financial reporting relating to our accounting for inventory. For a discussion of our internal controls over financial reporting and a description of the identified material weakness, see Controls and Proceduresstatements contained in Item 9A8 of this Annual Report on Form 10-K.10-K for further discussion.
A material weakness
There is a deficiency, or a combinationrisk that our intellectual property may be subject to misappropriation in some countries.
Certain countries, particularly China, do not enforce compliance with laws that protect intellectual property rights with the same degree of deficiencies, in internal controls over financial reporting, such that therevigor as is a reasonable possibility that a material misstatementavailable under the U.S. and European systems of justice. Further, certain of our annualintellectual property rights are not registered in China, or interim financial statements willif they were, have since expired. This may permit others to produce copies of products in China that are not covered by currently valid patent registrations. There is also a risk that such products may be exported from China to other countries.
In order to aggressively protect our intellectual property throughout the world, we have a program of patent disclosures and filings in markets where we conduct significant business. While we believe this program is reasonable and adequate, the risk of loss is inherent in litigation as different legal systems offer different levels of protection to intellectual property and it is still possible that even patented technologies may not be prevented or detected on a timely basis.protected absolutely from infringement.
During fiscal 2017, management's assessment identified control deficiencies
Pending and future intellectual property litigation could be costly and disruptive to us.
We operate in internal control over financial reporting relatedan industry that is susceptible to significant intellectual property litigation. This type of litigation is expensive, complex and lengthy and its outcome is difficult to predict. Patent litigation may result in adverse outcomes and could significantly divert the valuationattention of our inventorytechnical and cost of goods sold. Specifically, we identified a deficiency in the internal controls executedmanagement personnel.
Our products may be determined to appropriately account for manufacturing variances in inventory on our consolidated balance sheet and cost of goods sold on our consolidated statements of operations. Management determined that its accounting process for amortizing manufacturing variancesinfringe another party's patent, which could lead to cost of goods sold lacked adequate levels of monitoring and review controls to appropriately identify and correct errors in the calculation in a timely manner. While reported inventory and related accounts are accurate as of April 1, 2017, the material weakness resulted in errors in these accounts in prior periods. As a result of this deficiency, until it is substantially remediated, it is possible that internal controls over financial reporting may not preventlosses or detect errors in the accounting for inventory as reflected in our financial statements.
While actions have been taken to improve our internal controls in response to the identified material weakness related to certain aspects of accounting for inventory, additional work continues to address and remediate the identified material weaknesses. Until these actions are fully implemented and tested, the material weakness in our internal controls over financial reporting relating to inventory will continue to exist. As a result,adversely affect our ability to accurately report,market our products.
There is a risk that one or more of our products may be determined to infringe a patent held by another party. If this were to occur, we may be subject to an injunction or to payment of royalties, or both, which may adversely affect our ability to market
the affected product or otherwise have an adverse effect on a timely basis, our future financial condition, results of operationsoperations. In addition, competitors may patent technological advances that may give them a competitive advantage or cash flows may be adversely affected.create barriers to entry.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our ownedglobal headquarters facility is located in Boston, Massachusetts. During fiscal 2020, we sold our principal office in Braintree, Massachusetts and is approximately 224,000completed our relocation to a 62,000 square feet. foot leased office space in Boston, Massachusetts.
As of April 1, 2017, we owned or leased a total of 60 facilities.March 28, 2020, our principal manufacturing centers were located in Pennsylvania, Utah and California within the U.S., as well as internationally in Puerto Rico, Mexico and Malaysia. Our ownedproducts are distributed worldwide from primary distributor centers in Tennessee and leased facilities consist of approximately 1.7 million square feet. Included within these properties are 7 manufacturing facilities.Switzerland. We believe all of these facilities are well-maintained and suitable for the operationoperations conducted in them. We consider the following manufacturing facilities to be material to the business.
Leetsdale, Pennsylvania is an approximately 82,000 square foot leased facility which is used for warehousing, distribution and manufacturing operations primarily supporting our Plasma business unit. Annual lease expense is approximately $0.4 million for this facility.
Draper, Utah is an approximately 100,000 square foot owned facility used for distribution and manufacturing operations supporting our Plasma business unit. During fiscal 2016, we purchased this facility for $6.6 million.
We lease a 115,000 square foot facility in Fajardo, Puerto Rico under an agreement with Pall Corporation executed in connection with the Company's acquisition of Pall's transfusion medicine business on August 1, 2012. This facility is used for production of blood filters.
We lease 127,000 square feet of space in Tijuana, Mexico with an annual lease expense of approximately $0.8 million. We also own a facility in Tijuana, Mexico that is approximately 182,000 square feet. These facilities are used for the production of whole blood collection kits, plasma, blood centerproduce and hospital disposables, and intra-plant components.
We own approximately 240,000 square feet of space in Penang, Malaysia used to manufacture disposable products for more than one of our European and Asian customers. We lease the land on which the facility was built and the lease payments have been prepaid. business segments.
The lease termfollowing is a summary of 30 years expires in 2043 with an option to renew for a periodour facilities as of no less than 10 years.
Our facilities are used by the following business segments:March 28, 2020 (in approximate square feet): |
| | |
| Number of Facilities |
Japan | 10 |
|
EMEA | 16 |
|
North America Plasma | 3 |
|
All Other | 31 |
|
Total | 60 |
|
|
| | | | | | |
| | Owned | Leased | Total |
| U.S. | 165,385 |
| 626,998 |
| 792,383 |
|
| International | 135,000 |
| 727,818 |
| 862,818 |
|
| Total | 300,385 |
| 1,354,816 |
| 1,655,201 |
|
ITEM 3. LEGAL PROCEEDINGS
We are presently engaged in various legal actions, and although our ultimate liability cannot be determined at the present time, we believe, based on consultation
Information with counsel, that any such liability will not materially affect our consolidated financial position or our results of operations.
Italian Employment Litigation
Our Italian manufacturing subsidiary is party to several actions initiated by former employees of our facility in Ascoli-Piceno, Italy. We ceased operations at the facility in fiscal 2014 and sold the property in fiscal 2017. These include actions claiming (i) working conditions and minimum salaries should have been established by either a different classification under their national collective bargaining agreement or a different agreement altogether, (ii) certain solidarity agreements, which are arrangements between the Company, employees and the government to continue full pay and benefits for employees who would otherwise be terminated in times of low demand, are void, and (iii) rights to payment of the extra time used for changing into and out of the working clothes at the beginning and end of each shift.
In addition, a union represented in the Ascoli plant filed an action claiming that the Company discriminated against it in favor of three other represented unions by (i) interfering with an employee referendum, (ii) interfering with an employee petition to recall union representatives from office, and (iii) excluding the union from certain meetings.
Finally, we have been added as defendants on claims filed against Pall Corporation prior to our acquisition of the plant in August 2012. These claims relate to agreements to "freeze" benefit allowances for a certain period in exchange for Pall's commitments on hiring and plant investment.
As of April 1, 2017, the total amount of damages claimed by the plaintiffs in these matters is approximately $4.4 million. At this point in the proceedings, we believe losses are unlikely and therefore no amounts have been accrued. In the future, we may receive adverse rulings from the courts which could change our judgment on these cases.
SOLX Arbitration
In July 2016, H2 Equity, LLC, formerly known as Hemerus Corporation, filed an arbitration claim for $17 million in milestone and royalty payments allegedly owed as part of our acquisition of the filter and storage solution business from Hemerus Medical, LLC ("Hemerus") in fiscal 2014. The acquired storage solution is referred to as SOLX.
At the closing in April 2013, Haemonetics paid Hemerus a total of $24 million and agreed to a $3 million milestone payment due when the FDA approved a new indication for SOLX (the “24-Hour Approval”) using a filter acquired from Hemerus. We
also agreed to make future royalty payments up to a cumulative maximum of $14 million based on the sale of products incorporating SOLX over a ten year period.
Due to performance issues with the Hemerus filter, Haemonetics filed for, and received, the 24-Hour Approval using a Haemonetics filter. Accordingly, Haemonetics did not pay Hemerus the $3 million milestone payment because the 24-Hour Approval was obtained using a Haemonetics filter, not a Hemerus filter. In addition, we have not paid any royalties to date as we have not made any sales of products incorporating SOLX.
H2 Equity claims, in part, that we owe them $3 million for the receipt of the 24-Hour Approval despite the use of a Haemonetics filter to obtain the approval and that we have failed to make commercially reasonable efforts to market and sell products incorporating SOLX. We believe that we have meritorious defenses to these claims.
It is not possible to accurately evaluate the likelihood or amount of any potential losses relatedrespect to this claim and therefore no amounts have been accrued.Item may be found in Note 16, Commitments & Contingencies, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 4A. EXECUTIVE OFFICERS
Executive Officers of the Registrant
The information concerning our executive officers is as follows. Executive officers are elected by and serve at the discretion of our Board of Directors. There are no family relationships between any director or executive officer and any other director or executive officer of Haemonetics Corporation.
CHRISTOPHER SIMON (age 53) President and Chief Executive Officer joined Haemonetics in May 2016. Mr. Simon previously served as a Senior Partner of McKinsey & Company in Global Medical Products Practice. Mr. Simon was a consultant with McKinsey & Company from 1993 until he joined the Company and recently was the Lead Partner for McKinsey & Company’s strategy review for Haemonetics. Prior to that, he served in commercial roles with Baxter Healthcare Corporation.
WILLIAM BURKE (age 49) Chief Financial Officer joined Haemonetics in August 2016. Mr. Burke is responsible for the global finance organization including accounting, financial planning and analysis, tax and investor relations. Previously, Mr. Burke was Chief Integration Officer and Vice President, Integration for Medtronic plc, following its acquisition of Covidien plc, a global healthcare products company. Prior to this role, Mr. Burke worked at Covidien for over nine years in various finance leadership roles including Chief Financial Officer for Europe, Vice President of Corporate Strategy and Portfolio Management and Vice President of Financial Planning and Analysis.
MICHELLE BASIL (age 45) Executive Vice President, General Counsel joined Haemonetics in March 2017. Ms. Basil is responsible for Haemonetics’ legal, compliance and corporate audits and controls groups. Previously, Ms. Basil was Partner and Chair of the Life Sciences Practice Group at Nutter, McClennen & Fish, LLP. At Nutter, Ms. Basil focused her practice on corporate and securities law, including mergers and acquisitions, strategic partnerships and corporate governance matters, and represented both public and private companies, including life sciences and medical technology.
NEIL RYDING (age 56) Executive Vice President, Global Operations joined Haemonetics in September 2015. Prior to joining Haemonetics, Mr. Ryding had over 30 years of experience in leading global manufacturing operations and supply chain organizations in regulated environments within the aerospace and medical device industries. Mr. Ryding’s previous experience includes various roles with Rolls Royce Aero-Engines, Johnson & Johnson, Smith & Nephew, Cardinal Health and Hospira.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Haemonetics' common stock is listed on the New York Stock Exchange
("NYSE") under the symbol HAE.
The following table sets forth for the periods indicated the high and low sales prices of such common stock, which represent actual transactions as reported by the New York Stock Exchange. |
| | | | | | | | | | | | | | | |
| First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter |
| Fiscal year ended April 1, 2017: | |
| | |
| | |
| | |
|
| Market price of Common Stock: | |
| | |
| | |
| | |
|
| High | $ | 35.67 |
| | $ | 38.06 |
| | $ | 41.41 |
| | $ | 41.65 |
|
| Low | $ | 25.98 |
| | $ | 29.08 |
| | $ | 32.76 |
| | $ | 36.44 |
|
| Fiscal year ended April 2, 2016: | |
| | |
| | |
| | |
|
| Market price of Common Stock: | |
| | |
| | |
| | |
|
| High | $ | 45.32 |
| | $ | 42.24 |
| | $ | 34.63 |
| | $ | 35.67 |
|
| Low | $ | 39.69 |
| | $ | 34.13 |
| | $ | 29.70 |
| | $ | 29.20 |
|
Holders
There were 178120 holders of record of the Company’s common stock as of April 1, 2017.March 28, 2020.
Dividends
The Company has never paid cash dividends on shares of its common stock and does not expect to pay cash dividends in the foreseeable future.
Unregistered Sales
Issuer Purchases of Equity Securities and Use
The following table provides information on the Company’s share repurchases during the fourth quarter of Proceedsfiscal 2020:
|
| | | | | | | | | |
| | Total
Number of Shares
Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1) |
| December 29, 2019 - January 25, 2020 | 95,373 |
| | (2) | | 95,373 |
| | |
| January 26, 2020 - February 22, 2020 | | | | |
| | |
| February 23, 2020 - March 28, 2020 | | | | |
| | |
| Total | 95,373 |
| | | | | | $325,000,000 |
| | | | | | | | |
(1) In May 2019, the Company's Board of Directors authorized the repurchase of up to $500 million of the Company’s common stock from time to time, based on market conditions, over the next two years. Under the Company's share repurchase program, shares may be repurchased in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Exchange Act, and in privately negotiated transactions. |
(2) In January 2020, the Company completed a $50.0 million repurchase of its common stock pursuant to an accelerated share repurchase agreement entered into with Bank of America, N.A. in December 2019. The total number of shares repurchased under the accelerated share repurchase agreement was 0.4 million at an average price per share upon final settlement of $114.73. |
ITEM 6. SELECTED FINANCIAL DATA
Haemonetics Corporation Five-Year Review
| | | (In thousands, except per share and employee data) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Summary of Operations | |
| | |
| | |
| | |
| | |
| |
| Summary of Operations: | | |
| | |
| | |
| | |
| | |
|
| Net revenues | $ | 886,116 |
| | $ | 908,832 |
| | $ | 910,373 |
| | $ | 938,509 |
| | $ | 891,990 |
| $ | 988,479 |
| | $ | 967,579 |
| | $ | 903,923 |
| | $ | 886,116 |
| | $ | 908,832 |
|
| Cost of goods sold | 507,622 |
| | 502,918 |
| | 475,955 |
| | 470,144 |
| | 463,859 |
| 503,966 |
| | 550,043 |
| | 492,015 |
| | 507,622 |
| | 502,918 |
|
| Gross profit | 378,494 |
| | 405,914 |
| | 434,418 |
| | 468,365 |
| | 428,131 |
| 484,513 |
| | 417,536 |
| | 411,908 |
| | 378,494 |
| | 405,914 |
|
| Operating expenses: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Research and development | 37,556 |
| | 44,965 |
| | 54,187 |
| | 54,200 |
| | 44,394 |
| 30,883 |
| | 35,714 |
| | 39,228 |
| | 37,556 |
| | 44,965 |
|
| Selling, general and administrative | 301,726 |
| | 317,223 |
| | 337,168 |
| | 365,977 |
| | 323,053 |
| 299,680 |
| | 298,277 |
| | 316,523 |
| | 301,726 |
| | 317,223 |
|
| Impairment of assets | 58,593 |
| | 92,395 |
| | 5,441 |
| | 1,711 |
| | 4,247 |
| 50,599 |
| | — |
| | — |
| | 58,593 |
| | 92,395 |
|
| Contingent consideration (income) expense | — |
| | (4,727 | ) | | (2,918 | ) | | 45 |
| | — |
| |
| Contingent consideration income | | — |
| | — |
| | — |
| | — |
| | (4,727 | ) |
| Total operating expenses | 397,875 |
| | 449,856 |
| | 393,878 |
| | 421,933 |
| | 371,694 |
| 381,162 |
| | 333,991 |
| | 355,751 |
| | 397,875 |
| | 449,856 |
|
| Operating (loss) income | (19,381 | ) | | (43,942 | ) | | 40,540 |
| | 46,432 |
| | 56,437 |
| |
| Other expense, net | (8,095 | ) | | (9,474 | ) | | (9,375 | ) | | (10,031 | ) | | (6,540 | ) | |
| (Loss) income before (benefit) provision for income taxes | (27,476 | ) | | (53,416 | ) | | 31,165 |
| | 36,401 |
| | 49,897 |
| |
| (Benefit) provision for income taxes | (1,208 | ) | | 2,163 |
| | 14,268 |
| | 1,253 |
| | 11,097 |
| |
| Net (loss) income | $ | (26,268 | ) | | $ | (55,579 | ) | | $ | 16,897 |
| | $ | 35,148 |
| | $ | 38,800 |
| |
| (Loss) income per share: | |
| | |
| | |
| | |
| | |
| |
| Operating income (loss) | | 103,351 |
| | 83,545 |
| | 56,157 |
| | (19,381 | ) | | (43,942 | ) |
| Gain on divestiture | | — |
| | — |
| | 8,000 |
| | — |
| | — |
|
| Interest and other expense, net | | (16,199 | ) | | (9,912 | ) | | (4,525 | ) | | (8,095 | ) | | (9,474 | ) |
| Income (loss) before provision (benefit) for income taxes | | 87,152 |
| | 73,633 |
| | 59,632 |
| | (27,476 | ) | | (53,416 | ) |
| Provision (benefit) for income taxes | | 10,626 |
| | 18,614 |
| | 14,060 |
| | (1,208 | ) | | 2,163 |
|
| Net income (loss) | | $ | 76,526 |
| | $ | 55,019 |
| | $ | 45,572 |
| | $ | (26,268 | ) | | $ | (55,579 | ) |
| Income (loss) per share: | | |
| | |
| | |
| | |
| | |
|
| Basic | $ | (0.51 | ) | | $ | (1.09 | ) | | $ | 0.33 |
| | $ | 0.68 |
| | $ | 0.76 |
| $ | 1.51 |
| | $ | 1.07 |
| | $ | 0.86 |
| | $ | (0.51 | ) | | $ | (1.09 | ) |
| Diluted | $ | (0.51 | ) | | $ | (1.09 | ) | | $ | 0.32 |
| | $ | 0.67 |
| | $ | 0.74 |
| $ | 1.48 |
| | $ | 1.04 |
| | $ | 0.85 |
| | $ | (0.51 | ) | | $ | (1.09 | ) |
| Weighted average number of shares | 51,524 |
| | 50,910 |
| | 51,533 |
| | 51,611 |
| | 51,349 |
| 50,692 |
| | 51,533 |
| | 52,755 |
| | 51,524 |
| | 50,910 |
|
| Common stock equivalent shares | — |
| | — |
| | 556 |
| | 766 |
| | 910 |
| |
| Weighted average number of shares and common stock equivalent shares | 51,524 |
| | 50,910 |
| | 52,089 |
| | 52,377 |
| | 52,259 |
| 51,815 |
| | 52,942 |
| | 53,501 |
| | 51,524 |
| | 50,910 |
|
| |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Financial and Statistical Data: | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Working capital | $ | 298,850 |
| | $ | 302,535 |
| | $ | 368,985 |
| | $ | 391,944 |
| | $ | 403,153 |
| $ | 328,817 |
| | $ | 340,362 |
| | $ | 136,474 |
| | $ | 298,850 |
| | $ | 302,535 |
|
| Current ratio | 2.4 |
| | 2.6 |
| | 3.0 |
| | 2.8 |
| | 3.2 |
| 2.2 |
| | 2.4 |
| | 1.4 |
| | 2.4 |
| | 2.6 |
|
| Property, plant and equipment, net | $ | 323,862 |
| | $ | 337,634 |
| | $ | 321,948 |
| | $ | 271,437 |
| | $ | 256,953 |
| $ | 253,399 |
| | $ | 343,979 |
| | $ | 332,156 |
| | $ | 323,862 |
| | $ | 337,634 |
|
| Capital expenditures | $ | 76,135 |
| | $ | 102,405 |
| | $ | 122,220 |
| | $ | 73,648 |
| | $ | 62,188 |
| $ | 48,758 |
| | $ | 118,961 |
| | $ | 74,799 |
| | $ | 76,135 |
| | $ | 102,405 |
|
| Depreciation and amortization | $ | 89,733 |
| | $ | 89,911 |
| | $ | 86,053 |
| | $ | 81,740 |
| | $ | 65,481 |
| $ | 110,289 |
| | $ | 109,418 |
| | $ | 89,247 |
| | $ | 89,733 |
| | $ | 89,911 |
|
| Total assets | $ | 1,238,709 |
| | $ | 1,319,128 |
| | $ | 1,485,417 |
| | $ | 1,514,178 |
| | $ | 1,461,917 |
| $ | 1,267,110 |
| | $ | 1,274,767 |
| | $ | 1,237,339 |
| | $ | 1,238,709 |
| | $ | 1,319,128 |
|
| Total debt | $ | 314,647 |
| | $ | 408,000 |
| | $ | 427,891 |
| | $ | 437,687 |
| | $ | 480,094 |
| $ | 382,493 |
| | $ | 350,120 |
| | $ | 253,682 |
| | $ | 314,647 |
| | $ | 408,000 |
|
| Stockholders’ equity | $ | 739,610 |
| | $ | 721,565 |
| | $ | 826,122 |
| | $ | 837,888 |
| | $ | 769,182 |
| $ | 587,109 |
| | $ | 667,868 |
| | $ | 752,429 |
| | $ | 739,610 |
| | $ | 721,565 |
|
| Debt as a % of stockholders’ equity | 42.5 | % | | 56.5 | % | | 51.8 | % | | 52.2 | % | | 62.4 | % | 65.1 | % | | 52.4 | % | | 33.7 | % | | 42.5 | % | | 56.5 | % |
| Employees | 3,107 |
| | 3,225 |
| | 3,383 |
| | 3,782 |
| | 3,563 |
| 3,004 |
| | 3,216 |
| | 3,136 |
| | 3,107 |
| | 3,225 |
|
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Business
Haemonetics is a global healthcare company dedicated to providing a suite of innovative hematology products and solutions to customers to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets including blood and plasma component collection, the surgical suite, and hospital transfusion services. When used in this report, the terms “we,” “us,” “our” and “the Company” mean Haemonetics.
We view our operations and manage our business in three principal reporting segments: Plasma, Blood Center and its components (plasma,Hospital. For that purpose, “Plasma” includes plasma collection devices and disposables, plasma donor management software, and anticoagulant and saline sold to plasma customers. “Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and red cells)whole blood as well as related donor management software. "Hospital", which is comprised of Hemostasis Management, Cell Salvage and Transfusion Management products, includes devices and methodologies for measuring coagulation characteristics of blood, surgical blood salvage systems, specialized blood cell processing systems and disposables and blood transfusion management software.
We believe that Plasma and Hospital have many vitalgrowth potential, while Blood Center competes in challenging markets which require us to manage the business differently, including reducing costs, shrinking the scope of the current product line, and frequently life-saving clinical applications. Plasma is used for patients with major blood loss and is manufactured into biopharmaceuticalsevaluating opportunities to treat a variety of illnesses, including immune diseases and coagulation disorders. Red cells treat trauma patients or patients undergoing surgery with high blood loss, such as open heart surgery or organ transplant. Platelets have many uses in patient care, including supporting cancer patients undergoing chemotherapy. Blood is essential to a modern healthcare system.exit unfavorable customer contracts.
Recent Developments
Restructuring Initiative
DuringCOVID-19
We are closely managing the impacts of the COVID-19 pandemic on our business results of operations and financial condition. As a result of the timing of the pandemic relative to our fiscal 2017,year end, we launchedexperienced only limited effects of COVID-19 in fiscal 2020. While the duration and implications remain uncertain, we believe our business operations will experience a multi-year restructuring initiative designedhigher impact from COVID-19 in fiscal 2021. The extent of such impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to repositioncontain it or treat its impact and the economic impact on local, regional, national and international markets.
Our immediate response to the COVID-19 pandemic has been to focus on business continuity and the safety of our organizationemployees. This includes prioritizing employee safety with remote work and improvetravel restrictions, and limiting exposure for our cost structure. This initiative includes a reduction of headcountmanufacturing and operating costs, simplification of certain product lines,customer facing employees, including field service and modification of manufacturing operationssales teams, to align withensure supplies and services for our strategic direction.customers.
The fiscal 2017 phase was expectedWe have been able to incur approximately $26 million of restructuring and turnaround charges and was estimated to achieve cost savings of $40 million. During fiscal 2017, we incurred $28.7 million of restructuring and turnaround charges under this initiative and exceeded our estimated savings target of $40 million. As of April 1, 2017, this initial phase was substantially complete. Additionally, during fiscal 2017, we recorded $5.6 million of restructuring and turnaround charges under a prior program. We continue to assess non-coresupply our products to our customers worldwide and underperforming assets and evaluate opportunities to improve our cost structure as partall of our turnaroundmanufacturing facilities continue to operate. While we currently do not anticipate any material interruptions in our manufacturing process, it is possible that the COVID-19 pandemic and expectresponse efforts may have an impact on our future ability to incur additional chargesmanufacture our products or to have our products reach all markets.
We are also focused on preserving cash and benefits during fiscal 2018have implemented a number of actions to help us protect cash flow and beyond.
PCS® 300
allocate capital such as reducing non-essential spending, delaying certain compensation-related items, inventory management, reviewing capital projects and the associated costs, and restricting travel. In April 2017,2020, we submitted a new plasmapheresis device,borrowed an additional $150.0 million under our revolving credit facility, increasing our cash on hand to approximately $300 million. Refer to Liquidity and Capital Resources within our Management's Discussion and Analysis for additional information regarding our cash position and liquidity.
We believe that demand for our products is resilient, even within an environment of constrained spending. While we believe that our product segments are beginning to shift to recovery, with markets in Asia and parts of the PCS® 300, for 510(k) regulatory clearance withU.S. and Europe reopening, the United States Foodrecovery could be protracted and Drug Administration ("FDA")disrupted by additional resurgences and continue to work on future enhancements to this important product, some of which may requirelockdowns. For additional clearances. Our planned roll out of this new platform includesinformation regarding the placement of a significant number of new devices. Such placements will require meaningful capital expenditures and new customer contracts that reflect pricing and volumes appropriate to these investments.
Impairments
As discussed in Note 5, Goodwill and Intangible Assets,expected impacts to our consolidated financial statementsbusiness units and the various risks posed by the COVID-19 pandemic, refer to Results of Operations within Management's Discussion and Analysis and Risk Factors contained in Item 81A of this Annual Report on Form 10-K,10-K.
Acquisitions
On April 1, 2020, we evaluate goodwill for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. Our reporting units for purposes of assessing goodwill impairment are organized primarily based on operating segments and geography and include: (a) North America Plasma, (b) North America Blood Center, (c) North America Hospital, (d) EMEA, (e) Asia-Pacific and (f) Japan. In the prior period, North America Blood Center and North America Hospital were components of a single reporting unit, Americas Blood Center and Hospital. During the fourth quarter of fiscal 2017, we completed certain organizational changes which resulted in the disaggregation of Americas Blood Center and Hospital into two separate reporting units. As a result of our annual test, we recorded an impairment charge of $57.0 million in the North America Blood Center reporting unit during the fourth quarter of fiscal 2017, which represented the entire goodwill balance associated with this reporting unit.
During fiscal 2017, we performed a review of certain non-core and underperforming assets that were at risk of being impaired due to the recent changes in the strategic directionacquired all of the Company. This review resulted inoutstanding equity of enicor GmbH, the decision to discontinue the usemanufacturer of and investment in certain long-lived assets, including property, plant and equipment and intangible assets. Accordingly, during fiscal 2017, we recorded $18.1 million of impairment charges, which included the write down of $13.3 million of property, plant and equipment and $4.8 million of intangible assets. Refer to Note 5, Goodwill and Intangible AssetsClotPro®, and Note 12, Property, Plant and Equipment, to our consolidated financial statements contained in Item 8a new generation whole blood coagulation testing system. The acquisition of this Annual Report on Form 10-Kinnovative viscoelastic diagnostic device further augments our portfolio of hemostasis analyzers within our Hospital business unit.
On January 13, 2020, we purchased the technology underlying the TEG® 6s Hemostasis Analyzer System from Cora Healthcare, Inc. and CoraMed Technologies, LLC (the "Cora Parties") for further information.
Divestiture
On April 27, 2017, we sold our SEBRA sealers product line to Machine Solutions Inc. because it was no longer aligned with our long-term strategic objectives.$35.0 million. In connection with this transaction, we acquired ownership of intellectual property previously licensed from the Cora Parties on an exclusive basis in the field of hospitals and hospital laboratories. This acquisition will allow us to pursue site of care opportunities beyond the hospital setting.
Divestiture
On May 21, 2019, we transferred to CSL Plasma Inc. (“CSL”) substantially all of the tangible assets held by Haemonetics relating to the manufacture of anti-coagulant and saline at our Union, South Carolina facility and CSL assumed certain related liabilities pursuant to the terms of a settlement, release and asset transfer agreement between the parties dated May 13, 2019. At the closing, we received net$9.8 million of proceeds and were concurrently released from our obligations to supply liquid solutions under a 2014 supply agreement with CSL. We recognized an asset impairment in the first quarter of $9 million. These proceeds
are subject to a post-closing adjustment based on final asset values as determined during the 90 day transition period. The preliminary pre-tax gain expected to be recordedfiscal 2020 of $48.7 million as a result of this transaction is $8 million.transaction.
Share Repurchase Programs
In May 2019, our Board of Directors authorized the repurchase of up to $500 million of Haemonetics common shares over the next two years. In July 2019, we completed a $75.0 million repurchase of our common stock pursuant to an accelerated share repurchase agreement ("ASR") entered into with Citibank N.A. ("Citibank") in June 2019. The SEBRA portfolio includestotal 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, we completed a suite$50.0 million repurchase of products which primarily include radio frequency sealers that are usedour common stock pursuant to seal tubing as partan 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 January 2020, we completed an additional $50.0 million repurchase of our common stock pursuant to an ASR entered into with Bank of America, N.A. ("Bank of America") in December 2019. 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 March 28, 2020, the total remaining authorization for repurchases of the collectionCompany's common stock under the share repurchase program was $325.0 million.
Restructuring Program
In July 2019, our Board of whole bloodDirectors approved a new Operational Excellence Program (the "2020 Program") and blood components, particularly plasma.delegated authority to management to determine the detail of the initiatives that will comprise the program. The SEBRA product line generated approximately $62020 Program is designed to improve operational performance and reduce cost principally in our manufacturing and supply chain operations. We estimate that we 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. Savings from the 2020 Program are targeted to reach $80 million to $90 million on an annualized basis once the program is completed. During the fiscal year ended March 28, 2020, we incurred $11.9 million of revenue in our Plasma business unit in fiscal 2017.restructuring and turnaround costs under this program.
Product Recall
Relocation of Corporate Headquarters
In June 2016,December 2018, we issuedentered into a voluntary recalllease for office space in Boston, MA to serve as our new corporate headquarters and replace our prior corporate headquarters located in Braintree, MA. During the second quarter of certain whole blood collection kitsfiscal 2020, we sold to our Blood Center customers in the U.S. The recall resulted from some collection sets' filters failing to adequately remove leukocytes from collected blood. As a result of the recall, our Blood Center customers may have conducted further tests to confirm the blood was adequately leukoreduced, sold the blood labeled as non-leukoreduced at a lower price or discarded the blood collected using the defective sets. As a result of the recall, we have recorded total charges of $7.1 million during fiscal 2017, which consists of $3.7$7.8 million of chargesreal estate and other assets associated with customer returnsthe Braintree corporate headquarters and inventory reserves and $3.4 millionentered into a lease with the buyer that allowed the Company to leaseback that facility on a rent-free basis through December 31, 2019 until the completion of charges associated with customer claims, as discussed below. We may record incremental charges in future periods.
The $3.7 million of charges associated with customer returns consisted of $2.5 million of sales returns, $1.1 million of net inventory reserves for the affected sets on-hand that had not yet been shippedour relocation to customers and $0.1 million of freight expenses.
The $3.4 million of charges associated with customer claims are based on claims seeking reimbursement for $14.2 million in losses sustained as a result of the recall. While the customers making these claims purchased substantially all the affected units, incremental charges may be recorded in future periods as additional data supporting the claims becomes available. We have an enforceable insurance policy in placeBoston, MA, which we believe provides coverage for a portion of the claims received to date. As of April 1, 2017, we had an insurance receivable of $2.9 million. We will assess the potential for additional insurance recoveries as we receive more information about customer claims in future reporting periods.
Declines in U.S. Blood Center Collections
The demand for whole blood disposable products in the U.S. continued to decrease in fiscal 2017 and 2016 due to a sustained decline in transfusion rates and actions taken by hospitals to improve blood management techniques and protocols. In response to this trend, U.S. blood center collection groups selected single source vendors for their whole blood collection products and became primarily focused on obtaining the lowest average selling prices. While we began to see a moderation in the rate of market declineoccurred during fiscal 2017, we expect to see continued declines in transfusion rates and the market to remain price-focused and highly competitive for the foreseeable future.
Apheresis Red Cell Collection Arrangements
During fiscal 2016, the American Red Cross and two group purchasing organizations representing other U.S. blood collectors ("Blood Center GPOs") requested updated contracts for sole source supply on apheresis red cell collections. The resulting pricing in our American Red Cross contract and the recommendations by both Blood Center GPOs that their members use our competitor's technology continue to negatively affect red cell revenues and gross margins. The American Red Cross contract resulted in our gaining 100% share of their apheresis red cell collection business and higher sales volumes, but at lower prices. The impact of the price concessions began in the third quarter of fiscal 2016, while the achievement of 100% share of the American Red Cross' business occurred in the fourth quarter of fiscal 2017. The negative impact on fiscal 2017 operating income as2020. As a result of this transaction, we 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.
Change in Reportable Segments
Effective March 31, 2019, we completed the American Red Cross contract and market share losses among memberstransition of theour operating structure to three global business units - Plasma, Blood Center GPOs was an additional $8 million as comparedand Hospital - and accordingly reorganized our operating and reporting structure to fiscal 2016. While we expect this negative impactalign with our three global business units. This new segment structure has been realigned in accordance with the respective markets to continue inaccurately reflect the first half of fiscal 2018, we anticipate stabilization in the second half of fiscal 2018 after annualization of the final price concessions. Red cell disposable revenues in the U.S. totaled $26.0 million and $34.8 million during fiscal 2017 and fiscal 2016, respectively.
Declines in Platelet Collections
While we market our platelet products globally, the dynamicsongoing performance of each market are significantly different. Despite modest increases inbusiness and excludes revenue for service, maintenance and parts related to the demand for platelets in Europe and Japan, improved collection efficienciesapplicable business unit. The discussion of our results of operations that increase the yield of platelets per collection and more efficient use of collected platelets have resulted in flat markets for platelet usage and related disposables in these regions.follows has been revised to reflect our new reportable segments.
Within these flat markets, the use of "double dose" collection methods and other alternative collection procedures in Europe and Japan has increased. Double dose collections involve collecting two therapeutic platelet doses from one donor. The adoption of double dose collection technology is increasing and has negatively impacted our sales and gross profit in a number of markets where these collections are prevalent. In Japan, usage of double dose collections has increased significantly and comprised approximately 40% of all platelets collected. We expect to see continued increases in the use of double dose collections during fiscal 2018.
Market Trends
Plasma Market
There are two key aspects to the market for our plasma products - the growth in demand for plasma-derived biopharmaceuticals and the limited number of significant biopharmaceutical companies in this market.
Changes in demand for plasma-derived biopharmaceuticals, particularly immunoglobulin, are the key driver of plasma collection volumes in the biopharmaceutical market. Various factors related to the supply of plasma and the production of plasma-derived biopharmaceuticals also affect collection volume, including the following:
Biopharmaceutical companies are seeking more efficient production processesyield from the collected plasma to meet growing demand for biopharmaceuticals without requiring an equivalent increase in plasma supply.
Newly approved indications for and the growing understanding and thus diagnosis of auto-immune diseases treated with plasma-derived therapies, increase the demand for plasma, as dogrowing understanding and diagnosis of these diseases, longer lifespans and a growing aging patient population.population increase the demand for plasma.
Several blood collectors supply additional plasma to fractionators, and thus plasma supply can rise overall but not directly impact our Plasma business unit.
Geographical expansion of biopharmaceuticals also increases demand for plasma.
Demand for our plasma products in fiscal 20172020 continued to grow in North America as collection volumes benefited from an expanding end user market for plasma-derived biopharmaceuticals with U.S. produced plasma meeting an increasing percentagethe vast majority of plasma volume demand worldwide. As a result, our Plasma business’ revenues are primarily from the U.S.
Despite the overall growth in the market, the number of biopharmaceutical companies whothat collect and fractionate the majority of source plasma is limitedlow and industry consolidation is still ongoing. Significant barriers to entry exist for new entrants due to high capital outlay requirements for fractionation, long regulatory pathways to the licensing of collection centers and fractionation facilities and approval of plasma-derived biopharmaceuticals. With these factors, we do not expect meaningful new entries or diversification.
Hospital Market
Hemostasis Management Market - Our TEG® (Thrombelastograph Hemostasis) Analyzers As a result, there are diagnostic tools which provide a comprehensive assessment of a patient’s overall hemostasis. This information enables caregivers to decide the best blood-related clinical treatmentrelatively few customers for the patient in order to minimize blood loss and reduce clotting risk. The use of our TEG® 5000 analyzer continues to expand beyond cardiac surgery into trauma and other clinical uses.
TEG® product line sales further strengthened in fiscal 2017, with strong performance in North America, Europe and China. This product’s growth is dependent on hospitals adopting this technology in their blood management programs. The TEG® 6s and TEG® Manager are approved for the same set of indications as the TEG® 5000 in Europe, Australia and Japan. In the U.S., TEG® 6s is approved for limited indications, including cardiovascular surgery and cardiology. The release of TEG 6s has significantly contributed to the overall growth in Hemostasis ManagementPlasma products, especially in the U.S. where 80% of the world's source plasma is collected and Europe in fiscal 2017. We are pursuingonly a broader setfew customers provide the majority of indications for the TEG® 6s in the U.S., including trauma.our Plasma revenue.
Cell Processing Market - Our Cell Saver surgical blood salvage system was designed as a solution for procedures that involve mid to high volume blood loss, such as cardiovascular or orthopedic surgeries. In recent years, more efficient blood use and less invasive cardiovascular surgeries have reduced demand for this device and contributed to intense competition in mature markets, while increased access to healthcare in emerging economies has provided new markets and sources of growth.
Our OrthoPAT technology is used to salvage red cells in orthopedic procedures, including hip and knee replacement surgeries. Over the last three years, improved blood management practices, including the use of tranexamic acid to treat and prevent post-operative bleeding, have significantly reduced the use of OrthoPAT.
We currently participate in the hospital software market primarily in the U.S and Europe. In the U.S., we have experienced growth in our installed base for our hospital transfusion solution, SafeTrace Tx, due to demand for reliable, proven safety systems within transfusion services. However, growth in the U.S. continues to be constrained due to hospital IT organization focus on the electronic medical records mandates. Revenues from BloodTrack, a blood inventory and transfusion management system, have increased in the U.S. and Europe recently as hospitals seek means to improve efficiencies and meet compliance guidelines for tracking and dispositioning blood components to patients.
Blood Center Market
In the Blood Center market, we sell products used in theautomated blood component and manual whole blood collection of platelets, red cellssystems, as well as software solutions that include blood drive planning, donor recruitment and whole blood. Wholeretention, blood is collected from the donorcollection, component manufacturing and then transported to a laboratory where it is separated into its components: red cells, platelets or plasma.distribution. While we sell products around the world, a significant portion of our sales are to a limited number of customers due to relatively limited number of blood collectors.
Platelets are collected globally, although each localWithin the Blood Center market, can be quite different. Despite modest increaseswe have seen three trends that have negatively impacted growth of the overall marketplace despite the overall increase in aging populations. Overall, we continue to expect a decline in this business in the demand for plateletslow to mid single-digits.
Declining transfusion rates in Europe and Japan, improvedmature markets due to the development of more minimally invasive procedures with lower associated blood loss, as well as better blood management.
Competition in multi-unit collection efficiencies that increase the yield of platelets per collection and more efficient use of collected platelets have resulted in a flat markettechnology for automated collectionsblood component collection systems has intensified and related disposables in these countries. In particular, the use of "double dose" collection methods in Europe and Japan has increased. Double dose collections involve collecting two therapeutic platelet doses from one donor. Competition in double dose collection technology is intense and can negatively impactimpacted our sales in markets where these collections are prevalent.
| |
| ▪ | Industry consolidation through group purchasing organizations has intensified pricing competition particularly in the manual whole blood collection systems, as well as impacting our software business where switching large customers to new or emerging technology platforms has a relatively high cost. |
Hospital Market
Hemostasis Management Market - The use of routine coagulation testing is well established throughout the world in various medical procedures, including cardiovascular surgery, organ transplantation, trauma, post-partum hemorrhage and percutaneous coronary intervention. While standard tests like prothrombin time, partial thromboplastin time and platelet count have limited ability to reveal a patient’s risk for bleeding, they do not provide information on the patient’s risk for thrombosis. In addition, these routine tests do not provide specific data about clot quality or stability. As a result of these limitations, clinicians are increasingly utilizing advanced hemostasis testing to changesprovide more information about a patient’s hemostasis status, resulting in the platelet markets, healthcare efficiencies in developed markets have reduced the demand for red cells, which in turn canimproved clinical decision-making. In addition, advanced hemostasis testing supports hospital efforts to reduce the demand for our red cellrisks, complications and wholecosts associated with unnecessary blood collection products.component transfusions.
As discussed in Recent Developments above, while we began
Haemonetics’ TEG® and ClotPro hemostasis analyzer systems are advanced diagnostic tools that provide a comprehensive assessment of a patient’s overall hemostasis. This information enables clinicians to see a moderation indecide the rate of market decline in U.S. blood center collections during fiscal 2017, we expect to see continued declines in transfusion rates and the market to remain price-focused and highly competitivemost appropriate clinical treatment for the foreseeable future.patient to minimize blood loss and reduce clotting risk. For example, TEG analyzers have been used to support clinical decision making in open cardiovascular surgery and organ transplantation, becoming the standard of care in liver transplants. In more recent years, interest has grown into the utilization of TEG in trauma and other procedures in which the risk of hemorrhage and thrombosis are high.
In
Geographically, TEG systems have achieved the Blood Centerhighest market penetration in North America, Europe and China. However, there are considerable growth opportunities in these as well as other markets, as TEG systems become more established as the standard of care around the world. Our ClotPro system is currently available in select European and Asian markets and is not available for software, we currently participate most activelyuse or sale in the U.S., where expansion
Cell Salvage Market - In recent years, more efficient blood use and less invasive surgeries have reduced demand for autotransfusion in these procedures and contributed to intense competition in mature markets, while increased access to healthcare in emerging economies has provided new ormarkets and sources of growth. Orthopedic procedures have seen similar changes with improved blood management practices, including the use of tranexamic acid to treat and prevent postoperative bleeding, significantly reducing the number of transfusions and autotransfusion. Geographically, the Cell Saver® has achieved the highest market penetration in North America, Europe and Japan. However, there are considerable growth opportunities in certain Asia Pacific and other emerging technology platforms suchmarkets as our El Dorado Donor has been slow due to industry consolidationaddressable procedure volumes grow and the relatively high costuse of migrating to new information technology platforms. This trend has limited revenue growth and will likely continue to minimize potential opportunitiesautotransfusion is becoming accepted as a standard of care.
Transfusion Management Market - Revenues from BloodTrack® have increased in the future. However,U.S. and Europe in recent years as hospitals seek means to improve efficiencies and meet compliance guidelines for tracking and dispositioning blood components to patients. SafeTrace Tx®'s leading market share in the immediate future high switching costs and recurring maintenance revenue streams from existing customers has provided relative revenue stability in this product group.U.S. remains steady with potential opportunity to expand internationally.
Financial Summary
| | | | | | | | | | | | | Fiscal Year | | | | |
| (In thousands, except per share data) | 2017 | | 2016 | | 2015 | | % Increase/(Decrease)
17 vs. 16 | | % Increase/(Decrease)
16 vs. 15 | 2020 | | 2019 | | 2018 | | % Increase/(Decrease)
20 vs. 19 | | % Increase/(Decrease)
19 vs. 18 |
| Net revenues | $ | 886,116 |
| | $ | 908,832 |
| | $ | 910,373 |
| | (2.5 | )% | | (0.2 | )% | $ | 988,479 |
| | $ | 967,579 |
| | $ | 903,923 |
| | 2.2 | % | | 7.0 | % |
| Gross profit | $ | 378,494 |
| | $ | 405,914 |
| | $ | 434,418 |
| | (6.8 | )% | | (6.6 | )% | $ | 484,513 |
| | $ | 417,536 |
| | $ | 411,908 |
| | 16.0 | % | | 1.4 | % |
| % of net revenues | 42.7 | % | | 44.7 | % | | 47.7 | % | | |
| | |
| 49.0 | % | | 43.2 | % | | 45.6 | % | | |
| | |
|
| Operating expenses | $ | 397,875 |
| | $ | 449,856 |
| | $ | 393,878 |
| | (11.6 | )% | | 14.2 | % | $ | 381,162 |
| | $ | 333,991 |
| | $ | 355,751 |
| | 14.1 | % | | (6.1 | )% |
| Operating (loss) income | $ | (19,381 | ) | | $ | (43,942 | ) | | $ | 40,540 |
| | (55.9 | )% | | n/m |
| |
| Operating income | | $ | 103,351 |
| | $ | 83,545 |
| | $ | 56,157 |
| | 23.7 | % | | 48.8 | % |
| % of net revenues | (2.2 | )% | | (4.8 | )% | | 4.5 | % | | |
| | |
| 10.5 | % | | 8.6 | % | | 6.2 | % | | |
| | |
|
| Other expense, net | $ | (8,095 | ) | | $ | (9,474 | ) | | $ | (9,375 | ) | | (14.6 | )% | | 1.1 | % | |
| (Loss) income before taxes | $ | (27,476 | ) | | $ | (53,416 | ) | | $ | 31,165 |
| | (48.6 | )% | | n/m |
| |
| (Benefit) provision for income tax | $ | (1,208 | ) | | $ | 2,163 |
| | $ | 14,268 |
| | n/m |
| | (84.8 | )% | |
| Gain on divestiture | | $ | — |
| | $ | — |
| | $ | 8,000 |
| | — | % | | (100.0 | )% |
| Interest and other expense, net | | $ | (16,199 | ) | | $ | (9,912 | ) | | $ | (4,525 | ) | | 63.4 | % | | n/m |
|
| Income before taxes | | $ | 87,152 |
| | $ | 73,633 |
| | $ | 59,632 |
| | 18.4 | % | | 23.5 | % |
| Tax expense | | $ | 10,626 |
| | $ | 18,614 |
| | $ | 14,060 |
| | (42.9 | )% | | 32.4 | % |
| % of pre-tax income | 4.4 | % | | (4.0 | )% | | 45.8 | % | | |
| | |
| 12.2 | % | | 25.3 | % | | 23.6 | % | | |
| | |
|
| Net (loss) income | $ | (26,268 | ) | | $ | (55,579 | ) | | $ | 16,897 |
| | (52.7 | )% | | n/m |
| |
| Net income | | $ | 76,526 |
| | $ | 55,019 |
| | $ | 45,572 |
| | 39.1 | % | | 20.7 | % |
| % of net revenues | (3.0 | )% | | (6.1 | )% | | 1.9 | % | | | | |
| 7.7 | % | | 5.7 | % | | 5.0 | % | | | | |
|
| Net (loss) income per share - diluted | $ | (0.51 | ) | | $ | (1.09 | ) | | $ | 0.32 |
| | (53.2 | )% | | n/m |
| |
| Net income per share - basic | | $ | 1.51 |
| | $ | 1.07 |
| | $ | 0.86 |
| | 41.1 | % | | 24.4 | % |
| Net income per share - diluted | | $ | 1.48 |
| | $ | 1.04 |
| | $ | 0.85 |
| | 42.3 | % | | 22.4 | % |
Our fiscal year ends on the Saturday closest to the last day of March. Fiscal 20172020, 2019 and 20152018 include 52 weeks with each quarter having 13 weeks. Fiscal 2016 includes 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks.
Net revenues for fiscal 2017 decreased 2.5%2020 increased 2.2% compared towith fiscal 2016. Without the effects of foreign exchange, net revenues decreased 1.2% compared to fiscal 2016. Revenue increases in Plasma and Hemostasis Management were offset by declines in our Blood Center and Cell Processing business units for the fiscal year ended April 1, 2017. The 53rd week in fiscal 2016 also contributed to the decrease, as it accounted for approximately 2% of additional revenue as compared to fiscal 2017.
Net revenues for fiscal 2016 were flat compared to fiscal 2015.2019. Without the effects of foreign exchange, net revenues increased 2.9%2.8% compared towith fiscal 2015.2019. Revenue increases in Plasma and Hemostasis Management wereHospital primarily drove the overall increase in revenue during the fiscal year ended March 28, 2020. This increase was partially offset by declines in our Blood Center and Cell Processing business units for the fiscal year ended April 2, 2016. The 53rd week in fiscal 2016 also contributed to the increase, as it accounted for approximately 2% of additional revenue as compared to fiscal 2015.unit.
During fiscal 2017, operating loss decreased 55.9% compared to fiscal 2016. Without the effects of foreign currency, operating loss decreased 68.9% compared to fiscal 2016. Operating loss decreased primarily as a result of savings realized from cost reduction initiatives in the current year, a decrease in goodwill and other asset impairment charges and a reduction in research and development spending as compared to fiscal 2016. These savings were partially offset by increased inventory charges and reserves and losses from Plasma liquid solutions.
We recorded an operating loss in fiscal 2016, as compared to operating income in fiscal 2015. Operating income decreased for the fiscal year ended April 2, 2016 primarily as a result of goodwill and other asset impairment charges recognized in the second half of fiscal 2016. This increase in operating expenses was partially offset by reductions in restructuring and turnaround expenses in fiscal 2016 as compared to fiscal 2015.
Net loss decreased 52.7% duringrevenues for fiscal 2017. Without2019 increased 7.0% compared with fiscal 2018 both with and without the effects of foreign exchange, net loss decreased 63.6% for fiscal 2017. The decreaseas revenue increases in net loss was primarily attributable to the decrease in operating loss described abovePlasma and a tax benefit in fiscal 2017 compared to a tax expense in fiscal 2016.
We recorded a net loss in fiscal 2016, as compared to net income in fiscal 2015. The change in net loss is primarily attributable to the decrease in operating income described above,Hospital were partially offset by a decreasedeclines in theour Blood Center business unit.
Operating income tax provision inincreased during fiscal 20162020 as compared with fiscal 2019, primarily due to favorable pricing, product mix and incremental savings from both the 2020 Program and the Complexity Reduction Initiative (the "2018 Program"). The gain recognized on the sale of real estate and other assets associated with the Braintree corporate headquarters also contributed to the increase. Impairment charges associated with the divestiture of our plasma liquid solutions operations to CSL partially offset these increases during fiscal 2015.2020.
Operating income increased during fiscal 2019 as compared with fiscal 2018, primarily due to increased revenue volumes, favorable price and product mix, lower restructuring and turnaround costs and annualized savings as a result of the prior year restructuring initiatives. This increase was partially offset by asset impairments, accelerated depreciation related to PCS2® devices, higher freight, fuel and carrier fees and increased investments within our Plasma and Hospital business units.
Management's Use of Non-GAAP Measures
Management uses Non-GAAPnon-GAAP financial measures, in addition to financial measures in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)("U.S. GAAP"), to evaluate our operatingmonitor the financial performance of the business, make informed business decisions, establish budgets and forecast future results. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with U.S. GAAP. Constant currency growth, a non-GAAP financial measure, measures the change in salesrevenue between the current and prior year periods using a constant currency conversion rate. We have provided this non-GAAP financial measure because we believe it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented.
RESULTS OF OPERATIONS
Net Revenues by Geography
| | | | Fiscal Year | | Fiscal 2017 versus 2016 | | Fiscal 2016 versus 2015 | Fiscal Year | | Fiscal 2020 versus 2019 | | Fiscal 2019 versus 2018 |
| (In thousands) | 2017 | | 2016 | | 2015 | | % Increase/(decrease) | | Currency impact | | Constant currency growth (1) | | % Increase/(decrease) | | Currency impact | | Constant currency growth (1) | 2020 | | 2019 | | 2018 | | Reported Growth | | Currency impact | | Constant currency growth (1) | | Reported Growth | | Currency impact | | Constant currency growth (1) |
| United States | $ | 522,686 |
| | $ | 519,440 |
| | $ | 494,788 |
| | 0.6 | % | | — | % | | 0.6 | % | | 5.0 | % | | — | % | | 5.0 | % | $ | 646,204 |
| | $ | 606,845 |
| | $ | 548,731 |
| | 6.5 | % | | — | % | | 6.5 | % | | 10.6 | % | | — | % | | 10.6 | % |
| International | 363,430 |
| | 389,392 |
| | 415,585 |
| | (6.7 | )% | | (3.1 | )% | | (3.6 | )% | | (6.3 | )% | | (6.8 | )% | | 0.5 | % | 342,275 |
| | 360,734 |
| | 355,192 |
| | (5.1 | )% | | (1.9 | )% | | (3.2 | )% | | 1.6 | % | | — | % | | 1.6 | % |
| Net revenues | $ | 886,116 |
| | $ | 908,832 |
| | $ | 910,373 |
| | (2.5 | )% | | (1.3 | )% | | (1.2 | )% | | (0.2 | )% | | (3.1 | )% | | 2.9 | % | $ | 988,479 |
| | $ | 967,579 |
| | $ | 903,923 |
| | 2.2 | % | | (0.6 | )% | | 2.8 | % | | 7.0 | % | | — | % | | 7.0 | % |
(1) Constant currency growth, a non-GAAP financial measure, measures the change in sales between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures." | |
(1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures." | | (1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures." |
International Operations and the Impact of Foreign Exchange
Our principal operations are in the United States, Europe, Japan and other parts of Asia. Our products are marketed in approximately 10085 countries around the world through a combination of our direct sales force and independent distributors and agents.
The percentage of revenue generated in our principle operating regions is summarized below: | | | | | | | | Fiscal Year |
| 2017 | | 2016 | | 2015 | 2020 | | 2019 | | 2018 |
| United States | 59.0 | % | | 57.2 | % | | 54.4 | % | 65.4 | % | | 62.7 | % | | 60.7 | % |
| Japan | 9.0 | % | | 9.0 | % | | 9.7 | % | 7.2 | % | | 7.2 | % | | 7.5 | % |
| Europe | 18.7 | % | | 20.7 | % | | 23.7 | % | 15.5 | % | | 17.0 | % | | 18.2 | % |
| Asia | 12.4 | % | | 12.3 | % | | 11.2 | % | 11.1 | % | | 12.3 | % | | 12.7 | % |
| Other | 0.9 | % | | 0.8 | % | | 1.0 | % | 0.8 | % | | 0.8 | % | | 0.9 | % |
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % | | 100.0 | % |
International sales are generally conducted in local currencies, primarily the Japanese Yen, the Euro, the Chinese Yuan and the Australian Dollar. Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen, the Euro and Australian Dollar relative to the U.S. Dollar.
We have placed foreign currency hedges based on estimates of future revenues to reduce the impacts ofmitigate our exposure to foreign currency fluctuations. As compared to fiscal 2016, the effects of foreign exchange resulted in a 1.3% decrease in sales in fiscal 2017. The primary reason is the relative strength of the U.S. Dollar to the Japanese Yen and Euro. We expect this relative strength of the U.S. Dollar to the Euro to continue to negatively impact operating income in fiscal 2018. For fiscal 2016, as compared to fiscal 2015, the effects of foreign exchange accounted for a 3.1% decrease in sales.
Please see section entitled “Foreign“Foreign Exchange” in this discussion for a more complete explanation of how foreign currency affects our business and our strategy for managing this exposure.
Net Revenues by Business Unit
| | | | | Fiscal Year | | Fiscal 2017 versus 2016 | | Fiscal 2016 versus 2015 | | Fiscal Year | | Fiscal 2020 versus 2019 | | Fiscal 2019 versus 2018 |
| (In thousands) | | 2017 | | 2016 | | 2015 | | % Increase/(decrease) | | Currency impact | | Constant currency growth (1) | | % Increase/(decrease) | | Currency impact | | Constant currency growth (1) | | 2020 | | 2019 | | 2018 | | Reported Growth | | Currency impact | | Constant currency growth (1) | | Reported Growth | | Currency impact | | Constant currency growth (1) |
| Plasma | | $ | 410,727 |
| | $ | 381,776 |
| | $ | 352,911 |
| | 7.6% | | (1.0)% | | 8.6% | | 8.2% | | (2.7)% | | 10.9% | | $ | 458,681 |
| | $ | 426,650 |
| | $ | 363,099 |
| | 7.5% | | (0.4)% | | 7.9% | | 17.5% | | —% | | 17.5% |
| Blood Center | | 303,890 |
| | 355,108 |
| | 386,147 |
| | (14.4)% | | (0.9)% | | (13.5)% | | (8.0)% | | (3.2)% | | (4.8)% | | 317,761 |
| | 329,727 |
| | 341,736 |
| | (3.6)% | | (0.7)% | | (2.9)% | | (3.5)% | | (0.1)% | | (3.4)% |
| Cell Processing | | 105,376 |
| | 112,483 |
| | 120,434 |
| | (6.3)% | | (2.5)% | | (3.8)% | | (6.6)% | | (4.4)% | | (2.2)% | |
| Hemostasis Management | | 66,123 |
| | 59,465 |
| | 50,881 |
| | 11.2% | | (2.6)% | | 13.8% | | 16.9% | | (1.8)% | | 18.7% | |
Hospital (2) | | | 193,437 |
| | 192,270 |
| | 179,269 |
| | 0.6% | | (1.4)% | | 2.0% | | 7.3% | | 0.2% | | 7.1% |
| Service | | | 18,600 |
| | 18,932 |
| | 19,819 |
| | (1.8)% | | (1.4)% | | (0.4)% | | (4.5)% | | (1.3)% | | (3.2)% |
| Net revenues | | $ | 886,116 |
| | $ | 908,832 |
| | $ | 910,373 |
| | (2.5)% | | (1.3)% | | (1.2)% | | (0.2)% | | (3.1)% | | 2.9% | | $ | 988,479 |
| | $ | 967,579 |
| | $ | 903,923 |
| | 2.2% | | (0.6)% | | 2.8% | | 7.0% | | —% | | 7.0% |
(1) Constant currency growth, a non-GAAP financial measure, measures the change in sales between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures." | |
(1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures." | | (1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See "Management's Use of Non-GAAP Measures." |
(2) Hospital revenue includes Hemostasis Management revenue of $95.7 million, $85.7 million and $73.7 million for fiscal years 2020, 2019 and 2018, respectively. Hemostasis Management revenue increased 11.7% during fiscal 2020 as compared with fiscal 2019. Without the effect of foreign exchange, Hemostasis Management revenue increased 13.5% during fiscal 2020 as compared with fiscal 2019. Hemostasis Management revenue increased 16.2% during fiscal 2019 as compared with fiscal 2018. Without the effect of foreign exchange, Hemostasis Management revenue increased 16.3% during fiscal 2019 as compared with fiscal 2018. | | (2) Hospital revenue includes Hemostasis Management revenue of $95.7 million, $85.7 million and $73.7 million for fiscal years 2020, 2019 and 2018, respectively. Hemostasis Management revenue increased 11.7% during fiscal 2020 as compared with fiscal 2019. Without the effect of foreign exchange, Hemostasis Management revenue increased 13.5% during fiscal 2020 as compared with fiscal 2019. Hemostasis Management revenue increased 16.2% during fiscal 2019 as compared with fiscal 2018. Without the effect of foreign exchange, Hemostasis Management revenue increased 16.3% during fiscal 2019 as compared with fiscal 2018. |
Plasma
Plasma revenue increased 7.6%7.5% during fiscal 20172020 as compared towith fiscal 2016.2019. Without the effect of foreign exchange, Plasma revenue increased 8.6%7.9% during fiscal 2017. The2020. This revenue growth was primarily driven by an increase in salesvolume of Plasmaplasma disposables during fiscal 2017. This growth was the result ofdue to continued strong performance in the U.S., favorable NexSys PCS pricing and includes the impact of increasedincreases in sales of Plasmasoftware. This increase was partially offset by declines in plasma liquid solutions which contributed approximately $16 millionduring fiscal 2020 due to certain strategic exits within our plasma liquid solutions business, including the divestiture of our Union, South Carolina facility during fiscal 2020. We expect continued declines in our plasma liquid solutions revenue in connection with these strategic exits. However, we will continue to supply liquid solutions to our customers on an as needed basis using contract manufacturers.
Due to the growth.timing of COVID-19 relative to our fiscal year end, our Plasma business unit experienced limited effects from the pandemic in fiscal 2020. We anticipate higher impacts from COVID-19 on our fiscal 2021 Plasma results as factors like stay-at-home orders, transportation restrictions and donor safety concerns, combined with reduced collection capacity due to shutdowns and social distancing requirements, will continue to impact our revenue throughout the COVID-19 pandemic and recovery. We believe these challenges will begin to subside when we see some easing of these containment measures. Despite the current challenges, we continue to believe that the Plasma business unit has growth potential as recessionary pressures have historically contributed to greater donor availability and growth in the long-term global demand for plasma-derived pharmaceuticals is expected to continue.
Plasma revenue increased 8.2%17.5% during fiscal 20162019 as compared towith fiscal 2015. Without the effect of2018. There was no foreign exchange impact on Plasma revenue increased 10.9% during fiscal 2016. The2019. This revenue growth was primarily driven by an increase in salesvolume of Plasmaplasma disposables during fiscal 2017 due to the implementation of a liquid solutions contract with a large U.S. collector customer andcontinued strong performance in Japanthe U.S. and other partsfavorable NexSys PCS pricing during fiscal 2019. Increases in sales of Asia. This growth was partially offset by reductions related to market conditions in Russia.
We are experiencing delays in the expansion of our liquid solutions production capacity that have required us and our customersalso contributed to obtain alternative sources of supply. We expect purchases from these alternate sources to continue until we can complete the expansion and produce solutions at the necessary level. While these purchases continue, we will see a reduction in revenue from our liquid solutions business and may see increased costs to serve our customers.growth during fiscal 2019.
Blood Center
Platelet
PlateletBlood Center revenue decreased by 17.4%3.6% during fiscal 20172020 as compared towith fiscal 2016.2019. Without the effect of foreign exchange, plateletBlood Center revenue decreased 16.4%2.9% during fiscal 2017.2020. This decrease was primarily driven by declines in whole blood disposables and software revenue. Apheresis also contributed to the overall decline as certain customers converted to alternative sources of supply. The decrease, excludingexpected impact of the loss of this apheresis business is an incremental revenue decline of $17 million in fiscal 2021.
Our Blood Center business unit experienced limited effects from the COVID-19 pandemic in fiscal 2020 due to the timing of the pandemic relative to our fiscal year end. During fiscal 2020, the impact of COVID-19 on the Blood Center business unit was limited as an initial decline in donations was followed by a rapid increase in demand, as blood collectors sought to replenish their blood product inventories and safety stocks. During fiscal 2021, there may be a greater impact on Blood Center revenue caused by an imbalance in the supply and demand for blood products. However, we expect that the demand for blood will normalize with procedure volumes.
Blood Center revenue decreased 3.5% during fiscal 2019 as compared with fiscal 2018.Without the effect of foreign exchange, Blood Center revenue decreased 3.4% during fiscal 2019. This decrease was primarily driven by lower whole blood revenue due to continued market declines, the resultstrategic exit of certain contracts, products and markets, including unfavorable order timing associated with these exits, as well as product recalls. Declines in software revenue in the U.S and platelet revenue driven by the continued market shift toward double dose collection techniques in Japan. Order timing in Asia and the Middle EastJapan also contributed to the decline.decrease.
PlateletHospital
Hospital revenue decreased 6.1%increased 0.6% during fiscal 20162020 as compared towith fiscal 2015. Without the effects of foreign exchange, platelet revenue decreased 0.8% during fiscal 2016. The decrease in platelet revenue during fiscal 2016, excluding the impact of foreign exchange, was primarily the result of declines in sales in Russia and Latin America. These declines were partially offset by growth in China, India, the Middle East, and other parts of Asia.
Red Cell and Whole Blood
Red cell revenue decreased 22.7% during fiscal 2017 compared to fiscal 2016.2019. Without the effect of foreign exchange, red cellHospital revenue decreased 22.1%increased 2.0% during fiscal 2017. The decrease was primarily driven by price reductions in our principle red cell market in the U.S., which was largely attributable to the contract we entered into with the American Red Cross during the second quarter of fiscal 2016, and the selection of competitive technologies by Blood Center GPOs, as discussed above. We continue to expect revenue and operating income to decline as a result of these factors.
Red cell revenue decreased 8.1% during fiscal 2016 compared to fiscal 2015. Without the effects of foreign exchange, red cell revenue decreased 7.0% during fiscal 2016. The decrease was driven by price reductions in our principal U.S. red cell market. During fiscal 2016, U.S. blood collection groups pursued contractual arrangements for apheresis red cell collections with the objective of standardizing their collection technology and securing price reductions. These arrangements, most notably the contract with the American Red Cross as discussed above, began to negatively affect red cell revenues and gross margins during the second quarter of fiscal 2016.
Whole blood revenue decreased 9.9% during fiscal 2017 compared to fiscal 2016. Without the effect of foreign exchange, whole blood revenue decreased 8.9% during fiscal 2017. While whole blood revenue decreased as compared to the prior year periods, we began to see a moderation in the rate of decline of this market during fiscal 2017. We expect to see continued declines in transfusion rates and the market to remain price-focused and highly competitive for the foreseeable future.
Whole blood revenue decreased 10.7% during fiscal 2016 compared to fiscal 2015. Without the effect of foreign exchange, whole blood revenue decreased 8.4% during fiscal 2016. Whole blood disposables revenue for fiscal 2016 decreased primarily due to a declining U.S. whole blood market. The anniversary of the loss of the American Red Cross whole blood business occurred at the end of the first quarter of fiscal 2016, however, we continued to be negatively impacted by the declining market.
Software, Equipment and Other
Blood Center software, equipment and other revenue decreased 10.6% during fiscal 2017 compared to fiscal 2016. Without the effect of foreign exchange, software, equipment and other revenue decreased 10.4% during fiscal 2017. These decreases were largely attributable to the expiration and non-renewal of a U.S. government software contract.
Blood Center software, equipment and other revenue decreased 6.1% during fiscal 2016 compared to fiscal 2015. Without the effect of foreign exchange, software, equipment and other revenue decreased 3.8% during fiscal 2016. The decrease in revenue was primarily due to a rebate assessed by the Italian government and declines in Russia and Japan. The decline in Russia was due to the Russian market suspending all equipment purchasing in fiscal 2016 and the decline in Japan was a result of lower platelet equipment sales. These declines were partially offset by increases in red cell equipment revenue in the U.S. and the finalization of services under a contract with the U.S. Department of Defense in fiscal 2016.
Cell Processing
Cell Salvage
Cell Salvage revenues consist primarily of the Cell Saver and OrthoPAT products. Revenues from OrthoPAT decreased 18.3% during fiscal 2017 compared to fiscal 2016. Without the effect of foreign exchange, OrthoPAT disposables revenue decreased 15.6% during fiscal 2017. Better blood management, particularly the adoption of tranexamic acid to treat and prevent orthopedic post-operative blood loss, continue to lessen hospital use of OrthoPAT. Cell Saver revenue declined 6.3% during fiscal 2017 compared to fiscal 2016. Without the effect of foreign exchange, Cell Saver revenue decreased 3.7% during fiscal 2017. 2020.This decrease was due to declines in Europe, mainly Russia, partially offset by growth in China.
Revenues from OrthoPAT decreased 31.9% during fiscal 2016 compared to fiscal 2015. Without the effect of foreign exchange, OrthoPAT disposables revenue decreased 28.7% during fiscal 2016 as better blood management has reduced orthopedic blood loss and demand for OrthoPAT disposables. Certain trends in blood management, particularly the adoption of tranexamic acid to treat and prevent orthopedic post-operative blood loss, have continued to reduce hospital use of OrthoPAT disposables. Cell Saver revenue declined 4.2% during fiscal 2016 compared to fiscal 2015. Without the effect of foreign exchange, Cell Saver revenue increased 1.0% during fiscal 2016. The increase in Cell Saver revenue was primarily attributable to modest growth in Japan and in the emerging markets in Russia and China.
Transfusion Management
Cell Processing software revenue includes BloodTrack®, SafeTrace Tx®, and other hospital software. Revenues from Cell Processing software decreased 3.3% during fiscal 2017 compared to fiscal 2016. Without the effect of foreign exchange, Cell Processing software revenue decreased by 1.2% during fiscal 2017. Revenues were similar in fiscal 2017 and 2016 except for the recognition of previously deferred revenue associated with one of our largest customers in fiscal 2016.
Cell Processing software revenue increased 5.8% during fiscal 2016 compared to fiscal 2015. Without the effect of foreign exchange, Cell Processing software revenue increased by 10.5% during fiscal 2016, the growth in software revenues in fiscal 2016 was driven by the recognition of previously deferred revenue associated with one of our largest customers, BloodTrack growth in Europe, and increased software support service revenue. This growth was partially offset by declines in BloodTrack revenue in the U.S. and lower EdgeSuite system installs in Europe.
Hemostasis Management
Revenue from our Hemostasis Management products increased 11.2% during fiscal 2017 compared to fiscal 2016. Without the effect of foreign exchange, Hemostasis Management revenues increased 13.8% during fiscal 2017. The revenue increase was primarily attributable to the growth of disposables associated with TEG® diagnostic systems, principally in the U.S. In May 2019, we received FDA clearance for the use of TEG 6s in adult trauma settings. In January 2020, we purchased the technology underlying the TEG 6s system which will allow us to pursue site of care opportunities beyond the hospital setting. In addition, on April 1, 2020, we acquired enicor GmbH, the manufacturer of ClotPro®, a new generation whole blood coagulation testing system which further augmented our portfolio of diagnostic devices.
The revenue increase during fiscal 2020 was partially offset by declines due to the discontinuance of sales of our OrthoPAT products effective March 31, 2019 and the impact of COVID-19, primarily in China, due to declines of elective surgeries, a reduction of trauma cases, restricted vendor access at customer sites and the reallocation of hospital resources to critical intensive care needs. We expect a continued negative impact on our Hospital business unit throughout the COVID-19 pandemic and recovery. However, we believe the end-market for our product portfolio is inherently strong and demand for our hospital products will normalize as hospitals address the backlog of elective procedures coupled with the return of non-elective procedures to pre-pandemic levels.
Hospital revenue increased 7.3% during fiscal 2019 as compared with fiscal 2018. Without the effect of foreign exchange, Hospital revenue increased 7.1% during fiscal 2019.This increase was primarily attributable to the growth of disposables associated with TEG® diagnostic systems, principally in the U.S. and China. The TEG® 6s and TEG® Manager are approved for the same set of indications as the TEG® 5000 in Europe, Australia and Japan. In the U.S., TEG® 6s is approved for limited indications, including cardiovascular surgery and cardiology. The release of TEG 6s has significantly contributed to the overall growth in Hemostasis Management in the U.S. and Europe in fiscal 2017. We are pursuing a broader set of indications for the TEG® 6s in the U.S., including trauma.
Revenue from our Hemostasis Management products increased 16.9%increase during fiscal 2016 compared to fiscal 2015. Without2019 was partially offset by the effect of foreign exchange, Hemostasis Management revenuescontinued decline in OrthoPAT® revenue.
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 | | % Increase/(Decrease)
20 vs. 19 | | % Increase/(Decrease)
19 vs. 18 |
| Gross profit | $ | 484,513 |
| | $ | 417,536 |
| | $ | 411,908 |
| | 16.0 | % | | 1.4 | % |
| % of net revenues | 49.0 | % | | 43.2 | % | | 45.6 | % | | |
| | |
|
Gross profit increased 18.7%16.0% during fiscal 2016. The revenue increase is due to continued adoption of our hemostasis system, principally in the U.S. and China.
|
| | | | | | | | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 | | % Increase/(Decrease)
17 vs. 16 | | % Increase/(Decrease)
16 vs. 15 |
| Gross profit | $ | 378,494 |
| | $ | 405,914 |
| | $ | 434,418 |
| | (6.8 | )% | | (6.6 | )% |
| % of net revenues | 42.7 | % | | 44.7 | % | | 47.7 | % | | |
| | |
|
Our gross profit decreased 6.8% during2020 as compared with fiscal 2017.2019. Without the effects of foreign exchange, gross profit decreased 4.3%increased 17.1% during fiscal 2017. Our2020. The increase in the gross profit margin during fiscal 2020 was primarily due to favorable pricing driven by the annualization of NexSys PCS device conversions, incremental savings from both the 2020 Program and the complexity reduction initiative, product mix, and the absence of impairment charges that were incurred in the prior year.
Gross profit increased 1.4% during fiscal 2019 as compared with fiscal 2018. Without the effects of foreign exchange, gross profit increased 0.5% during fiscal 2019. Gross profit margin percentage decreased by 200240 basis points for fiscal 20172019 as compared towith fiscal 2016.2018. The decrease in the gross profit margin during fiscal 20172019 was primarily due to inventory reservesincreased depreciation expense primarily due to Plasma devices and impairment charges recorded during fiscal 2017, losses from Plasma liquid solutions,asset impairments. This decrease was partially offset by favorable price and price reductions in our Blood Center business. The negative impactvolume mix as well as savings as a result of foreign exchange and the 53rd week in the prior year period as well as the effect of the Whole Blood filter recall also contributed to the overall decline. These decreases were partially offset by cost savings initiatives and a reduction in restructuring and turnaround costs. Gross profit margin continues to be impacted by the inefficiency of underutilized productive capacity.initiative.
As discussed above, we are experiencing delays in the expansion of our liquid solutions production capacity that have required us and our customers to obtain alternative sources of supply. We expect purchases from these alternate sources to continue until we can complete the expansion and produce solutions at the necessary level. While these purchases continue, we will continue to incur additional costs, including potential penalties resulting from contractual obligations to our customers.
Our gross profit decreased 6.6% during fiscal 2016. Without the effects of foreign exchange, gross profit decreased 2.0% during fiscal 2016. Our gross profit margin percentage decreased by 300 basis points for fiscal 2016 as compared to fiscal 2015. The decrease in gross profit margin during fiscal 2016 was primarily due to the effect of foreign exchange, inventory related charges of $9.4 million and impairment of assets of $8.8 million. Product mix, including Plasma disposables, price reductions in our Blood Center business, and the amortization of software development costs in the early stages of product launches also negatively impacted gross profit. These declines were partially offset by cost savings from productivity programs.
| | | | | | | | | | | | | Fiscal Year | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 | | % Increase/(Decrease)
17 vs. 16 | | % Increase/(Decrease)
16 vs. 15 | 2020 | | 2019 | | 2018 | | % Increase/(Decrease)
20 vs. 19 | | % Increase/(Decrease)
19 vs. 18 |
| Research and development | $ | 37,556 |
| | $ | 44,965 |
| | $ | 54,187 |
| | (16.5 | )% | | (17.0 | )% | $ | 30,883 |
| | $ | 35,714 |
| | $ | 39,228 |
| | (13.5 | )% | | (9.0 | )% |
| % of net revenues | 4.2 | % | | 4.9 | % | | 6.0 | % | | |
| | |
| 3.1 | % | | 3.7 | % | | 4.3 | % | | |
| | |
|
| Selling, general and administrative | $ | 301,726 |
| | $ | 317,223 |
| | $ | 337,168 |
| | (4.9 | )% | | (5.9 | )% | $ | 299,680 |
| | $ | 298,277 |
| | $ | 316,523 |
| | 0.5 | % | | (5.8 | )% |
| % of net revenues | 34.1 | % | | 34.9 | % | | 37.0 | % | | |
| | |
| 30.3 | % | | 30.8 | % | | 35.0 | % | | |
| | |
|
| Impairment of assets | $ | 58,593 |
| | $ | 92,395 |
| | $ | 5,441 |
| | (36.6 | )% | | n/m |
| $ | 50,599 |
| | $ | — |
| | $ | — |
| | 100.0 | % | | — | % |
| % of net revenues | 6.6 | % | | 10.2 | % | | 0.6 | % | | | | | 5.1 | % | | — | % | | — | % | | | | |
| Contingent consideration income | $ | — |
| | $ | (4,727 | ) | | $ | (2,918 | ) | | (100.0 | )% | | 62.0 | % | |
| % of net revenues | — | % | | (0.5 | )% | | (0.3 | )% | | | | | |
| Total operating expenses | $ | 397,875 |
| | $ | 449,856 |
| | $ | 393,878 |
| | (11.6 | )% | | 14.2 | % | $ | 381,162 |
| | $ | 333,991 |
| | $ | 355,751 |
| | 14.1 | % | | (6.1 | )% |
| % of net revenues | 44.9 | % | | 49.5 | % | | 43.3 | % | | |
| | |
| 38.6 | % | | 34.5 | % | | 39.4 | % | | |
| | |
|
Research and Development
Research and development expenses decreased 16.5%13.5% during fiscal 2017.2020 as compared with fiscal 2019. Without the effects of foreign exchange, research and development expenses decreased 16.6%13.4% during fiscal 2017.2020. The decrease in fiscal 20172020 was primarily driven by reduced spending on several projects in our Blood Center business unit to better align with our long-term product plans and global strategic review. Changes in the timing of spending from fiscal 2017 to fiscal 2018 also contributed to the decline. This decrease was partially offset by increased restructuring and turnaround costs. We will continue to invest resourcesinvestments made in clinical programs in the prior year period in order to support FDA clearance for our Hemostasis Management business unit, most notably a global registry study for ourthe use of TEG® platform. 6s in adult trauma settings, which was received in May 2019.
Research and development expenses decreased 17.0%9.0% during fiscal 2016.2019 as compared with fiscal 2018. Without the effecteffects of foreign exchange, research and development expenses decreased 15.7%8.4% during fiscal 2016.2019. The decrease in fiscal 20162019 was primarily the result of a reduction indriven by lower restructuring and turnaround costs of $10.9 million, partially offset by increased activities for several projects designed to support our long-term product plans and to increasecontinued investment of resources in clinical programs, primarily in our competitiveness.Hospital business unit, as well as continued investment in our Plasma business unit.
Selling, General and Administrative
DuringSelling, general and administrative expenses increased 0.5% during fiscal 2017,2020 as compared with fiscal 2019. Without the effects of foreign exchange, selling, general and administrative expenses decreased 4.9% with and without the effects of foreign exchange.increased 1.4% during fiscal 2020. The decreaseincrease in fiscal 20172020 was primarily the result of cost reduction initiatives and a reductiondue to an increase in investments, share-based compensation expense, restructuring and turnaround costs and PCS2 related costs. This decreaseincrease was partially offset by an increase in variable compensation.the gain recognized on the sale of assets associated with the Braintree corporate headquarters and incremental savings from both the 2020 Program and the 2018 Program.
During fiscal 2016, selling,
Selling, general and administrative expenses decreased 5.9%.5.8% during fiscal 2019 as compared with fiscal 2018. Without the effects of foreign exchange, selling, general and administrative expenses decreased 2.3%5.6% during fiscal 2016.2019. The decrease in fiscal 20162019 was primarily the result of reductions inlower restructuring and turnaround costs of $12.8 million and decreased variable compensation.annualized savings from restructuring initiatives. This decrease was partially offset by increased spending in sales and marketing activities related toinvestments within our Plasma and increased spendingHospital business units, higher freight, fuel and carrier fees and an increase in variable compensation and share-based compensation expense.
Impairment of Assets
We recognized impairment charges of $50.6 million during fiscal 2020 primarily as a result of the extra week in fiscal 2016.
Impairmenttransfer to CSL of Assets
We recorded asset impairmentssubstantially all of $58.6 million in fiscal 2017 primarily consisting of $57.0 million of goodwill impairment, $0.8 million of intangible asset impairments and $0.8 million of property, plant and equipment impairments.
We recorded asset impairments of $92.4 million in fiscal 2016 primarily consisting of $66.3 million of goodwill impairment, $19.2 million of intangible asset impairments and $6.9 million of property, plant and equipment impairments
We recorded asset impairments of $5.4 million in fiscal 2015 associated with exit activitiesour tangible assets related to prior year manufacturingthe manufacture of anti-coagulant and integration initiatives.saline at our Union, South Carolina facility. Refer to Note 5, Divestiture, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for information pertaining to this agreement.
Interest and Other Expense, Net
Other expense, net, decreased 14.6%
Interest and other expenses increased 63.4% during fiscal 20172020 as compared towith fiscal 20162019. Without the effects of foreign exchange, interest and other expenses increased 1.1%68.3% during fiscal 2016 as compared2020. The increase is primarily driven by a reduction in capitalized interest, realized losses on interest rate swaps due to fiscal 2015. Interestdeclining rates, and an increase in interest expense from borrowings under our $350.0 million term loan borrowings constitutes the majority of expense reported in all periods.and $350.0 million revolving loan. The effective interest rate on total debt outstanding for the fiscal year ended April 1, 2017March 28, 2020 was approximately 2.25%2.9%.
Interest expense increased $4.9 million during fiscal 2019 as compared with fiscal 2018 due to an increase in the Term Loan balance as well as an increase in the effective interest rate.
|
| | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | % Increase/(Decrease)
17 vs. 16 | | % Increase/(Decrease)
16 vs. 15 |
| Reported income tax rate | 4.4 | % | | (4.0 | )% | | 45.8 | % | | 8.4 | % | | (49.8 | )% |
|
| | | | | | | | | | | | | | |
| | Fiscal Year | | | | |
| | 2020 | | 2019 | | 2018 | | % Increase/(Decrease)
20 vs. 19 | | % Increase/(Decrease)
19 vs. 18 |
| Reported income tax rate | 12.2 | % | | 25.3 | % | | 23.6 | % | | (13.1 | )% | | 1.7 | % |
Reported Tax Rate
We conduct business globally and as a result report our results of operations in a number of foreign jurisdictions andin addition to the United States. Historically, ourOur reported tax rate was lower thanis impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which we operate have tax rates that differ from the U.S. statutory tax rate due primarilyrate.
We have assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to our jurisdictional mixcarry-back net operating losses, the existence of earnings asreversing temporary differences, the income earned in our foreign subsidiaries is generally taxed at a loweravailability of tax rate. In fiscal 2015,planning strategies and available sources of future taxable income. As of March 28, 2020, we establishedmaintain a valuation allowance against ourcertain U.S. deferred tax assets that are not more-likely-than-not realizable due to cumulative losses in the U.S. In fiscal 2017, we establishedand have a full valuation allowance against our net deferred tax assets in four additional jurisdictions. These jurisdictions are located in the countries of Switzerland, Puerto Rico, Luxembourg, and France. The decision to establish a valuation allowance in these additional jurisdictions was largely based upon our worldwide cumulative loss position, resulting from significant impairment and restructuring charges incurred in fiscal 2017 and 2016.We continue to maintain a valuation allowance against our net U.S. deferred tax assets and net deferred tax assets of certain foreign subsidiaries.
For the year ended April 1, 2017,March 28, 2020, we recorded an income tax benefitprovision of $1.2$10.6 million on our worldwide pre-tax lossincome of $27.5$87.2 million, resulting in a reported tax rate of 4.4%12.2%. Our currenteffective tax rate for the year ended March 28, 2020 is higher than our tax rate of (4.0)% and lower than our effective tax raterates of 45.8%25.3% and 23.6% for the years ended April 2, 2016March 30, 2019 and March 28, 2015,31, 2018, respectively. Our increasedecrease in tax rate for fiscal 2017,2020, as compared with fiscal 2019, is primarily the result of tax benefits associated with windfall stock compensation deductions and favorable changes in the jurisdictional mix of earnings partially offset by the impact of changes in valuation allowance, tax reserves and increased nondeductible executive compensation. The rate was higher than the fiscal 2018 tax rate due to the impact of U.S. tax reform provisions that became effective in fiscal 2019, including global intangible low taxed income and nondeductible executive compensation, partially offset by windfall tax benefits on stock compensation deductions.
Income Tax Acts
Beginning in fiscal 2019, we incorporated the certain provisions of the Tax Cuts and Jobs Act (the "Act") in the calculation of the tax provision and effective tax rate, including the provisions related to global intangible low taxed income (“GILTI”), foreign derived intangible income (“FDII”), base erosion anti abuse Tax (“BEAT”), as well as other provisions which limit tax deductibility of expenses. For fiscal 2020, the GILTI provisions have the most significant impact. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. The ability to
compared to fiscal 2016, is primarilybenefit from a deduction and foreign tax credits against a portion of the GILTI income may be limited under the GILTI rules as a result of the establishmentutilization of valuation allowancesnet operating losses, foreign sourced income, and other potential limitations within the foreign tax credit calculation.
Interpretive guidance on the accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in foreign jurisdictionsfuture years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has made the accounting policy election to recognize GILTI as a period expense.
The Coronavirus Aid, Relief and current year goodwill impairments for which thereEconomic Security Act (the "CARES Act") was noenacted in the United States on March 27, 2020. The CARES Act is an emergency economic stimulus package that includes spending and tax basis. The fiscal 2015 rate was significantly larger thanbreaks to strengthen the fiscal 2016United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides extensive tax rate, as we establishedchanges in response to the COVID-19 pandemic, the provisions are not expected to have a valuation allowance againstsignificant impact on the majority of our U.S. deferred tax assets.Company’s financial results.
Liquidity and Capital Resources
The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:
| | | (In thousands) | April 1,
2017 | | April 2,
2016 | March 28,
2020 | | March 30,
2019 |
| Cash and cash equivalents | $ | 139,564 |
| | $ | 115,123 |
| $ | 137,311 |
| | $ | 169,351 |
|
| Working capital | $ | 298,850 |
| | $ | 302,535 |
| $ | 328,817 |
| | $ | 340,362 |
|
| Current ratio | 2.4 |
| | 2.6 |
| 2.2 |
| | 2.4 |
|
Net debt position(1) | $ | (175,083 | ) | | $ | (292,877 | ) | $ | (245,182 | ) | | $ | (180,769 | ) |
| Days sales outstanding (DSO) | 60 |
| | 58 |
| 62 |
| | 67 |
|
| Disposables finished goods inventory turnover | 4.2 |
| | 4.6 |
| |
| Inventory turnover | | 1.7 |
| | 2.5 |
|
(1)Net debt position is the sum of cash and cash equivalents less total debt. | (1)Net debt position is the sum of cash and cash equivalents less total debt. | (1)Net debt position is the sum of cash and cash equivalents less total debt. |
In July 2019, our Board of Directors approved the 2020 Program. We estimate that we 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 2017, we launched a multi-year restructuring initiative designed to reposition our organization and improve our cost structure.2023. During the fiscal 2017,year ended March 28, 2020, we incurred $28.7$11.9 million of restructuring and turnaround chargescosts under the initial phase of this initiative. As of April 1, 2017, this initial phase was substantially complete. We continue to assess non-core and underperforming assets and evaluate opportunities to improve our cost structure as part of our turnaround and expect to incur additional charges and benefits during fiscal 2018 and beyond.program.
As of April 1, 2017, we had $139.6 million in cash and cash equivalents, substantially held in the U.S. or in countries from which it can be freely repatriated to the U.S. We entered into a credit agreement ("Credit Agreement") with certain lenders (together, “Lenders”) which provided for a $475.0 million term loan ("Term Loan") and a $100.0 million revolving loan ("Revolving Credit Facility" and together with the Term Loan, the "Credit Facilities"). The Credit Facilities matures on July 1, 2019. At April 1, 2017, $315.4 million was outstanding under the Term Loan and no amount was outstanding on the Revolving Credit Facility. We also have $46.9 million of uncommitted operating lines of credit to fund our global operations and there are no outstanding borrowings as of April 1, 2017.
The Credit Facilities contains covenants that limit the use of cash and require us to maintain certain financial ratios. Any failure to comply with the financial or operating covenants of the Credit Facilities would prevent us from borrowing under the Revolving Credit Facility and would constitute a default, which could result in, among other things, the amounts outstanding including all accrued interest and unpaid fees, becoming immediately due and payable. As of April 1, 2017, we were in compliance with all covenants.
Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations, our revolving credit line and proceeds from employee stock option exercises. Although cash flow from operations could be negatively impacted by continued declines in our Blood Center business, weWe believe these sources are sufficient to fund our cash requirements over at least the next twelve months. Our expected cash outlays relate primarily to investments, restructuring and turnaround initiatives, capital expenditures, including theinvestments in our manufacturing facilities and production of NexSys PCS® 300, devices, share repurchases and cash payments under the loan agreement.
As of March 28, 2020, we had $137.3 million in cash and cash equivalents, the majority of which is held in the U.S. or in countries from which it can be freely repatriated to the U.S. On June 15, 2018, we entered into a five-year credit agreement restructuringwhich provided for a $350.0 million term loan and turnaround initiativesa $350.0 million revolving loan. Interest on the term loan and revolving loan is established using LIBOR plus 1.13% - 1.75%, depending on our leverage ratio. Under the Credit Facilities, we are required to maintain certain leverage and interest coverage ratios specified in the credit agreement as well as other acquisitions. Thesecustomary non-financial affirmative and negative covenants, all of which we were in compliance with as of March 28, 2020. As of March 28, 2020, $323.8 million was outstanding under the Term Loan and $60.0 million was outstanding on the Revolving Credit Facility, both, with an effective interest rate of 2.9%. We also had $25.6 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of March 28, 2020. During fiscal 2020, we paid $13.1 million in scheduled principal repayments for the Term Loan. We have scheduled principal repayments of $323.8 million required through fiscal 2024. We were in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as of March 28, 2020.
We continue to manage the ongoing impacts of the COVID-19 pandemic. While the duration and impacts of the pandemic remain uncertain, we are described in more detail in Contractual Obligations below.focused on preserving cash and have implemented a number of actions to help us protect cash flow and allocate capital such as reducing non-essential spending, delaying certain compensation-related items, inventory
management, reviewing capital projects and the associated costs, and restricting travel. In April 2020, we borrowed an additional $150.0 million under the Revolving Credit Facility, increasing our cash on hand to approximately $300 million. Our leverage ratio remains low subsequent to the incremental $150.0 million of borrowings, and we have an additional $131.7 million of undrawn capacity remaining under the revolving credit line.
Cash Flow Overview
| | | | | | | | | | | | | Fiscal Year | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 | | Increase/(Decrease)
17 vs. 16 | | Increase/(Decrease)
16 vs. 15 | 2020 | | 2019 | | 2018 | | % Increase/(Decrease)
20 vs. 19 | | % Increase/(Decrease)
19 vs. 18 |
| Net cash provided by (used in): | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
|
| Operating activities | $ | 159,738 |
| | $ | 121,865 |
| | $ | 127,178 |
| | $ | 37,873 |
| | $ | (5,313 | ) | $ | 158,217 |
| | $ | 159,281 |
| | $ | 220,350 |
| | $ | (1,064 | ) | | $ | (61,069 | ) |
| Investing activities | (73,313 | ) | | (104,768 | ) | | (121,768 | ) | | (31,455 | ) | | (17,000 | ) | (57,176 | ) | | (116,148 | ) | | (63,041 | ) | | (58,972 | ) | | 53,107 |
|
| Financing activities | (60,413 | ) | | (62,624 | ) | | (33,160 | ) | | (2,211 | ) | | 29,464 |
| (131,208 | ) | | (50,628 | ) | | (120,643 | ) | | 80,580 |
| | (70,015 | ) |
Effect of exchange rate changes on cash and cash equivalents(1) | (1,571 | ) | | (12 | ) | | (4,057 | ) | | (1,559 | ) | | 4,045 |
| (1,873 | ) | | (3,323 | ) | | 3,939 |
| | 1,450 |
| | (7,262 | ) |
| Net increase (decrease) in cash and cash equivalents | $ | 24,441 |
| | $ | (45,539 | ) | | $ | (31,807 | ) | | | | | |
| Net (decrease) increase in cash and cash equivalents | | $ | (32,040 | ) | | $ | (10,818 | ) | | $ | 40,605 |
| | | | |
(1)The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dollars. In accordance with U.S. GAAP, we have eliminated the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents. | (1)The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dollars. In accordance with U.S. GAAP, we have eliminated the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents. | (1)The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dollars. In accordance with U.S. GAAP, we have eliminated the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents. |
Operating Activities
Net cash provided by operating activities was $159.7$158.2 million during fiscal 2017, an increase2020, a decrease of $37.9$1.1 million as compared towith fiscal 2016. Cash provided by operating activities increased primarily due to an increase in accounts payable and accrued expenses which was driven largely by an increase in variable compensation and an accrual recorded in fiscal 2017 for the product recall claims. The increase in cash provided by operating activities was partially offset by an increase in other current assets including a receivable related to stock options exercised near the period end date and an insurance receivable associated with the product recall.
Net cash provided by operating activities was $121.9 million during fiscal 2016, a decrease of $5.3 million as compared to fiscal 2015. Cash provided by operating activities decreased primarily due to a working capital outflow. The working capital outflow was primarily attributable to a decrease in accounts payable and accrued expenses, driven largely by a reduction in restructuring reserves, accrued bonuses, accruals related to the construction of facilities and licensing agreements, and a decrease in accrued payroll due to the 53rd week. Also contributing to the reduction in cash provided by operating activities was an increase in accounts receivable from fiscal 2015 to fiscal 2016.2019. The decrease in cash provided by operating activities was primarily due to a working capital outflow driven by an increase in inventory build to support the launch of the NexSys PCS devices and decreases in accounts payable and accrued payroll. Net income, as adjusted for depreciation, amortization and other non-cash charges and a decrease in accounts receivable due to the timing of collections partially offset the decrease in operating activities.
Net cash provided by lower inventory driven by our global strategic review, which included a global inventory reduction initiativeoperating activities was $159.3 million during fiscal 2016.2019, a decrease of $61.1 million as compared with fiscal 2018. The decrease in cash provided by operating activities was primarily due to a working capital outflow driven largely by an increase accounts receivable due to higher revenue growth and collections timing, an increase in inventory and prepaid expenses to support the launch of the NexSys PCS device and decreases in accrued payroll due to severance payments associated with the 2018 Program. Net income, as adjusted for depreciation, amortization and other non-cash charges, partially offset the decrease in operating activities.
Investing Activities
Net cash used in investing activities was $73.3$57.2 million during fiscal 2017,2020, a decrease of $31.5$59.0 million as compared towith fiscal 2016.2019. The decrease in cash used in investing activities was largelyprimarily the result of a reductiondecrease in capital expenditures of $26.3 million in fiscal 2017 as compared to fiscal 2016 primarilythe current year period due to the completion of certainNexSys PCS launch and manufacturing initiativescapacity expansion projects in our Plasma business unit in the prior year period. Proceeds received related to the divestiture of our plasma liquid solutions operations and decreased spendingsale of real estate and other assets associated with the Braintree corporate headquarters in capitalized research and development projects. Acquisition costs of $3.0 million incurred in fiscal 2016the current period also contributed to the decrease.decrease in cash used in investing activities. This decrease was partially offset by the acquisition of the technology underlying the TEG 6s system during fiscal 2020.
Net cash used in investing activities was $104.8$116.1 million during fiscal 2016, a decrease2019, an increase of $17.0$53.1 million as compared towith fiscal 2015.2018. The decreaseincrease in cash used in investing activities was primarily the result of a reductionan increase in capital expenditures in fiscal 20162019 due to the NexSys PCS launch and manufacturing capacity expansion projects in our Plasma business unit and proceeds received related to manufacturing operations under constructionthe divestiture of our SEBRA product line in Malaysia and Tijuana, which have been substantially completed. During fiscal 2015, cash used in investing activities included significant costs related to plant construction activities in Malaysia and Tijuana and the purchase of two previously leased facilities, our manufacturing facility in Salt Lake City and an administrative office at our corporate headquarters in Braintree, Massachusetts.2018.
Financing Activities
Net cash used in financing activities was $60.4$131.2 million during fiscal 2017, a decrease2020, an increase of $2.2$80.6 million as compared towith fiscal 2016,2019. The increase was primarily due to $61.0 millionlower borrowings, net of payments, on our Credit Facilities and increased share repurchases and $21.3 million principal repayments on our Term Loan in the prior year. Fiscal 2017 also benefited by an incremental $15.4 million of proceeds from the exercise of stock options over the prior year. These decreases in net cash used in financing activities were partially offset by a reduction in borrowings on our Revolving Credit Facility of $50.0 million and $42.7 million principal repayments on our Term Loan in fiscal 2017.current period.
Net cash used in financing activities was $62.6$50.6 million during fiscal 2016, an increase2019, a decrease of $29.5$70.0 million as compared towith fiscal 2015 primarily due to $61.02018. Cash used in financing activities included the repayment of the $253.7 remaining outstanding balance on our 2012 credit agreement, as amended in fiscal 2014, as well as $160.0 million of share repurchases during fiscal 2016 compared to $39.0 million of share repurchases during fiscal 2015. Higher term loan payments of $12.8 million also contributed to the increase.2019. This use in cash was partially offset by an increase in short-term loans and an increase in proceeds resulting from the exercise of stock options.$350.0 million Term Loan entered into in June 2018.
Contractual Obligations
A summary of our contractual and commercial commitments as of April 1, 2017March 28, 2020 is as follows:
| | | | Payments Due by Period | Payments Due by Period |
| (In thousands) | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| Debt | $ | 314,648 |
| | $ | 61,022 |
| | $ | 253,591 |
| | $ | 35 |
| | $ | — |
| $ | 383,912 |
| | $ | 81,919 |
| | $ | 231,967 |
| | $ | 70,026 |
| | $ | — |
|
Interest payments (1) | | 19,158 |
| | 8,736 |
| | 6,546 |
| | 3,876 |
| | — |
|
| Operating leases | 19,546 |
| | 4,298 |
| | 4,872 |
| | 3,345 |
| | 7,031 |
| 72,160 |
| | 9,637 |
| | 15,920 |
| | 11,208 |
| | 35,395 |
|
Purchase commitments(1) | 105,004 |
| | 100,295 |
| | 4,709 |
| | — |
| | — |
| |
Purchase commitments(2) | | 113,717 |
| | 113,717 |
| | — |
| | — |
| | — |
|
| Expected retirement plan benefit payments | 14,138 |
| | 1,396 |
| | 2,845 |
| | 3,028 |
| | 6,869 |
| 14,033 |
| | 1,372 |
| | 2,837 |
| | 2,573 |
| | 7,251 |
|
| Total contractual obligations | $ | 453,336 |
| | $ | 167,011 |
| | $ | 266,017 |
| | $ | 6,408 |
| | $ | 13,900 |
| $ | 602,980 |
| | $ | 215,381 |
| | $ | 257,270 |
| | $ | 87,683 |
| | $ | 42,646 |
|
|
| | |
(1) Interest payments reflect the contractual interest payments on our outstanding debt and exclude the impact of interest rate swap agreements. Interest payments are projected using interest rates in effect as of March 28, 2020. Certain of these projected interest payments may differ in the future based on changes in market interest rates. (2) Includes amounts we are committed to spend on purchase orders entered in the normal course of business for capital equipment and for the purpose of manufacturing our products including contract manufacturers, specifically JMS Co. Ltd., Kawasumi Laboratories and Sanmina Corporationas well as commitments with contractors for the manufacture of certain disposable products and equipment. The majority of our operating expense spending does not require any advance commitment. |
The above table does not reflect our long-term liabilities associated with unrecognized tax benefits of $3.4 million recorded in accordance with ASC Topic 740, Income Taxes.Taxes. We cannot reasonably make a reliable estimate of the period in which we expect to settle these long-term liabilities due to factors outside of our control, such as tax examinations.
We anticipate paying an additional $17.8 million upon replication and delivery of certain manufacturing assets of Pall Corporation's filter media business to Haemonetics by fiscal 2019.
Concentration of Credit Risk
While approximately 33%54% of our revenue isduring fiscal 2020 was generated by our fiveten largest customers, concentrations of credit risk with respect to trade accounts receivable are generally limited due to our large number of customers and their diversity across many geographic areas. ACertain markets and industries, however, can expose us to concentrations of credit risk. For example, in the Plasma business unit, sales are concentrated with several large customers. As a result, accounts receivable extended to any one of these biopharmaceutical customers can be significant at any point in time. In addition, a portion of our trade accounts receivable outside the United States, however,U.S. include sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays and local economic conditions. Payment is dependent upon the financial stability and creditworthiness of those countries' national economies.
We have not incurred significant losses on receivables. We continually evaluate all receivables for potential collection risks associated with the availability of government funding and reimbursement practices. If the financial condition of customers or the countries' healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods.
Legal Proceedings
We are presently engaged
In accordance with U.S. GAAP, we record a liability in various legal actions, and although our ultimate liability cannot be determined at the present time, we believe, based on consultation with counsel, that any such liability will not materially affect our consolidated financial statements for these matters when a loss is known or considered probable and the amount may be reasonably estimated. Actual settlements may be different than estimated and could have a material impact on our consolidated earnings, financial position and/or our results of operations.
Italian Employment Litigation
Our Italian manufacturing subsidiary is party to several actions initiated by former employeescash flows. For a discussion of our facilitymaterial legal proceedings refer to Note 16, Commitments & Contingencies, to the Consolidated Financial Statements in Ascoli-Piceno, Italy. We ceased operations at the facility in fiscal 2014 and sold the property in fiscal 2017. These include actions claiming (i) working conditions and minimum salaries should have been established by either a different classification under their national collective bargaining agreement or a different agreement altogether, (ii) certain solidarity agreements, which are arrangements between the Company, employees and the government to continue full pay and benefits for employees who would otherwise be terminated in timesItem 8 of low demand, are void, and (iii) rights to payment of the extra time used for changing into and out of the working clothes at the beginning and end of each shift.this Annual Report on Form 10-K.
In addition, a union represented in the Ascoli plant filed an action claiming that the Company discriminated against it in favor of three other represented unions by (i) interfering with an employee referendum, (ii) interfering with an employee petition to recall union representatives from office, and (iii) excluding the union from certain meetings.
Finally, we have been added as defendants on claims filed against Pall Corporation prior to our acquisition of the plant in August 2012. These claims relate to agreements to "freeze" benefit allowances for a certain period in exchange for Pall's commitments on hiring and plant investment.Inflation
As of April 1, 2017, the total amount of damages claimed by the plaintiffs in these matters is approximately $4.4 million. At this point in the proceedings, we believe losses are unlikely and therefore no amounts have been accrued. In the future, we may receive adverse rulings from the courts which could change our judgment on these cases.
SOLX Arbitration
In July 2016, H2 Equity, LLC, formerly known as Hemerus Corporation, filed an arbitration claim for $17 million in milestone and royalty payments allegedly owed as part of our acquisition of the filter and storage solution business from Hemerus Medical, LLC ("Hemerus") in fiscal 2014. The acquired storage solution is referred to as SOLX.
At the closing in April 2013, Haemonetics paid Hemerus a total of $24 million and agreed to a $3 million milestone payment due when the FDA approved a new indication for SOLX (the “24-Hour Approval”) using a filter acquired from Hemerus. We also agreed to make future royalty payments up to a cumulative maximum of $14 million based on the sale of products incorporating SOLX over a ten year period.
Due to performance issues with the Hemerus filter, Haemonetics filed for, and received, the 24-Hour Approval using a Haemonetics filter. Accordingly, Haemonetics did not pay Hemerus the $3 million milestone payment because the 24-Hour Approval was obtained using a Haemonetics filter, not a Hemerus filter. In addition, we have not paid any royalties to date as we have not made any sales of products incorporating SOLX.
H2 Equity claims, in part, that we owe them $3 million for the receipt of the 24-Hour Approval despite the use of a Haemonetics filter to obtain the approval and that we have failed to make commercially reasonable efforts to market and sell products incorporating SOLX. We believe that we have meritorious defenses to these claims.
It is not possible to accurately evaluate the likelihood or amount of any potential losses related to this claim and therefore no amounts have been accrued.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. Historically, we believe we have been able to mitigate the effects of inflation by improving our manufacturing and purchasing efficiencies, by increasing employee productivity and by adjusting the selling prices of products. We continue to monitor inflation pressures generally and raw materials indices that may affect our procurement and production costs. Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials.
Foreign Exchange
During fiscal 2017, 41.0%2020, 34.6% of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S. Dollar. We also incur certain manufacturing, marketing and selling costs in international markets in local currency. Our primary foreign currency exposures relate to sales denominated in Euro, Japanese Yen, Chinese Yuan and Australian Dollars. We also have foreign currency exposure related to manufacturing and other operational costs denominated in Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit. The Yen, Euro, Yuan and Australian Dollar sales exposure is partially mitigated by costs and expenses for foreign operations and sourcing products denominated in foreign currencies.
Since our foreign currency denominated Yen, Euro, Yuan and Australian Dollar sales exceed the foreign currency denominated costs, whenever the U.S. Dollar strengthens relative to the Yen, Euro, Yuan or Australian Dollar, there is an adverse effect on our results of operations and, conversely, whenever the U.S. Dollar weakens relative to the Yen, Euro, Yuan or Australian Dollar, there is a positive effect on our results of operations. For Swiss Francs, Canadian Dollars Mexican Pesos and Malaysian Ringgit, our primary cash flows relate to product costs or costs and expenses of local operations. Whenever the U.S. Dollar strengthens relative to these foreign currencies, there is a positive effect on our results of operations. Conversely, whenever the U.S. Dollar weakens relative to these currencies, there is an adverse effect on our results of operations.
We have a program in place that is designed to mitigate our 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 unforeseen impact on our financial results from changes in foreign exchange rates. We utilize forward foreign currency contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily Japanese Yen and Euro, and to a lesser extent Swiss Francs, Australian Dollars, Canadian Dollars and Mexican Pesos. This does not eliminate the volatility of foreign exchange
rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. These contracts are designated as cash flow hedges. The final impact of currency fluctuations on the results of operations is dependent on the local currency amounts hedged and the actual local currency results.
Recent Accounting Pronouncements
Standards to be Implemented
Revenue from Contracts with Customers (Topic 606)
In May 2014,June 2016, the Financial Accounting Standards Board (FASB)("FASB") issued ASUAccounting Standards Codification ("ASC") Update No. 2014-09, Revenue from Contracts2016-13, 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 Customers (Topic 606). ASU No. 2014-09 stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amounta methodology that reflects theexpected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASUdevelop credit loss estimates. ASC Update No. 2014-09 will be2016-13 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption2019, and is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The purpose of ASU No. 2016-08 isapplicable to clarify the guidance on principal versus agent considerations. It includes indicators that help to determine whether an entity controls the specified good or service before it is transferred to the customer and to assistus in determining when the entity satisfied the performance obligation and as such, whether to recognize a gross or a net amount of consideration in their consolidated statement of operations. The effective date and transition requirementsfiscal 2021. We are consistent with ASU No. 2014-09.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The guidance clarifies that entities are not required to assess whether promised goods or services are performance obligations if they are immaterial in the contextprocess of determining the contract. ASU No. 2016-10 also addresses how to determine whether promised goods or services are separately identifiable and permits entities to make a policy election to treat shipping and handling costs as fulfillment activities. In addition, it clarifies key provisions in Topic 606 related to licensing. The effective date and transition requirements are consistent with ASU No. 2014-09.
We have established a cross-functional implementation team consisting of representatives from all of our business units and regions. During fiscal 2017, we analyzed the impact of the standard on our contract portfolio by reviewing a representative sample of our contracts to identify potential differences that would result from applying the requirements of the new standard. The implementation team has apprised both management and the audit committee of project status on a recurring basis.
We have not finalized our assessment of the impact of Topic 606, however we believe our recognition of software revenue will be the most impacted. Software revenue accounts for approximately 7.5% of the Company's total revenue. We continue to analyze performance obligations, variable consideration and disclosures. Additionally, we are monitoring updates issued by the FASB. During the first half of fiscal 2018, we expect to substantially complete our impact assessment and initiate efforts to redesign impacted processes, policies and controls.
Other Recent Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with changes recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. It also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. ASU No. 2016-01 also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and liability. ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of certain provisions is permitted. Management does not believeeffect that the adoption of ASU No. 2016-01 will have a material effect on our financial position or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 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. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier adoption is permitted. The impact of adopting ASU No. 2016-02 on our financial position and results of operations is being assessed by management.operations.
In March 2016,August 2018, the FASB issued ASUASC Update No. 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting2018-15, Intangibles, Goodwill and Other - Internal-Use Software (Subtopic 350-40). The purpose ofnew guidance will align the updateaccounting implementation costs incurred in a cloud computing arrangement that is to simplify several areas ofa service contract with the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeiture accounting, and classification on the statement of cash flows. ASU No. 2016-09 is effective for annual reporting periods after December 15, 2016, including interim periods within those fiscal periods. Early adoption is permitted. Management does not believe that the adoption of ASU No. 2016-09 will have a material effect on our financial position or results of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326).internal-use software licenses. The guidance requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The updated guidance is effective for annual periods beginning after December 15, 2019 and is applicable to the Companyus in fiscal 2021. Early adoption is permitted.permitted for all entities, including interim periods. The impact of adopting ASUASC Update No. 2016-13 on our financial position and results of operations is being assessed by management.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flow (Topic 230). The guidance reduces diversity in how certain cash receipts and cash payments are presented and classified in the Statements of Cash Flows. The guidance is effective for annual periods beginning after December 15, 2017, and is applicable to us in fiscal 2019. Early adoption is permitted. The adoption of ASU 2016-152018-15 is not expected to have a material effect on our consolidated financial statements.
In October 2016,December 2019, the FASB issued ASUASC Update No. 2016-16, 2019-12, Income Taxes (Topic 740). The new guidance requires companieswill improve consistent application of and simplify the accounting for income taxes by removing certain exceptions to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory,general principals in the income statement as income tax expense (or benefit) in the period in which the transfer occurs. The guidanceTopic 740. ASC Update No. 2019-12 is effective for annual periods beginning after December 15, 2017,2020, and is applicable to
us in fiscal 2019. Early2022. We are in the process of determining the effect that the adoption is permitted for all entities as of the beginning of an annual reporting period. The impact of adopting ASU No. 2016-16will have on our financial position and results of operations is being assessed by management.operations.
In January, 2017 the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business (Topic 805). The purpose of the update is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance is effective for annual periods beginning after December 15, 2017, and is applicable to us in fiscal 2018. Early adoption is permitted for all entities as of the beginning of an annual reporting period. The impact of adopting ASU No. 2017-01 is not expected to have a material effect on our consolidated financial statements.
In March 2017, the FASB issued ASU 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 guidance is effective for annual periods beginning after December 15, 2018, and is applicable to us in fiscal 2020. Early adoption is permitted for all entities as of the beginning of an annual reporting period. The impact of adopting ASU No. 2017-07 is not expected to have a material effect on our consolidated financial statements.
Critical Accounting Policies
Our significant accounting policies are summarized in Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements containedthe Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. While all of these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and/or estimates. Actual results may differ from those estimates.
The accounting policies identified as critical are as follows:
Revenue Recognition
Our revenue recognition policy is to recognize revenues
Revenues from product sales softwareare recorded at the net sales price, which includes estimates of variable consideration related to rebates, product returns and services in accordance with ASC Topic 605, Revenue Recognition, and ASC Topic 985-605, Software.volume discounts. These standards require that revenuesreserves, which are recognized when
persuasive evidence of an arrangement exists, product delivery, including customer acceptance, has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We may have multiple contracts with the same customer, and each contract is typically treated as a separate arrangement. When more than one element such as equipment, disposables, and services are contained in a single arrangement, we allocate revenue between the elements based on each element’s relative selling price, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand-alone basis. The selling priceestimates of the undelivered elements is determined byamounts earned or to be claimed on the price charged when the element is sold separately, or in cases when the item is not sold separately, by third-party evidence of selling price or by management's best estimate of selling price. For our software arrangements accounted for under the provisions of ASC 985-605, Software, we establish fair value of undelivered elements based upon vendor specific objective evidence.
We generally do not allow our customers to return products. We offerrelated sales, rebates and discounts to certain customers. We treat sales rebates and discountsare recorded as a reduction of revenue and classifya current liability. Our estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the corresponding liability as current. We estimate rebates for products where thereamount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is sufficient historical information availablelimited to predict the volumeamount that is probable not to result in a significant reversal in the amount of expectedthe cumulative revenue recognized in a future rebates.period. Revenue recognized in the current period related to performance obligations satisfied in prior periods was not material. If we are unable to estimate the expected rebates reasonably, we record a liability for the maximum potential rebate or discount that could be earned. In circumstances where we provide upfront rebate payments to customers, we capitalize the rebate payments and amortize the resulting asset as a reduction of revenue using a systematic method over the life of the contract.
We generally recognize revenue from the sale See Note 2, Summary of perpetual licenses on a percentage-of-completion basis which requires us to make reasonable estimates of the extent of progress toward completion of the contract. These arrangements most often include providing customized implementation services to our customer. We also provide other services, including in some instances hosting, technical support, Significant Accounting Policies and maintenance, for the payment of periodic, monthly, or quarterly fees. We recognize these fees and charges as earned, typically as these services are provided during the contract period.
Goodwill and Intangible Assets
Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. Goodwill is not amortized. Instead goodwill is reviewed for impairment at least annually in accordance with ASC Topic 350, Intangibles - Goodwill and Other ("Topic 350")Note 8, Revenue, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. We perform our annual impairment test on the first day of the fiscal fourth quarter for each of our reporting units.
In fiscal 2017, we early adopted ASU No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment. Under this amendment, entities perform their goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit's fair value. A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component. We determine our reporting units by first identifying our operating segments, and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. We aggregate components within an operating segment that have similar economic characteristics. Our reporting units for purposes of assessing goodwill impairment are organized primarily based on operating segments and geography and include: (a) North America Plasma, (b) North America Blood Center, (c) North America Hospital, (d) Europe, Middle East, and Africa (collectively "EMEA"), (e) Asia-Pacific and (f) Japan. In the prior period, North America Blood Center and North America Hospital were components of a single reporting unit, Americas Blood Center and Hospital. During the fourth quarter of fiscal 2017, we completed certain organizational changes which resulted in the disaggregation of Americas Blood Center and Hospital into two separate reporting units. The goodwill associated with the legacy Americas Blood Center and Hospital reporting unit was allocated to the North America Blood Center and North America Hospital reporting units based on their relative fair values. The North America Plasma reporting unit is a separate operating segment with dedicated segment management due to the size and scale of the Plasma business unit.
When allocating goodwill from business combinations to our reporting units, we assign goodwill to the reporting units that we expect to benefit from the respective business combination at the time of acquisition. In addition, for purposes of performing our goodwill impairment tests, assets and liabilities, including corporate assets, which relate to a reporting unit’s operations, and would be considered in determining its fair value, are allocated to the individual reporting units. We allocate assets and liabilities not directly related to a specific reporting unit, but from which the reporting unit benefits, based primarily on the respective revenue contribution of each reporting unit.
In fiscal 2017 and 2016, we used the income approach, specifically the discounted cash flow method, to derive the fair value of each of our reporting units in preparing our goodwill impairment assessments. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. We selected this method as being the most meaningful in preparing our goodwill assessments
because the use of the income approach typically generates a more precise measurement of fair value than the market approach. In applying the income approach to our accounting for goodwill, we make assumptions about the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. The amount and timing of future cash flows within our discounted cash flow analysis is based on our most recent operational budgets, long range strategic plans and other estimates. The terminal value growth rate is used to calculate the value of cash flows beyond the last projected period in our discounted cash flow analysis and reflects our best estimates for stable, perpetual growth of our reporting units. We use estimates of market-participant risk adjusted weighted average cost of capital as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows. We corroborated the valuations that arose from the discounted cash flow approach by performing both a market multiple valuation and by reconciling the aggregate fair value of our reporting units to our market capitalization at the time of the test.
During the fourth quarter of fiscal 2017, we performed our annual goodwill impairment test under the guidelines of ASU No. 2017-04. The results of the goodwill impairment test performed indicated that the estimated fair value of all of our reporting units exceeded their respective carrying values, with the exception of North America Blood Center. For North America Blood Center, we recorded an impairment charge of $57.0 million, which represented the entire goodwill balance associated with this reporting unit. There were no other reporting units at risk of impairment as of the fiscal 2017 annual test date.
During fiscal 2016, we recorded a goodwill impairment charge of $66.3 million associated with the EMEA reporting unit. At the time the impairment assessment was performed, this represented the entire goodwill balance of this reporting unit. During the first quarter of fiscal 2017, management reorganized its internal reporting structuring such that certain components of the Americas Blood Center and Hospital operating segment became components of the EMEA operating segment. As a result, we transferred $20.5 million of goodwill to the EMEA operating segment, which represented the portion of the goodwill associated with these components. Refer to Note 5, Goodwill and Intangible Assets, to our consolidated financial statements containedConsolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional details regardingfurther information.
Goodwill and Intangible Assets
Although we use consistent methodologies in developing the goodwill impairments recorded.assumptions and estimates underlying the fair value calculations used in our impairment tests, these estimates are uncertain by nature and can vary from actual results. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows and discount rates could result in different fair value estimates.
Future events that could have a negative impact on the levels of excess fair value over carrying value of our reporting units include, but are not limited to, the following:
Decreases in estimated market sizes or market growth rates due to greater-than-expected declines in procedural volumes, pricing pressures, product actions and/or competitive technology developments,
Declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new and next-generation products and technology features in line with our commercialization strategies and market and/or regulatory conditions that may cause significant launch delays or product recalls,
Decreases in our forecasted profitability due to an inability to implement successfully and achieve timely and sustainable cost improvement measures consistent with our expectations,
Changes in our reporting units or in the structure of our business as a result of future reorganizations, acquisitions or divestitures of assets or businesses and
Increases in our market-participant risk-adjusted weighted average cost of capital and increases in our market-participant tax rate and/or changes in tax laws or macroeconomic conditions.
Negative changes in one or more of these factors, among others, could result in future impairment charges.
We review intangible assets subject to amortization for impairment at least annually or more frequently if certain conditions arise to determine if any adverse conditions exist that would indicate that the carrying value of an asset or asset group may not be recoverable, or that a change in the remaining useful life is required. Conditions indicating that an impairment exists include but are not limited to a change in the competitive landscape, internal decisions to pursue new or different technology strategies, a loss of a significant customer or a significant change in the marketplace including prices paid for our products or the size of the market for our products.
When an impairment indicator exists, we test the intangible asset for recoverability. For purposes See Note 2, Summary of the recoverability test, we group our amortizable intangible assets with other assets Significant Accounting Policies and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), we will write the carrying value downNote 11, Goodwill & Intangible Assets, to the fair value in the period identified.
We generally calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset using a risk-adjusted discount rate. In determining our estimated future cash flows associated with our intangible assets, we use estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group).
If we determine the estimate of an intangible asset's remaining useful life should be reduced based on our expected use of the asset, the remaining carrying amount of the asset is amortized prospectively over the revised estimated useful life.
During fiscal 2017, 2016 and 2015, we determined that there were potential impairment indicators for certain intangible assets subject to amortization. As such, we performed the recoverability test described above for the relevant asset groups. In fiscal 2017 and 2016, we determined that the undiscounted cash flows did not support the carrying value of certain identified asset groups and made the decision to discontinue the use of and investment in these assets. Accordingly, we recorded impairment charges of $4.8 million and $25.8 million, respectively, in fiscal 2017 and 2016. The impairment charges in fiscal 2017 consisted of non-core and underperforming assets while the $25.8 million of impairment charges recorded in fiscal 2016 consisted of $18.7 million related to the write down of the SOLX intangible assets and $7.1 million related to intangible assets that were identified as part of the Company's global strategic review. In fiscal 2015, we determined that the expected undiscounted cash flows exceeded the carrying value of the asset groups identified. See Note 5, Goodwill and Intangible Assets, to our consolidated financial statements containedConsolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.
Inventory Provisions
We base our provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales. A significant change in the timing or level of demand for our products as compared towith forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future. Additionally, uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to excess, expired and obsolete inventory.
Income Taxes
The income tax provision is calculated for all jurisdictions in which we operate. The income tax provision process involves calculating current taxes due and assessing temporary differences arising from items whichthat are taxable or deductible in different periods for tax and accounting purposes and are recorded as deferred tax assets and liabilities. Deferred tax assets are evaluated for realizability and a valuation allowance is maintained for the portion of our deferred tax assets that are not more-likely-than-not realizable. All available evidence, both positive and negative, has been considered to determine whether, based on the weight of that evidence, a valuation allowance is needed against the deferred tax assets. Refer to Note 6, Income Taxes, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information and discussion of our income tax provision and balances.
We file income tax returns in all jurisdictions in which we operate. We record a liability for uncertain tax positions taken or expected to be taken in income tax returns. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities' full knowledge of the position and all relevant facts. We record a liability for the portion of unrecognized tax benefits claimed whichthat we have determined are not more-likely-than-not realizable. These tax reserves have been established based on management's assessment as to the potential exposure attributable to our uncertain tax positions as well as interest and penalties attributable to these uncertain tax positions. All tax reserves are analyzed quarterly and adjustments are made as events occur that result in changes in judgment.
We evaluate at the end of each reporting period whether some or all of the undistributed earnings of our foreign subsidiaries are permanently reinvested. We recognize deferred income tax liabilities to the extent that management asserts that undistributed earnings of its foreign subsidiaries are not permanently reinvested or will not be permanently reinvested in the future. Our position is based upon several factors including management’s evaluation of the Company and its subsidiaries’ financial requirements, the short term and long-term operational and fiscal objectives of the Company, and the tax consequences associated with the repatriation of earnings.
Contingencies
We may become involved in various legal proceedings that arise in the ordinary course of business, including, without limitation, patent infringement, product liability and environmental matters. Accruals recorded for various contingencies including legal proceedings, employee related litigation, self-insurance and other claims are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates. When a loss is probable and a range of loss is established but a best estimate cannot be made, we record the minimum loss contingency amount. These estimates are often initially developed substantially earlier than the ultimate loss is known and the estimates are reevaluated each accounting period, as additional information is available. When we are initially unable to develop a best estimate of loss, we record the minimum amount of loss, which could be zero. As information becomes known, additional loss provision is recorded when either a best estimate can be made or the minimum loss amount is increased. When events result in an expectation of a more favorable outcome than previously expected, our best estimate is changed to a lower amount.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s exposures relative to market risk are due to foreign exchange risk and interest rate risk.
Foreign Exchange Risk
See the section above entitled Foreign Exchange for a discussion of how foreign currency affects our business. It is our policy to minimize, for a period of time, the unforeseen impact on our financial results of fluctuations in foreign exchange rates by using derivative financial instruments known as forward contracts to hedge anticipated cash flows from forecasted foreign currency denominated sales and costs. We do not use the financial instruments for speculative or trading activities.
We estimate the change in the fair value of all forward contracts assuming both a 10% strengthening and weakening of the U.S. dollar relative to all other major currencies. In the event of a 10% strengthening of the U.S. dollar, the change in fair value of all forward contracts would result in a $3.3$13.8 million increase in the fair value of the forward contracts, whereas a 10% weakening of the U.S. dollar would result in a $3.2$15.6 million decrease in the fair value of the forward contracts.
Interest Rate Risk
Our exposure to changes in interest rates is associated with borrowings onunder our Credit Agreement,Facilities, all of which is variable rate debt. Total outstanding debt under our Credit Facilities for the fiscal year ended April 1, 2017March 28, 2020 was $315.4$383.8 million with an interest rate of 2.25%2.9% based on prevailing Adjusted LIBOR rates. An increase of 100 basis points in Adjusted LIBOR rates would result in additional annual interest expense of $3.2$1.0 million. On DecemberAugust 21, 2012,2018, we entered into two interest rate swap agreements to effectively convert $250.0$241.9 million of borrowings under our Credit Facilities from a variable rate to a fixed rate. TheThese interest rate swaps are intended to mitigate the exposure to fluctuations in interest rates and qualify for hedge accounting treatment as cash flow hedges.
Report of Independent Registered Public Accounting Firm
The
To the Stockholders and Board of Directors and Shareholders of Haemonetics Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Haemonetics Corporation and subsidiaries (the Company) as of April 1, 2017March 28, 2020 and April 2, 2016, andMarch 30, 2019, the related consolidated statements of (loss) income, comprehensive loss, shareholders'income, stockholders' equity and cash flows for each of the three years in the period ended April 1, 2017. Our audits also includedMarch 28, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Haemonetics Corporationthe Company at March 28, 2020 and subsidiaries at April 1, 2017 and April 2, 2016,March 30, 2019, and the consolidated results of theirits operations and theirits cash flows for each of the three years in the period ended April 1, 2017,March 28, 2020, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Haemonetics Corporation’sthe Company's internal control over financial reporting as of April 1, 2017,March 28, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 24, 201720, 2020 expressed an adverseunqualified opinion thereon.
Adoption of New Accounting Standards
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases effective March 31, 2019 due to adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue effective April 1, 2018 due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
|
| |
| Valuation of goodwill |
| Description of the Matter | As discussed in Note 11 to the consolidated financial statements, the Company had approximately $211 million of goodwill allocated among its three reporting units as of March 28, 2020. The Company performs its annual quantitative impairment analysis as of the first day of the fourth quarter, and more frequently if the Company believes indicators of impairment exist, utilizing a discounted cash flow income approach in order to value reporting units for the test. |
| Auditing the annual goodwill impairment test was especially complex and judgmental due to the significant estimation required in determining the fair values of the reporting units. In particular, the fair value estimates involve judgmental assumptions including discount rates, terminal values, and the amount and timing of expected future cash flows, which are all affected by expectations about future market or economic conditions and reporting unit specific risk factors. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s goodwill impairment review process. For example, we tested controls over management's review of the significant inputs and assumptions used in determining the reporting unit fair values. |
| To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing fair value methodologies, testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current industry trends, historical financial results of the reporting unit, and other relevant factors. We considered the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. In addition, we involved our valuation professionals to assist in our evaluation of the significant assumptions used to develop the fair value estimates. We also evaluated the reconciliation of the estimated aggregate fair value of the reporting units to the market capitalization of the Company. |
|
| |
| Income taxes - valuation allowance |
| Description of the Matter | As described in Note 6 to the consolidated financial statements, the Company had gross deferred tax assets on temporary differences of approximately $55 million offset by an approximately $14 million valuation allowance as of March 28, 2020. Deferred tax assets are reduced by a valuation allowance if, based upon the weight of all available evidence, both positive and negative, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. |
| Auditing management’s analysis of the realizability of its deferred tax assets was especially challenging and complex in relation to estimating projections of future taxable income that involved significant judgment and assumptions that may be affected by future market or economic conditions. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s analysis of the realizability of deferred tax assets. This included controls over management’s projections of future taxable income. |
| To test the Company’s analysis of the realizability of deferred tax assets and the resultant valuation allowance, we performed audit procedures with the assistance of tax professionals that included, among others, evaluating the analyses used by management to consider the four sources of taxable income. We evaluated the assumptions used by the Company to develop projections of future taxable income by jurisdiction and tested the completeness and accuracy of the underlying data used in its projections. For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends. We also considered the historical accuracy of management’s projections and compared the projections of future taxable income with other forecasted financial information prepared by the Company. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Boston, Massachusetts
May 24, 201720, 2020
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(In thousands, except per share data)
| | | | Year Ended | Year Ended |
| | April 1,
2017 | | April 2,
2016 | | March 28,
2015 | March 28,
2020 | | March 30,
2019 | | March 31,
2018 |
| | | | | | | | | | | |
| Net revenues | $ | 886,116 |
| | $ | 908,832 |
| | $ | 910,373 |
| $ | 988,479 |
| | $ | 967,579 |
| | $ | 903,923 |
|
| Cost of goods sold | 507,622 |
| | 502,918 |
| | 475,955 |
| 503,966 |
| | 550,043 |
| | 492,015 |
|
| Gross profit | 378,494 |
| | 405,914 |
| | 434,418 |
| 484,513 |
| | 417,536 |
| | 411,908 |
|
| Operating expenses: | |
| | |
| | |
| |
| | |
| | |
|
| Research and development | 37,556 |
| | 44,965 |
| | 54,187 |
| 30,883 |
| | 35,714 |
| | 39,228 |
|
| Selling, general and administrative | 301,726 |
| | 317,223 |
| | 337,168 |
| 299,680 |
| | 298,277 |
| | 316,523 |
|
| Impairment of assets | 58,593 |
| | 92,395 |
| | 5,441 |
| 50,599 |
| | — |
| | — |
|
| Contingent consideration income | — |
| | (4,727 | ) | | (2,918 | ) | |
| Total operating expenses | 397,875 |
| | 449,856 |
| | 393,878 |
| 381,162 |
| | 333,991 |
| | 355,751 |
|
| Operating (loss) income | (19,381 | ) | | (43,942 | ) | | 40,540 |
| |
| Other expense, net | (8,095 | ) | | (9,474 | ) | | (9,375 | ) | |
| (Loss) income before (benefit) provision for income taxes | (27,476 | ) | | (53,416 | ) | | 31,165 |
| |
| (Benefit) provision for income taxes | (1,208 | ) | | 2,163 |
| | 14,268 |
| |
| Net (loss) income | $ | (26,268 | ) | | $ | (55,579 | ) | | $ | 16,897 |
| |
| Operating income | | 103,351 |
| | 83,545 |
| | 56,157 |
|
| Gain on divestiture | | — |
| | — |
| | 8,000 |
|
| Interest and other expense, net | | (16,199 | ) | | (9,912 | ) | | (4,525 | ) |
| Income before provision for income taxes | | 87,152 |
| | 73,633 |
| | 59,632 |
|
| Provision for income taxes | | 10,626 |
| | 18,614 |
| | 14,060 |
|
| Net income | | $ | 76,526 |
| | $ | 55,019 |
| | $ | 45,572 |
|
| | |
| | |
| | |
| |
| | |
| | |
|
| Net (loss) income per share - basic | $ | (0.51 | ) | | $ | (1.09 | ) | | $ | 0.33 |
| |
| Net (loss) income per share - diluted | $ | (0.51 | ) | | $ | (1.09 | ) | | $ | 0.32 |
| |
| Net income per share - basic | | $ | 1.51 |
| | $ | 1.07 |
| | $ | 0.86 |
|
| Net income per share - diluted | | $ | 1.48 |
| | $ | 1.04 |
| | $ | 0.85 |
|
| | | | | | | | | | | |
| Weighted average shares outstanding | |
| | |
| | |
| |
| | |
| | |
|
| Basic | 51,524 |
| | 50,910 |
| | 51,533 |
| 50,692 |
| | 51,533 |
| | 52,755 |
|
| Diluted | 51,524 |
| | 50,910 |
| | 52,089 |
| 51,815 |
| | 52,942 |
| | 53,501 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME
(In thousands)
|
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2017 | | April 2, 2016 | | March 28, 2015 |
| | | | | | |
| Net (loss) income | $ | (26,268 | ) | | $ | (55,579 | ) | | $ | 16,897 |
|
| | | | | | |
| Other comprehensive income (loss): | | | | | |
| Impact of defined benefit plans, net of tax | 5,220 |
| | 1,431 |
| | (4,331 | ) |
| Foreign currency translation adjustment | (7,336 | ) | | (1,987 | ) | | (23,710 | ) |
| Unrealized (loss) gain on cash flow hedges, net of tax | (364 | ) | | (3,938 | ) | | 11,371 |
|
| Reclassifications into earnings of cash flow hedge losses (gains), net of tax | 4,647 |
| | (8,822 | ) | | (6,464 | ) |
| Other comprehensive income (loss) | 2,167 |
| | (13,316 | ) | | (23,134 | ) |
| Comprehensive loss | $ | (24,101 | ) | | $ | (68,895 | ) | | $ | (6,237 | ) |
|
| | | | | | | | | | | |
| | Year Ended |
| | March 28,
2020 | | March 30,
2019 | | March 31,
2018 |
| | | | | | |
| Net income | $ | 76,526 |
| | $ | 55,019 |
| | $ | 45,572 |
|
| | | | | | |
| Other comprehensive income: | | | | | |
| Impact of defined benefit plans, net of tax | 318 |
| | (204 | ) | | 1,949 |
|
| Foreign currency translation adjustment, net of tax | (5,587 | ) | | (9,108 | ) | | 13,430 |
|
| Unrealized loss on cash flow hedges, net of tax | (10,111 | ) | | (1,877 | ) | | (2,796 | ) |
| Reclassifications into earnings of cash flow hedge losses (gains), net of tax | 625 |
| | (200 | ) | | 1,299 |
|
| Other comprehensive (loss) income | (14,755 | ) | | (11,389 | ) | | 13,882 |
|
| Comprehensive income | $ | 61,771 |
| | $ | 43,630 |
| | $ | 59,454 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | | | April 1,
2017 | | April 2,
2016 | March 28,
2020 | | March 30,
2019 |
| | ASSETS | | | | | | |
| Current assets: | |
| | |
| |
| | |
|
| Cash and cash equivalents | $ | 139,564 |
| | $ | 115,123 |
| $ | 137,311 |
| | $ | 169,351 |
|
| Accounts receivable, less allowance of $2,184 at April 1, 2017 and $2,253 at April 2, 2016 | 152,683 |
| | 157,093 |
| |
| Accounts receivable, less allowance of $3,824 at March 28, 2020 and $3,937 at March 30, 2019 | | 165,207 |
| | 185,027 |
|
| Inventories, net | 176,929 |
| | 187,028 |
| 270,276 |
| | 194,337 |
|
| Prepaid expenses and other current assets | 40,853 |
| | 28,842 |
| 30,845 |
| | 27,406 |
|
| Total current assets | 510,029 |
| | 488,086 |
| 603,639 |
| | 576,121 |
|
| Property, plant and equipment, net | 323,862 |
| | 337,634 |
| 253,399 |
| | 343,979 |
|
| Intangible assets, less accumulated amortization of $215,772 at April 1, 2017 and $190,816 at April 2, 2016 | 177,540 |
| | 204,458 |
| |
| Intangible assets, less accumulated amortization of $296,942 at March 28, 2020 and $263,479 at March 30, 2019 | | 133,106 |
| | 127,693 |
|
| Goodwill | 210,841 |
| | 267,840 |
| 210,652 |
| | 210,819 |
|
| Deferred tax asset, long term | 3,988 |
| | 7,055 |
| |
| Deferred tax asset | | 3,930 |
| | 4,359 |
|
| Other long-term assets | 12,449 |
| | 14,055 |
| 62,384 |
| | 11,796 |
|
| Total assets | $ | 1,238,709 |
| | $ | 1,319,128 |
| $ | 1,267,110 |
| | $ | 1,274,767 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| Current liabilities: | |
| | |
| |
| | |
|
| Notes payable and current maturities of long-term debt | $ | 61,022 |
| | $ | 43,471 |
| $ | 76,980 |
| | $ | 27,666 |
|
| Accounts payable | 42,973 |
| | 39,674 |
| 50,730 |
| | 63,361 |
|
| Accrued payroll and related costs | 43,534 |
| | 35,798 |
| 49,471 |
| | 53,200 |
|
| Other current liabilities | 63,650 |
| | 66,608 |
| 97,641 |
| | 91,532 |
|
| Total current liabilities | 211,179 |
| | 185,551 |
| 274,822 |
| | 235,759 |
|
| Long-term debt, net of current maturities | 253,625 |
| | 364,529 |
| 305,513 |
| | 322,454 |
|
| Long-term deferred tax liability | 12,114 |
| | 21,377 |
| |
| Deferred tax liability | | 10,562 |
| | 19,906 |
|
| Other long-term liabilities | 22,181 |
| | 26,106 |
| 89,104 |
| | 28,780 |
|
| Stockholders’ equity: | |
| | |
| |
| | |
|
| Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 52,255,495 shares at April 1, 2017 and 50,932,348 shares at April 2, 2016 | 523 |
| | 509 |
| |
| Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 50,322,930 shares at March 28, 2020 and 51,019,918 shares at March 30, 2019 | | 503 |
| | 510 |
|
| Additional paid-in capital | 482,044 |
| | 439,912 |
| 553,229 |
| | 536,320 |
|
| Retained earnings | 289,916 |
| | 316,184 |
| 78,512 |
| | 161,418 |
|
| Accumulated other comprehensive loss | (32,873 | ) | | (35,040 | ) | (45,135 | ) | | (30,380 | ) |
| Total stockholders’ equity | 739,610 |
| | 721,565 |
| 587,109 |
| | 667,868 |
|
| Total liabilities and stockholders’ equity | $ | 1,238,709 |
| | $ | 1,319,128 |
| $ | 1,267,110 |
| | $ | 1,274,767 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
| | | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income/(Loss) | | Total Stockholders’ Equity | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income/(Loss) | | Total Stockholders’ Equity |
| | Shares | | Par Value | | Shares | | Par Value | |
| Balance, March 29, 2014 | 52,041 |
| | $ | 520 |
| | $ | 402,611 |
| | $ | 433,347 |
| | $ | 1,410 |
| | $ | 837,888 |
| |
| Employee stock purchase plan | 183 |
| | 2 |
| | 4,761 |
| | — |
| | — |
| | 4,763 |
| |
| Exercise of stock options and related tax benefit | 500 |
| | 5 |
| | 14,640 |
| | — |
| | — |
| | 14,645 |
| |
| Shares repurchased | (1,174 | ) | | (11 | ) | | (9,143 | ) | | (29,879 | ) | | — |
| | (39,033 | ) | |
| Issuance of restricted stock, net of cancellations | 121 |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
| |
| Stock-based compensation expense | — |
| | — |
| | 14,095 |
| | — |
| | — |
| | 14,095 |
| |
| Net income | — |
| | — |
| | — |
| | 16,897 |
| | — |
| | 16,897 |
| |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (23,134 | ) | | (23,134 | ) | |
| Balance, March 28, 2015 | 51,671 |
| | $ | 517 |
| | $ | 426,964 |
| | $ | 420,365 |
| | $ | (21,724 | ) | | $ | 826,122 |
| |
| Balance, April 1, 2017 | | 52,255 |
| | $ | 523 |
| | $ | 482,044 |
| | $ | 289,916 |
| | $ | (32,873 | ) | | $ | 739,610 |
|
| Employee stock purchase plan | 145 |
| | 1 |
| | 4,340 |
| | — |
| | — |
| | 4,341 |
| 102 |
| | 1 |
| | 3,245 |
| | — |
| | — |
| | 3,246 |
|
| Exercise of stock options | 492 |
| | 6 |
| | 14,026 |
| | — |
| | — |
| | 14,032 |
| 1,014 |
| | 11 |
| | 37,083 |
| | — |
| | — |
| | 37,094 |
|
| Shares repurchased | (1,488 | ) | | (15 | ) | | (12,367 | ) | | (48,602 | ) | | — |
| | (60,984 | ) | (1,162 | ) | | (12 | ) | | (31,442 | ) | | (68,546 | ) | | — |
| | (100,000 | ) |
| Issuance of restricted stock, net of cancellations | 112 |
| | — |
| | — |
| | — |
| | — |
| | — |
| 134 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock-based compensation expense | — |
| | — |
| | 6,949 |
| | — |
| | — |
| | 6,949 |
| |
| Net loss | — |
| | — |
| | — |
| | (55,579 | ) | | — |
| | (55,579 | ) | |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (13,316 | ) | | (13,316 | ) | |
| Balance, April 2, 2016 | 50,932 |
| | $ | 509 |
| | $ | 439,912 |
| | $ | 316,184 |
| | $ | (35,040 | ) | | $ | 721,565 |
| |
| Share-based compensation expense | | — |
| | — |
| | 13,025 |
| | — |
| | — |
| | 13,025 |
|
| Net income | | — |
| | — |
| | — |
| | 45,572 |
| | — |
| | 45,572 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | 13,882 |
| | 13,882 |
|
| Balance, March 31, 2018 | | 52,343 |
| | $ | 523 |
| | $ | 503,955 |
| | $ | 266,942 |
| | $ | (18,991 | ) | | $ | 752,429 |
|
| Employee stock purchase plan | 141 |
| | 2 |
| | 3,557 |
| | — |
| | — |
| | 3,559 |
| 67 |
| | 1 |
| | 3,253 |
| | — |
| | — |
| | 3,254 |
|
| Exercise of stock options | 1,048 |
| | 12 |
| | 29,425 |
| | — |
| | — |
| | 29,437 |
| 287 |
| | 3 |
| | 10,188 |
| | — |
| | — |
| | 10,191 |
|
| Shares repurchased | | (1,841 | ) | | (18 | ) | | 1,737 |
| | (161,719 | ) | | — |
| | (160,000 | ) |
| Issuance of restricted stock, net of cancellations | 134 |
| | — |
| | — |
| | — |
| | — |
| | — |
| 164 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
|
| Stock-based compensation expense | — |
| | — |
| | 9,150 |
| | — |
| | — |
| | 9,150 |
| |
| Net loss | — |
| | — |
| | — |
| | (26,268 | ) | | — |
| | (26,268 | ) | |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 2,167 |
| | 2,167 |
| |
| Balance, April 1, 2017 | 52,255 |
| | $ | 523 |
| | $ | 482,044 |
| | $ | 289,916 |
| | $ | (32,873 | ) | | $ | 739,610 |
| |
| Share-based compensation expense | | — |
| | — |
| | 17,188 |
| | — |
| | — |
| | 17,188 |
|
| Cumulative effect of change in accounting standards | | — |
| | — |
| | — |
| | 1,176 |
| | — |
| | 1,176 |
|
| Net income | | — |
| | — |
| | — |
| | 55,019 |
| | — |
| | 55,019 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | (11,389 | ) | | (11,389 | ) |
| Balance, March 30, 2019 | | 51,020 |
| | $ | 510 |
| | $ | 536,320 |
| | $ | 161,418 |
| | $ | (30,380 | ) | | $ | 667,868 |
|
| Employee stock purchase plan | | 45 |
| | 1 |
| | 3,368 |
| | — |
| | — |
| | 3,369 |
|
| Exercise of stock options | | 232 |
| | 2 |
| | 8,645 |
| | — |
| | — |
| | 8,647 |
|
| Shares repurchased | | (1,483 | ) | | (15 | ) | | (15,553 | ) | | (159,432 | ) | | — |
| | (175,000 | ) |
| Issuance of restricted stock, net of cancellations | | 509 |
| | 5 |
| | (5 | ) | | — |
| | — |
| | — |
|
| Share-based compensation expense | | — |
| | — |
| | 20,454 |
| | — |
| | — |
| | 20,454 |
|
| Net income | | — |
| | — |
| | — |
| | 76,526 |
| | — |
| | 76,526 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | (14,755 | ) | | (14,755 | ) |
| Balance, March 28, 2020 | | 50,323 |
| | $ | 503 |
| | $ | 553,229 |
| | $ | 78,512 |
| | $ | (45,135 | ) | | $ | 587,109 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | Year Ended | Year Ended |
| | April 1,
2017 | | April 2,
2016 | | March 28,
2015 | March 28,
2020 | | March 30,
2019 | | March 31,
2018 |
| Cash Flows from Operating Activities: | |
| | |
| | |
| |
| | |
| | |
|
| Net (loss) income | $ | (26,268 | ) | | $ | (55,579 | ) | | $ | 16,897 |
| |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |
| | |
| | |
| |
| Net income | | $ | 76,526 |
| | $ | 55,019 |
| | $ | 45,572 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
|
| Non-cash items: | |
| | |
| | |
| |
| | |
| | |
|
| Depreciation and amortization | 89,733 |
| | 89,911 |
| | 86,053 |
| 110,289 |
| | 109,418 |
| | 89,247 |
|
| Impairment of assets | 75,348 |
| | 101,243 |
| | 5,877 |
| 50,599 |
| | 21,170 |
| | 2,673 |
|
| Stock-based compensation expense | 9,150 |
| | 6,949 |
| | 14,095 |
| |
| Deferred tax (benefit) expense | (6,800 | ) | | (1,038 | ) | | 4,230 |
| |
| Unrealized loss (gain) from hedging activities | 517 |
| | (2,645 | ) | | 1,558 |
| |
| Changes in fair value of contingent consideration | — |
| | (4,727 | ) | | (2,918 | ) | |
| Provision for losses on accounts receivable and inventory | 11,381 |
| | 13,053 |
| | 4,972 |
| |
| Share-based compensation expense | | 20,454 |
| | 17,188 |
| | 13,025 |
|
| Gain on divestiture | | (8,083 | ) | | — |
| | (8,000 | ) |
| Deferred tax (benefit) provision | | (6,958 | ) | | 13,351 |
| | (5,828 | ) |
| Unrealized (gain) loss from hedging activities | | 813 |
| | (24 | ) | | (649 | ) |
| Provision for losses on accounts receivable | | 373 |
| | 2,111 |
| | 208 |
|
| Other non-cash operating activities | 860 |
| | 899 |
| | 1,055 |
| (1,234 | ) | | 3,798 |
| | 4,123 |
|
| Change in operating assets and liabilities: | |
| | |
| | |
| |
| | |
| | |
|
| Change in accounts receivable | 3,155 |
| | (10,328 | ) | | 8,446 |
| 18,863 |
| | (38,064 | ) | | 5,087 |
|
| Change in inventories | (1,552 | ) | | 11,896 |
| | (21,515 | ) | (84,721 | ) | | (39,322 | ) | | 14,385 |
|
| Change in prepaid income taxes | 1,395 |
| | (651 | ) | | 10,662 |
| 1,480 |
| | (3,594 | ) | | 1,436 |
|
| Change in other assets and other liabilities | (18,253 | ) | | 3,121 |
| | (8,013 | ) | (2,876 | ) | | 494 |
| | 17,670 |
|
| Tax benefit of exercise of stock options | — |
| | — |
| | 3,786 |
| |
| Change in accounts payable and accrued expenses | 21,072 |
| | (30,239 | ) | | 1,993 |
| (17,308 | ) | | 17,736 |
| | 41,401 |
|
| Net cash provided by operating activities | 159,738 |
| | 121,865 |
| | 127,178 |
| 158,217 |
| | 159,281 |
| | 220,350 |
|
| Cash Flows from Investing Activities: | |
| | |
| | |
| |
| | |
| | |
|
| Capital expenditures | (76,135 | ) | | (102,405 | ) | | (122,220 | ) | (48,758 | ) | | (118,961 | ) | | (74,799 | ) |
| Proceeds from divestiture | | 9,808 |
| | — |
| | 9,000 |
|
| Proceeds from sale of property, plant and equipment | 2,822 |
| | 637 |
| | 452 |
| 16,774 |
| | 2,813 |
| | 2,758 |
|
| Other acquisitions and investments | — |
| | (3,000 | ) | | — |
| |
| Acquisition | | (35,000 | ) | | — |
| | — |
|
| Net cash used in investing activities | (73,313 | ) | | (104,768 | ) | | (121,768 | ) | (57,176 | ) | | (116,148 | ) | | (63,041 | ) |
| Cash Flows from Financing Activities: | |
| | |
| | |
| |
| | |
| | |
|
| Payments on long-term real estate mortgage | — |
| | (943 | ) | | (1,048 | ) | |
| Net (decrease) increase in short-term loans | (50,727 | ) | | 2,272 |
| | 843 |
| |
| Term loan borrowings | | — |
| | 347,780 |
| | — |
|
| Repayment of term loan borrowings | (42,683 | ) | | (21,342 | ) | | (8,531 | ) | (13,125 | ) | | (266,853 | ) | | (61,654 | ) |
| Net increase in short-term loans | | 45,000 |
| | 15,000 |
| | 671 |
|
| Proceeds from employee stock purchase plan | 3,560 |
| | 4,341 |
| | 4,763 |
| 3,369 |
| | 3,254 |
| | 3,246 |
|
| Proceeds from exercise of stock options | 29,437 |
| | 14,032 |
| | 9,290 |
| 8,647 |
| | 10,191 |
| | 37,094 |
|
| Share repurchases | — |
| | (60,984 | ) | | (39,033 | ) | (175,000 | ) | | (160,000 | ) | | (100,000 | ) |
| Other financing activities | — |
| | — |
| | 556 |
| (99 | ) | | — |
| | — |
|
| Net cash used in financing activities | (60,413 | ) | | (62,624 | ) | | (33,160 | ) | (131,208 | ) | | (50,628 | ) | | (120,643 | ) |
| Effect of exchange rates on cash and cash equivalents | (1,571 | ) | | (12 | ) | | (4,057 | ) | (1,873 | ) | | (3,323 | ) | | 3,939 |
|
| Net Change in Cash and Cash Equivalents | 24,441 |
| | (45,539 | ) | | (31,807 | ) | (32,040 | ) | | (10,818 | ) | | 40,605 |
|
| Cash and Cash Equivalents at Beginning of Year | 115,123 |
| | 160,662 |
| | 192,469 |
| 169,351 |
| | 180,169 |
| | 139,564 |
|
| Cash and Cash Equivalents at End of Year | $ | 139,564 |
| | $ | 115,123 |
| | $ | 160,662 |
| $ | 137,311 |
| | $ | 169,351 |
| | $ | 180,169 |
|
| Supplemental Disclosures of Cash Flow Information: | |
| | |
| | |
| |
| | |
| | |
|
| Interest paid | $ | 7,850 |
| | $ | 8,511 |
| | $ | 8,497 |
| $ | 12,545 |
| | $ | 13,116 |
| | $ | 7,663 |
|
| Income taxes paid | $ | 6,957 |
| | $ | 7,829 |
| | $ | 11,211 |
| $ | 11,507 |
| | $ | 8,205 |
| | $ | 9,083 |
|
| Non-Cash Investing and Financing Activities: | | | | | | |
| Transfers from inventory to fixed assets for placement of Haemonetics equipment | $ | 6,255 |
| | $ | 9,663 |
| | $ | 7,458 |
| $ | 14,479 |
| | $ | 16,345 |
| | $ | 8,963 |
|
| Tenant improvement allowances excluded from capital expenditures | | $ | 5,660 |
| | $ | — |
| | $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Haemonetics Corporation ("Haemonetics" or the "Company") is a global healthcare company dedicated to providing a suite of innovative hematology products and solutions to customers to help them improve patient care and reduce the cost of healthcare. OurIts technology addresses important medical markets including blood and plasma component collection, the surgical suite, and hospital transfusion services.
Blood is essential to a modern healthcare system. Blood and its components (plasma, platelets and red cells) have many vital - and frequently life-saving - clinical applications. Plasma is used for patients with major blood loss and is manufactured into biopharmaceuticals to treat a variety of illnesses, including immune diseases and coagulation disorders. Red cells treat trauma patients or patients undergoing surgery with high blood loss, such as open heart surgery or organ transplant. Platelets have many uses in patient care, including supporting cancer patients undergoing chemotherapy. Blood is essential to a modern healthcare system.
Haemonetics develops and markets a wide range of devices and solutions to serve ourits customers. We provideThe Plasma business unit provides plasma collection systemsdevices and disposables and plasma donor management software whichthat enable the collection of plasma fractionatorsused by biopharmaceutical companies to make life saving pharmaceuticals. We provide analyticalThe Blood Center business unit offers blood collection and processing devices and disposables for red cells, platelets and whole blood as well as related donor management software that make blood donations more efficient and track life giving blood components. The Hospital Business unit, which is comprised of Hemostasis Management, Cell Salvage and Transfusion Management products, includes devices and methodologies for measuring hemostasis whichthe coagulation of blood that enable healthcare providers to better manage their patients’ bleeding risk. Haemonetics makesrisk, as well as surgical blood salvage systems, specialized blood cell processing systems and disposables and blood transfusion management software which make blood donation more efficient and track life giving blood components. Finally, Haemonetics supplies systems and software whichthat facilitate blood transfusions and cell processing.
The accompanying consolidated financial statements present separately the Company's consolidated financial position, results of operations, cash flows and changes in shareholders’ equity. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The accompanying consolidated financial statements present separately our financial position, results of operations, cash flows, and changes in shareholders’ equity. All amounts presented, except per share amounts, are stated in thousands of U.S. dollars, unless otherwise indicated. Operating results for fiscal 2017 include an overstatementThe Company has assessed its ability to continue as a going concern. As of inventory related charges dueMarch 28, 2020, Haemonetics has concluded that substantial doubt about its ability to the correction of capitalized manufacturing variances and corrections of certain out of period items. Absent these corrections, our operating loss for the fiscal year ended April 1, 2017 would have been $2.4 million lower than the amount included in the accompanying consolidated statements of (loss) income and comprehensive loss.continue as a going concern does not exist.
Operating results for fiscal 2016 include the correction of an overstated liability in fiscal 2014, the correction of capitalized manufacturing variances identified during fiscal 2017 and corrections of certain other out of period items, all of which were determined to be immaterial to all periods impacted. Absent these corrections, our net loss for the fiscal year ended April 2, 2016 would have been $3.5 million higher than the amount included in the accompanying consolidated statements of (loss) income and comprehensive loss.
We considerThe 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 19, Subsequent Events,13, Notes Payable and Long-Term Debt, for information pertaining to a $150.0 million draw down on the sale of a product line which occurredCompany's revolving credit facility that was made after the balance sheet date but prior to the issuance of the financial statements. There were no other material subsequent events identified.Additionally, on April 1, 2020, the Company acquired all outstanding shares of enicor GmbH. Refer to Note 4, Acquisitions, for further information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
Our
Haemonetics' fiscal year ends on the Saturday closest to the last day of March. Fiscal 20172020, 2019 and 20152018 include 52 weeks with each quarter having 13 weeks. Fiscal 2016 includes 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks.
Principles of Consolidation
The accompanying consolidated financial statements include all accounts including those of ourits subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires usthe Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the amounts derived from ourits estimates and assumptions. We considerThe Company considers estimates to be critical if wethey are required to make assumptions about material matters that are uncertain at the time of estimation or if materially different estimates could have been made or it is reasonably likely that the accounting estimate will change from period to period. The following are areas considered to be critical and require management’s judgment: revenue recognition, allowance for doubtful accounts, inventory provisions, intangible asset and goodwill valuation, legal and other judgmental accruals and income taxes.
Reclassifications
Certain immaterial reclassifications have been made to prior years' amounts to conform to the current year's presentation.
Contingencies
We
The Company may become involved in various legal proceedings that arise in the ordinary course of business, including, without limitation, patent infringement, product liability and environmental matters. Accruals recorded for various contingencies including legal proceedings, employee related litigation, self-insurance and other claims are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates. When a loss is probable and a range of loss is established but a best estimate cannot be made, we recordthe Company records the minimum loss contingency amount, which could be zero. These estimates are often initially developed substantially earlier than the ultimate loss is known and the estimates are reevaluated each accounting period, as additional information is available. As information becomes known, an additional loss provision is recorded when either a best estimate can be made or the minimum loss amount is increased. When events result in an expectation of a more favorable outcome than previously expected, ourthe best estimate is changed to a lower amount.
Revenue Recognition
Our
The Company's revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 605, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") Update No. 2014-19, Revenue Recognition, and ASC Topic 985-605, Softwarefrom Contracts with Customers (Topic 606). These standards require that revenues areRevenue is recognized when persuasive evidenceobligations under the terms of an arrangement exists, product delivery, includinga contract with a customer acceptance,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 occurreda contract with a customer that creates enforceable rights and obligations; promised products or services have been rendered,are identified; the transaction price, or the consideration the Company expects to receive for transferring goods or providing services, is fixed or determinable and collectability is reasonably assured. We may have multiple contracts withit has transferred control of the same customer, and each contract is typically treated as a separate arrangement. When more than one element such as equipment, disposables, and services are containedpromised items to the customer. A promise in a single arrangement, we allocate revenue between the elements based on each element’s relative selling price, provided that each element meets the criteria for treatment ascontract to transfer a separate unit of accounting. An item is considered a separate unit of accounting if it has valuedistinct 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 stand-alone basis. Themargin approach to estimate the standalone selling price of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by third-party evidence of selling price or by management's best estimate of selling price. For our software arrangements accounted for under the provisions of ASC 985-605, Software, we establish fair value of undelivered elements based upon vendor specific objective evidence.each performance obligation.
We offer sales rebates and discounts to certain customers. We treat sales rebates and discounts as a reduction of revenue and classify the corresponding liability as current. We estimate rebates for products where there is sufficient historical information available to predict the volume of expected future rebates. If we are unable to estimate the expected rebates reasonably, we record a liability for the maximum potential rebate or discount that could be earned. In circumstances where we provide upfront rebate payments to customers, we capitalize the rebate payments and amortize the resulting asset as a reduction of revenue using a systematic method over the life of the contract.
Product Revenues
The majority of the Company’s performance obligations related to product sales are satisfied at a point in time. Product sales consistrevenue consists of the sale of ourits disposable blood component collection and processing sets and the related equipment. OnThe Company’s performance obligation related to product sales to end customers, revenue is recognized when both the title and risk of loss have transferredsatisfied upon shipment or delivery to the customer based on the specified terms set forth in the customer contract. Shipping and handling activities performed after a customer obtains control of the good are treated as determinedfulfillment activities and are not considered to be a separate performance obligation. Revenue is recognized over time for maintenance plans provided to customers that provide services beyond the Company’s standard warranty period. Payment terms between customers related to product sales vary by the shipping termstype of customer, country of sale, and all obligations havethe products or services offered and could result in an unbilled receivable or deferred revenue balance depending on whether the performance obligation has been completed. satisfied (or partially satisfied).
For product sales to distributors, we recognizethe Company recognizes revenue for both equipment and disposables upon shipment of these products to our distributors. Ourdistributors, which is when its performance obligations are complete. The Company's standard contracts with ourits distributors state that title to the equipment passes to the distributors at point of shipment to a distributor’s location. The distributors are
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
responsible for shipment to the end customer along with any installation, training and acceptance of the equipment by the end customer. Payments from distributors are not contingent upon resale of the product. We
The Company also placeplaces equipment at customer sites. While we retainthe Company retains ownership of this equipment, the customer has the right to use it for a period of time provided they meet certain agreed to conditions. We recoverThe Company recovers the cost of providing the equipment from the sale of its disposables.
Software and Other Revenues
To a lesser extent, the Company enters into other types of contracts including certain software licensing arrangements to provide software solutions to support its plasma, blood collection and hospital customers. A portion of its software sales are perpetual licenses typically accompanied by significant implementation services related to software customization as well as other professional and technical services. The Company generally recognizes revenue from the sale of perpetual licenses and related customization services over time (the Company is creating or enhancing an asset that the customer controls) using an input method which requires it to make estimates of the extent of progress toward completion of the contract. When the Company provides other services, including in some instances hosting, technical support and maintenance, it recognizes these fees and charges over time (the customer simultaneously receives and consumes benefits), as performance obligations for these services are satisfied during the contract period. Certain of the Company's software licensing arrangements are term-based licenses that include a per-collection or a usage-based fee related to the use of the license and the related technical support and hosting services. For these usage-based arrangements, the Company applies the revenue recognition exception resulting in revenue recognition occurring upon the later of actual usage or satisfaction of the related performance obligations. The payment terms for software licensing arrangements vary by customer pursuant to the terms set forth in the customer contract and result in an unbilled receivable or deferred revenue balance depending on whether the performance obligation has been satisfied (or partially satisfied).
Significant Judgments
Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration related to rebates, product returns and volume discounts. These reserves, which are based on estimates of the amounts earned or to be claimed on the related sales, are recorded as a reduction of revenue and a current liability. The Company's estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. Revenue recognized in the current period related to performance obligations satisfied in prior periods was not material. If the Company is unable to estimate the expected rebates reasonably, it records a liability for the maximum potential rebate or discount that could be earned. In circumstances where the Company provides upfront rebate payments to customers, it capitalizes the rebate payments and amortizes the resulting asset as a reduction of revenue using a systematic method over the life of the contract.
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 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.
Practical Expedients
The Company elected not to disclose the value of transaction price allocated to unsatisfied performance obligations for contracts with an original expected length of one year or less. When applicable, the Company has also elected to use the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if it is expected, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Software Revenues
We offer a variety of software solutions to support our plasma, blood collection and hospital customers. We provide information technology platforms and technical support for donor recruitment, blood and plasma testing laboratories, and for efficient and compliant operations of blood and plasma collection centers. For plasma customers, we also provide information technology platforms for managing distribution of plasma from collection centers to plasma fractionation facilities. For hospitals, we provide solutions to help improve patient safety, reduce cost and ensure compliance.
Our software revenues also include revenue from software sales which includes per collection or monthly subscription fees for the license and support of the software as well as hosting services. A significant portion of our software sales are perpetual licenses typically accompanied with significant implementation service fees related to software customization as well as other professional and technical service fees.
We generally recognize revenue from the sale of perpetual licenses on a percentage-of-completion basis which requires us to make reasonable estimates of the extent of progress toward completion of the contract. These arrangements most often include providing customized implementation services to our customer. We also provide other services, including in some instances hosting, technical support, and maintenance, for the payment of periodic, monthly, or quarterly fees. We recognize these fees and charges as earned, typically as these services are provided during the contract period.
Non-Income Taxes
We are required to collect sales or valued added taxes in connection with the sale of certain of our products. We report revenues net of these amounts as they are promptly remitted to the relevant taxing authority.
We are also required to pay a medical device excise tax relating to U.S. sales of Class I, II and III medical devices. This excise tax went into effect January 1, 2013, established as part of the March 2010 U.S. healthcare reform legislation, and has been included in selling, general and administrative expenses. In December 2015, this tax was suspended for two years, beginning on January 1, 2016. This tax may be imposed again beginning on January 1, 2018, unless the suspension is extended or the medical device excise tax is permanently repealed.
Translation of Foreign Currencies
All assets and liabilities of foreign subsidiaries are translated at the rate of exchange at year-end while sales and expenses are translated at an average rate in effect during the year. The net effect of these translation adjustments is shown in the accompanying financial statements as a component of stockholders' equity. Foreign currency transaction gains and losses, including those resulting from intercompany transactions, are charged directly to earnings and included in other expense, net on the consolidated statements of (loss) income. The impact of foreign exchange on long-term intercompany loans, for which repayment has not been scheduled or planned, are recorded in accumulated other comprehensive loss on the consolidated balance sheet.
Cash and Cash Equivalents
Cash equivalents include various instruments such as money market funds, U.S. government obligations and commercial paper with maturities of three months or less at date of acquisition. Cash and cash equivalents are recorded at cost, which approximates fair market value. As of April 1, 2017, ourMarch 28, 2020, cash and cash equivalents consisted of investments in United States Government Agency and institutional money market funds.
Allowance for Doubtful Accounts
We establish
The Company establishes a specific allowance for customers when it is probable that they will not be able to meet their financial obligation.obligations. Customer accounts are reviewed individually on a regular basis and appropriate reserves are established as deemed appropriate. WeThe Company also maintainmaintains a general reserve using a percentage that is established based upon the age of ourits receivables and ourits collection history. We establishThe Company establishes allowances for balances not yet due and past due accounts based on past experience.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventories
Inventories are stated at the lower of cost or market and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method. We haveThe Company has based ourits provisions for excess, expired and obsolete inventory primarily on ourits estimates of forecasted net sales. Significant changes in the timing or level of demand for ourthe Company's products resultsresult in recording additional provisions for excess, expired and obsolete inventory. Additionally, uncertain timing of next-generation product approvals, variability in product launch strategies, non-cancelable purchase commitments, product recalls and variation in product utilization all affect ourthe Company's estimates related to excess, expired and obsolete inventory.
Property, Plant and Equipment
Property, plant and equipment is recorded at historical cost. We provideThe Company provides for depreciation and amortization by charges to operations using the straight-line method in amounts estimated to recover the cost of the building and improvements, equipment and furniture and fixtures over their estimated useful lives as follows: |
| | |
| Asset Classification | | Estimated Useful Lives |
| Building | | 30-40 Years |
| Building improvements | | 5-20 Years |
| Plant equipment and machinery | | 3-15 Years |
| Office equipment and information technology | | 2-103-10 Years |
| Haemonetics equipment | | 3-7 Years |
We evaluate
The Company evaluates the depreciation periods of property, plant and equipment to determine whether events or circumstances warrant revised estimates of useful lives. All property, plant and equipment are also tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Our
The Company's installed base of devices includes devices owned by usthe Company and devices sold to the customer. The asset on ourits balance sheet classified as Haemonetics equipment consists of medical devices installed at customer sites but owned by Haemonetics. Generally, the customer has the right to use it for a period of time as long as they meet the conditions we havethe Company has established, which among other things, generally include one or more of the following:
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•Purchase and consumption of a certain level of disposable products
•Payment of monthly rental fees
•An asset utilization performance metric, such as performing a minimum level of procedures per month per device
Consistent with the impairment tests noted below for other intangible assets subject to amortization, we reviewthe Company reviews Haemonetics equipment and theirthe related useful lives of such equipment at least once a year, or more frequently if certain conditions arise, to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. To conduct these reviews, we estimatethe Company estimates the future amount and timing of demand for disposables used with these devices, from which weit generate revenues. WeThe Company also considerconsiders product life cycle in ourits evaluation of useful life and recoverability. Changes in expected demand can result in additional depreciation expense, which is classified as cost of goods sold. Any significant unanticipated changes in demand could impact the value of ourthe Company's devices and ourits reported operating results.
Leasehold improvements are depreciated over the lesser of their useful lives or the term of the lease. Maintenance and repairs are generally expensed to operations as incurred. When the repair or maintenance costs significantly extend the life of the asset, these costs may be capitalized. When equipment and improvements are sold or otherwise disposed of, the asset cost and accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is included in the consolidated statements of (loss) income.
Leases
In February 2016, the FASB issued 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.
Goodwill and Intangible Assets
Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. Goodwill is not amortized. Instead goodwill is reviewed for impairment at least annually, in accordance with ASC Topic 350, Intangibles - Goodwill and Other ("Topic 350"), or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. We perform ourThe Company performs its annual impairment test on the first day of the fiscal fourth quarter for each of ourits reporting units.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In fiscal 2017, we early adopted ASUUnder ASC Update No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment. Under this amendment, Impairment entities perform their goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit's fair value. A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component. We determine ourThe Company determines its reporting units by first identifying ourits operating segments and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reviews the operating results of that component. We aggregateThe Company aggregates components within an operating segment that have similar economic characteristics. OurHaemonetics' reporting units for purposes of assessing goodwill impairment were historically based primarily on geography. Effective as of March 31, 2019, the Company completed the transition of its operating structure to three global business units and accordingly has reorganized its reporting structure to align with its three global business units and the information that will be regularly reviewed by the Company's chief operating decision maker. Following the reorganization, the Company's reportable segments are organized primarily based on operating segments and geography and include: (a) North Americaas follows: Plasma, (b) North America Blood Center, (c) North America Hospital, (d) Europe, Middle East, and Africa (collectively "EMEA"), (e) Asia-Pacific and (f) Japan. In the prior period, North America Blood Center, and North America Hospital were components of a single reporting unit, Americas Blood Center and Hospital. During the fourth quarter of fiscal 2017, we completed certain organizational changes which resulted in the disaggregation of Americas Blood Center and Hospital into two separate reporting units. The goodwill associated with the legacy Americas Blood Center and Hospital reporting unit was allocated to the North America Blood Center and North America Hospital reporting units based on their relative fair values. The North America Plasma reporting unit is a separate operating segment with dedicated segment management due to the size and scale of the Plasma business unit.
When allocating goodwill from business combinations to ourits reporting units, we assignthe Company assigns goodwill to the reporting units that we expectit expects to benefit from the respective business combination at the time of acquisition. In addition, for purposes of performing ourits goodwill impairment tests, assets and liabilities, including corporate assets, which relate to a reporting unit’s operations and would be considered in determining its fair value, are allocated to the individual reporting units. We allocateThe Company allocates assets and liabilities not directly related to a specific reporting unit, but from which the reporting unit benefits, based primarily on the respective revenue contribution of each reporting unit.
In fiscal 2017 and 2016, we used
The Company uses the income approach, specifically the discounted cash flow method, to derive the fair value of each of ourits reporting units in preparing ourits goodwill impairment assessments. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. WeThe Company selected this method as being the most meaningful in preparing ourits goodwill assessments because the use of the income approach typically generates a more precise measurement of fair value than the market approach. In applying the income approach to ourits accounting for goodwill, we makethe Company makes assumptions about the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. The amount and timing of future cash flows within ourthe Company's discounted cash flow analysis is based on ourits most recent operational budgets, long range strategic plans and other estimates. The terminal value growth rate is used to calculate the value of cash flows beyond the last projected period in ourthe Company's discounted cash flow analysis and reflects ourthe Company's best estimates for stable, perpetual growth of ourits reporting units. We useThe Company uses estimates of market-participant risk adjusted weighted average cost of capital as a basis for determining the discount rates to apply to ourits reporting units’ future expected cash flows. WeThe Company corroborated the valuations that arose from the discounted cash flow approach by performing both a market multiple valuation and by reconciling the aggregate fair value of ourits reporting units to ourits market capitalization at the time of the test.
During the fourth quarter of fiscal 2017, we2020, 2019 and 2018, the Company performed ourits annual goodwill impairment test under the guidelines of ASUASC Update No. 2017-04. The results of the goodwill impairment test performed indicated that the estimated fair value of all of ourits reporting units exceeded their respective carrying values, with the exception of North America Blood Center, for which we recorded an impairment charge of $57.0 million, which represented the entire goodwill balance associated with this reporting unit.values. There were no other reporting units at risk of impairment as of the fiscal 20172020, 2019 and 2018 annual test date.
During fiscal 2016, we recorded a goodwill impairment charge of $66.3 million associated with the EMEA reporting unit. At the time the impairment assessment was performed, this represented the entire goodwill balance of this reporting unit. During the first quarter of fiscal 2017, management reorganized its operating segments such that certain components of the All Other operating segment became components of the EMEA operating segment. As a result, we transferred $20.5 million of goodwill to the EMEA operating segment, which represented the portion of the goodwill associated with these components. Refer to Note 5, Goodwill and Intangible Assets, for additional details regarding the goodwill impairments recorded.
We reviewThe Company reviews intangible assets subject to amortization for impairment at least annually or more frequently if certain conditions arise to determine if any adverse conditions exist that would indicate that the carrying value of an asset or asset group may not be recoverable, or that a change in the remaining useful life is required. Conditions indicating that an impairment exists include, but are not limited to, a change in the competitive landscape, internal decisions to pursue new or different technology strategies,
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
a loss of a significant customer or a significant change in the marketplace including prices paid for ourits products or the size of the market for ourits products.
When an impairment indicator exists, we testthe Company tests the intangible asset for recoverability. For purposes of the recoverability test, we group ourthe Company groups its amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), wethe Company will write the carrying value down to the fair value in the period identified.
We
The Company generally calculatecalculates the fair value of ourits intangible assets as the present value of estimated future cash flows we expectit expects to generate from the asset using a risk-adjusted discount rate. In determining ourits estimated future cash flows associated with ourits intangible assets, we usethe Company uses estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group).
If we determinethe Company determines the estimate of an intangible asset's remaining useful life should be reduced based on ourits expected use of the asset, the remaining carrying amount of the asset is amortized prospectively over the revised estimated useful life.
During fiscal 2017, 20162020, 2019 and 2015, we determined that there were potential impairment indicators for certain intangible assets subject to amortization. As such, we performed2018 the recoverability test described above for the relevant asset groups. In fiscal 2017 and 2016, we determined that the undiscounted cash flowsCompany did not support the carrying valueincur any intangible asset impairments.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed
ASC Topic 985-20, Software - Costs of Software to be Sold, Leased or Marketed, specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers, at which point capitalized costs are amortized over their estimated useful life of five5 to 10 years. Technological feasibility is established when we haveit has a detailed design of the software and when research and development activities on the underlying device, if applicable, are completed. We capitalizeThe Company capitalizes costs associated with both software that we sellit sells as a separate product and software that is embedded in a device.
We review
The Company reviews the net realizable value of capitalized assets periodically to assess the recoverability of amounts capitalized. During fiscal 2017 and fiscal 2016, we recorded $4.0 million and $6.0 million, respectively, ofThere were no impairment charges related to the discontinuance of certain capitalized software projects.recorded during fiscal 2020, 2019 and 2018. In the future, the net realizable value may be adversely affected by the loss of a significant customer or a significant change in the market place, which could result in an impairment being recorded.
Other Current Liabilities
Other current liabilities represent items payable or expected to settle within the next twelve months. The items included in the fiscal year end balances were: |
| | | | | | | |
| (In thousands) | March 28,
2020 | | March 30,
2019 |
| VAT liabilities | $ | 3,279 |
| | $ | 3,995 |
|
| Forward contracts and interest rate swaps | 8,870 |
| | 5,348 |
|
| Deferred revenue | 28,843 |
| | 27,279 |
|
| Accrued taxes | 13,292 |
| | 8,451 |
|
| Lease liability | 7,306 |
| | — |
|
| All other | 36,051 |
| | 46,459 |
|
| Total | $ | 97,641 |
| | $ | 91,532 |
|
|
| | | | | | | |
| (In thousands) | April 1,
2017 | | April 2,
2016 |
| VAT liabilities | $ | 4,051 |
| | $ | 1,289 |
|
| Forward contracts | 966 |
| | 4,210 |
|
| Deferred revenue | 26,485 |
| | 27,053 |
|
| Accrued taxes | 4,407 |
| | 3,876 |
|
| All other | 27,741 |
| | 30,180 |
|
| Total | $ | 63,650 |
| | $ | 66,608 |
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Long-Term Liabilities
Other long-term liabilities represent items that are not payable or expected to settle within the next twelve months. The items included in the fiscal year end balances were:
| | | (In thousands) | April 1,
2017 | | April 2,
2016 | March 28,
2020 | | March 30,
2019 |
| Unfunded pension liability | 14,060 |
| | 18,067 |
| 13,083 |
| | 13,766 |
|
| Interest rate swaps | | 9,475 |
| | — |
|
| Unrecognized tax benefit | 1,627 |
| | 2,283 |
| 3,437 |
| | 2,895 |
|
| Transition tax liability | | 5,374 |
| | 6,305 |
|
| Lease liability | | 52,014 |
| | — |
|
| All other | 6,494 |
| | 5,756 |
| 5,721 |
| | 5,814 |
|
| Total | $ | 22,181 |
| | $ | 26,106 |
| $ | 89,104 |
| | $ | 28,780 |
|
Research and Development Expenses
All research and development costs are expensed as incurred.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Advertising Costs
All advertising costs are expensed as incurred and are included in selling, general and administrative expenses in the consolidated statements of (loss) income. Advertising expenses were $2.5$4.3 million, $3.9$4.5 million and $4.5$3.1 million in fiscal 2017, 20162020, 2019 and 2015,2018, respectively.
Shipping and Handling Costs
Shipping and handling costs are included in selling, general and administrative expenses. Freight is classified in cost of goods sold when the customer is charged for freight and in selling, general and administration when the customer is not explicitly charged for freight.
Income Taxes
The income tax provision is calculated for all jurisdictions in which we operate.the Company operates. The income tax provision process involves calculating current taxes due and assessing temporary differences arising from items whichthat are taxable or deductible in different periods for tax and accounting purposes and are recorded as deferred tax assets and liabilities. Deferred tax assets are evaluated for realizability and a valuation allowance is maintained for the portion of ourthe Company's deferred tax assets that are not more-likely-than-not realizable.All available evidence, both positive and negative, has been considered to determine whether, based on the weight of that evidence, a valuation allowance is needed against the deferred tax assets. Significant weight has been givenRefer to our consolidated worldwide cumulative loss positionNote 6, Income Taxes, for further information and discussion of the currentCompany's income tax provision and prior two years.balances.
We file
The Company files income tax returns in all jurisdictions in which we operate. We recordit operates. The Company records a liability for uncertain tax positions taken or expected to be taken in income tax returns. OurThe Company's financial statements reflect expected future tax consequences of such positions presuming the taxing authorities' full knowledge of the position and all relevant facts. We recordThe Company records a liability for the portion of unrecognized tax benefits claimed which we havethat it has determined are not more-likely-than-not realizable. These tax reserves have been established based on management's assessment as to the potential exposure attributable to ourthe Company's uncertain tax positions as well as interest and penalties attributable to these uncertain tax positions. All tax reserves are analyzed quarterly and adjustments are made as events occur that result in changes in judgment.
We evaluate
The Company evaluates at the end of each reporting period whether some or all of the undistributed earnings of ourits foreign subsidiaries are permanently reinvested. We recognizeThe Company recognizes deferred income tax liabilities to the extent that management asserts that undistributed earnings of its foreign subsidiaries are not permanently reinvested or will not be permanently reinvested in the future. OurThe Company's position is based upon several factors including management’s evaluation of the CompanyHaemonetics and its subsidiaries’ financial requirements, the short termshort-term and long-term operational and fiscal objectives of the Company and the tax consequences associated with the repatriation of earnings.
Derivative Instruments
We account
The Company accounts for ourits derivative financial instruments in accordance with ASC Topic 815, Derivatives and Hedging (“("ASC 815”815") and ASC Topic 820, Fair Value Measurements and Disclosures (“("ASC 820”820"). In accordance with ASC 815, we recordthe Company records all derivatives on the balance sheet at fair value. The accounting for the change in the fair value of derivatives depends on the intended use of the derivative, whether we havethe Company has elected to designate a derivative as a hedging instrument for accounting purposes and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. In addition, ASC 815 provides that, for derivative instruments that qualify for hedge accounting, changes in the fair value are either (a) offset
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or (b) recognized in equity until the hedged item is recognized in earnings, depending on whether the derivative is being used to hedge changes in fair value or cash flows. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. We doThe Company does not use derivative financial instruments for trading or speculation purposes.
When the underlying hedged transaction affects earnings, the gains or losses on the forward foreign exchange rate contracts designated as hedges are recorded in net revenues, cost of goods sold, operating expenses and other expense, net in ourthe Company's consolidated statements of (loss) income, depending on the nature of the underlying hedged transactions. The cash flows related to the gains and losses are classified in the consolidated statements of cash flows as part of cash flows from operating activities. For those derivative instruments that are not designated as part of a hedging relationship we recordthe Company records the gains or losses in earnings currently. These gains and losses are intended to offset the gains and losses recorded on net
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
monetary assets or liabilities that are denominated in foreign currencies. WeThe Company recorded foreign currency losses of $1.8$2.9 million, $1.4$2.3 million and $1.1$0.2 million in fiscal 2017, 20162020, 2019 and 2015,2018, respectively.
On a quarterly basis, we assessthe Company assesses whether the cash flow hedges are highly effective in offsetting changes in the cash flow of the hedged item. We manageThe Company manages the credit risk of theits counterparties by dealing only with institutions that we considerit considers financially sound and considerconsiders the risk of non-performance to be remote. Additionally, 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.
Our
The Company's derivative instruments do not subject ourits earnings or cash flows to material risk, as gains and losses on these derivatives are intended to offset losses and gains on the item being hedged. We doThe Company does not enter into derivative transactions for speculative purposes and we doit does not have any non-derivative instruments that are designated as hedging instruments pursuant to ASC Topic 815.
Stock-Based
Share-Based Compensation
We expense
The Company expenses the fair value of stock-basedshare-based awards granted to employees, board members and others, net of estimated forfeitures. To calculate the grant-date fair value of ourits stock options we usethe Company uses the Black-Scholes option-pricing model and for performance share units and market stock units we useit uses Monte Carlo simulation models.
Costs Associated with Exit Activities
The Company records employee termination costs in accordance with ASC Topic 712, Compensation - Nonretirement and Postemployment Benefits, if it pays the benefits as part of an on-going benefit arrangement, which includes benefits provided as part of its established severance policies or that it provides in accordance with international statutory requirements. The Company accrues employee termination costs associated with an on-going benefit arrangement if the obligation is attributable to prior services rendered, the rights to the benefits have vested, the payment is probable and the liability can be reasonably estimated. The Company accounts for employee termination benefits that represent a one-time benefit in accordance with ASC Topic 420, Exit or Disposal Cost Obligations. It records such costs into expense over the employee’s future service period, if any.
Other costs associated with exit activities may include contract termination costs, including costs related to leased facilities to be abandoned or subleased, consultant fees and impairments of long-lived assets. The costs are expensed in accordance with ASC Topic 420 and ASC Topic 360, Property, Plant and Equipment and are included primarily in selling, general and administrative costs in its consolidated statement of income. Additionally, costs directly related to the Company's active restructuring initiatives, including program management costs, accelerated depreciation and costs to transfer product lines among facilities are included within costs of goods sold and selling, general and administrative costs in its consolidated statement of income. See Note 3, Restructuring, for further information and discussion of its restructuring plans.
Valuation of Acquisitions
We allocate
The Company allocates the amounts we payit pays for each acquisition to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition, including acquired identifiable intangible assets. We baseThe Company bases the estimated fair value of identifiable intangible assets on detailed valuations that use historical information and market assumptions based upon the assumptions of a market participant. We allocateThe Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. In fiscal 20172020, 2019 and 2016, one one plasma collection customer2018, the Company's ten largest customers accounted for 14%approximately 54%, 52% and 11%45% of our net revenues, respectively. In fiscal 2015 no2020, 2019 and 2018, two Plasma customers, CSL Plasma Inc. ("CSL") and Grifols S.A. ("Grifols"), each were greater than 10% of total net revenue and in total accounted for approximately 27%, 27% and 26% of net revenues, respectively. Additionally, one customer accounted for moregreater than 10% of ourthe Blood Center segment’s net revenues.revenues in fiscal 2020, 2019 and 2018.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Certain other markets and industries can expose usthe Company to concentrations of credit risk. For example, in ourthe Plasma business unit, our sales are concentrated with several large customers. As a result, our accounts receivable extended to any one of these biopharmaceutical customers can be significant at any point in time. Also, a portion of ourthe Company's trade accounts receivable outside the United StatesU.S. include sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries’ national economies. We haveThe Company has not incurred significant losses on government receivables. WeThe Company continually evaluateevaluates all government receivables for potential collection risks associated with the availability of government funding and reimbursement practices. If the financial condition of customers or the countries’ healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods.
Recent Accounting Pronouncements
Standards Implemented
In June 2014,March 2017, the FASB issued ASUASC Update No. 2014-12, Compensation—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): Accounting. The new guidance aligns the accounting for Share-Based Payments Whennon-employee share-based payments with the Terms of an Award Provide That a Performance Target Could Be Achieved afterexisting employee share-based transactions guidance. The Company adopted ASC Update No. 2018-07 during the Requisite Service Period. ASU No. 2014-12 requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation—Stock Compensation, as it relates to such awards. We adopted ASU No. 2014-12 in our 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 fiscal 2020, the Company incurred $11.9 million of restructuring and turnaround costs under this program.
During fiscal 2018, the Company launched a Complexity Reduction Initiative (the "2018 Program"), a company-wide restructuring program designed to improve operational performance and reduce cost, freeing up resources to invest in accelerated growth. During fiscal 2020, 2019 and 2018 the Company incurred $7.9 million, $13.7 million and $36.6 million of restructuring and turnaround costs under this program, respectively. Total cumulative charges under this program are $58.2 million as of March 28, 2020. The 2018 Program is substantially complete.
During fiscal 2017, the Company launched a restructuring program (the "2017 Program") designed to reposition its organization and improve its cost structure. The Company did not incur any charges under this program during fiscal 2020 and 2019. During fiscal 2018, the Company incurred $7.2 million of restructuring and turnaround charges under this program, respectively. The 2017 Program is substantially complete.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2017 using
The following table summarizes the prospective method. activity for restructuring reserves related to the 2020 Program and the 2018 and Prior Programs for the fiscal years ended March 28, 2020, March 30, 2019 and March 31, 2018, substantially all of which relates to employee severance and other employee costs:
|
| | | | | | | | | | | |
| (In thousands) | 2020 Program | | 2018 and Prior Programs | | Total |
| Balance at April 1, 2017 | $ | — |
| | $ | 7,468 |
| | $ | 7,468 |
|
| Costs incurred, net of reversals | — |
| | 30,529 |
| | 30,529 |
|
| Payments | — |
| | (8,260 | ) | | (8,260 | ) |
| Non-cash adjustments | — |
| | (1,202 | ) | | (1,202 | ) |
| Balance at March 31, 2018 | $ | — |
| | $ | 28,535 |
| | $ | 28,535 |
|
| Costs incurred, net of reversals | — |
| | 395 |
| | 395 |
|
| Payments | — |
| | (21,392 | ) | | (21,392 | ) |
| Non-cash adjustments | — |
| | (59 | ) | | (59 | ) |
| Balance at March 30, 2019 | $ | — |
| | $ | 7,479 |
| | $ | 7,479 |
|
| Costs incurred, net of reversals | 2,234 |
| | 1,357 |
| | 3,591 |
|
| Payments | (1,098 | ) | | (7,177 | ) | | (8,275 | ) |
| Non-cash adjustments | — |
| | (147 | ) | | (147 | ) |
| Balance at March 28, 2020 | $ | 1,136 |
| | $ | 1,512 |
| | $ | 2,648 |
|
The adoptionfollowing presents the restructuring costs by line item during fiscal 2020, 2019 and 2018 within our accompanying consolidated statements of ASU No. 2014-12 did not haveincome and comprehensive income:
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Cost of goods sold | $ | 1,082 |
| | $ | — |
| | $ | 1 |
|
| Research and development | 532 |
| | 741 |
| | 4,671 |
|
| Selling, general and administrative expenses | 1,977 |
| | (346 | ) | | 25,857 |
|
| Total | $ | 3,591 |
| | $ | 395 |
| | $ | 30,529 |
|
As of March 28, 2020, the Company had a material effect on our financial position or resultsrestructuring liability of operations.$2.6 million, of which approximately $2.2 million is payable within the next twelve months.
In August 2015,addition to the FASB issued ASU No. 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Healthrestructuring expenses included in the table above, the Company also incurred costs of $16.3 million, $13.2 million and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. Part I of ASU No. 2015-12 designates contract value as the only required measure for fully benefit-responsive investment contracts. Part II simplifies the investment disclosure requirements under Topics 820, 960, 962,$13.6 million in fiscal 2020, 2019 and 965 for employee benefits plans and Part III provides a measurement date practical expedient for fiscal periods2018, respectively, that do not coincide with a month-end date. ASU No. 2015-12 was effective for fiscal years beginning after December 15, 2015 with early adoption permitted. The adoption of ASU No. 2015-12 did not have a material effect on our financial position or results of operations.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU No. 2014-15 defines management's responsibility to assess an entity's ability to continue as a going concern,constitute restructuring costs under ASC 420, Exit and to provide related footnote disclosures in certain circumstances. This guidance is effective for all entities in the first annual period ending after December 15, 2016; however, early adoption is permitted. We adopted ASU No. 2014-15 in the fourth quarter of fiscal 2017. The adoption of ASU No. 2014-15 did not have a material impact our financial position or results of operations since there was no uncertainty about our ability to continue as a going concern.
In January 2017, the FASB issued ASC Update No. 2017-04, Intangibles - GoodwillDisposal Cost Obligations, and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017. The purpose of Update No. 2017-04 is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the impaired fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceedsCompany instead refers to as turnaround costs. These costs consist primarily of expenditures directly related to the reporting unit's fair value. We early adopted ASU No. 2017-04 inrestructuring actions and include program management costs associated with the implementation of outsourcing initiatives and recent accounting standards.
The following presents the turnaround costs by line item during fiscal 2017 on a prospective basis.
3. PRODUCT WARRANTIES
We generally provide a warranty on parts2020, 2019 and labor for one year after the sale2018 within our accompanying consolidated statements of income and installation of each device. We also warrant our disposables products through their use or expiration. We estimate our potential warranty expense based on our historical warranty experience, and we periodically assess the adequacy of our warranty accrual and make adjustments as necessary.comprehensive income:
|
| | | | | | | |
| (In thousands) | April 1,
2017 | | April 2,
2016 |
| Warranty accrual as of the beginning of the year | $ | 420 |
| | $ | 531 |
|
| Warranty provision | 400 |
| | 948 |
|
| Warranty spending | (644 | ) | | (1,059 | ) |
| Warranty accrual as of the end of the year | $ | 176 |
| | $ | 420 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Cost of goods sold | $ | 2,227 |
| | $ | 1,305 |
| | $ | 716 |
|
| Research and development | 354 |
| | — |
| | 4 |
|
| Selling, general and administrative expenses | 13,706 |
| | 11,923 |
| | 12,876 |
|
| Total | $ | 16,287 |
| | $ | 13,228 |
| | $ | 13,596 |
|
4. INVENTORIES
Inventories are stated at the lower of cost or market and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method. |
| | | | | | | |
| (In thousands) | April 1,
2017 | | April 2,
2016 |
| Raw materials | $ | 52,052 |
| | $ | 62,062 |
|
| Work-in-process | 10,400 |
| | 13,180 |
|
| Finished goods | 114,477 |
| | 111,786 |
|
| Total Inventories | $ | 176,929 |
| | $ | 187,028 |
|
Inventories include specific charges and reserves of $11.0 million and $9.4 million for fiscal 2017 and fiscal 2016, respectively, primarily related to changes in demand for Blood Center products and the impact of the whole blood product recall in fiscal 2017.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below present restructuring and turnaround costs by reportable segment:
|
| | | | | | | | | | | |
| Restructuring costs | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Plasma | $ | 544 |
| | $ | (67 | ) | | $ | 3,649 |
|
| Blood Center | (5 | ) | | 164 |
| | 3,838 |
|
| Hospital | 845 |
| | 828 |
| | 3,853 |
|
| Corporate | 2,207 |
| | (530 | ) | | 19,189 |
|
| Total | $ | 3,591 |
| | $ | 395 |
| | $ | 30,529 |
|
| | | | | | |
| Turnaround costs | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Plasma | $ | 820 |
| | $ | 174 |
| | $ | 973 |
|
| Blood Center | 320 |
| | 145 |
| | 35 |
|
| Hospital | — |
| | (270 | ) | | (30 | ) |
| Corporate | 15,147 |
| | 13,179 |
| | 12,618 |
|
| Total | $ | 16,287 |
| | $ | 13,228 |
| | $ | 13,596 |
|
| | | | | | |
| Total restructuring and turnaround | $ | 19,878 |
| | $ | 13,623 |
| | $ | 44,125 |
|
4. ACQUISITIONS
On April 1, 2020, the Company acquired all of the outstanding equity of enicor GmbH, the manufacturer of ClotPro®, a new generation whole blood coagulation testing system. The acquisition of this innovative viscoelastic diagnostic device further augments the Company's portfolio of hemostasis analyzers within the Hospital business unit. The purchase accounting for this acquisition will be completed in fiscal 2021.
On January 13, 2020, the Company purchased the technology underlying the TEG® 6s Hemostasis Analyzer System from Cora Healthcare, Inc. and CoraMed Technologies, LLC (the "Cora Parties") for $35.0 million. In connection with this transaction, which did not meet the definition of a business, the Company acquired ownership of intellectual property previously licensed from the Cora Parties on an exclusive basis in the field of hospitals and hospital laboratories. This acquisition will allow the Company to pursue site of care opportunities beyond the hospital setting. The intangible asset acquired as a result of this transaction was recorded in the Company's Hospital business unit.
5. GOODWILL AND INTANGIBLE ASSETSDIVESTITURE
Goodwill Impairment Testing
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 Charges
Under ASC Topic 350, Intangibles - Goodwillsaline (together, “Liquids”) at its Union, South Carolina facility (“Union”), which consist primarily of property, plant and Other, goodwillequipment and intangible assets determinedinventory, and CSL assumed certain related liabilities (the “Asset Transfer”) pursuant to have indefinite useful lives are not amortized. Instead these assets are evaluated for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair valueterms of a reporting unit is less thansettlement, 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 carrying value. We perform our annual impairment test on the first day of the fiscal fourth quarter for each of our reporting units. Our reporting units for purposes of assessing goodwill impairment are organized primarily based on operating segments and geography and include: (a) North America Plasma, (b) North America Blood Center, (c) North America Hospital, (d) EMEA, (e) Asia-Pacific and (f) Japan.obligations to supply Liquids under a 2014 supply agreement with CSL. In the prior period, North America Blood Center and North America Hospital were components of a single reporting unit, Americas Blood Center and Hospital. During the fourth quarter of fiscal 2017, we completed certain organizational changes which resulted in the disaggregation of Americas Blood Center and Hospital into two separate reporting units. The goodwill associatedconnection with the legacy Americas Blood CenterAsset Transfer, CSL and Hospital reporting unit was allocatedHaemonetics also entered into related transition services, supply and manufacturing services and quality agreements that, among other things, permit CSL to manufacture Liquids under the North America Blood CenterCompany's FDA product approvals, exclusively for Haemonetics and North America Hospital reporting units based on their relative fair values. The North America Plasma reporting unit is a separate operating segmentCSL, until CSL obtains independent product approvals from the FDA to manufacture the Liquids.
In connection with dedicated segment management due the sizeCompany's and scale ofCSL's entry into the Plasma business unit.
In fiscal 2017, we early adopted ASU No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment. Under this amendment, entities perform their goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognizedMay 13, 2019 agreement for the amount by whichAsset Transfer, the carrying value exceeds the reporting unit's fair value. We utilizedCompany recognized a discounted cash flow approach in order to value our reporting units for the test, which required that we forecast future cash flows of the reporting units and discount the cash flow stream based upon a weighted average cost of capital that was derived, in part, from comparable companies within similar industries. The discounted cash flow calculations also included a terminal value calculation that was based upon an expected long-term growth rate for the applicable reporting unit. We believe that our procedures for estimating discounted future cash flows, including the terminal valuation, were reasonable and consistent with market conditions at the time of estimation. We corroborated the valuations that arose from the discounted cash flow approach by performing both a market multiple valuation and by reconciling the aggregate fair value of our reporting units to our market capitalization at the time of the test.
The results of the goodwill impairment test performed in the fourth quarter of fiscal 2017 indicated that the estimated fair value of all of our reporting units exceeded their respective carrying values, with the exception of North America Blood Center. For North America Blood Center we recorded anpre-tax impairment charge of $57.0$48.7 million which represented the entire goodwill balance associated with this reporting unit. There were no other reporting units at risk of impairment as of the fiscal 2017 annual test date.
During fiscal 2016, we recorded a goodwill impairment charge of $66.3 million associated with the EMEA reporting unit. At the time the impairment assessment was performed, this represented the entire goodwill balance of this reporting unit. Duringin the first quarter of fiscal 2017, management reorganized its operating segments such that certain components of the Americas Blood Center and Hospital operating segment became components of the EMEA operating segment. As a result, we transferred $20.5 million of goodwill2020, primarily related to the EMEA operating segment, which represented the portion of the goodwill associated with these components.carrying
The changes in the carrying amount of goodwill by operating segment for fiscal 2017 and 2016 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | Japan | | EMEA | | North America Plasma | | All Other | | Total |
| Carrying amount as of March 28, 2015 | $ | 24,899 |
| | $ | 72,695 |
| | $ | 26,415 |
| | $ | 210,301 |
| | $ | 334,310 |
|
| Impairment charge | — |
| | (66,305 | ) | | — |
| | — |
| | (66,305 | ) |
| Transfer of goodwill between segments | — |
| | (6,390 | ) | | — |
| | 6,390 |
| | — |
|
| Currency translation | (16 | ) | | — |
| | — |
| | (149 | ) | | (165 | ) |
| Carrying amount as of April 2, 2016 | $ | 24,883 |
| | $ | — |
| | $ | 26,415 |
| | $ | 216,542 |
| | $ | 267,840 |
|
| Impairment charge | — |
| | — |
| | — |
| | (56,989 | ) | | (56,989 | ) |
| Transfer of goodwill between segments | — |
| | 20,545 |
| | — |
| | (20,545 | ) | | — |
|
| Currency translation | (3 | ) | | (2 | ) | | — |
| | (5 | ) | | (10 | ) |
| Carrying amount as of April 1, 2017 | $ | 24,880 |
| | $ | 20,543 |
| | $ | 26,415 |
| | $ | 139,003 |
| | $ | 210,841 |
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible Asset Impairment
During fiscal 2017, we impaired $4.8 millionbalances of intangible assets as a result of our review of non-core and underperforming assets and our decision to discontinue the use of and investment in certain assets, of which $4.0 million was included within cost of goods sold and $0.8 million was included within impairment of assets on the consolidated statements of (loss) income. These impairments impacted our All Other reportable segment.
During fiscal 2016, we recorded intangible asset impairment charges of $25.8 million, of which $6.6 million was included within cost of goods sold, while the remaining $19.2 million was included within impairment of assets on the consolidated statements of (loss) income. Of these intangible impairments, $6.6 million related to EMEA and the remaining $19.2 million related to our All Other reportable segment. These impairment charges primarily related to the SOLX technology acquired from Hemerus Medical, LLC, which resulted in impairment charges of $18.7 million and included the reversal of the $4.9 million of contingent consideration associated with the acquisition. The remaining $7.1 million of impairment charges recorded in fiscal 2016 was due to changes in the strategic direction of the Company.
The gross carrying amount of intangible assets and the related accumulated amortization as of April 1, 2017 and April 2, 2016 is as follows: |
| | | | | | | | | | | |
| (In thousands) | Gross Carrying Amount | | Accumulated Amortization(1) | | Net |
| As of April 1, 2017 | |
| | |
| | |
| Amortizable: | | | | | |
| Patents | $ | 9,183 |
| | $ | 8,043 |
| | $ | 1,140 |
|
| Capitalized software | 49,948 |
| | 21,563 |
| | 28,385 |
|
| Other developed technology | 117,712 |
| | 72,594 |
| | 45,118 |
|
| Customer contracts and related relationships | 194,876 |
| | 108,073 |
| | 86,803 |
|
| Trade names | 7,017 |
| | 5,499 |
| | 1,518 |
|
| Total | $ | 378,736 |
| | $ | 215,772 |
| | $ | 162,964 |
|
| Non-amortizable: | | | | | |
| In-process software development | $ | 12,743 |
| | | | |
| In-process patents | 1,833 |
| | | | |
| Total | $ | 14,576 |
| | | | |
|
| | | | | | | | | | | |
| (In thousands) | Gross Carrying Amount | | Accumulated Amortization(1) | | Net |
| As of April 2, 2016 | |
| | |
| | |
| Amortizable: | | | | | |
| Patents | $ | 8,545 |
| | $ | 7,542 |
| | $ | 1,003 |
|
| Capitalized software | 40,488 |
| | 14,791 |
| | 25,697 |
|
| Other developed technology | 126,142 |
| | 73,475 |
| | 52,667 |
|
| Customer contracts and related relationships | 196,085 |
| | 89,804 |
| | 106,281 |
|
| Trade names | 7,083 |
| | 5,204 |
| | 1,879 |
|
| Total | $ | 378,343 |
| | $ | 190,816 |
| | $ | 187,527 |
|
| Non-amortizable: | | | | | |
| In-process software development | $ | 14,427 |
| | | | |
| In-process patents | 2,504 |
| | | | |
| Total | $ | 16,931 |
| | | | |
(1)Includes impairment of SOLX and other intangible assets, as discussed above. |
Intangible assets include the value assigned to license rights and other developed technology, patents, customer contracts and relationships and trade names. The estimated useful lives for all of these intangible assets are 2 to 19 years. The changes to the net carrying value of our intangible assets from April 2, 2016 to April 1, 2017 reflect the impact of amortization expense and impairments of intangible assets, partially offset by the investment in capitalized software.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Aggregate amortization expense for amortized intangible assets for fiscal 2017 and 2016 was $37.2 million and $59.3 million, respectively, which included $4.0 million and $25.4 million, respectively, of amortization expense as a result of the intangible asset impairments discussed above. Fiscal 2015 amortization expense was $33.5 million. Future annual amortization expense on intangible assets is estimated to be as follows: |
| | | | |
| (In thousands) | | |
| Fiscal 2018 | | $ | 31,495 |
|
| Fiscal 2019 | | $ | 30,089 |
|
| Fiscal 2020 | | $ | 28,091 |
|
| Fiscal 2021 | | $ | 26,190 |
|
| Fiscal 2022 | | $ | 25,485 |
|
6. DERIVATIVES AND FAIR VALUE MEASUREMENTS
We manufacture, market and sell our products globally. For the fiscal year ended April 1, 2017, 41.0% of our sales were generated outside the U.S. in local currencies. We also incur certain manufacturing, marketing and selling costs in international markets in local currency.
Accordingly, our earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, our reporting currency. We have a program in place that is designed to mitigate our 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 our financial results from changes in foreign exchange rates. We utilize 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, but because we generally enter 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 our designated foreign currency hedge contracts as of April 1, 2017 and April 2, 2016 were cash flow hedges under ASC Topic 815, Derivatives and Hedging. We record the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income (loss) until the related third-party transaction occurs. Once the related third-party transaction occurs, we reclassify 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, we would reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. We had designated foreign currency hedge contracts outstanding in the contract amount of $68.4 million as of April 1, 2017 and $107.4 million as of April 2, 2016.
During fiscal 2017, we recognized net losses of $4.6 million in earnings on our cash flow hedges, compared to recognized net gains of $8.8 million and $6.5 million during fiscal 2016 and 2015, respectively. For the fiscal year ended April 1, 2017, a $0.5 million loss, net of tax, was recorded in accumulated other comprehensive loss to recognize the effective portion of the fair value of any designated foreign currency hedge contracts that are, or previously were, designated as foreign currency cash flow hedges, as compared to a loss of $3.9 million, net of tax, for the fiscal year ended April 2, 2016 and a gain of $12.2 million, net of tax, for the fiscal year ended March 28, 2015. At April 1, 2017, losses of $0.5 million, net of tax, will be reclassified to earnings within the next twelve months. All currency cash flow hedges outstanding as of April 1, 2017 mature within twelve months.
Non-Designated Foreign Currency Contracts
We manage our exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. We use foreign currency forward contracts as a part of our 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 Topic 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings. We had non-designated foreign currency hedge contracts under ASC Topic 815 outstanding in the contract amount of $55.4 million as of April 1, 2017 and $48.8 million as of April 2, 2016.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Rate Swaps
On December 21, 2012, we entered into two interest rate swap agreements (the "Swaps") on a total notional value of $250.0 million of debt. The Swaps are amortizing and mature on August 1, 2017. We designated the Swaps as cash flow hedges of variable interest rate risk associated with $250.0 million of indebtedness. As of April 1, 2017, the notional amount of these Swaps was $50.0 million. For fiscal 2017, 2016 and 2015, we recorded nominal activity in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges.
Fair Value of Derivative Instruments
The following table presents the effect of our derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC Topic 815 in our consolidated statements of loss and comprehensive loss for the fiscal year ended April 1, 2017.
|
| | | | | | | | | | | | | | | | |
Derivative Instruments | | Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss | | Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings | | Location in Consolidated Statements of (Loss) Income and Comprehensive Loss | | Amount of Gain Excluded from
Effectiveness Testing (*) | | Location in Consolidated Statements of (Loss) Income and Comprehensive Loss |
| (In thousands) | | | | | | | | | | |
| Designated foreign currency hedge contracts, net of tax | | $ | (524 | ) | | $ | (4,647 | ) | | Net revenues, COGS, and SG&A | | $ | 636 |
| | Other expense, net |
| Non-designated foreign currency hedge contracts | | — |
| | — |
| | | | $ | 221 |
| | Other expense, net |
| Designated interest rate swaps, net of tax | | $ | 160 |
| |
|
| | Other expense, net | | $ | — |
| | |
(*) We exclude the difference between the spot rate and hedge forward rate from our effectiveness testing. |
We did not have fair value hedges or net investment hedges outstanding as of April 1, 2017 or April 2, 2016. As of April 1, 2017, we have not recognized any deferred tax assets or deferred tax liabilities for designated foreign currency hedges.
ASC Topic 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. We determine the fair value of our derivative instruments using the framework prescribed by ASC Topic 820, Fair Value Measurements and Disclosures, by considering the estimated amount we would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities. In certain instances, we may utilize financial models to measure fair value. Generally, we use inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of April 1, 2017, we have classified our derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC Topic 815, as discussed below, because these observable inputs are available for substantially the full term of our derivative instruments.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables present the fair value of our derivative instruments as they appear in our consolidated balance sheets:
|
| | | | | | | | | |
| (In thousands) | Location in Balance Sheet | | April 1, 2017 | | April 2, 2016 |
| Derivative Assets: | | | |
| | |
|
| Designated foreign currency hedge contracts | Other current assets | | $ | 1,645 |
| | $ | 335 |
|
| Non-designated foreign currency hedge contracts | Other current assets | | 218 |
| | 92 |
|
| Designated interest rate swaps | Other current assets | | 64 |
| | — |
|
| | | | $ | 1,927 |
| | $ | 427 |
|
| Derivative Liabilities: | | | |
| | |
|
| Designated foreign currency hedge contracts | Other current liabilities | | $ | 894 |
| | $ | 3,910 |
|
| Non-designated foreign currency hedge contracts | Other current liabilities | | $ | 72 |
| | $ | 146 |
|
| Designated interest rate swaps | Other current liabilities | | — |
| | 154 |
|
| | | | $ | 966 |
| | $ | 4,210 |
|
Other Fair Value Measurements
ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. ASC Topic 820 does not require any new fair value measurements; rather, it applies to other accounting pronouncements that require or permit fair value measurements. In accordance with ASC Topic 820, for the fiscal years ended April 1, 2017 and April 2, 2016, we applied the requirements under ASC Topic 820 to our non-financial assets and non-financial liabilities.
On a recurring basis, we measure certain financial assets and financial liabilities at fair value, including our money market funds, foreign currency hedge contracts, and contingent consideration. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We base fair value upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, we apply valuation techniques to estimate fair value.
ASC Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:
Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
Our money market funds carried at fair value are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Measured on a Recurring Basis
Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following: |
| | | | | | | | | | | |
| As of April 1, 2017 | Level 1 | | Level 2 | | Total |
| (In thousands) | | | | | |
| Assets | |
| | |
| | |
|
| Money market funds | $ | 80,676 |
| | $ | — |
| | $ | 80,676 |
|
| Designated foreign currency hedge contracts | — |
| | 1,645 |
| | 1,645 |
|
| Non-designated foreign currency hedge contracts | — |
| | 218 |
| | 218 |
|
| Designated interest rate swaps | — |
| | 64 |
| | 64 |
|
| | $ | 80,676 |
| | $ | 1,927 |
| | $ | 82,603 |
|
| Liabilities | |
| | |
| | |
|
| Designated foreign currency hedge contracts | $ | — |
| | $ | 894 |
| | $ | 894 |
|
| Non-designated foreign currency hedge contracts | $ | — |
| | $ | 72 |
| | $ | 72 |
|
| | $ | — |
| | $ | 966 |
| | $ | 966 |
|
|
| | | | | | | | | | | |
| As of April 2, 2016 | Level 1 | | Level 2 | | Total |
| (In thousands) | | | | | |
| Assets | |
| | |
| | |
|
| Money market funds | $ | 72,491 |
| | $ | — |
| | $ | 72,491 |
|
| Designated foreign currency hedge contracts | — |
| | 335 |
| | 335 |
|
| Non-designated foreign currency hedge contracts | — |
| | 92 |
| | 92 |
|
| | $ | 72,491 |
| | $ | 427 |
| | $ | 72,918 |
|
| Liabilities | |
| | |
| | |
|
| Designated foreign currency hedge contracts | $ | — |
| | $ | 3,910 |
| | $ | 3,910 |
|
| Non-designated foreign currency hedge contracts | — |
| | 146 |
| | 146 |
|
| Designated interest rate swaps | — |
| | 154 |
| | 154 |
|
| | $ | — |
| | $ | 4,210 |
| | $ | 4,210 |
|
Other Fair Value Disclosures
The Term Loan (which is carried at amortized cost), accounts receivable and accounts payable approximate fair value. Details pertaining to the Term Loan can be found in Note 7, Notes Payable and Long-Term Debt.
7. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following: |
| | | | | | | |
| (In thousands) | April 1, 2017 | | April 2, 2016 |
| Term loan, net of financing fees | $ | 314,218 |
| | $ | 406,175 |
|
| Bank loans and other borrowings | 429 |
| | 1,825 |
|
| Less current portion | (61,022 | ) | | (43,471 | ) |
| Long-term debt | $ | 253,625 |
| | $ | 364,529 |
|
On August 1, 2012, we entered into a credit agreement ("Credit Agreement") with certain lenders (together, “Lenders”) which provided for a $475.0 million term loan ("Term Loan") and a $50.0 million revolving loan (“Revolving Credit Facility” and together with the Term Loan, the “Credit Facilities”). On June 30, 2014, we modified our existing Credit Facilities by extending the maturity date to July 1, 2019, extending the principal repayments of the Term Loan, and modifying certain restrictive covenants to allow greater operational flexibility and enhanced near term liquidity. The amended Credit Agreement provides for a $100.0 million Revolving Credit Facility and establishes interest rates in the range of LIBOR plus 1.125% to 1.500% depending on certain conditions. At April 1, 2017, $315.4 million was outstanding under the Term Loan with an interest rate of 2.25% and no amount was outstanding on the Revolving Credit Facility. No additional amounts were borrowed
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as a result of this modification. The fair value of debt approximates its current value of approximately $315.4 million as of April 1, 2017.
Under the terms of this Credit Agreement, the Company may borrow at a spread to an index, including the LIBOR index of 1-month, 3-months, 6-months, etc. From the date of the Credit Agreement, the Company has chosen to borrow against the 1-month USD-LIBOR-BBA rounded up, if necessary, to the nearest 1/16th of 1%. The terms of the Credit Agreement also allow the Company to borrow in multiple tranches. The Company currently borrows in four tranches.
Interest for the Credit Facilities was based on Adjusted LIBOR plus a range of 1.125% to 1.500% depending on the achievement of leverage ratios and customary credit terms which included financial and negative covenants. Revolving loans may be borrowed, repaid and re-borrowed to fund our working capital needs and for other general corporate purposes. The current margin of the Term Loan is 1.250% over Adjusted LIBOR and our effective interest rate inclusive of prepaid financing costs and other fees was approximately 2.25% as of April 1, 2017. The Term Loan or portions thereof may be prepaid at any time, or from time to time without penalty. Once repaid, such amount may not be re-borrowed.
Under the Credit Facilities, we are required to maintain a Consolidated Total Leverage Ratio not to exceed 3.0:1.0 and a Consolidated Interest Coverage Ratio not to be less than 4.0:1.0 during periods when the Credit Facilities are outstanding. In addition, we are required to satisfy these covenants, on a pro forma basis, in connection with any new borrowings (including any letter of credit issuances) on the Revolving Credit Facility as of the time of such borrowings. The Consolidated Interest Coverage Ratio is calculated as the Consolidated EBITDA divided by Consolidated Interest Expense while the Consolidated Total Leverage Ratio is calculated as Consolidated Total Debt divided by Consolidated EBITDA. Consolidated EBITDA includes EBITDA adjusted by non-recurring and unusual transactions specifically as defined in the Credit Facilities.
The Credit Facilities also contain usual and customary non-financial affirmative and negative covenants which include certain restrictions with respect to subsequent indebtedness, liens, loans and investments (including acquisitions), financial reporting obligations, mergers, consolidations, dissolutions or liquidation, asset sales, affiliate transactions, change of our business, capital expenditures, share repurchase and other restricted payments. These covenants are subject to important exceptions and qualifications set forth in the Credit Agreement.
Any failure to comply with the financial and operating covenants of the Credit Facilities would prevent us from being able to borrow additional funds and would constitute a default, which could result in, among other things, the amounts outstanding including all accrued interest and unpaid fees, becoming immediately due and payable. In addition, the Credit Facilities include customary events of default, in certain cases subject to customary cure periods. As of April 1, 2017, we were in compliance with the covenants. The goodwill and intangible asset impairment charges discussed in Note 5, Goodwill and Intangible Assets, and the property, plant and equipment impairment charges discussed in Note 12, Property Plant and Equipment, are excluded fromexceeding the definition of Consolidated EBITDA inconsideration received under the Credit Agreement.
Commitment fee
Pursuant to the Credit Agreement, we are required to pay the Lenders, on the last day of each calendar quarter, a commitment fee on the unused portionterms of the Revolving Credit Facility.Agreement. The commitment fee is subject to a pricing grid based on our Consolidated Total Leverage Ratio. The commitment fee ranges from 0.175% to 0.300%. The current commitment fee on the undrawn portion of the Revolving Credit Facility is 0.200%.
Debt issuance costs and interest
Expensescharge will not result in any future cash expenditures. Goodwill associated with the issuance of the Term Loan were capitalized and are amortized to interest expense over the life of the term loan using the effective interest method. As of April 1, 2017, the $315.4 million term loan balancedisposal was netted down by the $1.2 million of remaining debt discount, resulting in a net note payable of $314.2 million.immaterial.
Interest expense was $7.9 million and $8.5 million for fiscal years ended April 1, 2017 and April 2, 2016, respectively. Accrued interest associated with our outstanding debt is included as a component of accrued expenses and other current liabilities in the accompanying consolidated balance sheets. As of both April 1, 2017 and April 2, 2016, we had an insignificant amount of accrued interest associated with our outstanding debt.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Maturity Profile
The maturity profile of all gross long-term debt, exclusive of debt discounts, as of April 1, 2017 is presented below: |
| | | | | | | | | | | | |
Fiscal year (in thousands) | | Credit Facilities | | Bank loans and other borrowings | | Total |
| 2018 | | $ | 61,654 |
| | $ | 156 |
| | $ | 61,810 |
|
| 2019 | | 194,445 |
| | 138 |
| | 194,583 |
|
| 2020 | | 59,282 |
| | 100 |
| | 59,382 |
|
| 2021 | | — |
| | 28 |
| | 28 |
|
| 2022 | | — |
| | 2 |
| | 2 |
|
| Thereafter | | — |
| | 5 |
| | 5 |
|
| | | $ | 315,381 |
| | $ | 429 |
| | $ | 315,810 |
|
8.6. INCOME TAXES
Domestic and foreign income before provision for income tax is as follows:
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Domestic | $ | 5,344 |
| | $ | 26,665 |
| | $ | 3,534 |
|
| Foreign | 81,808 |
| | 46,968 |
| | 56,098 |
|
| Total | $ | 87,152 |
| | $ | 73,633 |
| | $ | 59,632 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Domestic | $ | (44,724 | ) | | $ | (18,526 | ) | | $ | (17,265 | ) |
| Foreign | 17,248 |
| | (34,890 | ) | | 48,430 |
|
| Total | $ | (27,476 | ) | | $ | (53,416 | ) | | $ | 31,165 |
|
The income tax provision from continuing operations contains the following components:
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Current | |
| | |
| | |
|
| Federal | $ | 3,834 |
| | $ | (4,165 | ) | | $ | 9,927 |
|
| State | 1,054 |
| | 844 |
| | 1,024 |
|
| Foreign | 12,467 |
| | 8,584 |
| | 8,937 |
|
| Total current | $ | 17,355 |
| | $ | 5,263 |
| | $ | 19,888 |
|
| Deferred | |
| | |
| | |
|
| Federal | (8,257 | ) | | 12,220 |
| | (5,350 | ) |
| State | 280 |
| | 463 |
| | 344 |
|
| Foreign | 1,248 |
| | 668 |
| | (822 | ) |
| Total deferred | $ | (6,729 | ) | | $ | 13,351 |
| | $ | (5,828 | ) |
| Total | $ | 10,626 |
| | $ | 18,614 |
| | $ | 14,060 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Current | |
| | |
| | |
|
| Federal | $ | (1,424 | ) | | $ | 12 |
| | $ | 3,526 |
|
| State | 436 |
| | (660 | ) | | 898 |
|
| Foreign | 6,580 |
| | 3,842 |
| | 5,614 |
|
| Total current | $ | 5,592 |
| | $ | 3,194 |
| | $ | 10,038 |
|
| Deferred | |
| | |
| | |
|
| Federal | (8,711 | ) | | 3,532 |
| | 1,227 |
|
| State | (953 | ) | | 319 |
| | 3,215 |
|
| Foreign | 2,864 |
| | (4,882 | ) | | (212 | ) |
| Total deferred | $ | (6,800 | ) | | $ | (1,031 | ) | | $ | 4,230 |
|
| Total | $ | (1,208 | ) | | $ | 2,163 |
| | $ | 14,268 |
|
OurThe 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.
Beginning in fiscal 2019, the Company incorporated certain provisions of the Tax Cuts and Jobs Act (the "Act") in the calculation of the tax provision and effective tax rate, including the provisions related to global intangible low taxed income (“GILTI”), foreign derived intangible income (“FDII”), base erosion anti abuse Tax (“BEAT”), as well as other provisions which limit tax deductibility of expenses. For fiscal 2020, the GILTI provisions have the most significant impact to the Company. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. The ability to benefit from a deduction and foreign tax credits against a portion of the GILTI income may be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income, and other potential limitations within the foreign tax credit calculation.
Interpretive guidance on the accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has made the accounting policy election to recognize GILTI as a period expense.
The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in the United States on March 27, 2020. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides extensive tax changes in response to the COVID-19 pandemic, the provisions are not expected to have a significant impact on the Company’s financial results.
The Company's subsidiary in Puerto Rico has been granted a fifteen yearfifteen-year tax grant whichthat expires in calendar 2027. OurIts qualification for the tax grant is dependent on the continuation of ourits manufacturing activities in Puerto Rico. We benefitThe Company benefits from a reduced tax rate on ourits earnings in Puerto Rico under the tax grant.
Our subsidiary in Switzerland operates as a principal company for direct federal tax purposes. Operating under this structure affords our Swiss subsidiary a reduced tax rate in Switzerland. Our Swiss subsidiary also operates under a 10 year tax holiday set to expire in fiscal 2018.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company's subsidiary in Malaysia has been granted a full income tax exemption to manufacture whole blood and apheresis devices that could be in effect for up to ten years, provided certain conditions are satisfied. The income tax exemption was in effect beginning June 1, 2016.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Tax affected, significant temporary differences comprising the net deferred tax liability are as follows:
|
| | | | | | | |
| (In thousands) | March 28,
2020 | | March 30,
2019 |
| Deferred tax assets: | | | |
| Depreciation | $ | 1,922 |
| | $ | 2,277 |
|
| Amortization of intangibles | 1,156 |
| | 1,091 |
|
| Inventory | 2,904 |
| | 3,541 |
|
| Accruals, reserves and other deferred tax assets | 17,345 |
| | 15,802 |
|
| Net operating loss carry-forward | 4,953 |
| | 4,931 |
|
| Stock based compensation | 3,634 |
| | 3,728 |
|
| Operating lease liabilities | 14,115 |
| | — |
|
| Tax credit carry-forward, net | 5,159 |
| | 4,176 |
|
| Capitalized research expenses | 3,820 |
| | — |
|
| Gross deferred tax assets | 55,008 |
| | 35,546 |
|
| Less valuation allowance | (14,587 | ) | | (11,322 | ) |
| Total deferred tax assets (after valuation allowance) | 40,421 |
| | 24,224 |
|
| Deferred tax liabilities: | | | |
| Depreciation | (15,840 | ) | | (23,102 | ) |
| Amortization of goodwill and intangibles | (15,450 | ) | | (13,959 | ) |
| Unremitted earnings | (654 | ) | | (801 | ) |
| Operating lease assets | (12,743 | ) | | — |
|
| Other deferred tax liabilities | (2,366 | ) | | (1,909 | ) |
| Total deferred tax liabilities | (47,053 | ) | | (39,771 | ) |
| Net deferred tax liabilities | $ | (6,632 | ) | | $ | (15,547 | ) |
|
| | | | | | | |
| (In thousands) | April 1,
2017 | | April 2,
2016 |
| Deferred tax assets: | | | |
| Depreciation | $ | 934 |
| | $ | 1,749 |
|
| Amortization of intangibles | 1,150 |
| | 4,417 |
|
| Inventory | 7,419 |
| | 7,607 |
|
| Hedging | — |
| | 382 |
|
| Accruals, reserves and other deferred tax assets | 13,907 |
| | 12,590 |
|
| Net operating loss carry-forward | 11,742 |
| | 13,484 |
|
| Stock based compensation | 6,014 |
| | 9,622 |
|
| Tax credit carry-forward, net | 17,852 |
| | 16,191 |
|
| Gross deferred tax assets | 59,018 |
| | 66,042 |
|
| Less valuation allowance | (25,872 | ) | | (24,297 | ) |
| Total deferred tax assets (after valuation allowance) | 33,146 |
| | 41,745 |
|
| Deferred tax liabilities: | | | |
| Depreciation | (30,422 | ) | | (28,972 | ) |
| Amortization of goodwill and intangibles | (7,732 | ) | | (23,626 | ) |
| Unremitted earnings | (1,065 | ) | | (700 | ) |
| Other deferred tax liabilities | (2,053 | ) | | (2,769 | ) |
| Total deferred tax liabilities | (41,272 | ) | | (56,067 | ) |
| Net deferred tax liabilities | $ | (8,126 | ) | | $ | (14,322 | ) |
The valuation allowance increased by $1.6$3.3 million during fiscal 2017,2020, primarily as thea result of discrete valuation allowance establishments in several of our foreign subsidiaries, current year income and lossnet operating losses and tax credits generated in domestic and foreign jurisdictions in which we havethe Company has concluded that ourits deferred tax assets are not more-likely-than-not realizable and the impact of foreign exchange. In determining the need for a valuation allowance, we have given consideration for our worldwide cumulative loss position, resulting from significant impairment and restructuring charges incurred in fiscal 2017 and 2016, when assessing the weight of the sources of taxable income that can be used to support the realizability of our deferred tax assets. We haverealizable. The Company has assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income. We haveIt has also considered the ability to implement certain strategies that would, if necessary, be implemented to accelerate taxable income and use expiring deferred tax assets. We believe we areThe Company has concluded future taxable income can be considered a source of income to realize a benefit for deferred tax assets in certain jurisdictions. In addition, the Company has concluded that it cannot rely on future taxable income in certain risk bearing principal jurisdictions due uncertainty surrounding future taxable income (including as a result of the effects of Covid-19). The Company believes it is able to support the deferred tax assets recognized as of the end of the year based on all of the available evidence. The worldwide net deferred tax liability as of April 1, 2017March 28, 2020 includes deferred tax liabilities related to amortizable tax basis in goodwill, which are indefinite lived and are not considered tocan only be used as a source of taxable income.income to benefit other indefinite lived assets.
As of April 1, 2017, we maintainMarch 28, 2020, the Company maintains a valuation allowance against ourcertain U.S. net deferred tax assets that are not more-likely-than-not realizable and maintains a full valuation allowance against the net deferred tax assets of certain foreign subsidiaries.
As of April 1, 2017, we haveMarch 28, 2020, the Company has no U.S. federal net operating loss carry-forwards of approximately $23.3 million,carryforwards. The Company has U.S. state net operating loss carry-forwardslosses of $33 million, federal tax credit carry-forwards of $15.1 million and state tax credit carry-forwards of $4.2 million that are available to reduce future taxable income. A portion of the federal net operating losses are subject to an annual limitation due to the ownership change limitations set forth under Internal Revenue Code Sections 382. Certain of the aforementioned amounts have not been recognized because they relate to excess stock based compensation. At April 1, 2017, $4.0$35.6 million of the federal net operating loss carry-forwards, $5.2which $30.3 million of the state net operating loss carry-forwards, none of the federal tax credit carry-forwards and none of the state tax credit carry-forwards relate to excess stock based compensation tax deductions. We will record these off balance sheet net operating losses as a deferred tax asset, offset with an increase in the valuation allowance upon the adoption of ASU 2016-09. The federal and state net operating losses begin to expire in fiscal 20222021 and 2019, respectively. The federal and state tax credits begin to expire in fiscal 2024 and 2025, respectively.$5.3 million can be carried
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Ourforward indefinitely. The Company has federal and state tax research credits of $1.3 million and $4.9 million, respectively, which will begin to expire in fiscal 2039 and fiscal 2025, respectively.
The Company's net operating loss and tax credit carry-forwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent as defined under Section 382 and 383 of the U.S. Internal Revenue Code of 1986, respectively, as well as similar state provisions. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. The Company conducted a Section 382 study covering the period April 2, 2011 through December 31, 2017. The study concluded that there were no limitations on the Company’s net operating losses and tax credit carryforwards as of December 31, 2017. The Company does not believe it has had an ownership change through March 28, 2020. Subsequent ownership changes may further affect the limitation in future years. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry-forward to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.
As of April 1, 2017, we haveMarch 28, 2020, the Company has foreign net operating losses of approximately $19.2$14.6 million that are available to reduce future income having unlimited carry-forward.of which $5.5 million will begin to expire in fiscal 2034 and $9.1 million can be carried forward indefinitely.
As of April 1, 2017, weMarch 28, 2020, substantially all of the unremitted earnings of the Company have been taxed in the U.S. The Company has provided $1.1$0.4 million of U.S. deferrednet foreign withholding taxes on approximately $8.4$178.3 million of unremitted earnings whichthat are not indefinitely reinvested. Of this amount, $0.1 million affected the Company's effective tax rate in fiscal 2017. We haveThe Company has not provided U.S. deferred income taxes or foreign withholding taxes on unremitted earnings of foreign subsidiaries of approximately $233.0$242.0 million as such amounts are considered to be indefinitely reinvested in the business. The accumulated earnings in the foreign subsidiaries are primarily utilized to fund working capital requirements as ourits subsidiaries continue to expand their operations, to service existing debt obligations and to fund future foreign acquisitions. We doThe Company does not believe it is practicable to estimate the amount of income taxes payable on the earnings that are indefinitely reinvested in foreign operations.operations, however a significant portion of the unremitted earnings could be remitted without a future tax cost.
The income tax provision from continuing operations differs from tax provision computed at the 35.0% U.S. federal statutory income tax rate due to the following:
|
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Tax at federal statutory rate | $ | 18,302 |
| | 21.0 | % | | $ | 15,463 |
| | 21.0 | % | | $ | 18,807 |
| | 31.5 | % |
| Difference between U.S. and foreign tax | (6,688 | ) | | (7.7 | )% | | (1,423 | ) | | (1.9 | )% | | (9,264 | ) | | (15.5 | )% |
| State income taxes net of federal benefit | (342 | ) | | (0.4 | )% | | 902 |
| | 1.2 | % | | 29 |
| | — | % |
| Change in uncertain tax positions | 785 |
| | 0.9 | % | | 267 |
| | 0.4 | % | | 1,095 |
| | 1.8 | % |
| Global intangible low taxed income | 5,431 |
| | 6.2 | % | | 5,954 |
| | 8.1 | % | | — |
| | — | % |
| Unremitted earnings | 40 |
| | — | % | | 527 |
| | 0.7 | % | | (791 | ) | | (1.3 | )% |
| Deferred statutory rate changes | 1,091 |
| | 1.3 | % | | 1,183 |
| | 1.6 | % | | (3,193 | ) | | (5.4 | )% |
| Non-deductible executive compensation | 2,423 |
| | 2.8 | % | | 1,588 |
| | 2.2 | % | | 221 |
| | 0.4 | % |
| Non-deductible other | 1,050 |
| | 1.2 | % | | 462 |
| | 0.6 | % | | 22 |
| | — | % |
| Stock compensation benefits | (12,133 | ) | | (13.9 | )% | | (5,382 | ) | | (7.3 | )% | | (2,544 | ) | | (4.3 | )% |
| Research credits | (2,085 | ) | | (2.4 | )% | | (768 | ) | | (1.0 | )% | | (763 | ) | | (1.3 | )% |
| One-time transition tax from tax reform | — |
| | — | % | | 26 |
| | — | % | | 25,798 |
| | 43.3 | % |
| Valuation allowance | 2,939 |
| | 3.4 | % | | (184 | ) | | (0.3 | )% | | (15,541 | ) | | (25.9 | )% |
| Other, net | (187 | ) | | (0.2 | )% | | (1 | ) | | — | % | | 184 |
| | 0.3 | % |
| Income tax provision (benefit) | $ | 10,626 |
| | 12.2 | % | | $ | 18,614 |
| | 25.3 | % | | $ | 14,060 |
| | 23.6 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Tax at federal statutory rate | $ | (9,616 | ) | | 35.0 | % | | $ | (18,695 | ) | | 35.0 | % | | $ | 10,907 |
| | 35.0 | % |
| Difference between U.S. and foreign tax | 137 |
| | (0.5 | )% | | 10,645 |
| | (19.9 | )% | | (6,929 | ) | | (22.2 | )% |
| State income taxes net of federal benefit | (495 | ) | | 1.8 | % | | 134 |
| | (0.3 | )% | | (818 | ) | | (2.6 | )% |
| Change in uncertain tax positions | 862 |
| | (3.1 | )% | | (1,820 | ) | | 3.4 | % | | (1,762 | ) | | (5.7 | )% |
| Unremitted earnings | 330 |
| | (1.2 | )% | | 735 |
| | (1.4 | )% | | — |
| | — | % |
| Deferred statutory rate changes | (383 | ) | | 1.4 | % | | (2,653 | ) | | 5.0 | % | | — |
| | — | % |
| Non-deductible goodwill impairment | 3,703 |
| | (13.5 | )% | | 2,861 |
| | (5.4 | )% | | — |
| | — | % |
| Non-deductible expenses | 896 |
| | (3.2 | )% | | 1,491 |
| | (2.8 | )% | | 1,237 |
| | 4.0 | % |
| Research credits | (561 | ) | | 2.0 | % | | (672 | ) | | 1.3 | % | | (1,000 | ) | | (3.2 | )% |
| Tax amortization of goodwill | (10,564 | ) | | 38.4 | % | | 4,185 |
| | (7.8 | )% | | 3,826 |
| | 12.3 | % |
| Valuation allowance | 13,505 |
| | (49.2 | )% | | 5,194 |
| | (9.7 | )% | | 8,524 |
| | 27.4 | % |
| Other, net | 978 |
| | (3.5 | )% | | 758 |
| | (1.4 | )% | | 283 |
| | 0.8 | % |
| Income tax (benefit) provision | $ | (1,208 | ) | | 4.4 | % | | $ | 2,163 |
| | (4.0 | )% | | $ | 14,268 |
| | 45.8 | % |
WeThe Company recorded an income tax benefitprovision of $1.2$10.6 million, representing an effective tax rate of 4.4%12.2%. The effective tax rate differs fromis lower than the U.S. statutory rate of 35.0%21.0% primarily as a result of the impact of tax benefits of stock compensation windfall deductions; research credits generated and jurisdictional mix of earnings, partially offset by the impact of GILTI, non-deductible executive compensation, tax reserves and losses generatedchanges in the U.S. and certain foreign subsidiaries that have a valuation allowance and therefore cannot be benefited. Other significant items impacting the rate include theallowance. The Company has recorded an immaterial tax provisionexpense related to the amortization of U.S. goodwill for tax purposes which gives rise to an indefinite lived deferred tax liability and the current year goodwill impairments. We have recorded a $0.1 million tax provision associated with the portion of unremitted foreign earnings that are not considered indefinitelypermanently reinvested.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unrecognized Tax Benefits
Unrecognized tax benefits represent uncertain tax positions for which reserves have been established. As of April 1, 2017, weMarch 28, 2020, the Company had $3.4$4.6 million of unrecognized tax benefits, of which $1.5$4.0 million would impact the effective tax rate, if recognized. As of April 2, 2016, weMarch 30, 2019, the Company had $2.5$4.7 million of unrecognized tax benefits, of which $0.6$3.9 million would impact the effective tax rate, if recognized. At March 28, 2015, we31, 2018, the Company had $7.1$4.5 million of unrecognized tax benefits, all of which $2.0$3.8 million would impact the effective tax rate, if recognized.
During the fiscal year ended April 1, 2017 ourMarch 28, 2020, the Company's unrecognized tax benefits were increaseddecreased by $0.8 million. An increase of $1.3 million in ouran immaterial amount, primarily relating to uncertain tax positions was triggered by a reduction in workforce which impacts a previously negotiatedestablished against foreign tax holiday that requires us to maintain certain levels of headcount for a multi-year period. The establishment of thisprovisions and various federal and state tax reserve iscredits offset by the releasesettlement of other reserves as a result of the closure of tax statutes of limitations.prior exposures.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the activity related to ourits gross unrecognized tax benefits for the fiscal years ended April 1, 2017, April 2, 2016March 28, 2020, March 30, 2019 and March 28, 2015:31, 2018:
|
| | | | | | | | | | | |
| (In thousands) | March 28,
2020 | | March 30,
2019 | | March 31,
2018 |
| Beginning Balance | $ | 4,657 |
| | $ | 4,450 |
| | $ | 3,370 |
|
| Additions for tax positions of current year | 180 |
| | 282 |
| | 289 |
|
| Additions for tax positions of prior years | 880 |
| | — |
| | 1,203 |
|
| Reductions of tax positions | (539 | ) | | (52 | ) | | (252 | ) |
| Settlements of tax positions | (558 | ) | | — |
| | — |
|
| Closure of statute of limitations | — |
| | (23 | ) | | (160 | ) |
| Ending Balance | $ | 4,620 |
| | $ | 4,657 |
| | $ | 4,450 |
|
|
| | | | | | | | | | | |
| (In thousands) | April 1,
2017 | | April 2,
2016 | | March 28,
2015 |
| Beginning Balance | $ | 2,523 |
| | $ | 7,070 |
| | $ | 5,604 |
|
| Additions for tax positions of prior years | 1,279 |
| | 340 |
| | 3,234 |
|
| Reductions of tax positions | (29 | ) | | (4,158 | ) | | — |
|
| Settlements with taxing authorities | — |
| | — |
| | (338 | ) |
| Closure of statute of limitations | (403 | ) | | (729 | ) | | (1,430 | ) |
| Ending Balance | $ | 3,370 |
| | $ | 2,523 |
| | $ | 7,070 |
|
As of April 1, 2017 we anticipateMarch 28, 2020, the Company anticipates that the liability for unrecognized tax benefits for uncertain tax positions could change by up to $1.5$1.4 million in the next twelve months, as a result of closure of various statutes of limitations and potential settlements with tax authorities.
Our historic
The Company's historical practice has been and continues to be to recognize interest and penalties related to federal, state and foreign income tax matters in income tax expense. Approximately $0.4 million, $0.2 million, and $0.4$0.2 million of gross interest and penalties were accrued at April 1, 2017March 28, 2020, March 30, 2019, and April 2, 2016,March 31, 2018, respectively, and isare not included in the amounts above. There was a benefit included in tax expense associated withAdditionally, $0.3 million of accrued interest and penalties of $0.2 million, $0.3 million and $0.3 millionwas included in income tax expense for the periodsyear ended April 1, 2017, April 2, 2016March 28, 2020. Such amounts were immaterial during the fiscal years ended March 30, 2019 and March 28, 2015, respectively.31, 2018.
We conduct
The Company conducts business globally and, as a result, file consolidated and separatefiles federal, state and foreign income tax returns in multiple jurisdictions. In the normal course of business, we areit is subject to examination by taxing authorities throughout the world. With a few exceptions, we arethe Company is no longer subject to U.S. federal, state, or local income tax examinations for years before fiscal 20142016 and foreign income tax examinations for years before fiscal 2012.2015. To the extent that we havethe Company has tax attribute carry-forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state, or foreign tax authorities to the extent utilized in a future period.
9. COMMITMENTS AND CONTINGENCIES
We lease facilities and certain equipment under operating leases expiring at various dates through fiscal 2028. Facility leases require us to pay certain insurance expenses, maintenance costs and real estate taxes.
Approximate future basic rental commitments under operating leases as of April 1, 2017 are as follows:
|
| | | |
| Fiscal Year | |
|
| (In thousands) | |
| 2018 | $ | 4,298 |
|
| 2019 | 2,966 |
|
| 2020 | 1,906 |
|
| 2021 | 1,722 |
|
| 2022 | 1,623 |
|
| Thereafter | 7,031 |
|
| | $ | 19,546 |
|
Rent expense in fiscal 2017, 2016, and 2015 was $6.2 million, $6.8 million and $6.3 million, respectively. Some of the Company's operating leases include renewal provisions, escalation clauses and options to purchase the facilities that we lease.
We are presently engaged in various legal actions, and although our ultimate liability cannot be determined at the present time, we believe, based on consultation with counsel, that any such liability will not materially affect our consolidated financial position or our results of operations.
Italian Employment Litigation
Our Italian manufacturing subsidiary is party to several actions initiated by former employees of our facility in Ascoli-Piceno, Italy. We ceased operations at the facility in fiscal 2014 and sold the property in fiscal 2017. These include actions claiming (i)
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
working conditions7. EARNINGS PER SHARE
The following table provides a reconciliation of the numerators and minimum salaries shoulddenominators of the basic and diluted earnings per share computations. |
| | | | | | | | | | | |
| (In thousands, except per share amounts) | 2020 | | 2019 | | 2018 |
| Basic EPS | |
| | |
| | |
|
| Net income | $ | 76,526 |
| | $ | 55,019 |
| | $ | 45,572 |
|
| Weighted average shares | 50,692 |
| | 51,533 |
| | 52,755 |
|
| Basic income per share | $ | 1.51 |
| | $ | 1.07 |
| | $ | 0.86 |
|
| Diluted EPS | |
| | |
| | |
|
| Net income | $ | 76,526 |
| | $ | 55,019 |
| | $ | 45,572 |
|
| Basic weighted average shares | 50,692 |
| | 51,533 |
| | 52,755 |
|
| Net effect of common stock equivalents | 1,123 |
| | 1,409 |
| | 746 |
|
| Diluted weighted average shares | 51,815 |
| | 52,942 |
| | 53,501 |
|
| Diluted income per share | $ | 1.48 |
| | $ | 1.04 |
| | $ | 0.85 |
|
Basic earnings per share is calculated using the Company's weighted-average outstanding common shares. Diluted earnings per share is calculated using its weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. For fiscal 2020, 2019 and 2018, weighted average shares outstanding, assuming dilution, excludes the impact of 0.2 million, 0.2 million and 0.4 million anti-dilutive shares, respectively.
Share Repurchase Plan
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 a $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 January 2020, the Company completed an additional $50.0 million repurchase of its common stock pursuant to an ASR entered into with Bank of America, N.A. ("Bank of America") in December 2019. 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 March 28, 2020, the total remaining authorization for repurchases of the Company's common stock under the share repurchase program was $325.0 million.
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 been established by eithermultiple 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 different classification under their national collective bargainingmargin approach to estimate the standalone selling price of each performance obligation.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of March 28, 2020, the Company had $22.8 million of 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 60% 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 March 28, 2020 and March 30, 2019, the Company had contract assets of $5.0 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 consolidated balance sheet.
As of March 28, 2020 and March 30, 2019, the Company had contract liabilities of $20.8 million and $20.3 million, respectively. During fiscal 2020, the Company recognized $17.7 million of revenue that was included in the above March 30, 2019 contract liability balance. Contract liabilities are classified as other current liabilities and other long-term liabilities on the consolidated balance sheet.
9. INVENTORIES
Inventories are stated at the lower of cost or net realizable value and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method. |
| | | | | | | |
| (In thousands) | March 28,
2020 | | March 31, 2019 |
| Raw materials | $ | 76,867 |
| | $ | 69,420 |
|
| Work-in-process | 11,021 |
| | 12,610 |
|
| Finished goods | 182,388 |
| | 112,307 |
|
| Total Inventories | $ | 270,276 |
| | $ | 194,337 |
|
10. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following: |
| | | | | | | | |
| (In thousands) | | March 28, 2020 | | March 30, 2019 |
| Land | | $ | 4,779 |
| | $ | 7,337 |
|
| Building and building improvements | | 101,296 |
| | 118,821 |
|
| Plant equipment and machinery | | 242,286 |
| | 301,297 |
|
| Office equipment and information technology | | 113,600 |
| | 132,783 |
|
| Haemonetics equipment | | 370,473 |
| | 372,984 |
|
| Total | | 832,434 |
| | 933,222 |
|
| Less: accumulated depreciation and amortization | | (579,035 | ) | | (589,243 | ) |
| Property, plant and equipment, net | | $ | 253,399 |
| | $ | 343,979 |
|
Depreciation expense was $76.6 million, $76.8 million and $57.7 million in fiscal 2020, 2019 and 2018, respectively. There was $0.5 million of asset impairments included in depreciation expense during fiscal 2020 and 0 asset impairments included in depreciation expense during fiscal 2019. Fiscal 2018 included $0.3 million of additional depreciation expense due to asset impairments.
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, orthe Company received a different agreement altogether, (ii) certain solidarity agreements,lease incentive in the form of property, plant and equipment totaling $5.6 million which are arrangementswas recorded upon commencement of the lease term in October 2019. Refer to Note 12, Leases, for additional information regarding this lease.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 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 2020, the Company recognized a pre-tax impairment charge of $48.7 million relating to the Asset Transfer between the Company employees and CSL on May 13, 2019. This impairment is related to the government to continue full pay and benefits for employees who would otherwise be terminated in times of low demand, are void, and (iii) rights to paymentcarrying balances of the extra time used for changing intoproperty, plant and outequipment exceeding the consideration received under the terms of their working clothes at the beginningAgreement. The charge will not result in any future cash expenditures. For additional information regarding the transaction, refer to Note 5 - Divestiture.
During fiscal 2020, the Company impaired an additional $1.9 million of property, plant and endequipment as a result of each shift.the Company's corporate headquarter move and a review of underperforming assets, resulting in total impairment charges of $50.6 million during fiscal 2020. Substantially all of these impairments were included within selling, general and administrative costs on the consolidated statements of income and primarily impacted the Plasma reporting segment. During fiscal 2019 and 2018, the Company impaired $21.2 million and $2.2 million of property, plant and equipment, respectively.
In addition, a union represented
During 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.
Additionally, in the Ascoli plant filed an action alleging thatsecond quarter of fiscal 2019, the Company discriminated against itchanged the estimated useful lives of PCS®2 devices included within Haemonetics Equipment, as these will be replaced by NexSys PCS® devices. During fiscal 2020 and 2019, the Company incurred $18.1 million and $18.0 million, respectively, of accelerated depreciation expense related to this change in favor of three other represented unions by (i) interfering with an employee referendum, (ii) interfering with an employee petition to recall union representatives from office, and (iii) excluding the union from certain meetings.
Finally, we have been added as defendants on claims filed against Pall Corporation prior to our acquisition of the plant in August 2012. These claims relate to agreements to "freeze" benefit allowances for a certain period in exchange for Pall's commitments on hiring and plant investment.
estimate. As of April 1, 2017,March 28, 2020, the total amountmajority of damages claimed byPCS2 devices are fully depreciated.
11. GOODWILL AND INTANGIBLE ASSETS
Effective as of March 31, 2019, the plaintiffs in these matters is approximately $4.4 million. At this pointCompany revised the composition of its reportable segments to align with its three global business units, Plasma, Blood Center and Hospital. Refer to Note 18, Segment and Enterprise-Wide Information, for additional information regarding the change in the proceedings, we believe the losses are unlikely and therefore no amounts have been accrued. In the future, we may receive adverse rulings from the courts which could change our judgment on these cases.Company's reportable segments.
SOLX Arbitration
In July 2016, H2 Equity, LLC, formerly knownA reporting unit is defined as Hemerus Corporation, filed an arbitration claim for $17 million in milestone and royalty payments allegedly owed as part of our acquisition of the filter and storage solution business from Hemerus Medical, LLC ("Hemerus") in fiscal 2014. The acquired storage solution isoperating segment or one level below an operating segment, referred to as SOLX.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 the Company's goodwill balance by new global reportable segment for fiscal 2020 and 2019. 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 31, 2018 | $ | 28,979 |
| | $ | 36,782 |
| | $ | 145,634 |
| | $ | 211,395 |
|
| Currency translation | — |
| | (116 | ) | | (460 | ) | | (576 | ) |
| Carrying amount as of March 30, 2019 | 28,979 |
| | 36,666 |
| | 145,174 |
| | 210,819 |
|
| Currency translation | — |
| | (34 | ) | | (133 | ) | | (167 | ) |
| Carrying amount as of March 28, 2020 | $ | 28,979 |
| | $ | 36,632 |
| | $ | 145,041 |
| | $ | 210,652 |
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The results of the Company's goodwill impairment test performed in the fourth quarter of fiscal 2020, 2019 and 2018 indicated that the estimated fair value of all reporting units exceeded their respective carrying values. There were no reporting units at risk of impairment as of the fiscal 2020, 2019 and 2018 annual test dates.
The gross carrying amount of intangible assets and the related accumulated amortization as of March 28, 2020 and March 30, 2019 is as follows: |
| | | | | | | | | | | |
| (In thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net |
| As of March 28, 2020 | |
| | |
| | |
| Amortizable: | | | | | |
| Patents | $ | 9,878 |
| | $ | 8,653 |
| | $ | 1,225 |
|
| Capitalized software | 76,740 |
| | 43,022 |
| | 33,718 |
|
| Other developed technology | 138,283 |
| | 81,822 |
| | 56,461 |
|
| Customer contracts and related relationships | 193,797 |
| | 158,890 |
| | 34,907 |
|
| Trade names | 5,141 |
| | 4,555 |
| | 586 |
|
| Total | $ | 423,839 |
| | $ | 296,942 |
| | $ | 126,897 |
|
| Non-amortizable: | | | | | |
| In-process software development | $ | 2,563 |
| | | | |
| In-process patents | 3,646 |
| | | | |
| Total | $ | 6,209 |
| | | | |
|
| | | | | | | | | | | |
| (In thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net |
| As of March 30, 2019 | |
| | |
| | |
| Amortizable: | | | | | |
| Patents | $ | 9,635 |
| | $ | 8,444 |
| | $ | 1,191 |
|
| Capitalized software | 66,631 |
| | 34,737 |
| | 31,894 |
|
| Other developed technology | 103,321 |
| | 73,271 |
| | 30,050 |
|
| Customer contracts and related relationships | 194,793 |
| | 142,747 |
| | 52,046 |
|
| Trade names | 5,169 |
| | 4,280 |
| | 889 |
|
| Total | $ | 379,549 |
| | $ | 263,479 |
| | $ | 116,070 |
|
| Non-amortizable: | | | | | |
| In-process software development | $ | 8,740 |
| | | | |
| In-process patents | 2,883 |
| | | | |
| Total | $ | 11,623 |
| | | | |
Intangible assets include the value assigned to license rights and other developed technology, patents, customer contracts and relationships and trade names. The estimated useful lives for all of these intangible assets are approximately 5 to 15 years. The changes to the net carrying value of the Company's intangible assets from March 30, 2019 to March 28, 2020 reflect the impact of amortization expense, partially offset by the investment in capitalized software.
Aggregate amortization expense for amortized intangible assets for fiscal 2020, 2019, and 2018 was $34.2 million, $32.6 million and $31.9 million, respectively. There were 0 intangible asset impairments during fiscal 2020, 2019, and 2018.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future annual amortization expense on intangible assets is estimated to be as follows: |
| | | | |
| (In thousands) | | |
| Fiscal 2021 | | $ | 27,604 |
|
| Fiscal 2022 | | $ | 26,892 |
|
| Fiscal 2023 | | $ | 12,098 |
|
| Fiscal 2024 | | $ | 9,350 |
|
| Fiscal 2025 | | $ | 4,966 |
|
For costs incurred related to the development of software to be sold, leased, or otherwise marketed, the Company applies the provisions of ASC Topic 985-20, Software - Costs of Software to be Sold, Leased or Marketed, which specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. The costs capitalized for each project are included in intangible assets in the consolidated financial statements.
The Company capitalized $3.9 million and $3.5 million in software development costs for ongoing initiatives during fiscal 2020 and 2019, respectively. At March 28, 2020 and March 30, 2019, the closing in April 2013, Haemonetics paid HemerusCompany had a total of $24$79.3 million and agreed$75.4 million of software costs capitalized, of which $2.6 million and $8.7 million are related to in process software development initiatives, respectively, and the remaining balance represents in-service assets that are being amortized over their useful lives.
12. 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 $3 million milestone payment due whenstraight-line basis over the U.S. Foodlease term. For leases executed in fiscal 2020 and Drug Administration ("FDA") approvedlater, the Company accounts for the lease components and the non-lease components as a new indicationsingle 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 SOLX (the “24-Hour Approval”) using a filter acquired from Hemerus. We also agreed to make future royalty payments 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 cumulative maximum of $14 millionlease based on the saleunique facts and circumstances present at the inception of products incorporating SOLXan 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 ten year period.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.
Due
During the third quarter of fiscal 2020, the Company entered into a lease for office space in Boston, MA to performance issuesserve 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 Hemerus filter, Haemonetics filed for,new corporate headquarters extends through June 30, 2032 and received,includes two five year renewal options. During the 24-Hour Approval usingthird quarter of fiscal 2020, the Company recorded a Haemonetics filter. Accordingly, Haemonetics did not pay Hemerusright-of-use asset of $36.2 million and corresponding liabilities of $41.8 million upon commencement of the $3 million milestone payment because the 24-Hour Approval was obtained using a Haemonetics filter, not a Hemerus filter.lease term in October 2019. In addition, we havethe Company recorded $5.6 million of property, plant and equipment as a result of a lease incentive received associated with this lease agreement.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents supplemental balance sheet information related to the Company's operating leases:
|
| | | | |
| (In thousands) | | March 28,
2020 |
| Assets | | |
Operating lease right-of-use assets in Other long-term assets | | $ | 52,236 |
|
| Liabilities | | |
Operating lease liabilities in Other current liabilities | | $ | 7,306 |
|
Operating lease liabilities in Other long-term liabilities | | $ | 52,014 |
|
The following table presents the weighted average remaining lease term and discount rate information related to our operating leases:
|
| | | |
| | March 28,
2020 |
| Weighted average remaining lease term | | 10.0 Years |
|
| Weighted average discount rate | | 3.97 | % |
During the fiscal year ended March 28, 2020 the Company's operating lease cost was $8.3 million.
The following table presents supplemental cash flow information related to our operating leases:
|
| | | | |
| (In thousands) | | March 28,
2020 |
| Cash paid for amounts included in the measurement of operating lease liabilities | | |
| Operating cash flows used for operating leases | | $ | 6,780 |
|
The following table presents the maturities of our operating lease liabilities as of March 28, 2020:
|
| | | | |
Fiscal Year (In thousands) | | Operating Leases |
| 2021 | | $ | 9,637 |
|
| 2022 | | 8,421 |
|
| 2023 | | 7,499 |
|
| 2024 | | 5,693 |
|
| 2025 | | 5,515 |
|
| Thereafter | | 35,395 |
|
| Total future minimum operating lease payments | | 72,160 |
|
| Less: imputed interest | | (12,840 | ) |
| Present value of operating lease liabilities | | $ | 59,320 |
|
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 paidsignificant. 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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following: |
| | | | | | | |
| (In thousands) | March 28, 2020 | | March 30, 2019 |
| Term loan, net of financing fees | $ | 322,330 |
| | $ | 334,859 |
|
| Other borrowings | 60,163 |
| | 15,261 |
|
| Less current portion | (76,980 | ) | | (27,666 | ) |
| Long-term debt | $ | 305,513 |
| | $ | 322,454 |
|
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. At March 28, 2020, $323.8 million was outstanding under the Term Loan and $60.0 million was outstanding on the Revolving Credit Facility, both with an effective interest rate of 2.9%. In April 2020, the Company borrowed an additional $150.0 million on the Revolving Credit Facility. The Company also had $25.6 million of uncommitted operating lines of credit to fund its global operations under which there were 0 outstanding borrowings as of March 28, 2020.
Under the Credit Facilities, the Company is required to maintain a Consolidated Leverage Ratio not to exceed 3.5:1.0 and a Consolidated Interest Coverage Ratio not to be less than 4.0:1.0 during periods when the Credit Facilities are outstanding. In addition, the Company is required to satisfy these covenants, on a pro forma basis, in connection with any royaltiesnew borrowings (including any letter of credit issuances) on the Revolving Credit Facility as of the time of such borrowings. The Consolidated Interest Coverage Ratio is calculated as the Consolidated EBITDA divided by Consolidated Interest Expense while the Consolidated Leverage Ratio is calculated as Consolidated Total Debt divided by Consolidated EBITDA. Consolidated EBITDA includes EBITDA adjusted by non-recurring and unusual transactions specifically as defined in the Credit Facilities.
The Credit Facilities also contain usual and customary non-financial affirmative and negative covenants that include certain restrictions with respect to date as we have not made anysubsequent indebtedness, liens, loans and investments (including acquisitions), financial reporting obligations, mergers, consolidations, dissolutions or liquidation, asset sales, affiliate transactions, change of products incorporating SOLX. its business, capital expenditures, share repurchase and other restricted payments. These covenants are subject to exceptions and qualifications set forth in the credit agreement.
H2 Equity claims,
Any failure to comply with the financial and operating covenants of the Credit Facilities would prevent the Company from being able to borrow additional funds and would constitute a default, which could result in, part, that we owe them $3among other things, the amounts outstanding including all accrued interest and unpaid fees, becoming immediately due and payable. In addition, the Credit Facilities include customary events of default, in certain cases subject to customary cure periods. As of March 28, 2020, the Company was in compliance with the covenants.
Commitment Fee
Pursuant to the Credit Facilities, the Company is required to pay, on the last day of each calendar quarter, a commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee is subject to a pricing grid based on the Company's Consolidated Leverage Ratio. The commitment fee ranges from 0.150% to 0.275%. The current commitment fee on the undrawn portion of the Revolving Credit Facility is 0.175%.
Debt Issuance Costs and Interest
Expenses associated with the issuance of the Term Loan were capitalized and are amortized to interest expense over the life of the term loan using the effective interest method. As of March 28, 2020, the $323.8 million term loan balance was netted down by the $1.4 million of remaining debt discount, resulting in a net note payable of $322.3 million.
Interest expense was $13.5 million, $12.6 million and $7.7 million for fiscal 2020, 2019 and 2018, respectively. Accrued interest associated with the receiptoutstanding debt is included as a component of other current liabilities in the accompanying
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
consolidated balance sheets. As of both March 28, 2020 and March 30, 2019, the Company had an insignificant amount of accrued interest associated with the outstanding debt.
The aggregate amount of debt maturing during the next five fiscal years and thereafter are as follows: |
| | | |
Fiscal year (In thousands) | |
| 2021 | $ | 81,919 |
|
| 2022 | 17,545 |
|
| 2023 | 214,422 |
|
| 2024 | 70,026 |
|
| 2025 | — |
|
| Thereafter | — |
|
14. DERIVATIVES AND FAIR VALUE MEASUREMENTS
The Company manufactures, markets and sells its products globally. For the fiscal year ended March 28, 2020, 34.6% of the 24-Hour Approval despiteCompany's sales were generated outside the U.S. in local currencies. The Company also incurs certain manufacturing, marketing and selling costs in international markets in local currency.
Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, the Company's reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a Haemonetics filterperiod of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to obtainhedge the approvalanticipated 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 March 28, 2020 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 we have failed to make commercially reasonable efforts to market and sell products incorporating SOLX. We believe that we have meritorious defenses to these claims.
It isit will not possible to accurately evaluateoccur, the likelihood orCompany will reclassify the amount of any potential lossesgain 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 $93.8 million as of March 28, 2020 and $81.5 million as of March 30, 2019. At March 28, 2020, gains of $0.1 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of March 28, 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 $98.0 million as of March 28, 2020 and $37.4 million as of March 30, 2019.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Rate Swaps
On June 15, 2018, the Company entered into Credit Facilities which provided for a $350 million Term Loan and a $350 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 2 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 interest rate swaps, 70% of the Term Loan exposed to interest rate risk from changes in LIBOR are 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 fiscal 2020, the Company recorded a loss of $8.9 million, net of tax, in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges.
Fair Value of Derivative Instruments
The following table presents the effect of the Company's derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in its consolidated statements of income and comprehensive income for the fiscal year ended March 28, 2020.
|
| | | | | | | | | | | | | | | | |
Derivative Instruments | | Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss | | Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings | | Location in Consolidated Statements of Income and Comprehensive Income | | Amount of Gain Excluded from
Effectiveness Testing | | Location in Consolidated Statements of Income and Comprehensive Income |
| (In thousands) | | | | | | | | | | |
| Designated foreign currency hedge contracts, net of tax | | $ | 90 |
| | $ | 700 |
| | Net revenues, COGS and SG&A | | $ | 545 |
| | Interest and other expense, net |
| Non-designated foreign currency hedge contracts | | — |
| | — |
| | | | $ | 3,306 |
| | Interest and other expense, net |
| Designated interest rate swaps, net of tax | | $ | (10,201 | ) | | $ | (1,325 | ) | | Interest and other expense, net | |
|
| | |
The Company did not have fair value hedges or net investment hedges outstanding as of March 28, 2020 or March 30, 2019. As of March 28, 2020, no material deferred tax assets were recognized for designated foreign currency hedges.
ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures, by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities. In certain instances, the Company may utilize financial models to measure fair value. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of March 28, 2020, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables present the fair value of the Company's derivative instruments as they appear in its consolidated balance sheets as of March 28, 2020 and March 30, 2019:
|
| | | | | | | | | |
| (In thousands) | Location in Balance Sheet | | As of March 28, 2020 | | As of March 30, 2019 |
| Derivative Assets: | | | |
| | |
|
| Designated foreign currency hedge contracts | Other current assets | | $ | 839 |
| | $ | 1,208 |
|
| Non-designated foreign currency hedge contracts | Other current assets | | 377 |
| | 69 |
|
| | | | $ | 1,216 |
| | $ | 1,277 |
|
| Derivative Liabilities: | | | |
| | |
|
| Designated foreign currency hedge contracts | Other current liabilities | | $ | 1,854 |
| | $ | 145 |
|
| Non-designated foreign currency hedge contracts | Other current liabilities | | 1,435 |
| | — |
|
| Designated interest rate swaps | Other current liabilities | | 5,581 |
| | 5,203 |
|
| Designated interest rate swaps | Other long-term liabilities | | 9,475 |
| | — |
|
| | | | $ | 18,345 |
| | $ | 5,348 |
|
Other Fair Value Measurements
Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes the following three-level hierarchy used for measuring fair value:
•Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
•Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
•Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
The Company's money market funds carried at fair value are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Measured on a Recurring Basis
Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of March 28, 2020 and March 30, 2019.
|
| | | | | | | | | | | | |
| | | As of March 28, 2020 |
| (In thousands) | | Level 1 | | Level 2 | | Total |
| Assets | | | | | | |
| Money market funds | | $ | 44,564 |
| | $ | — |
| | $ | 44,564 |
|
| Designated foreign currency hedge contracts | | — |
| | 839 |
| | $ | 839 |
|
| Non-designated foreign currency hedge contracts | | — |
| | 377 |
| | $ | 377 |
|
| | | $ | 44,564 |
| | $ | 1,216 |
| | $ | 45,780 |
|
| Liabilities | | | | | | |
| Designated foreign currency hedge contracts | | $ | — |
| | $ | 1,854 |
| | $ | 1,854 |
|
| Non-designated foreign currency hedge contracts | | — |
| | 1,435 |
| | $ | 1,435 |
|
| Designated interest rate swaps | | — |
| | 15,056 |
| | $ | 15,056 |
|
| | | $ | — |
| | $ | 18,345 |
| | $ | 18,345 |
|
| | | | | | | |
| | | As of March 30, 2019 |
| | | Level 1 | | Level 2 | | Total |
| Assets | | | | | | |
| Money market funds | | $ | 36,980 |
| | $ | — |
| | $ | 36,980 |
|
| Designated foreign currency hedge contracts | | — |
| | 1,208 |
| | $ | 1,208 |
|
| Non-designated foreign currency hedge contracts | | — |
| | 69 |
| | $ | 69 |
|
| | | $ | 36,980 |
| | $ | 1,277 |
| | $ | 38,257 |
|
| Liabilities | | |
| | |
| | |
|
| Designated foreign currency hedge contracts | | $ | — |
| | $ | 145 |
| | $ | 145 |
|
| Non-designated foreign currency hedge contracts | | $ | — |
| | $ | 5,203 |
| | $ | 5,203 |
|
| | | $ | — |
| | $ | 5,348 |
| | $ | 5,348 |
|
Other Fair Value Disclosures
The Term Loan (which is carried at amortized cost), accounts receivable and accounts payable approximate fair value. Details pertaining to the Term Loan can be found in Note 13, Notes Payable and Long-Term Debt.
15. RETIREMENT PLANS
Defined Contribution Plans
The Company has a Savings Plus Plan (the "401k Plan") that is a 401(k) plan that allows its U.S. employees to accumulate savings on a pre-tax basis. In addition, matching contributions are made to the 401k Plan based upon pre-established rates. The Company's matching contributions amounted to approximately $4.7 million, $5.0 million and $5.5 million in fiscal 2020, 2019 and 2018, respectively. Upon Board approval, additional discretionary contributions can also be made. NaN discretionary contributions were made for the 401k Plan in fiscal 2020, 2019, or 2018.
Some of the Company's subsidiaries also have defined contribution plans, to which both the employee and the employer make contributions. The employer contributions to these plans totaled $0.6 million, $0.6 million and $0.7 million in fiscal 2020, 2019 and 2018, respectively.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Defined Benefit Plans
ASC Topic 715, Compensation — Retirement Benefits, requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit post retirement plan in the year in which the changes occur. Accordingly, the Company is required to report changes in its funded status in comprehensive loss on its consolidated statement of stockholders’ equity and consolidated statement of comprehensive income (loss).
Benefits under these plans are generally based on either career average or final average salaries and creditable years of service as defined in the plans. The annual cost for these plans is determined using the projected unit credit actuarial cost method that includes actuarial assumptions and estimates that are subject to change.
Some of the Company's foreign subsidiaries have defined benefit pension plans covering substantially all full time employees at those subsidiaries. Net periodic benefit costs for the plans in the aggregate include the following components:
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Service cost | $ | 1,829 |
| | $ | 1,893 |
| | $ | 2,651 |
|
| Interest cost on benefit obligation | 301 |
| | 340 |
| | 293 |
|
| Expected return on plan assets | (178 | ) | | (208 | ) | | (215 | ) |
| Actuarial loss | 129 |
| | 132 |
| | 186 |
|
| Amortization of unrecognized prior service cost | (98 | ) | | (86 | ) | | (121 | ) |
| Plan settlements and curtailments | (239 | ) | | (82 | ) | | (445 | ) |
| Totals | $ | 1,744 |
| | $ | 1,989 |
| | $ | 2,349 |
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The activity under those defined benefit plans are as follows:
|
| | | | | | | |
| (In thousands) | March 28,
2020 | | March 30,
2019 |
| Change in Benefit Obligation: | |
| | |
|
| Benefit Obligation, beginning of year | $ | (30,637 | ) | | $ | (30,476 | ) |
| Service cost | (1,829 | ) | | (1,893 | ) |
| Interest cost | (301 | ) | | (340 | ) |
| Benefits paid | 530 |
| | 902 |
|
| Actuarial gain | 285 |
| | (367 | ) |
| Employee and plan participants contribution | (3,447 | ) | | (1,815 | ) |
| Plan settlements and curtailments | 6,612 |
| | 3,069 |
|
| Foreign currency changes | 417 |
| | 283 |
|
| Benefit obligation, end of year | $ | (28,370 | ) | | $ | (30,637 | ) |
| Change in Plan Assets: | |
| | |
|
| Fair value of plan assets, beginning of year | $ | 16,287 |
| | $ | 16,322 |
|
| Company contributions | 1,585 |
| | 1,329 |
|
| Benefits paid | (433 | ) | | (795 | ) |
| Gain on plan assets | 349 |
| | 265 |
|
| Employee and plan participants contribution | 3,549 |
| | 1,801 |
|
| Plan settlements | (6,610 | ) | | (2,916 | ) |
| Foreign currency changes | 560 |
| | 281 |
|
| Fair value of plan assets, end of year | $ | 15,287 |
| | $ | 16,287 |
|
Funded Status* | $ | (13,083 | ) | | $ | (14,350 | ) |
| Unrecognized net actuarial loss | 1,867 |
| | 2,245 |
|
| Unrecognized prior service cost | (837 | ) | | (714 | ) |
| Net amount recognized | $ | (12,053 | ) | | $ | (12,819 | ) |
* Substantially all of the unfunded status is non-current |
One of the benefit plans is funded by benefit payments made by the Company through the purchase of reinsurance contracts that do not qualify as plan assets under ASC Topic 715. Accordingly that plan has no assets included in the information presented above. The total asset value associated with the reinsurance contracts was $6.3 million and $6.1 million at March 28, 2020 and March 30, 2019, respectively. The total liability for this claimplan, which is included in the table above, was $9.2 million and therefore$9.4 million as of March 28, 2020 and March 30, 2019, respectively.
The accumulated benefit obligation for all plans was $27.9 million and $28.6 million for fiscal 2020 and 2019, respectively. There were no amountsplans where the plan assets were greater than the accumulated benefit obligation as of March 28, 2020 and March 30, 2019.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of the change recorded in the Company's accumulated other comprehensive loss related to its defined benefit plans, net of tax, are as follows (in thousands):
|
| | | |
| Balance as of April 1, 2017 | $ | (2,272 | ) |
| Actuarial loss | 1,922 |
|
| Prior service cost | (125 | ) |
| Plan settlements and curtailments | 152 |
|
| Balance as of March 31, 2018 | $ | (323 | ) |
| Actuarial loss | (51 | ) |
| Prior service cost | (80 | ) |
| Plan settlements and curtailments | (73 | ) |
| Balance as of March 30, 2019 | $ | (527 | ) |
| Actuarial loss | 614 |
|
| Prior service cost | (87 | ) |
| Plan settlements and curtailments | (209 | ) |
| Balance as of March 28, 2020 | $ | (209 | ) |
The Company expects to amortize $0.3 million from accumulated other comprehensive loss to net periodic benefit cost during fiscal 2021.
The weighted average rates used to determine the net periodic benefit costs and projected benefit obligations were as follows:
|
| | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Discount rate | 0.82 | % | | 0.97 | % | | 1.07 | % |
| Rate of increased salary levels | 1.74 | % | | 1.78 | % | | 1.73 | % |
| Expected long-term rate of return on assets | 0.31 | % | | 0.75 | % | | 0.90 | % |
Assumptions for expected long-term rate of return on plan assets are based upon actual historical returns, future expectations of returns for each asset class and the effect of periodic target asset allocation rebalancing. The results are adjusted for the payment of reasonable expenses of the plan from plan assets.
The Company has no other material obligation for post-retirement or post-employment benefits.
The Company's investment policy for pension plans is to balance risk and return through a diversified portfolio to reduce interest rate and market risk. Maturities are managed so that sufficient liquidity exists to meet immediate and future benefit payment requirements.
ASC Topic 820, Fair Value Measurements and Disclosures, provides guidance for reporting and measuring the plan assets of the Company's defined benefit pension plan at fair value as of March 28, 2020. Using the same three-level valuation hierarchy for disclosure of fair value measurements as described in Note 14, Derivatives and Fair Value Measurements, all of the assets of the Company’s plan are classified within Level 2 of the fair value hierarchy because the plan assets are primarily insurance contracts.
Expected benefit payments for both plans are estimated using the same assumptions used in determining the Company’s benefit obligation at March 28, 2020. Benefit payments will depend on future employment and compensation levels, average years employed and average life spans, among other factors, and changes in any of these factors could significantly affect these estimated future benefit payments.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated future benefit payments are as follows:
|
| | | |
| (In thousands) | |
|
| Fiscal 2021 | $ | 1,372 |
|
| Fiscal 2022 | 1,526 |
|
| Fiscal 2023 | 1,311 |
|
| Fiscal 2024 | 1,366 |
|
| Fiscal 2025 | 1,207 |
|
| Fiscal 2026-2030 | 7,251 |
|
| | $ | 14,033 |
|
The Company's contributions for fiscal 2021 are expected to be consistent with the current year.
16. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings and claims arising out of the ordinary course of its business. The Company believes that except for those matters described below, there are no other proceedings or claims pending against it the ultimate resolution of which could have been accrued.a material adverse effect on its financial condition or results of operations. At each reporting period, management evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies, for all matters. Legal costs are expensed as incurred.
Product RecallRecalls
In June 2016, weAugust 2018, the Company issued a voluntary recall of certain whole blood collection kits sold to ourits Blood Center customers in the U.S. The recall resulted from some collection sets' filters failing to adequately remove leukocytes from collected blood. As a result of the recall, our blood centerthe Company's Blood Center customers may have conducted further tests to confirm that the collected blood was adequately leukoreduced, sold the collected blood labeled as non-leukoreduced at a lower price or discarded the blood collected usingblood. As of March 28, 2020, the defective sets. As a result of the recall, we haveCompany has recorded totalcumulative charges of $7.1$1.9 million during fiscal 2017,associated with this recall which consists of $3.7$0.1 million of charges associated with customer returns and inventory reserves and $3.4$1.8 million of charges associated with customer claims. Substantially all outstanding claims as discussed below. We may record incremental charges in future periods.
We determined that the affected sets were distributed between April and June 2016. Credits have been issued to customers who returned affected sets purchased during this period. During fiscal 2017, we recorded charges of $3.7 million, which consisted of $2.5 million of sales returns, $1.1 million of net inventory reserves for the affected collection sets on-hand that had not yet been shipped to customers and $0.1 million of freight expenses.
The $3.4 million of charges associated with customer claims are based on claims seeking reimbursement for $14.2 million in losses sustained as a result of the recall. We believe it is probable that we will incur expenses as a result of these claims and that our range of loss is $3.4 million to $14.2 million, however, we do not have sufficient information to develop a best estimate within this range. Accordingly, we have recorded a liability of $3.4 million, which represents the low end of the range. While the customers making these claims purchased substantially all the affected units, incremental charges may be recorded in future periods as additional customer returns and claims data becomes available. We have an enforceable insurance policy in
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
place which we believe provides coverage for a portion of the claims received to date. Accordingly,paid as of April 1, 2017, we had an insurance receivable of $2.9 million. We will assess the potential for additional insurance recoveries as we receive more information about customer claims in future reporting periods.March 28, 2020.
10.17. CAPITAL STOCK
Stock Plans
The 2005
On July 25, 2019 (the "Effective Date"), the Haemonetics Corporation 2019 Long-Term Incentive Compensation Plan (the “2005 Incentive Compensation“2019 Equity Plan”) was approved and became effective. The 2019 Equity Plan permits the award of non-qualifiedincentive stock options, incentivenon-qualified stock options, stock appreciation rights ("SARs"), restricted stock, deferred stock/restricted stock units (including performance-based restricted stock units) and other stock units and performance sharesawards to the Company’sCompany's key employees, officersnon-employee directors and directors.certain consultants and advisors of the Company and its subsidiaries. The 2005 Incentive Compensation2019 Equity Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”) consisting, which consists of three independent members of ourthe Company's Board of Directors.Directors, and is the successor to the Haemonetics Corporation 2005 Long-Term Incentive Compensation Plan, as amended (the "2005 Equity Plan").
Upon the Effective Date, no further awards were granted under the 2005 Equity Plan; however, each outstanding award under the 2005 Equity Plan will remain outstanding under that plan and continue to be governed under its terms and any applicable award agreement. The maximum number of shares available for award under 2019 Equity Plan is 5,759,433, which consists of 2,700,000 shares of common stock authorized for issuance under the 2019 Equity Plan plus 3,059,433 shares of common stock reserved for issuance under the 2005 Incentive CompensationEquity Plan is 19,824,920. The maximum numberthat remained available for grant under the 2005 Plan as of shares that may be issued pursuant to incentive stock options may not exceed 500,000. Anythe Effective Date. Under the 2019 Equity Plan, any shares that are subject to the award of stock options shallor SARs will be counted against this limitthe authorized share reserve as one share for every one share issued. Anyissued and any shares that are subject to awards other than stock options, shallSARs or cash awards will be counted against this limitthe authorized share reserve as 3.022.76 shares for every one share granted. Shares of common stock subject to outstanding grants under the 2005 Equity Plan as of the Effective Date that terminate, expire, or are otherwise canceled without having been exercised will be added to the share reserve at the applicable 2019 Equity Plan ratios. The total shares available for future grant as of April 1, 2017March 28, 2020 were 5,045,728.5,891,063.
Stock-Based
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Share-Based Compensation
Compensation cost related to
stock-basedshare-based transactions is recognized in the consolidated financial statements based on fair value. The total amount of
stock-basedshare-based compensation expense, which is recorded on a straight line basis,
wasis as follows:
| | | (In thousands) | 2017 | | 2016 | | 2015 | 2020 | | 2019 | | 2018 |
| Selling, general and administrative expenses | $6,894 | | $5,183 | | $11,251 | $18,022 | | $12,878 | | $9,960 |
| Research and development | 1,549 |
| | 1,060 |
| | 1,706 |
| 1,210 |
| | 2,972 |
| | 2,114 |
|
| Cost of goods sold | 707 |
| | 706 |
| | 1,138 |
| 1,222 |
| | 1,338 |
| | 951 |
|
| | $9,150 | | $6,949 | | $14,095 | $20,454 | | $17,188 | | $13,025 |
We did not recognize an income tax benefit associated with our stock-based compensation arrangements for the fiscal years ended April 1, 2017 and April 2, 2016. We recognized an income tax benefit associated with our stock-based compensation arrangements of $4.5 million for the fiscal year ended March 28, 2015. There was no excess cash tax benefit classified as a financing cash inflow in fiscal 2017 and 2016. The excess cash tax benefit classified as a financing cash inflow in fiscal 2015 was $1.6 million.
Stock Options
Options are granted to purchase ordinary sharescommon stock at prices as determined by the Committee, but in no event shall such exercise price be less than the fair market value of the common stock at the time of the grant. Options generally vest in equal installments over a four year period for employees and one year from grant for non-employee directors. Options expire not more than 7 years from the date of the grant. The grant-date fair value of options, adjusted for estimated forfeitures, is recognized as expense on a straight line basis over the requisite service period, which is generally the vesting period. Forfeitures are estimated based on historical experience.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of stock option activity for the fiscal year ended April 1, 2017March 28, 2020 is as follows: |
| | | | | | | | | | | | |
| | Options Outstanding | | Weighted Average Exercise Price per Share | | Weighted Average Remaining Life (years) | | Aggregate Intrinsic Value ($000’s) |
| Outstanding at March 30, 2019 | 1,013,403 |
| | $ | 48.55 |
| | 4.48 | | $ | 40,902 |
|
| Granted | 207,892 |
| | 98.72 |
| | | | |
|
| Exercised | (244,274 | ) | | 42.21 |
| | | | |
|
| Forfeited/Canceled | (58,033 | ) | | 66.73 |
| | | | |
|
| Outstanding at March 28, 2020 | 918,988 |
| | $ | 60.43 |
| | 4.30 | | $ | 37,471 |
|
| | | | | | | | |
| Exercisable at March 28, 2020 | 354,968 |
| | $ | 40.46 |
| | 3.15 | | $ | 21,499 |
|
| | | | | | | | |
| Vested or expected to vest at March 28, 2020 | 836,674 |
| | $ | 57.93 |
| | 3.88 | | $ | 36,170 |
|
|
| | | | | | | | | | | | |
| | Options Outstanding (shares) | | Weighted Average Exercise Price per Share | | Weighted Average Remaining Life (years) | | Aggregate Intrinsic Value ($000’s) |
| Outstanding at April 2, 2016 | 2,951,183 |
| | $ | 33.59 |
| | 3.34 | | $ | 9,684 |
|
| Granted | 501,127 |
| | 32.47 |
| | | | |
|
| Exercised | (1,083,824 | ) | | 28.79 |
| | | | |
|
| Forfeited/Canceled | (329,691 | ) | | 35.95 |
| | | | |
|
| Outstanding at April 1, 2017 | 2,038,795 |
| | $ | 35.51 |
| | 3.88 | | $ | 10,963 |
|
| | | | | | | | |
| Exercisable at April 1, 2017 | 1,284,592 |
| | $ | 37.04 |
| | 2.66 | | $ | 5,129 |
|
| | | | | | | | |
| Vested or expected to vest at April 1, 2017 | 1,906,548 |
| | $ | 35.69 |
| | 4.24 | | $ | 9,937 |
|
The total intrinsic value of options exercised was $8.3$18.1 million, $4.5$19.4 million and $5.6$15.4 million during fiscal 2017, 2016,2020, 2019 and 2015,2018, respectively.
As of April 1, 2017,March 28, 2020, there was $4.9$8.4 million of total unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 3.092.5 years.
The fair value was estimated using the Black-Scholes option-pricing model based on the weighted average of the high and low stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of ourthe Company's common stock over the expected term of the option. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued. The expected life of the option was estimated with reference to historical exercise patterns, the contractual term of the option and the vesting period.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The assumptions utilized for option grants during the periods presented are as follows: |
| | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Volatility | 28.2 | % | | 26.1 | % | | 24.2 | % |
| Expected life (years) | 4.9 |
| | 4.9 |
| | 4.8 |
|
| Risk-free interest rate | 2.5 | % | | 2.8 | % | | 1.7 | % |
| Dividend yield | 0.0 | % | | 0.0 | % | | 0.0 | % |
| Grant-date fair value per Option | $ | 28.25 |
| | $ | 26.67 |
| | $ | 10.25 |
|
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Volatility | 24.0 | % | | 22.8 | % | | 22.5 | % |
| Expected life (years) | 4.9 |
| | 4.9 |
| | 4.9 |
|
| Risk-free interest rate | 1.2 | % | | 1.4 | % | | 1.5 | % |
| Dividend yield | 0.0 | % | | 0.0 | % | | 0.0 | % |
| Fair value per option | $ | 7.61 |
| | $ | 7.40 |
| | $ | 7.91 |
|
Restricted Stock Units
Restricted Stock Units ("RSUs") generally vest in equal installments over a four year period for employees and one year from grant for non-employee directors. The grant-date fair value of RSUs, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The fair market value of RSUs is determined based on the market value of the Company’s shares on the date of grant.
A summary of RSU activity for the fiscal year ended April 1, 2017March 28, 2020 is as follows:
|
| | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
| Unvested at March 30, 2019 | 309,222 |
| | $ | 57.07 |
|
| Granted | 105,943 |
| | 102.32 |
|
| Vested | (118,830 | ) | | 54.58 |
|
| Forfeited | (28,118 | ) | | 63.91 |
|
| Unvested at March 28, 2020 | 268,217 |
| | $ | 75.34 |
|
|
| | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
| Unvested at April 2, 2016 | 380,871 |
| | $ | 34.33 |
|
| Granted | 212,105 |
| | 32.61 |
|
| Vested | (150,113 | ) | | 34.98 |
|
| Forfeited | (101,222 | ) | | 33.70 |
|
| Unvested at April 1, 2017 | 341,641 |
| | $ | 33.16 |
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted-average grant-date fair value of RSUs granted and total fair value of RSUs vested wereare as follows:
|
| | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Grant-date fair value per RSU | $ | 102.32 |
| | $ | 94.55 |
| | $ | 41.87 |
|
| Fair value of RSUs vested | $ | 54.58 |
| | $ | 40.04 |
| | $ | 33.03 |
|
|
| | | | | | | | | | | |
| (In thousands, except per share data) | 2017 | | 2016 | | 2015 |
| Grant-date fair value per RSU | $ | 32.61 |
| | $ | 33.19 |
| | $ | 34.89 |
|
| Fair value of RSUs vested | $ | 34.98 |
| | $ | 36.07 |
| | $ | 36.62 |
|
As of April 1, 2017,March 28, 2020, there was $8.4$14.3 million of total unrecognized compensation cost related to non-vested restricted stock units. This cost is expected to be recognized over a weighted average period of 2.872.4 years.
Performance StockShare Units
The grant date fair value of Performance StockShare Units ("PSUs"), adjusted for estimated forfeitures, is recognized as expense on a straight line basis from the grant date through the end of the performance period. The value of these PSUs is generally based on relative total shareholder return which equals total shareholder return for the Company as compared towith total shareholder return of the PSU comparison group, measured over a three year performance period. PSUs granted in fiscal 2020 have a comparison group consisting of the Standard and Poor's ("S&P") Mid Cap 400 Index while PSUs granted in fiscal 2019 and 2018 have a comparison group consisting of the S&P Small Cap 600 and the S&P Mid Cap 400 indices. Depending on the Company's relative performance during the performance period, a recipient of the award is entitled to receive a number of ordinary shares equal to a percentage, ranging from 0% to 200%, of the award granted. As a result, we may issue up to 569,250 shares related to these awards. If the Company’s total shareholder return for the performance period is negative, then any share payout will be capped at 100% of the target award, regardless of the Company's performance relative to the Company'sits comparison group.
PSUs granted in fiscal 2016 and 2015 have As a comparison group consisting of the Standard and Poor's ("S&P") Health Care Equipment Index, while PSUs granted in fiscal 2017 have a comparison group consisting of the S&P Small Cap 600 and the S&P Mid Cap 400 indices.
In addition to these relative shareholder return PSUs, the Company's Chief Executive Officer, upon hire, received a PSU grant with performance conditions based on the financial results ofresult, the Company and other internal metrics.may issue up to 586,222 shares related to outstanding performance based awards.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of PSU activity for the fiscal year ended April 1, 2017March 28, 2020 is as follows:
|
| | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
| Unvested at March 30, 2019 | 448,656 |
| | $ | 54.22 |
|
Granted(1) | 262,758 |
| | 146.93 |
|
Vested(2) | (389,806 | ) | | 34.78 |
|
| Forfeited | (28,497 | ) | | 75.68 |
|
| Unvested at March 28, 2020 | 293,111 |
| | $ | 95.17 |
|
|
| | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
| Unvested at April 2, 2016 | 102,336 |
| | $ | 31.38 |
|
| Granted | 228,884 |
| | 34.07 |
|
| Vested | — |
| | — |
|
| Forfeited | (46,595 | ) | | 30.68 |
|
| Unvested at April 1, 2017 | 284,625 |
| | $ | 33.66 |
|
(2) Includes the vesting of 336,152 shares that were earned for awards granted in fiscal 2017 for various performance periods ending during fiscal 2020, based on actual relative total shareholder return of 200%. Also includes the vesting of 53,654 shares that were earned in connection with the fiscal 2018 and 2017 internal metrics awards granted to the Company's chief executive officer for the performance period ended March 30, 2019 that were certified by the Committee in May 2019 at 144.31% and 80.05%, respectively.
The Company uses the Monte Carlo model to estimate the probability of satisfying the performance criteria and the resulting fair value of PSU awards with market conditions. The assumptions used in the Monte Carlo model for PSUs granted during each fiscal year were as follows: |
| | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Expected stock price volatility | 28.64 | % | | 27.07 | % | | 26.11 | % |
| Peer group stock price volatility | 29.77 | % | | 34.98 | % | | 34.13 | % |
| Correlation of returns | 50.30 | % | | 47.57 | % | | 49.51 | % |
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Expected stock price volatility | 26.39 | % | | 22.27 | % | | 20.08 | % |
| Peer group stock price volatility | 33.86 | % | | 31.95 | % | | 31.52 | % |
| Correlation of returns | 51.17 | % | | 26.27 | % | | 30.52 | % |
The weighted-average grant-date fair value of PSUs granted was $34.07, $29.20 and $35.09 in fiscal 2017, 2016, and 2015 respectively.total fair value of PSUs vested are as follows:
|
| | | | | | | | | | | |
| | 2020 | | 2019 | | 2017 |
| Grant-date fair value per PSU | $ | 146.93 |
| | $ | 115.64 |
| | $ | 46.49 |
|
| Fair value of PSUs vested | $ | 34.78 |
| | $ | 29.20 |
| | $ | — |
|
As of April 1, 2017,March 28, 2020, there was $7.8$15.2 million of total unrecognized compensation cost related to non-vested performance share units. This cost is expected to be recognized over a weighted average period of 2.291.8 years.
Market Stock Units
The Company used the Monte Carlo model to determine the fair value of each market stock unit granted in fiscal 2016 and 2015. The grant date fair value of Market Stock Units ("MSUs"), adjusted for estimated forfeitures, was recognized as expense on a straight line basis from the grant date through the end of the performance period. The value of these MSUs was based the performance of Haemonetics’ stock through March 31, 2017. Because Haemonetics' stock was below the minimum threshold
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
price of $50 per share during the relevant measurement period, the holders received no market share units upon vesting. There were no MSUs granted in fiscal 2017.
A summary of MSU activity for the fiscal year ended April 1, 2017 is as follows: |
| | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
| Unvested at April 2, 2016 | 152,968 |
| | $ | 24.84 |
|
| Granted | — |
| | — |
|
| Vested | (116,550 | ) | | — |
|
| Forfeited | (36,418 | ) | | 13.42 |
|
| Unvested at April 1, 2017 | — |
| | $ | — |
|
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the “Purchase Plan”) under which a maximum of 3,200,000 shares (subject to adjustment for stock splits and similar changes) of common stock may be purchased by eligible employees. Substantially all of ourits full-time employees are eligible to participate in the Purchase Plan.
The Purchase Plan provides for two2 “purchase periods” within each of ourits fiscal years, the first commencing on November 1 of each year and continuing through April 30 of the next calendar year, and the second commencing on May 1 of each year and continuing through October 31 of such year. Shares are purchased through an accumulation of payroll deductions (of not less than 2% or more than 15% of compensation, as defined) for the number of whole shares determined by dividing the balance in the employee’s account on the last day of the purchase period by the purchase price per share for the stock determined under the Purchase Plan. The purchase price for shares is the lower of 85% of the fair market value of the common stock at the beginning of the purchase period, or 85% of such value at the end of the purchase period.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of shares purchased under the Employee Stock Purchase Plan are estimated using the Black-Scholes single option-pricing model with the following weighted average assumptions: |
| | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Volatility | 34.7 | % | | 30.0 | % | | 22.6 | % |
| Expected life (months) | 6 |
| | 6 |
| | 6 |
|
| Risk-free interest rate | 2.0 | % | | 2.3 | % | | 1.2 | % |
| Dividend Yield | 0.0 | % | | 0.0 | % | | 0.0 | % |
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Volatility | 31.3 | % | | 21.1 | % | | 23.7 | % |
| Expected life (months) | 6 |
| | 6 |
| | 6 |
|
| Risk-free interest rate | — | % | | 0.2 | % | | 0.1 | % |
| Dividend Yield | 0.0 | % | | 0.0 | % | | 0.0 | % |
The weighted average grant date fair value of the six-month option inherent in the Purchase Plan was approximately $7.79, $7.80,$27.11, $21.51 and $7.09$9.66 during fiscal 2017, 2016,2020, 2019 and 2015,2018, respectively.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. EARNINGS PER SHARE (“EPS”)
The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations. |
| | | | | | | | | | | |
| (In thousands, except per share amounts) | 2017 | | 2016 | | 2015 |
| Basic EPS | |
| | |
| | |
|
| Net (loss) income | $ | (26,268 | ) | | $ | (55,579 | ) | | $ | 16,897 |
|
| Weighted average shares | 51,524 |
| | 50,910 |
| | 51,533 |
|
| Basic (loss) income per share | $ | (0.51 | ) | | $ | (1.09 | ) | | $ | 0.33 |
|
| Diluted EPS | |
| | |
| | |
|
| Net (loss) income | $ | (26,268 | ) | | $ | (55,579 | ) | | $ | 16,897 |
|
| Basic weighted average shares | 51,524 |
| | 50,910 |
| | 51,533 |
|
| Net effect of common stock equivalents | — |
| | — |
| | 556 |
|
| Diluted weighted average shares | 51,524 |
| | 50,910 |
| | 52,089 |
|
| Diluted (loss) income per share | $ | (0.51 | ) | | $ | (1.09 | ) | | $ | 0.32 |
|
Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. For fiscal 2017 and 2016, we recognized a net loss; therefore we excluded the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect. Fiscal 2015 weighted average shares outstanding, assuming dilution, excludes the impact of 1.6 million stock options and restricted share units because either the effect would have been anti-dilutive or the performance criteria related to the units had not yet been met.
12. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following: |
| | | | | | | | |
| (In thousands) | | April 1, 2017 | | April 2, 2016 |
| Land | | $ | 7,389 |
| | $ | 7,905 |
|
| Building and building improvements | | 109,933 |
| | 117,132 |
|
| Plant equipment and machinery | | 253,693 |
| | 238,549 |
|
| Office equipment and information technology | | 129,753 |
| | 127,019 |
|
| Haemonetics equipment | | 306,714 |
| | 295,853 |
|
| Total | | 807,482 |
| | 786,458 |
|
| Less: accumulated depreciation and amortization | | (483,620 | ) | | (448,824 | ) |
| Property, plant and equipment, net | | $ | 323,862 |
| | $ | 337,634 |
|
During fiscal 2017, we impaired $13.3 million of property, plant and equipment as a result of our review of non-core and underperforming assets and our decision to discontinue the use of and investment in certain assets, of which $0.8 million was included within impairment of assets on the consolidated statements of (loss) income and the remaining $12.5 million was included within cost of goods sold. These impairments impacted Americas Blood Center and Hospital, North America Plasma and EMEA segments by $10.6 million, $1.7 million and $1.0 million, respectively.
During fiscal 2016, we impaired $9.1 million of property, plant and equipment as a result of our global strategic review, of which $6.9 million was included within impairment of assets on the consolidated statements of (loss) income and the remaining $2.2 million was included within cost of goods sold. These impairments impacted our Americas Blood Center and Hospital and EMEA segments by $3.0 million and $6.1 million, respectively.
Depreciation expense was $66.5 million and $56.8 million in fiscal 2017 and fiscal 2016, respectively, which includes $10.0 million and $0.8 million, respectively, of additional depreciation expense due to asset impairments. Depreciation expense was $52.6 million for fiscal 2015.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. RETIREMENT PLANS
Defined Contribution Plans
We have a Savings Plus Plan (the "Plan") that is a 401(k) plan that allows our U.S. employees to accumulate savings on a pre-tax basis. In addition, matching contributions are made to the Plan based upon pre-established rates. Our matching contributions amounted to approximately $5.1 million, $5.4 million, and $5.8 million in fiscal 2017, 2016, and 2015, respectively. Upon Board approval, additional discretionary contributions can also be made. No discretionary contributions were made for the Plan in fiscal 2017, 2016, or 2015.
Some of our subsidiaries also have defined contribution plans, to which both the employee and the employer make contributions. The employer contributions to these plans totaled $0.8 million in both fiscal 2017 and 2016 and $1.0 million in fiscal 2015.
Defined Benefit Plans
ASC Topic 715, Compensation — Retirement Benefits, requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit post retirement plan in the year in which the changes occur. Accordingly, the Company is required to report changes in its funded status in comprehensive loss on its consolidated statement of stockholders’ equity and consolidated statement of comprehensive income (loss).
Benefits under these plans are generally based on either career average or final average salaries and creditable years of service as defined in the plans. The annual cost for these plans is determined using the projected unit credit actuarial cost method that includes actuarial assumptions and estimates which are subject to change.
Some of the our foreign subsidiaries have defined benefit pension plans covering substantially all full time employees at those subsidiaries. Net periodic benefit costs for the plans in the aggregate include the following components:
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Service cost | $ | 3,404 |
| | $ | 3,560 |
| | $ | 2,979 |
|
| Interest cost on benefit obligation | 287 |
| | 371 |
| | 686 |
|
| Expected return on plan assets | (308 | ) | | (330 | ) | | (449 | ) |
| Actuarial loss | 532 |
| | 598 |
| | 107 |
|
| Amortization of unrecognized prior service cost | (119 | ) | | (38 | ) | | (29 | ) |
| Amortization of unrecognized transition obligation | 37 |
| | 42 |
| | 45 |
|
| Settlement loss recognized | 289 |
| | — |
| | — |
|
| Totals | $ | 4,122 |
| | $ | 4,203 |
| | $ | 3,339 |
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The activity under those defined benefit plans are as follows:
|
| | | | | | | |
| (In thousands) | April 1,
2017 | | April 2,
2016 |
| Change in Benefit Obligation: | |
| | |
|
| Benefit Obligation, beginning of year | $ | (37,919 | ) | | $ | (40,567 | ) |
| Service cost | (3,404 | ) | | (3,560 | ) |
| Interest cost | (287 | ) | | (371 | ) |
| Benefits paid | 1,291 |
| | 3,780 |
|
| Actuarial gain | 4,615 |
| | 424 |
|
| Employee and plan participants contribution | (2,463 | ) | | (1,839 | ) |
| Plan amendments | — |
| | 833 |
|
| Plan settlements | 6,960 |
| | — |
|
| Foreign currency changes | (138 | ) | | 3,381 |
|
| Benefit obligation, end of year | $ | (31,345 | ) | | $ | (37,919 | ) |
| Change in Plan Assets: | |
| | |
|
| Fair value of plan assets, beginning of year | $ | 19,852 |
| | $ | 23,165 |
|
| Company contributions | 1,788 |
| | 1,987 |
|
| Benefits paid | (1,192 | ) | | (3,779 | ) |
| Gain on plan assets | 414 |
| | 446 |
|
| Employee and plan participants contributions | 2,424 |
| | 1,861 |
|
| Plan settlements | (6,850 | ) | | — |
|
| Foreign currency changes | 849 |
| | (3,828 | ) |
| Fair value of Plan Assets, end of year | $ | 17,285 |
| | $ | 19,852 |
|
Funded Status* | $ | (14,060 | ) | | $ | (18,067 | ) |
| Unrecognized net actuarial loss | 4,319 |
| | 10,168 |
|
| Unrecognized initial obligation | — |
| | 37 |
|
| Unrecognized prior service cost | (1,019 | ) | | (1,186 | ) |
| Net amount recognized | $ | (10,760 | ) | | $ | (9,048 | ) |
* The unfunded status is all non-current |
One of the benefit plans is funded by benefit payments made by the Company through the purchase of reinsurance contracts which do not qualify as plan assets under ASC Topic 715. Accordingly that plan has no assets included in the information presented above. The total liability for this plan was $8.8 million and $8.7 million as of April 1, 2017 and April 2, 2016, respectively, and the total asset value associated with the reinsurance contracts was $5.4 million as of both April 1, 2017 and April 2, 2016.
The accumulated benefit obligation for all plans was $28.7 million and $36.4 million for the fiscal year ended April 1, 2017 and April 2, 2016, respectively. There were no plans where the plan assets were greater than the accumulated benefit obligation as of April 1, 2017 and April 2, 2016.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of the change recorded in our accumulated other comprehensive loss related to our defined benefit plans, net of tax, are as follows (in thousands):
|
| | | |
| Balance, March 29, 2014 | $ | (4,592 | ) |
| Obligation at transition | (19 | ) |
| Actuarial loss | (6,198 | ) |
| Prior service cost | 1,886 |
|
| Balance as of March 28, 2015 | $ | (8,923 | ) |
| Obligation at transition | 33 |
|
| Actuarial loss | 681 |
|
| Prior service cost | 717 |
|
| Balance as of April 2, 2016 | $ | (7,492 | ) |
| Obligation at transition | 32 |
|
| Actuarial loss | 5,126 |
|
| Prior service cost | 63 |
|
| Balance as of April 1, 2017 | $ | (2,271 | ) |
We expect to amortize $0.2 million from accumulated other comprehensive loss to net periodic benefit cost during fiscal 2018.
The weighted average rates used to determine the net periodic benefit costs and projected benefit obligations were as follows:
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Discount rate | 0.76 | % | | 0.72 | % | | 0.93 | % |
| Rate of increased salary levels | 1.43 | % | | 1.58 | % | | 1.65 | % |
| Expected long-term rate of return on assets | 1.10 | % | | 1.20 | % | | 1.68 | % |
Assumptions for expected long-term rate of return on plan assets are based upon actual historical returns, future expectations of returns for each asset class and the effect of periodic target asset allocation rebalancing. The results are adjusted for the payment of reasonable expenses of the plan from plan assets.
We have no other material obligation for post-retirement or post-employment benefits.
Our investment policy for pension plans is to balance risk and return through a diversified portfolio to reduce interest rate and market risk. Maturities are managed so that sufficient liquidity exists to meet immediate and future benefit payment requirements.
ASC Topic 820, Fair Value Measurements and Disclosures, provides guidance for reporting and measuring the plan assets of our defined benefit pension plan at fair value as of April 1, 2017. Using the same three-level valuation hierarchy for disclosure of fair value measurements as described in Note 6, Derivatives and Fair Value Measurements, all of the assets of the Company’s plan are classified within Level 2 of the fair value hierarchy because the plan assets are primarily insurance contracts.
Expected benefit payments for both plans are estimated using the same assumptions used in determining the company’s benefit obligation at April 1, 2017. Benefit payments will depend on future employment and compensation levels, average years employed and average life spans, among other factors, and changes in any of these factors could significantly affect these estimated future benefit payments.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated future benefit payments are as follows:
|
| | | |
| (in thousands) | |
|
| Fiscal 2018 | $ | 1,396 |
|
| Fiscal 2019 | 1,451 |
|
| Fiscal 2020 | 1,394 |
|
| Fiscal 2021 | 1,411 |
|
| Fiscal 2022 | 1,617 |
|
| Fiscal 2023-2027 | 6,869 |
|
| | $ | 14,138 |
|
The Company's contributions for fiscal 2018 are expected to be consistent with the current year.
14.18. SEGMENT AND ENTERPRISE-WIDE INFORMATION
We determine our
The Company determines its reportable segments by first identifying ourits operating segments, and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. OurHistorically, the Company's operating segments arewere based primarily on geography. North America Plasma is a separateEffective as of March 31, 2019, the Company completed the transition of its operating segmentstructure to 3 global business units and accordingly, reorganized its reporting structure to align with dedicated segment management dueits three global business units and the size and scale ofinformation that will be regularly reviewed by the Plasma business unit. We aggregate components within anCompany's chief operating segment that have similar economic characteristics.decision maker.
The Company’s
Following the reorganization, the Company's reportable segments are as follows:
Japan
EMEA
North America Plasma
All Other
The Company has aggregated the Americas Blood Center and Hospital and Asia - Pacific operating segments into the All Other reportable segment based upon their similar operational and economic characteristics, including similarity of operating margin.
During the first quarter of fiscal 2017, management reorganized its operating segments such that certain components of All Other are now reported as components of EMEA. Accordingly, the prior year numbers have been updated to reflect this reclassification as well as other changes within the cost reporting structure that occurred in the first quarter of fiscal 2017. These changes did not have an impact on our ability to aggregate Americas Blood Center and Hospital with Asia - Pacific.
Management measures and evaluates the operating segments based on operating income. Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items. These items include restructuring and turnaround costs, deal amortization, asset impairments, accelerated depreciation, costs related to compliance with the European Union Medical Device Regulation, gains and losses on asset impairments.dispositions, certain transaction costs and legal charges. Although these amounts are excluded from segment operating income, as applicable, they are included in the reconciliations that follow. Management measures and evaluates the Company's net revenues and operating income using internally derived standard currency exchange rates that remain constant from year to year,year; therefore, segment information is presented on this basis.
Selected information by reportable segment is presented below:
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Net revenues | | | | | |
| Plasma | $ | 460,637 |
| | $ | 426,781 |
| | $ | 363,254 |
|
| Blood Center | 325,661 |
| | 335,557 |
| | 347,373 |
|
| Hospital | 194,604 |
| | 190,821 |
| | 178,116 |
|
| Net revenues by business unit | 980,902 |
| | 953,159 |
| | 888,743 |
|
Service (1) | 19,830 |
| | 19,906 |
| | 20,574 |
|
| Effect of exchange rates | (12,253 | ) | | (5,486 | ) | | (5,394 | ) |
| Net revenues | $ | 988,479 |
| | $ | 967,579 |
| | $ | 903,923 |
|
(1) Reflects revenue for service, maintenance and parts. | | | | | |
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Selected information by business segment is presented below:
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Net revenues | | | | | |
| Japan | $ | 74,695 |
| | $ | 84,270 |
| | $ | 83,547 |
|
| EMEA | 198,396 |
| | 204,192 |
| | 219,153 |
|
| North America Plasma | 309,718 |
| | 279,803 |
| | 240,705 |
|
| All Other | 316,771 |
| | 342,249 |
| | 340,427 |
|
| Net revenues before foreign exchange impact | 899,580 |
| | 910,515 |
| | 883,832 |
|
| Effect of exchange rates | (13,464 | ) | | (1,683 | ) | | 26,541 |
|
| Net revenues | $ | 886,116 |
| | $ | 908,832 |
| | $ | 910,373 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Segment operating income | | | | | |
| Plasma | $ | 225,351 |
| | $ | 180,300 |
| | $ | 146,986 |
|
| Blood Center | 159,802 |
| | 163,628 |
| | 170,172 |
|
| Hospital | 80,669 |
| | 76,338 |
| | 67,258 |
|
| Segment operating income | 465,822 |
| | 420,266 |
| | 384,416 |
|
Corporate expenses (1) | (255,727 | ) | | (263,603 | ) | | (257,229 | ) |
| Effect of exchange rates | 7,920 |
| | 8,367 |
| | 4,060 |
|
Impairment of assets and other related charges (2) | (51,220 | ) | | (21,170 | ) | | (1,941 | ) |
| Deal amortization | (25,746 | ) | | (24,803 | ) | | (26,013 | ) |
| PCS2 accelerated depreciation and related costs | (24,530 | ) | | (19,126 | ) | | — |
|
| Restructuring and turnaround costs | (19,878 | ) | | (13,660 | ) | | (44,125 | ) |
| European Medical Device Regulation costs | (1,506 | ) | | — |
| | — |
|
Other (3) | 133 |
| | (2,726 | ) | | (3,011 | ) |
Gain on sale of assets (4) | 8,083 |
| | — |
| | — |
|
| Operating income | $ | 103,351 |
| | $ | 83,545 |
| | $ | 56,157 |
|
(1) Reflects shared service expenses including quality and regulatory, customer and field service, research and development, manufacturing and supply chain, as well as other corporate support functions. (2) Includes a $1.9 million adjustment to fiscal 2020 Plasma revenue due to an accelerated charge incurred as a result of the divestiture of the Union, South Carolina liquid solutions operation. (3) Includes transaction costs and costs related to the resolution of customer damages associated with product recalls. (4) Reflects gain on the sale of the Company's Braintree corporate headquarters. |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Segment operating income | | | | | |
| Japan | $ | 32,906 |
| | $ | 38,280 |
| | $ | 36,843 |
|
| EMEA | 49,105 |
| | 47,168 |
| | 60,101 |
|
| North America Plasma | 105,253 |
| | 109,220 |
| | 89,092 |
|
| All Other | 109,296 |
| | 120,562 |
| | 131,471 |
|
| Segment operating income | 296,560 |
| | 315,230 |
| | 317,507 |
|
| Corporate operating expenses | 176,372 |
| | 199,072 |
| | 193,910 |
|
| Effect of exchange rates | (4,772 | ) | | 3,546 |
| | 13,906 |
|
| Restructuring and turnaround costs | 34,337 |
| | 42,185 |
| | 69,697 |
|
| Deal amortization | 27,107 |
| | 28,958 |
| | 30,184 |
|
| Impairment of assets | 73,353 |
| | 97,230 |
| | — |
|
| Contingent consideration income | — |
| | (4,727 | ) | | (2,918 | ) |
| Operating (loss) income | $ | (19,381 | ) | | $ | (43,942 | ) | | $ | 40,540 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Depreciation and amortization | | | | | |
| Plasma | $ | 38,429 |
| | $ | 38,074 |
| | $ | 47,985 |
|
| Blood Center | 8,513 |
| | 9,623 |
| | 11,439 |
|
| Hospital | 63,347 |
| | 61,721 |
| | 29,823 |
|
| Total depreciation and amortization (excluding impairment charges) | $ | 110,289 |
| | $ | 109,418 |
| | $ | 89,247 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Depreciation and amortization | | | | | |
| Japan | $ | 827 |
| | $ | 774 |
| | $ | 767 |
|
| EMEA | 4,255 |
| | 5,146 |
| | 5,045 |
|
| North America Plasma | 13,022 |
| | 12,944 |
| | 11,229 |
|
| All Other | 71,629 |
| | 71,047 |
| | 69,012 |
|
| Total depreciation and amortization (excluding impairment charges) | $ | 89,733 |
| | $ | 89,911 |
| | $ | 86,053 |
|
|
| | | | | | | | | | | |
| (In thousands) | March 28,
2020 | | March 30,
2019 | | March 31,
2018 |
Long-lived assets(1) | | | | | |
| Plasma | $ | 141,903 |
| | $ | 192,628 |
| | $ | 186,007 |
|
| Blood Center | 93,758 |
| | 127,272 |
| | 122,898 |
|
| Hospital | 17,738 |
| | 24,079 |
| | 23,251 |
|
| Total long-lived assets | $ | 253,399 |
| | $ | 343,979 |
| | $ | 332,156 |
|
(1) Long-lived assets are comprised of property, plant and equipment. |
|
| | | | | | | | | | | |
| (In thousands) | April 1,
2017 | | April 2,
2016 | | March 28,
2015 |
Long-lived assets(1) | | | | | |
| Japan | $ | 21,412 |
| | $ | 33,159 |
| | $ | 31,810 |
|
| EMEA | 63,854 |
| | 63,861 |
| | 66,223 |
|
| North America Plasma | 142,164 |
| | 116,001 |
| | 101,272 |
|
| All Other | 96,432 |
| | 124,613 |
| | 122,643 |
|
| Total long-lived assets | $ | 323,862 |
| | $ | 337,634 |
| | $ | 321,948 |
|
(1)Long-lived assets are comprised of property, plant and equipment. |
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Long-lived assets in ourSelected information by principle operating regions are as follows:is presented below:
| | | (In thousands) | April 1,
2017 | | April 2,
2016 | | March 28,
2015 | March 28,
2020 | | March 30,
2019 | | March 31,
2018 |
Long-lived assets(1) | | | | | | |
| United States | $ | 241,610 |
| | $ | 231,744 |
| | $ | 208,439 |
| $ | 186,488 |
| | $ | 269,849 |
| | $ | 236,603 |
|
| Japan | 1,691 |
| | 2,022 |
| | 1,618 |
| 2,037 |
| | 1,726 |
| | 1,511 |
|
| Europe | 12,952 |
| | 18,672 |
| | 27,786 |
| 10,143 |
| | 11,200 |
| | 13,696 |
|
| Asia | 34,174 |
| | 40,235 |
| | 39,032 |
| 29,175 |
| | 30,930 |
| | 36,431 |
|
| Other | 33,435 |
| | 44,961 |
| | 45,073 |
| 25,556 |
| | 30,274 |
| | 43,915 |
|
| Total | $ | 323,862 |
| | $ | 337,634 |
| | $ | 321,948 |
| |
| Total long-lived assets | | $ | 253,399 |
| | $ | 343,979 |
| | $ | 332,156 |
|
(1) Long-lived assets are comprised of property, plant and equipment. | | (1) Long-lived assets are comprised of property, plant and equipment. |
In fiscal 2017, we organized our current products into four business units for purposes of evaluating their growth potential: Plasma, Blood Center, Cell Processing and Hemostasis Management.
|
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| United States | $ | 646,204 |
| | $ | 606,845 |
| | $ | 548,731 |
|
| Japan | 72,218 |
| | 69,908 |
| | 67,319 |
|
| Europe | 153,347 |
| | 164,504 |
| | 164,226 |
|
| Asia | 109,295 |
| | 118,700 |
| | 115,127 |
|
| Other | 7,415 |
| | 7,622 |
| | 8,520 |
|
| Net revenues | $ | 988,479 |
| | $ | 967,579 |
| | $ | 903,923 |
|
Management reviews revenue trends based on the reportable segments noted above. Although these business units, however, no other financial information is currently available on this basis.reportable segments are primarily product-based, they differ from the Company’s product line revenues for Plasma products and services and Blood Center products and services. Specifically, the Blood Center reportable segment includes plasma products utilized for collection in blood centers primarily for transfusion purposes. Additionally, product line revenues also include service revenues which are excluded from the reportable segments.
Net revenues by business unitproduct line are as follows: |
| | | | | | | | | | | |
| (In thousands) | 2020 | | 2019 | | 2018 |
| Plasma products and services | 537,231 |
| | 501,837 |
| | 435,956 |
|
| Blood Center products and services | 252,829 |
| | 269,203 |
| | 284,902 |
|
| Hospital products and services | 198,419 |
| | 196,539 |
| | 183,065 |
|
| Net revenues | $ | 988,479 |
| | $ | 967,579 |
| | $ | 903,923 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Plasma | 410,727 |
| | 381,776 |
| | 352,911 |
|
| Blood Center | 303,890 |
| | 355,108 |
| | 386,147 |
|
| Cell Processing | 105,376 |
| | 112,483 |
| | 120,434 |
|
| Hemostasis Management | 66,123 |
| | 59,465 |
| | 50,881 |
|
| Net revenues | $ | 886,116 |
| | $ | 908,832 |
| | $ | 910,373 |
|
Net revenues generated in our principle operating regions are as follows: |
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| United States | $ | 522,686 |
| | $ | 519,440 |
| | $ | 494,788 |
|
| Japan | 79,266 |
| | 81,411 |
| | 88,298 |
|
| Europe | 166,007 |
| | 187,725 |
| | 215,575 |
|
| Asia | 109,858 |
| | 111,758 |
| | 102,095 |
|
| Other | 8,299 |
| | 8,498 |
| | 9,617 |
|
| Total | $ | 886,116 |
| | $ | 908,832 |
| | $ | 910,373 |
|
15. RESTRUCTURING
On an ongoing basis, we review the global economy, the healthcare industry, and the markets in which we compete to identify opportunities for efficiencies, enhance commercial capabilities, align our resources and offer our customers better solutions. In order to realize these opportunities, we undertake restructuring-type activities to transform our business.
During fiscal 2017, we launched a multi-year restructuring initiative designed to reposition our organization and improve our cost structure. This initiative includes a reduction of headcount and operating costs, simplification of certain product lines, and modification of manufacturing operations to align with our strategic direction.
The fiscal 2017 phase was expected to incur approximately $26 million of restructuring and turnaround charges and was estimated to achieve cost savings of $40 million. During fiscal 2017, we incurred $28.7 million of restructuring and turnaround charges under this initiative and exceeded our estimated savings target of $40 million. As of April 1, 2017, this initial phase was substantially complete. Additionally, during fiscal 2017 and fiscal 2016, we recorded $5.6 million and $42.3 million, respectively, of restructuring and turnaround charges under a prior program. We continue to assess non-core and underperforming assets and evaluate opportunities to improve our cost structure as part of our turnaround and expect to incur additional charges and benefits during fiscal 2018 and beyond.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following summarizes the restructuring activity for the fiscal year ended April 1, 2017, April 2, 2016, and March 28, 2015, respectively:
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | Severance and Other Employee Costs | | Other Costs | | Accelerated Depreciation | | Asset
Write Down | | Total Restructuring |
| Balance at March 29, 2014 | $ | 22,908 |
| | $ | 728 |
| | $ | — |
| | $ | — |
| | $ | 23,636 |
|
| Costs incurred | 19,879 |
| | 15,362 |
| | 1,326 |
| | 296 |
| | 36,863 |
|
| Payments | (26,394 | ) | | (15,871 | ) | | — |
| | — |
| | (42,265 | ) |
| Non-cash adjustments | — |
| | — |
| | (1,326 | ) | | (296 | ) | | (1,622 | ) |
| Balance at March 28, 2015 | $ | 16,393 |
| | $ | 219 |
| | $ | — |
| | $ | — |
| | $ | 16,612 |
|
| Costs incurred | 10,707 |
| | 7,846 |
| | 1,469 |
| | 3,033 |
| | 23,055 |
|
| Payments | (18,348 | ) | | (8,065 | ) | | — |
| | — |
| | (26,413 | ) |
| Non-cash adjustments | — |
| | — |
| | (1,469 | ) | | (3,033 | ) | | (4,502 | ) |
| Balance at April 2, 2016 | $ | 8,752 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,752 |
|
| Costs incurred | 19,521 |
| | 1,512 |
| | — |
| | 800 |
| | 21,833 |
|
| Payments | (20,866 | ) | | (1,451 | ) | | — |
| | — |
| | (22,317 | ) |
| Non-cash adjustments | — |
| | — |
| | — |
| | (800 | ) | | (800 | ) |
| Balance at April 1, 2017 | $ | 7,407 |
| | $ | 61 |
| | $ | — |
| | $ | — |
| | $ | 7,468 |
|
The substantial majority of restructuring expenses have been included as a component of selling, general and administrative expense in the accompanying consolidated statements of (loss) income. As of April 1, 2017, we had a restructuring liability of $7.5 million, of which, approximately $7.1 million is payable within the next twelve months.
In addition to the restructuring expenses included in the table above, we also incurred $12.5 million, $19.2 million and $32.8 million in fiscal 2017, 2016 and 2015, respectively, of costs that do not constitute as restructuring under ASC 420, which we refer to as "Turnaround Costs". These costs consist primarily of expenditures directly related to our restructuring initiative and include program management, implementation of the global strategic review initiatives and accelerated depreciation.
The tables below present restructuring and turnaround costs by reportable segment:
|
| | | | | | | | | | | |
| Restructuring costs | | | | | |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Japan | $ | 819 |
| | $ | 9 |
| | $ | 258 |
|
| EMEA | 4,272 |
| | 3,210 |
| | 3,310 |
|
| North America Plasma | 366 |
| | — |
| | 360 |
|
| All Other | 16,376 |
| | 19,836 |
| | 32,935 |
|
| Total | $ | 21,833 |
| | $ | 23,055 |
| | $ | 36,863 |
|
| | | | | | |
| Turnaround costs | | | | | |
| (in thousands) | 2017 | | 2016 | | 2015 |
| Japan | $ | 2 |
| | $ | 416 |
| | $ | 158 |
|
| EMEA | 94 |
| | 961 |
| | 838 |
|
| North America Plasma | 972 |
| | — |
| | 28 |
|
| All Other | 11,415 |
| | 17,852 |
| | 31,810 |
|
| Total | $ | 12,483 |
| | $ | 19,229 |
| | $ | 32,834 |
|
| | | | | | |
| Total restructuring and turnaround | $ | 34,316 |
| | $ | 42,284 |
| | $ | 69,697 |
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS
The cost of software that is developed or obtained for internal use is accounted for pursuant to ASC Topic 350, Intangibles — Goodwill and Other. Pursuant to ASC Topic 350, we capitalize costs incurred during the application development stage of software developed for internal use, and expense costs incurred during the preliminary project and the post-implementation operation stages of development. The costs capitalized for each project are included in intangible assets in the consolidated financial statements.
For costs incurred related to the development of software to be sold, leased, or otherwise marketed, we apply the provisions of ASC Topic 985-20, Software - Costs of Software to be Sold, Leased or Marketed, which specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers.
We capitalized $11.0 million and $17.0 million in software development costs for ongoing initiatives during the fiscal years ended April 1, 2017 and April 2, 2016, respectively. At April 1, 2017 and April 2, 2016, we have a total of $62.7 million and $54.9 million of software costs capitalized, of which $12.7 million and $14.4 million are related to in process software development initiatives, respectively, and the remaining balance represents in-service assets that are being amortized over their useful lives. The costs capitalized for each project are included in intangible assets in the consolidated financial statements. In connection with these development activities, we capitalized interest of $0.3 million and $0.2 million in fiscal 2017 and 2016, respectively. We amortize capitalized costs when the products are released for sale. During fiscal 2017, $9.5 million of capitalized costs were placed into service, compared to $8.7 million of capitalized costs placed into service during fiscal 2016. Amortization of capitalized software development cost expense was $9.7 million, $10.9 million and $3.2 million for fiscal 2017, 2016 and 2015, respectively. Amortization expense in fiscal 2017 and 2016 includes $4.0 million and $6.0 million of impairment charges. These impairment charges are classified within costs of goods sold on our consolidated statements of (loss) income and relate to capitalized software projects included in our All Other segment.
17. SUMMARY OF QUARTERLY DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| (In thousands) | | Three months ended |
| Fiscal 2017 | | July 2,
2016 | | October 1,
2016 | | December 31,
2016 | | April 1,
2017 |
| Net revenues | | $ | 209,956 |
| | $ | 220,253 |
| | $ | 227,841 |
| | $ | 228,066 |
|
| Gross profit | | $ | 91,056 |
| | $ | 104,248 |
| | $ | 101,079 |
| | $ | 82,111 |
|
| Operating income (loss) | | $ | (7,881 | ) | | $ | 24,794 |
| | $ | 21,212 |
| | $ | (57,506 | ) |
| Net (loss) income | | $ | (10,346 | ) | | $ | 19,825 |
| | $ | 15,393 |
| | $ | (51,140 | ) |
| Per share data: | | |
| | |
| | |
| | |
|
| Net (loss) income: | | |
| | |
| | |
| | |
|
| Basic | | $ | (0.20 | ) | | $ | 0.39 |
| | $ | 0.30 |
| | $ | (0.98 | ) |
| Diluted | | $ | (0.20 | ) | | $ | 0.38 |
| | $ | 0.30 |
| | $ | (0.98 | ) |
| | | | | | | | | |
| (In thousands) | | Three months ended |
| Fiscal 2016 | | June 27,
2015 | | September 26,
2015 | | December 26,
2015 | | April 2,
2016 |
| Net revenues | | $ | 213,413 |
| | $ | 219,693 |
| | $ | 233,384 |
| | $ | 242,342 |
|
| Gross profit | | $ | 102,539 |
| | $ | 105,297 |
| | $ | 108,855 |
| | $ | 89,223 |
|
| Operating (loss) income | | $ | 3,606 |
| | $ | 19,179 |
| | $ | (61,177 | ) | | $ | (5,550 | ) |
| Net (loss) income | | $ | (267 | ) | | $ | 12,863 |
| | $ | (59,440 | ) | | $ | (8,735 | ) |
| Per share data: | | |
| | |
| | |
| | |
|
| Net (loss) income: | | |
| | |
| | |
| | |
|
| Basic | | $ | (0.01 | ) | | $ | 0.25 |
| | $ | (1.17 | ) | | $ | (0.17 | ) |
| Diluted | | $ | (0.01 | ) | | $ | 0.25 |
| | $ | (1.17 | ) | | $ | (0.17 | ) |
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The operating results for the second and fourth quarters of fiscal 2017 and all four quarters of fiscal 2016 include certain misstatements that were determined to be immaterial both individually and in the aggregate. The misstatement in the fourth quarter of fiscal 2017 was primarily driven by the correction of an error in capitalized manufacturing variances which resulted in an overstatement of net loss in the fourth quarter of fiscal 2017 and an overstatement of net income in the second quarter of fiscal 2017 and each quarter of fiscal 2016.
The operating results for the first quarter of fiscal 2016 also include the correction of an understatement of the provision for income taxes in fiscal 2015 and the operating results for the third quarter of fiscal 2016 also include the correction of an overstated liability in fiscal 2014.
Below is a summary of the net overstatement/(understatement) of the Company’s reported operating income and net income for the second and fourth quarters of fiscal 2017 and all four quarters of fiscal 2016 as a result of the misstatements in each reporting period. In the fourth quarter of fiscal 2017 and the first, third and fourth quarters of fiscal 2016, the Company reported an operating loss, a net loss or both. For such periods, an understatement of income means that the reported loss was too high, while an overstatement of income means that the reported loss was too low.
|
| | | | | | |
| (In thousands) | | Overstatement/(Understatement) |
| Three Months Ended | | Operating (Loss) Income | | Net (Loss) Income |
| April 1, 2017 | | (3,720 | ) | | (4,032 | ) |
| October 1, 2016 | | 888 |
| | 1,224 |
|
| April 2, 2016 | | (3,352 | ) | | (2,207 | ) |
| December 26, 2015 | | 4,776 |
| | 4,584 |
|
| September 26, 2015 | | 1,193 |
| | 933 |
|
| June 27, 2015 | | 1,297 |
| | 219 |
|
18.19. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a roll-forward of the components of accumulated other comprehensive loss, net of tax, for the years ended April 1, 2017March 28, 2020 and April 2, 2016:March 30, 2019:
|
| | | | | | | | | | | | | | | | |
| (In thousands) | | Foreign currency | | Defined benefit plans | | Net Unrealized Gain/loss on Derivatives | | Total |
| Balance, March 31, 2018 | | $ | (16,405 | ) | | $ | (323 | ) | | $ | (2,263 | ) | | $ | (18,991 | ) |
| Other comprehensive loss before reclassifications | | (9,108 | ) | | (139 | ) | | (1,877 | ) | | (11,124 | ) |
Amounts reclassified from accumulated other comprehensive loss(1) | | — |
| | (65 | ) | | (200 | ) | | (265 | ) |
| Net current period other comprehensive loss | | (9,108 | ) | | (204 | ) | | (2,077 | ) | | (11,389 | ) |
| Balance, March 30, 2019 | | $ | (25,513 | ) | | $ | (527 | ) | | $ | (4,340 | ) | | $ | (30,380 | ) |
| Other comprehensive (loss) income before reclassifications | | (5,587 | ) | | 524 |
| | (10,111 | ) | | (15,174 | ) |
Amounts reclassified from accumulated other comprehensive loss(1) | | — |
| | (206 | ) | | 625 |
| | 419 |
|
| Net current period other comprehensive (loss) income | | (5,587 | ) | | 318 |
| | (9,486 | ) | | (14,755 | ) |
| Balance, March 28, 2020 | | $ | (31,100 | ) | | $ | (209 | ) | | $ | (13,826 | ) | | $ | (45,135 | ) |
(1) Presented net of income taxes, the amounts of which are insignificant. |
|
| | | | | | | | | | | | | | | | |
| (In thousands) | | Foreign currency | | Defined benefit plans | | Net Unrealized Gain/loss on Derivatives | | Total |
| Balance as of March 28, 2015 | | $ | (20,512 | ) | | $ | (8,923 | ) | | $ | 7,711 |
| | $ | (21,724 | ) |
| Other comprehensive (loss) income before reclassifications | | (1,987 | ) | | 884 |
| | (3,938 | ) | | (5,041 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | 547 |
| | (8,822 | ) | | (8,275 | ) |
| Net current period other comprehensive (loss) income | | (1,987 | ) | | 1,431 |
| | (12,760 | ) | | (13,316 | ) |
| Balance as of April 2, 2016 | | $ | (22,499 | ) | | $ | (7,492 | ) | | $ | (5,049 | ) | | $ | (35,040 | ) |
| Other comprehensive (loss) income before reclassifications | | (7,336 | ) | | 4,851 |
| | (364 | ) | | (2,849 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | — |
| | 369 |
| | 4,647 |
| | 5,016 |
|
| Net current period other comprehensive (loss) income | | (7,336 | ) | | 5,220 |
| | 4,283 |
| | 2,167 |
|
| Balance as of April 1, 2017 | | $ | (29,835 | ) | | $ | (2,272 | ) | | $ | (766 | ) | | $ | (32,873 | ) |
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The details about the amount reclassified from accumulated other comprehensive loss for the years ended April 1, 2017 and April 2, 2016 are as follows:20. SUMMARY OF QUARTERLY DATA (UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| (In thousands, except per share data) | | Three months ended |
| Fiscal 2020 | | June 29,
2019 | | September 28,
2019 | | December 28,
2019 | | March 28,
2020 |
| Net revenues | | $ | 238,451 |
| | $ | 252,566 |
| | $ | 258,970 |
| | $ | 238,492 |
|
| Gross profit | | $ | 115,906 |
| | $ | 127,000 |
| | $ | 128,050 |
| | $ | 113,557 |
|
| Operating (loss) income | | $ | (13,302 | ) | | $ | 49,739 |
| | $ | 40,907 |
| | $ | 26,007 |
|
| Net (loss) income | | $ | (8,479 | ) | | $ | 37,486 |
| | $ | 29,895 |
| | $ | 17,624 |
|
| Per share data: | | |
| | |
| | |
| | |
|
| Net (loss) income: | | |
| | |
| | |
| | |
|
| Basic | | $ | (0.17 | ) | | $ | 0.74 |
| | $ | 0.59 |
| | $ | 0.35 |
|
| Diluted | | $ | (0.17 | ) | | $ | 0.72 |
| | $ | 0.58 |
| | $ | 0.34 |
|
| | | | | | | | | |
| (In thousands, except per share data) | | Three months ended |
| Fiscal 2019 | | June 30,
2018 | | September 29,
2018 | | December 29,
2018 | | March 30,
2019 |
| Net revenues | | $ | 229,347 |
| | $ | 241,581 |
| | $ | 247,356 |
| | $ | 249,295 |
|
| Gross profit | | $ | 83,244 |
| | $ | 111,907 |
| | $ | 111,175 |
| | $ | 111,210 |
|
| Operating income | | $ | 5,293 |
| | $ | 26,076 |
| | $ | 28,320 |
| | $ | 23,856 |
|
| Net (loss) income | | $ | (2,819 | ) | | $ | 18,726 |
| | $ | 18,277 |
| | $ | 20,835 |
|
| Per share data: | | |
| | |
| | |
| | |
|
| Net (loss) income: | | |
| | |
| | |
| | |
|
| Basic | | $ | (0.05 | ) | | $ | 0.36 |
| | $ | 0.36 |
| | $ | 0.41 |
|
| Diluted | | $ | (0.05 | ) | | $ | 0.35 |
| | $ | 0.35 |
| | $ | 0.40 |
|
|
| | | | | | | | | | |
| (In thousands) | | Amounts Reclassified from Accumulated Other Comprehensive Loss | | Affected Line in the Statement of (Loss) Income |
| Derivative instruments reclassified to income statement | | Year ended April 1, 2017 | | Year ended April 2, 2016 | | |
| Realized net (loss) gain on derivatives | | $ | (5,227 | ) | | $ | 8,654 |
| | Net revenues, cost of goods sold, other expense, net |
| Income tax effect | | 580 |
| | 168 |
| | Provision (benefit) for income taxes |
| Net of taxes | | $ | (4,647 | ) | | $ | 8,822 |
| | |
| | | | | | | |
| Pension items reclassified to income statement | | | | | | |
| Realized net loss on pension assets | | $ | 450 |
| | $ | 602 |
| | Other expense, net |
| Income tax effect | | (81 | ) | | (55 | ) | | Provision (benefit) for income taxes |
| Net of taxes | | $ | 369 |
| | $ | 547 |
| | |
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19. SUBSEQUENT EVENTS
On April 27, 2017, we sold our SEBRA sealers product line to Machine Solutions Inc. because it was no longer aligned with our long-term strategic objectives. In connection with this transaction, we received net proceeds of $9 million. These proceeds are subject to a post-closing adjustment based on final asset values as determined during the 90 days transition period. The preliminary pre-tax gain expected to be recorded as a result of this transaction is $8 million. The SEBRA portfolio includes a suite of products which primarily include radio frequency sealers that are used to seal tubing as part of the collection of whole blood and blood components, particularly plasma.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, due to a material weakness in our internal control over financial reporting for inventory described below,as of that date, our disclosure controls and procedures were not effective as of April 1, 2017.effective.
Reports on Internal Control
Management’s Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-a5(f)15d-15(f). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of its internal control over financial reporting as of April 1, 2017.March 28, 2020. In making this assessment, the management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on our assessment, the Company's management identified a material weakness in ourbelieves that its internal controlcontrols over financial reporting relating to the accounting for inventory. Specifically, we identified a deficiency in the internal controls executed to appropriately account for manufacturing variances in inventory on our consolidated balance sheet and cost of goods sold on our consolidated statements of operations. Management determined that its accounting process for amortizing manufacturing variances to cost of goods sold lacked adequate levels of monitoring and review to appropriately identify and correct errors in the calculation in a timely manner. While reported inventory and related accounts are accurate as of April 1, 2017, this material weakness resulted in an overstatement of net loss in fiscal 2017 and an understatement of net loss in fiscal 2016 and prior periods.
We are developing and implementing new control processes and procedures to address this weakness and also to ensure that we become compliant with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 as required.
We are undertaking steps to strengthen our controls over accounting for inventory, including:
Increasing oversight by our management in the calculation and reporting of certain inventory balances;
Enhancing policies and procedures relating to account reconciliation and analysis;
Strengthening communication and information flows between the inventory operations department and the corporate controller's group.
The control deficiency described above resulted in certain material and immaterial misstatements in the preliminary financial statement accounts that were corrected prior to the issuance of the annual consolidated financial statements. The control deficiency create a possibility that a material misstatement to our consolidated financial statements will not be prevented or
detected on a timely basis, and therefore we concluded that the deficiency represents a material weakness in our internal control over financial reporting and our internal control over financial reporting for inventory is not effective as of April 1, 2017.March 28, 2020.
Our material weakness in controls over accounting for inventory will not be considered remediated until new internal controls are operational for a period of time and are tested, and management and our independent registered public accounting firm conclude that these controls are operating effectively.
Ernst & Young, LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial reporting. This report, in which they expressed an adverseunqualified opinion, is included below.
Changes in Internal Controls
As disclosed in our 2016 Annual Report on Form 10-K and in our Quarterly Reports on Form 10-Q for each of the first three quarters of fiscal 2016, we reported a material weakness in our internal control over financial reporting related to certain aspects of accounting for income taxes; including the existence of inadequate controls related to processes to record and reconcile income tax accounts, both current and deferred, and procedures with respect to classification of tax accounts on the consolidated balance sheet.
As of April 1, 2017, we have remediated the previously reported material weakness in our internal control over financial reporting related to accounting for income taxes by implementing the following changes:
We enhanced our processes for analyzing our deferred tax assets and liabilities;
We enhanced our policies and procedures related to both U.S. and non-U.S. tax account reconciliation and analysis, including, but not limited to, increased management oversight in the calculation of certain non-U.S. tax balances, increased automation in the calculation of our tax expense, and increased communication and direction to non-U.S. information providers;
We hired additional, experienced personnel to augment our existing tax accounting resources and provided extensive training to information providers, particularly those outside of the U.S.; and
We increased the level of communication and information flows on significant tax matters between our tax department and the corporate controller’s group.
We have evaluated and tested the effectiveness of our controls as of April 1, 2017 and determined that our previously reported material weakness in the accounting for income taxes has been remediated. Other than the remediation efforts described above and the identification of the material weakness in the accounting for inventory, thereThere have been no changes in our internal control over financial reporting during the quarter ended March 28, 2020 that have materially affected, or are likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
The
To the Stockholders and Board of Directors and Shareholders of Haemonetics Corporation
Opinion on Internal Control over Financial Reporting
We have audited Haemonetics Corporation and subsidiaries’ internal control over financial reporting as of April 1, 2017,March 28, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Haemonetics Corporation and subsidiaries’subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 28, 2020, based onthe COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated May 20, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.deteriorate
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management identified a material weakness in internal control over financial reporting relating to the accounting for inventory, stemming from a deficiency in the internal controls executed to appropriately account for manufacturing variances in inventory on the consolidated balance sheet and cost of goods sold on the consolidated statements of operations. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Haemonetics Corporation and subsidiaries as of April 1, 2017 and April 2, 2016, and the related consolidated statements of (loss) income, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended April 1, 2017. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2017 financial statements, and this report does not affect our report dated May 24, 2017, which expressed an unqualified opinion on those financial statements.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Haemonetics Corporation and subsidiaries has not maintained effective internal control over financial reporting as of April 1, 2017, based on the COSO criteria.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 24, 201720, 2020
ITEM 9B. OTHER INFORMATION
None
None.
PART III
ITEM 10. DIRECTORS, AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
1. The information called for by Item 401 of Regulations S-K concerning our directors and the information called for by Item 405 of Regulation S-K concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 required by this Item is incorporated by reference from our Proxy Statement for the Annual Meeting to be held July 27, 2017.
2. The information concerning our Executive Officers is set forth at the end of Part I hereof.
3. The balance of the information required by this item, including information concerning our Audit Committee and the Audit Committee Financial Expert and compliance with Item 407(c)(3) of S-K, is incorporated by reference from the Company’s Proxy Statement for the Annual Meeting to be held July 27, 2017. We have adopted a Code of Ethics that applies to our chief executive officer, chief financial officerChief Executive Officer, Chief Financial Officer and senior financial officers. The Code of Ethics is incorporated into the Company’s Code of Conduct located on the Company’s internet web site at http://phx.corporate-ir.net/phoenix.zhtml?c=72118&p=irol-IRHomewebsite www.haemonetics.com, under the “About Haemonetics” menu, under the “Investor Relations Home” caption and it is available in print to any shareholder who requests it. Such requests shouldunder the “Corporate Governance” sub-caption. A copy of the Code of Conduct will be directedprovided free of charge by making a written request and mailing it to our Company’s Secretary.
We intendcorporate headquarters offices to disclose any amendmentthe attention of our Investor Relations Department. Any amendments to, or waiverwaivers from, a provision of theour Code of Ethics that applies to our chief executive officer, chief financial officerChief Executive Officer, Chief Financial Officer or senior financial officers and that relates to any element of the Code of Ethics definition enumerated in Item 406 of Regulation S-K by posting such information on our website. Pursuant to NYSE Rule 303A.10, as amended, any waiver of the code of ethics for any executive officer or director mustwill be disclosed on the Company’s website promptly following the date of such amendment or waiver.
The additional information required by this item is incorporated by reference to our Definitive Proxy Statement for our annual meeting of shareholders to be filed with the Securities and Exchange Commission within four business120 days by a press release, SEC Form 8-K, or internet posting.after the close of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference fromto our Definitive Proxy Statement for the Annual Meetingour annual meeting of shareholders to be held July 27, 2017.filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year. Notwithstanding the foregoing, the Compensation Committee Report included within the Proxy Statement is only being “furnished” hereunder and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference from the Company’sto our Definitive Proxy Statement for the Annual Meetingour annual meeting of shareholders to be held July 27, 2017.filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPEDENCE
The information required by this Item is incorporated by reference fromto our Definitive Proxy Statement for the Annual Meetingour annual meeting of shareholders to be held July 27, 2017.filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
ITEM 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference fromto our Definitive Proxy Statement for the Annual Meetingour annual meeting of shareholders to be held July 27, 2017.
filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this report:
A)Financial Statements are included in Part II of this report
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| Financial Statements required by Item 8 of this Form | |
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| Schedules required by Article 12 of Regulation S-X | |
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All other schedules have been omitted because they are not applicable or not required.
B)Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index beginning at page 91, which is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| HAEMONETICS CORPORATION |
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| By: | /s/ Christopher Simon |
| | Christopher Simon |
| | President and Chief Executive Officer |
Date : May 24, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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Signature | | Title | | Date |
| | | | |
/s/ Christopher Simon | | President and Chief Executive Officer | | May 24, 2017 |
Christopher Simon | | (Principal Executive Officer) | | |
| | | | |
/s/ William Burke | | Chief Financial Officer | | May 24, 2017 |
William Burke | | (Principal Financial Officer) | | |
| | | | |
/s/ Dan Goldstein | | Vice President, Corporate Controller | | May 24, 2017 |
Dan Goldstein | | (Principal Accounting Officer) | | |
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/s/ Catherine Burzik | | Director | | May 24, 2017 |
Catherine Burzik | | | | |
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/s/ Charles Dockendorff | | Director | | May 24, 2017 |
Charles Dockendorff | | | | |
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/s/ Susan Bartlett Foote | | Director | | May 24, 2017 |
Susan Bartlett Foote | | | | |
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/s/ Ronald Gelbman | | Director | | May 24, 2017 |
Ronald Gelbman | | | | |
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/s/ Pedro Granadillo | | Director | | May 24, 2017 |
Pedro Granadillo | | | | |
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/s/ Mark Kroll | | Director | | May 24, 2017 |
Mark Kroll | | | | |
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/s/ Richard Meelia | | Director | | May 24, 2017 |
Richard Meelia | | | | |
| | | | |
/s/ Ronald Merriman | | Director | | May 24, 2017 |
Ronald Merriman | | | | |
EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
Number and Description of Exhibit
|
| | |
| 1. Articles of Organization |
3A* | | Amended and Restated Articles of Organization of the CompanyHaemonetics Corporation, reflecting Articles of Amendment dated August 23, 1993, and August 21, 2006, July 26, 2018 and July 25, 2019 (filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended December8-K dated July 29, 20122019 and incorporated herein by reference). |
3B* | | By-Laws of the Company, as amended through January 21, 2015July 25, 2019 (filed as Exhibit 99.13.3 to the Company's Form 8-K dated January 27, 2015)July 29, 2019 and incorporated herein by reference). |
| | | |
| 2. Instruments Defining the Rights of Security Holders |
4A*4A | | Specimen certificate for shares of common stock (filed as Exhibit 4B to the Company's Amendment No. 1 to Form S-1 No. 33-39490 and incorporated herein by reference). |
| | Description of Common Stock |
| | | |
| 3. Material Contracts |
10A* | | Haemonetics Corporation 2005 Long-Term Incentive Compensation Plan, reflecting amendments dated July 31, 2008, July 29, 2009, July 21, 2011, November 30, 2012, July 24, 2013, January 21, 2014, and July 23, 2014 (filed as Exhibit 10.1 to the Company's Form 8-K dated July 25, 2014 and incorporated herein by reference). |
| | Haemonetics Corporation 2019 Long-Term Incentive Compensation Plan (filed as Exhibit 10.1 to the Company's Form 8-K dated July 29, 2019 and incorporated herein by reference). |
| | Form of Non-Qualified Stock Option Award Agreement under 2005 Long Term-Incentive Compensation Plan for Non-employee Directors (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended October 1, 2005 and incorporated herein by reference). |
| | Form of Non-Qualified Stock Option Award Agreement under 2005 Long-Term Incentive Compensation Plan for Employees (filed as Exhibit 10S to the Company's Form 10-K for the fiscal year ended March 30, 2010 and incorporated herein by reference). |
| | Form of Non-Qualified Stock Option Award Agreement under the 2005 Long-Term Incentive Compensation Plan for Employees (adopted fiscal 2019) (filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 2018 and incorporated herein by reference). |
| | Form of Non-Qualified Stock Option Award Agreement under 2019 Long-Term Incentive Compensation Plan (adopted fiscal 2020) (filed as Exhibit 10.4 to the Company's Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference). |
| | Form of Restricted Stock Unit Award Agreement with Non-Employee Directors under 2005 Long-Term Incentive Compensation Plan (fiscal 2019) (filed as Exhibit 10.5 to the Company's Form 10-Q for the quarter ended June 30, 2018 and incorporated herein by reference). |
| | Form of Restricted Stock Unit Award Agreement with Non-Employee Directors under 2019 Long-Term Incentive Compensation Plan (fiscal 2020) (filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference). |
| | Form of Restricted Stock Unit Award Agreement with Employees under 2005 Long-Term Incentive Compensation Plan (filed as Exhibit 10U to the Company's Form 10-K for the year ended April 3, 2010 and incorporated herein by reference). |
| | Form of Restricted Stock Unit Award Agreement with Employees under 2005 Long-Term Incentive Compensation Plan (adopted fiscal 2019) (filed as Exhibit 10.4 to the Company's Form 10-Q for the quarter ended June 30, 2018 and incorporated herein by reference). |
| | Form of Restricted Stock Unit Award Agreement with Employees under 2019 Long-Term Incentive Compensation Plan (adopted fiscal 2020) (filed as Exhibit 10.3 to the Company's Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference). |
| | Form of Performance Share Unit Award Agreement Under 2005 Long-Term Incentive Compensation Plan (rTSR Metrics, adopted fiscal 2017) (filed as Exhibit 10AN to the Company's Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). |
| | Form of Performance Share Unit Award Agreement Under 2005 Long-Term Incentive Compensation Plan (rTSR Metrics, adopted fiscal 2018) (filed as Exhibit 10AO to the Company's Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). |
| | Form of Performance Share Unit Award Agreement Under 2005 Long-Term Incentive Compensation Plan (rTSR Metrics, adopted fiscal 2019) (filed as Exhibit 10.3 to the Company's Form 10-Q for the quarter ended June 30, 2018 and incorporated herein by reference). |
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| | Form of Performance Share Unit Award Agreement Under 2005 Long-Term Incentive Compensation Plan (rTSR Metrics, adopted fiscal 2020) (filed herewith as Exhibit 10AV to the Company's Form 10-K for the year ended March 30, 2019 and incorporated herein by reference). |
| | Form of Performance Share Unit Award Agreement Under 2019 Long-Term Incentive Compensation Plan (rTSR Metrics, adopted fiscal 2020) (filed herewith as Exhibit 10.5 to the Company's Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference). |
| | Amended and Restated 2007 Employee Stock Purchase Plan (as amended and restated on July 21, 2016 incorporated as Exhibit 10.2 to the Company’s Form 10-Q, for the quarter ended July 2, 2016 and incorporated herein by reference). |
| | Amended and Restated Non-Qualified Deferred Compensation Plan as amended and restated on July 24, 2013 (filed as Exhibit 10.2 to the Company's Form 8-K dated July 26, 2013 and incorporated herein by reference). |
| | Employment Agreement effective as of May 16, 2016 between the Company and Christopher Simon (filed as Exhibit 10.1 to the Company’s Form 8-K dated May 10, 2016 and incorporated herein by reference). |
| | Executive Severance Agreement between the Company and Christopher A. Simon dated as of November 7, 2017 (filed as Exhibit 10.4 to the Company’s Form 10-Q dated for the quarter ended September 30, 2017 and incorporated herein by reference). |
| | Change in Control Agreement between the Company and Christopher A. Simon dated as of November 7, 2017 (filed as Exhibit 10.5 to the Company’s Form 8-K dated 10-Q dated for the quarter ended September 30, 2017 and incorporated herein by reference). |
| | Form of Executive Severance Agreement between the Company and executive officers other than Christopher A. Simon (filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended September 30, 2017 and incorporated herein by reference). |
| | Form of Change in Control Agreement between the Company and executive officers other than Christopher A. Simon (filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended September 30, 2017 and incorporated herein by reference). |
| | Haemonetics Corporation Worldwide Employee Bonus Plan (as amended and restated effective April 23, 2019) (filed as Exhibit 10.1 to the Company's Form 8-K dated April 29, 2019 and incorporated herein by reference). |
| | Form of Indemnification Agreement (as executed with each director and executive officer of the Company) (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 29, 2018 and incorporated herein by reference). |
| | Office Lease Agreement, dated as of December 18, 2018, by and between OPG 125 Summer Owner (DE) LLC and the Company (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended December 29, 2018 and incorporated herein by reference). |
| | Lease dated August 26, 2019 by and between the Company and HRP Wood Road, LLC (filed as Exhibit 10.6 to the Company's Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference). |
| 10AB | | Lease dated July 17, 1990 between the Buncher Company and the Company of property in Pittsburgh, Pennsylvania (filed as Exhibit 10-K to the Company's Form S-1 No. 33-39490 and incorporated herein by reference). |
10B*10AC | | First Amendment to lease dated July 17, 1990, made as of July 17, 1996April 30, 1991 between Buncher Company and the Company of property in Pittsburgh, Pennsylvania (filed as Exhibit 10AI to the Company's Form 10-Q for the quarter ended December 28, 1996 and incorporated herein by reference). |
10C* | | Second Amendment to lease dated July 17, 1990, made as of October 18, 2000 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10AG to the Company's Form 10-K for the year ended March 29, 2003 and incorporated herein by reference). |
10D* | | Third Amendment to lease dated July 17, 1990, made as of March 23, 2004 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10D to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10E* | | Fourth Amendment to lease dated July 17, 1990, made as of March 12, 2008 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10E to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10F* | | Fifth Amendment to lease dated July 17, 1990, made as of October 1, 2008 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10F to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10G* | | Sixth Amendment to lease dated July 17, 1990 made as of January 8, 2010 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10G to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10H* |
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| | Seventh Amendment to lease dated July 17, 1990, made as of March 31, 2011 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10H to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10I* | | Eighth Amendment to lease dated July 17, 1990, made as of February 26, 2013 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10I to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10J* | | Ninth Amendment to lease dated July 17, 1990, made as of March 12, 2014 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10J to the Company's Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). |
| | Tenth Amendment to lease dated July 17, 1990, made as of May 31, 2017 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10K to the Company's Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). |
| | Eleventh Amendment to lease dated July 17, 1990, made as of March 2, 2018 between Buncher Company and the Company for the property in Pittsburgh, Pennsylvania (filed as Exhibit 10L to the Company's Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). |
| | Lease dated February 21, 2000 between BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V. with authorization of El Florido California, S.A. de C.V., for property located in Tijuana, Mexico (filed as Exhibit 10J to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10K* | | Amendment to Lease dated February 21, 2000 made as of July 25, 2008 between BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V., for property located in Tijuana, Mexico (filed as Exhibit 10K to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10L* | | Extension to Lease dated February 21, 2000, made as of August 14, 2011 between PROCADEF 1, S.A.P.I. de C.V. and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V., for property located in Tijuana, Mexico (Spanish to English translation filed as Exhibit 10L to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
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10M* | | Amendment Letter to Lease dated February 21, 2000, made as of August 14, 2011 between BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V., for property located in Tijuana, Mexico (filed as Exhibit 10M to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10N* | | Notice of Assignment to Lease dated February 21, 2000, made as of February 23, 2012 between BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V. for property located in Tijuana, Mexico (Spanish to English translation filed as Exhibit 10N to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10O* | | Amendment to Lease dated February 21, 2000 made as of January 1, 2018 between MEGA2013, S.A.P.I. de CV (as successor in interest to ABBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust) and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V., for property located in Tijuana, Mexico (filed as Exhibit 10R to the Company's Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). |
| | Lease Agreement effective December 3, 2007 between Mrs. Blanca Estela Colunga Santelices, by her own right, and Pall Life Sciences Mexico, S.de R.L. de C.V., for the property located in Tijuana, Mexico (Spanish to English translation filed as Exhibit 10W to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10P* | �� | Assignment to Lease Agreement effective December 3, 2007, made as of December 2, 2011 between Mrs. Blanca Estela Colunga Santelices, by her own right, Pall Life Sciences Mexico, S.de R.L. de C.V., (“Assignor”) and Haemonetics Mexico Manufacturing, S. de R.L. de C.V.as successor in interest to Pall Mexico Manufacturing S. de R.L. de C.V., (“Assignee”) assigned in favor of the property located in Tijuana, Mexico (filed as Exhibit 10X to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10Q* | | Amendment to Lease Agreement effective December 3, 2007, made in 2017 between Mrs. Blanca Estela Colunga Santelices, by her own right, Pall Life Sciences Mexico, S.de R.L. de C.V. (“Assignor”) and Haemonetics Mexico Manufacturing, S. de R.L. de C.V. as successor in interest to Pall Mexico Manufacturing S. de R.L. de C.V., (“Assignee”) assigned in favor of the property located in Tijuana, Mexico (filed as Exhibit 10U to the Company's Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). |
| | Sublease Contract to Lease Agreement effective December 3, 2007, made as of December 3, 2011 between Haemonetics Mexico Manufacturing, S. de R.L. de C.V. as successor in interest to Pall Mexico Manufacturing, S.de R.L. de C.V., and Pall Life Sciences Mexico, S. de R.L. de C.V., for the property located in Tijuana, Mexico (filed as Exhibit 10Y to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10R* |
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| | Sublease Contract to Lease Agreement effective December 3, 2007, made as of February 23, 2012 between Haemonetics Mexico Manufacturing, S. de R.L. de C.V. as successor in interest to Pall Mexico Manufacturing S. de R.L. de C.V. and Ensatec, S.A. de C.V., for the property located in Tijuana, Mexico (filed as Exhibit 10Z to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10S* | | Lease dated August 20, 2009 between Price Logistics Center Draper One, LLC and the Company for property located in Draper, Utah. (filed as Exhibit 10AA to the Company's Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). |
10T* | | Lease dated September 19, 2013 between the Penang Development Corporation ("Lessor") and Haemonetics Malaysia Sdn Bhd ("Lessee") of the property located in Penang, Malaysia (filed as Exhibit 10D to the Company's 10-Q for the quarter ended June 28, 2014 and incorporated herein by reference). |
10U*† | | Haemonetics Corporation 2005 Long-Term Incentive Compensation Plan, reflecting amendments dated July 31, 2008, July 29, 2009, July 21, 2011, November 30, 2012, July 24, 2013, January 21, 2014, and July 23, 2014 (filed as Exhibit 10.1 to the Company's Form 8-K dated July 25, 2014 and incorporated herein by reference). |
10V*† | | Form of Option Agreement for Non-Qualified stock options for the 2005 Long Term-Incentive Compensation Plan for Non-employee Directors (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended October 1, 2005 and incorporated herein by reference). |
10W*† | | Form of Option Agreement for Non-Qualified stock options for the 2005 Long-Term Incentive Compensation Plan for Employees. (filed as Exhibit 10S to the Company's Form 10-K for the fiscal year ended March 30, 2010 and incorporated herein by reference). |
10X*† | | Form of Restricted Stock Agreement with Employees under 2005 Long-Term Incentive Compensation Plan (filed as Exhibit 10U to the Company's Form 10-K for the year ended April 3, 2010 and incorporated herein by reference). |
10Y*† | | Form of Change in Control Agreement (filed as Exhibit 10AK to the Company's Form 10-K, for the year-ended March 31, 2013 and incorporated herein by reference). |
10Z*† | | Amended and Restated 2007 Employee Stock Purchase Plan (as amended and restated on July 21, 2016 incorporated as Exhibit 10.2 to the Company’s Form 10-Q, for the quarter ended July 2, 2016 and incorporated herein by reference). |
10AA*† | | Amended and Restated Non-Qualified Deferred Compensation Plan as amended and restated on July 24, 2013 (filed as Exhibit 10.2 to the Company's Form 8-K dated July 26, 2013 and incorporated herein by reference). |
10AB*† | | Form of Executive Severance Agreement (filed as Exhibit 10.2 to the Company’s Form 8-K dated January 19, 2016 and incorporated herein by reference). |
10AC*† | | Employment Agreement effective as of May 16, 2016 between the Company and Christopher Simon (filed as Exhibit 10.1 to the Company’s Form 8-K dated May 10, 2016 and incorporated herein by reference). |
10AD*† | | Executive Severance Agreement effective as of May 16, 2016 between the Company and Christopher Simon (filed as Exhibit 10.2 to the Company’s Form 8-K dated May 10, 2016 and incorporated herein by reference). |
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10AE*† | | Change in Control Agreement effective as of May 16, 2016 between the Company and Christopher Simon (filed as Exhibit 10.3 to the Company’s Form 8-K dated May 10, 2016 and incorporated herein by reference). |
10AF*† | | Haemonetics Corporation Worldwide Executive Bonus Plan with an Effective Date of April 3, 2016 (filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended July 2, 2016 and incorporated herein by reference). |
10AG*† | | Performance Share Unit Agreement between Haemonetics Corporation and Christopher Simon dated as of June 29, 2016 (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended July 2, 2016 and incorporated herein by reference). |
10AH† | | Agreement and General Release between Haemonetics Corporation and Byron Selman dated May 1, 2017. |
10AI* | | Asset Purchase Agreement, dated as of April 28, 2012, by and between Haemonetics Corporation and Pall Corporation (filed as Exhibit 10Z to the Company's Form 10-K for the fiscal year ended March 31, 2012 and incorporated herein by reference). |
10AJ* | | Credit Agreement, dated as of June 30, 201415, 2018, by and among Haemonetics Corporation, and the Lenders listed thereinfrom time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Company’s Form 8-K dated July 7, 201418, 2018 and incorporated herein by reference). |
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4. SubsidiarySubsidiaries Certifications and Consents |
| | Subsidiaries of the Company. |
| | Consent of the Independent Registered Public Accounting Firm. |
| | Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002, of Christopher A. Simon, President and Chief Executive Officer of the Company. |
| | Certification pursuant to Section 302 of Sarbanes-Oxley of 2002 of William Burke, Executive Vice President, Chief Financial Officer of the Company. |
| | Certification Pursuant to 18 United States Code Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Christopher A. Simon, President and Chief Executive Officer of the Company. |
| | Certification Pursuant to 18 United States Code Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of William Burke, Executive Vice President, Chief Financial Officer of the Company. |
101ˆ101** | | The following materials from Haemonetics Corporation on Form 10-K for the year ended April 1, 2017,March 28, 2020, formatted in Extensiveinline Extensible Business Reporting Language (XBRL): includes: (i) Consolidated Statements of (Loss) Income, (ii) Consolidated Statements of Comprehensive (Loss) Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statement of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.Statements. |
| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). |
|
| | |
| * | Incorporated by referenceDocument filed or furnished with this report. |
| † | Agreement, plan, or arrangement related to the compensation of officers or directorsdirectors. |
| ‡ | SubjectConfidential treatment has been requested as to a confidential treatment requestportions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission. |
ˆ** | In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Form 10-K10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for the purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| HAEMONETICS CORPORATION |
| | |
| By: | /s/ Christopher A. Simon |
| | Christopher A. Simon |
| | President, Chief Executive Officer and a Director |
Date : May 20, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ Christopher A. Simon | | President, Chief Executive Officer and a Director | | May 20, 2020 |
| Christopher A. Simon | | (Principal Executive Officer) | | |
| | | | |
| /s/ William Burke | | Executive Vice President, Chief Financial Officer | | May 20, 2020 |
| William Burke | | (Principal Financial Officer) | | |
| | | | |
| /s/ Dan Goldstein | | Vice President, Corporate Controller | | May 20, 2020 |
| Dan Goldstein | | (Principal Accounting Officer) | | |
| | | | |
| /s/ Robert Abernathy | | Director | | May 20, 2020 |
| Robert Abernathy | | | | |
| | | | |
| /s/ Catherine Burzik | | Director | | May 20, 2020 |
| Catherine Burzik | | | | |
| | | | |
| /s/ Michael J. Coyle | | Director | | May 20, 2020 |
| Michael J. Coyle | | | | |
| | | | |
| /s/ Charles Dockendorff | | Director | | May 20, 2020 |
| Charles Dockendorff | | | | |
| | | | |
| /s/ Ronald Gelbman | | Director | | May 20, 2020 |
| Ronald Gelbman | | | | |
| | | | |
| /s/ Mark Kroll | | Director | | May 20, 2020 |
| Mark Kroll | | | | |
| | | | |
| /s/ Claire Pomeroy | | Director | | May 20, 2020 |
| Claire Pomeroy | | | | |
| | | | |
| /s/ Richard Meelia | | Director | | May 20, 2020 |
| Richard Meelia | | | | |
| | | | |
| /s/ Ellen Zane | | Director | | May 20, 2020 |
| Ellen Zane | | | | |
SCHEDULE II
HAEMONETICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
|
| | | | | | | | | | | | | | | |
| (In thousands) | Balance at
Beginning of
Fiscal Year | | Charged to
Costs and
Expenses | | Write-Offs
(Net of Recoveries) | | Balance at End
of Fiscal Year |
| For Year Ended March 28, 2020 | |
| | |
| | |
| | |
|
| Allowance for Doubtful Accounts | $ | 3,937 |
| | $ | 373 |
| | $ | 486 |
| | $ | 3,824 |
|
| For Year Ended March 30, 2019 | |
| | |
| | |
| | |
|
| Allowance for Doubtful Accounts | $ | 2,111 |
| | $ | 2,111 |
| | $ | 285 |
| | $ | 3,937 |
|
| For Year Ended March 31, 2018 | |
| | |
| | |
| | |
|
| Allowance for Doubtful Accounts | $ | 2,184 |
| | $ | 208 |
| | $ | 281 |
| | $ | 2,111 |
|
|
| | | | | | | | | | | | | | | |
| (In thousands) | Balance at
Beginning of
Fiscal Year | | Charged to
Costs and
Expenses | | Write-Offs
(Net of Recoveries) | | Balance at End
of Fiscal Year |
| For Year Ended April 1, 2017 | |
| | |
| | |
| | |
|
| Allowance for Doubtful Accounts | $ | 2,253 |
| | $ | 103 |
| | $ | 172 |
| | $ | 2,184 |
|
| For Year Ended April 2, 2016 | |
| | |
| | |
| | |
|
| Allowance for Doubtful Accounts | $ | 1,749 |
| | $ | 728 |
| | $ | (224 | ) | | $ | 2,253 |
|
| For Year Ended March 28, 2015 | |
| | |
| | |
| | |
|
| Allowance for Doubtful Accounts | $ | 1,676 |
| | $ | 399 |
| | $ | (326 | ) | | $ | 1,749 |
|