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HAE Haemonetics

Filed: 2 Feb 21, 6:21am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 26, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14041
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
125 Summer Street 
Boston,Massachusetts02110
(Address of principal executive offices)(Zip Code)
(781) 848-7100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, $.01 par value per shareHAENew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer 
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No x
The number of shares of $0.01 par value common stock outstanding as of January 29, 2021: 50,821,698



HAEMONETICS CORPORATION
INDEX
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ITEM 1. FINANCIAL STATEMENTS

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

 Three Months EndedNine Months Ended
December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Net revenues$240,371 $258,970 $645,434 $749,987 
Cost of goods sold120,114 130,920 329,403 379,031 
Gross profit120,257 128,050 316,031 370,956 
Operating expenses:    
Research and development7,501 7,000 22,014 21,909 
Selling, general and administrative73,446 78,267 214,680 229,189 
Impairment of assets1,876 1,028 50,597 
Gains on divestitures and sale of assets(1,115)(32,613)(8,083)
Total operating expenses79,832 87,143 205,109 293,612 
Operating income40,425 40,907 110,922 77,344 
Interest and other expense, net(3,051)(3,078)(10,612)(12,152)
Income before provision for income taxes37,374 37,829 100,310 65,192 
Provision for income taxes5,492 7,934 9,800 6,290 
Net income$31,882 $29,895 $90,510 $58,902 
Net income per share - basic$0.63 $0.59 $1.79 $1.16 
Net income per share - diluted$0.62 $0.58 $1.77 $1.13 
Weighted average shares outstanding    
Basic50,789 50,630 50,634 50,810 
Diluted51,363 51,638 51,234 51,995 
Comprehensive income$40,496 $32,296 $105,787 $55,577 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share data)
December 26,
2020
March 28,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$189,002 $137,311 
Accounts receivable, less allowance of $2,525 at December 26, 2020 and $3,824 at March 28, 2020146,939 165,207 
Inventories, net299,710 270,276 
Prepaid expenses and other current assets32,697 30,845 
Total current assets668,348 603,639 
Property, plant and equipment, net240,009 253,399 
Intangible assets, less accumulated amortization of $309,951 at December 26, 2020 and $296,942 at March 28, 2020119,716 133,106 
Goodwill215,508 210,652 
Deferred tax asset4,558 3,930 
Other long-term assets69,929 62,384 
Total assets$1,318,068 $1,267,110 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Notes payable and current maturities of long-term debt$17,055 $76,980 
Accounts payable42,979 50,730 
Accrued payroll and related costs35,127 49,471 
Other liabilities99,223 97,641 
Total current liabilities194,384 274,822 
Long-term debt, net of current maturities292,721 305,513 
Deferred tax liability9,803 10,562 
Other long-term liabilities102,008 89,104 
Total stockholders’ equity  
Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 50,817,222 shares at December 26, 2020 and 50,322,930 shares at March 28, 2020508 503 
Additional paid-in capital579,480 553,229 
Retained earnings169,022 78,512 
Accumulated other comprehensive loss(29,858)(45,135)
Total stockholders’ equity719,152 587,109 
Total liabilities and stockholders’ equity$1,318,068 $1,267,110 
    
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited in thousands)
 Common StockAdditional
Paid-in Capital
Retained EarningsAccumulated
Other
Comprehensive Loss
Total
Stockholders’ Equity
 SharesPar Value
Balance, March 28, 202050,323 $503 $553,229 $78,512 $(45,135)$587,109 
Employee stock purchase plan22 — 2,144 — — 2,144 
Exercise of stock options28 1,192 — — 1,193 
Issuance of restricted stock, net of cancellations298 (3)— — 
Share-based compensation expense— — 6,167 — — 6,167 
Net income— — — 10,527 — 10,527 
Other comprehensive income— — — — 1,429 1,429 
Balance, June 27, 202050,671 $507 $562,729 $89,039 $(43,706)$608,569 
Exercise of stock options67 — — 67 
Issuance of restricted stock, net of cancellations30 — — 
Share-based compensation expense— — 5,952 — — 5,952 
Net income— — — 48,101 — 48,101 
Other comprehensive income— — — — 5,234 5,234 
Balance, September 26, 202050,703 $507 $568,748 $137,140 $(38,472)$667,923 
Employee stock purchase plan22 1,868 — — 1,868 
Exercise of stock options50 — 2,578 — — 2,578 
Issuance of restricted stock, net of cancellations42 (1)— — 
Share-based compensation expense— — 6,287 — — 6,287 
Net income— — — 31,882 — 31,882 
Other comprehensive income— — — — 8,614 8,614 
Balance, December 26, 202050,817 $508 $579,480 $169,022 $(29,858)$719,152 






















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HAEMONETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited in thousands)
 Common StockAdditional
Paid-in Capital
Retained EarningsAccumulated
Other
Comprehensive Loss
Total
Stockholders’ Equity
 SharesPar Value
Balance, March 30, 201951,020 $510 $536,320 $161,418 $(30,380)$667,868 
Employee stock purchase plan25 1,830 — — 1,830 
Exercise of stock options85 3,634 — — 3,635 
Shares repurchased(616)(6)(21,473)(53,521)— (75,000)
Issuance of restricted stock, net of cancellations257 (3)— — 
Share-based compensation expense— — 4,730 — — 4,730 
Net loss— — — (8,479)— (8,479)
Other comprehensive loss— — — — (3,618)(3,618)
Balance, June 29, 201950,771 $508 $525,038 $99,418 $(33,998)$590,966 
Exercise of stock options64 2,409 — — 2,410 
Shares repurchased(360)(4)1,274 (51,270)— (50,000)
Issuance of restricted stock, net of cancellations133 (1)— — 
Share-based compensation expense— — 5,000 — — 5,000 
Net income— — — 37,486 — 37,486 
Other comprehensive loss— — — — (2,108)(2,108)
Balance, September 28, 201950,608 $506 $533,720 $85,634 $(36,106)$583,754 
Employee stock purchase plan20 1,537 — — 1,538 
Exercise of stock options60 1,667 — — 1,667 
Shares repurchased(411)(4)(4,335)(45,661)— (50,000)
Issuance of restricted stock, net of cancellations114 (1)— — 
Share-based compensation expense— — 5,325 — — 5,325 
Net income— — — 29,895 — 29,895 
Other comprehensive income— — — — 2,401 2,401 
Balance, December 28, 201950,391 $504 $537,913 $69,868 $(33,705)$574,580 

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

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

1. BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Haemonetics Corporation (“Haemonetics” or the “Company”) presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company's management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. All intercompany transactions have been eliminated. Operating results for the nine months ended December 26, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 3, 2021 or any other interim period. The Company has assessed its ability to continue as a going concern. As of December 26, 2020, the Company has concluded that substantial doubt about its ability to continue as a going concern does not exist. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the annual report on Form 10-K for the fiscal year ended March 28, 2020.

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Refer to Note 4, Acquisitions for information pertaining to acquisitions that were signed or closed subsequent to December 26, 2020. There were no other material recognized or unrecognized subsequent events as of or for the three and nine months ended December 26, 2020.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Standards Implemented

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326). ASC Update No. 2016-13 is intended to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The Company adopted ASC Update No. 2016-13 during the first quarter of fiscal 2021. The adoption did not have a material impact on the Company's unaudited condensed consolidated financial statements.

In August 2018, the FASB issued ASC Update No. 2018-15, Intangibles, Goodwill and Other - Internal-Use Software (Subtopic 350-40). The new guidance aligns the accounting implementation costs incurred in a cloud computing arrangement that is a service contract with the accounting for internal-use software licenses. The Company adopted ASC Update No. 2018-15 during the first quarter of fiscal 2021. The adoption did not have a material impact on the Company's unaudited condensed consolidated financial statements.

3. RESTRUCTURING

On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify opportunities for efficiencies, enhance commercial capabilities, align its resources and offer its customers better solutions. In order to realize these opportunities, the Company undertakes restructuring-type activities to transform its business.

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In July 2019, the Board of Directors of the Company approved a new Operational Excellence Program (the “2020 Program”) and delegated authority to the Company's management to determine the detail of the initiatives that will comprise the program. The 2020 Program is designed to improve operational performance and reduce cost principally in our manufacturing and supply chain operations. The Company estimates that it will incur aggregate charges between $60 million and $70 million in connection with the 2020 Program. These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2023. During the three and nine months ended December 26, 2020, the Company incurred $3.1 million and $11.1 million, respectively, of restructuring and turnaround costs under this program. During the three and nine months ended December 28, 2019, the Company incurred $3.9 million and $6.8 million, respectively, of restructuring and turnaround costs under this program. Total cumulative charges under this program are $22.9 million.

During fiscal 2018, the Company launched a Complexity Reduction Initiative (the “2018 Program”), a company-wide restructuring program designed to improve operational performance and reduce cost, freeing up resources to invest in accelerated growth. During the three months ended December 26, 2020, the Company incurred minimal charges of restructuring and turnaround costs under this program. During the nine months ended December 26, 2020, the Company incurred $0.5 million of restructuring and turnaround costs under this program. During the three and nine months ended December 28, 2019, the Company incurred $3.9 million and $6.8 million, respectively, of restructuring and turnaround costs under this program. Total cumulative charges under this program are $58.7 million. The 2018 Program is substantially complete.

The following table summarizes the activity for restructuring reserves related to the 2020 Program and the 2018 Program and prior programs for the nine months ended December 26, 2020, substantially all of which relates to employee severance and other employee costs:
(In thousands)2020 Program2018 Program and Prior ProgramsTotal
Balance at March 28, 2020$1,136 $1,512 $2,648 
Costs incurred, net of reversals1,005 (105)900 
Payments(1,546)(887)(2,433)
Balance at December 26, 2020$595 $520 $1,115 

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

As of December 26, 2020, the Company had a restructuring liability of $1.1 million, of which $0.7 million is payable within the next twelve months.

In addition to the restructuring costs included in the table above, the Company also incurred costs that do not constitute restructuring under ASC 420, Exit and Disposal Cost Obligations, and which the Company instead refers to as turnaround costs. These costs consist primarily of expenditures directly related to the restructuring actions and include program management costs associated with the 2020 Program and operational performance improvement initiatives.






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The tables below present restructuring and turnaround costs by reportable segment:
Restructuring costsThree Months EndedNine Months Ended
(In thousands)December 26, 2020December 28, 2019December 26, 2020December 28, 2019
Plasma$(27)$$454 $552 
Blood Center66 18 240 154 
Hospital58 (18)295 
Corporate(131)537 224 1,928 
Total$(92)$617 $900 $2,929 
Turnaround costsThree Months EndedNine Months Ended
(In thousands)December 26, 2020December 28, 2019December 26, 2020December 28, 2019
Plasma$431 $108 $1,235 $187 
Blood Center518 293 1,024 293 
Hospital14 
Corporate2,282 6,780 8,410 10,173 
Total$3,235 $7,181 $10,683 $10,653 
Total restructuring and turnaround costs$3,143 $7,798 $11,583 $13,582 

4. ACQUISITIONS

Cardiva Medical, Inc.

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

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

HAS Intellectual Property

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

On April 1, 2020, the Company acquired all of the outstanding equity of enicor GmbH (“enicor”), the manufacturer of ClotPro®, a new generation whole blood coagulation testing system that is currently available in select European and Asia Pacific markets, for total consideration of $20.5 million, which consisted of upfront payments of $16.6 million and the fair value of contingent consideration of $3.9 million. The contingent consideration, which could total a maximum of $4.5 million, consists of payments related to the achievement of certain revenue and regulatory milestones. The acquisition of this viscoelastic diagnostic device augments the Company's portfolio of hemostasis analyzers within the Hospital business unit.

Purchase Price Allocation

The Company accounted for the acquisition of enicor as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations (Topic 805), recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The final determination of the fair value of certain assets and liabilities will be completed within the measurement period as required by Topic 805. As of December 26, 2020, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including the projection of the underlying cash flows used to determine the fair value of the identified tangible, intangible and financial assets and liabilities.

The following amounts represent the preliminary determination of the fair value of the identifiable assets acquired and liabilities assumed for enicor completed during the first nine months of fiscal 2021:

(In thousands)December 26, 2020
Inventory$634 
Other current assets685 
Property, plant and equipment289 
Intangible assets14,090 
Goodwill8,153 
Total assets acquired$23,851 
Other current liabilities289 
Contingent consideration (current)504 
Contingent consideration (non-current)3,416 
Deferred tax liability3,036 
Total liabilities assumed$7,245 
Net assets acquired$16,606 

The Company determined the identifiable intangible assets were completed technology, customer relationships and a trademark. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a rate of 20%. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The benefits of adding a viscoelastic diagnostic device to the Company’s portfolio of hemostasis analyzers within the Hospital business unit contributed to an acquisition price in excess of the fair value of net assets acquired for enicor, which resulted in the establishment of goodwill. In addition, the benefits of lower cost manufacturing and complementary sales channels also contributed to the establishment of goodwill for this acquisition. None of the goodwill is expected to be deductible for income tax purposes.
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Intangible assets acquired consist of the following:

(In thousands)AmountWeighted-Average Amortization Period
Completed technology$13,441 10
Customer relationships347 10
Trademark302 10
Total$14,090 10

Acquisition-Related Costs

The amount of acquisition-related costs incurred associated with the acquisition was $0.2 million for the three and nine months ended December 26, 2020.

Unaudited Pro Forma Financial Information

Enicor had an immaterial impact to the Company's net revenues and net income for the period post acquisition through December 26, 2020. The unaudited estimated pro forma impact of the results of the acquisition of enicor as if it was consummated on March 29, 2020 are immaterial.

5. DIVESTITURES

Fajardo, Puerto Rico Manufacturing Operations

On June 29, 2020, the Company sold its Fajardo, Puerto Rico, manufacturing operations to GVS, S.p.A (“GVS”), a leading provider of advanced filtration solutions for critical applications for $15.1 million ($7.8 million, net of cash transferred). Under the terms of the agreement, Haemonetics retained all intellectual property rights to its proprietary blood filters currently manufactured at its Fajardo facility and GVS acquired certain assets consisting primarily of property, plant and equipment, inventory and cash and has assumed certain related liabilities. In connection with this transaction, the Company and GVS also entered into a long-term supply and development agreement that, among other things, grants GVS exclusive rights to manufacture and supply the blood filters currently produced at the Fajardo facility for Haemonetics. The Company also agreed to provide certain transition services to GVS, generally for a period of up to three months depending on the nature of the service.

As a result of this transaction, Haemonetics recognized a pre-tax impairment charge in its Blood Center business unit of $1.0 million in the first quarter of fiscal 2021 and an incremental loss of $0.4 million based on closing adjustments during the third quarter of fiscal 2021, as the carrying value of the assets and liabilities in the asset transfer exceeded the net of the $15.1 million of cash proceeds and an additional contingent liability of $1.5 million. The disposal group consisted of $3.3 million of inventory, $7.2 million of fixed assets, $3.2 million of other liabilities, and $0.4 million of goodwill allocated based on fair value to the business.

U.S. Blood Donor Management Software

On July 1, 2020, the Company sold certain U.S. blood donor management software solution assets within its Blood Center business unit to the GPI Group (“GPI”) for an upfront cash payment of $14.0 million ($13.6 million, net of working capital adjustments) and up to $14.0 million in additional consideration contingent on the achievement of commercial milestones over the twelve month period immediately following the closing of the transaction. The disposal group consisted of $1.4 million of accounts receivable, $0.9 million of intangible assets, other liabilities of $1.8 million and $1.4 million of goodwill allocated based on fair value to the business. The Company recognized an $11.7 million gain upon closing of the transaction in the second quarter of fiscal 2021 and an additional $1.5 million gain in the third quarter of fiscal 2021. To the extent the additional contingent consideration is earned and realized in a future period then such amounts will be recorded as additional gains in such future period. The Company also agreed to provide certain transition services to GPI, generally for a period of one to nine months depending on the nature of the service.

Inlog Holdings France

On September 18, 2020, the Company sold its wholly-owned subsidiary Inlog Holdings France SAS to Abénex Capital (“Abénex”), a private equity firm based in France for $30.5 million ($24.5 million, net of cash transferred), of which
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$29.2 million was received at closing and $1.3 million will be received one-year from the closing date. Inlog Holdings France SAS, through its subsidiary In Log SAS, develops and sells blood bank and hospital software solutions used predominantly in France and in several other countries outside of the U.S. The disposal group included $2.2 million of intangible assets, $2.2 million accounts receivable, $0.3 million other assets, $3.3 million of liabilities and $3.3 million of goodwill allocated based on the fair value of the business which impacted both the Blood Center and Hospital business units. The Company recognized a gain of $19.8 million upon closing of the transaction in the second quarter of fiscal 2021.

6. INCOME TAXES

The Company conducts business globally and reports its results of operations in a number of foreign jurisdictions in addition to the United States. The Company's reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which it operates have tax rates that differ from the U.S. statutory tax rate.  
For the three and nine months ended December 26, 2020, the Company reported income tax expense of $5.5 million and $9.8 million, respectively, representing effective tax rates of 14.7% and 9.8%, respectively. The effective tax rate for the three and nine months ended December 26, 2020 includes discrete tax benefits recognized from excess stock compensation deductions of $1.0 million and $5.1 million, respectively. The effective tax rates were also impacted by the jurisdictional mix of earnings including divestiture transactions. During the nine months ended December 26, 2020, the Company sold its Fajardo, Puerto Rico manufacturing operations, certain U.S. blood donor management software solution assets, and its wholly-owned subsidiary Inlog Holdings France SAS. The tax expense on divestitures, including the associated valuation allowance impacts, were included in the computation of the annual effective tax rate. Refer to Note 5, Divestitures, for information pertaining to these divestitures.

For the three and nine months ended December 28, 2019, the Company reported an income tax provision of $7.9 million and $6.3 million, respectively, representing effective tax rates of 21.0% and 9.6%, respectively. The effective tax rate for the nine months ended December 28, 2019 was lower than the U.S. statutory tax rate primarily due to a discrete tax benefit recognized from excess stock compensation deductions of $3.1 million and $12.4 million, respectively. The effective tax rates were also impacted by the jurisdictional mix of earnings and the impact of the divestiture of the Union, South Carolina facility.

7. EARNINGS PER SHARE

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.
 Three Months EndedNine Months Ended
 (In thousands, except per share amounts)December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Basic EPS  
Net income$31,882 $29,895 $90,510 $58,902 
Weighted average shares50,789 50,630 50,634 50,810 
Basic income per share$0.63 $0.59 $1.79 $1.16 
Diluted EPS    
Net income$31,882 $29,895 $90,510 $58,902 
Basic weighted average shares50,789 50,630 50,634 50,810 
Net effect of common stock equivalents574 1,008 600 1,185 
Diluted weighted average shares51,363 51,638 51,234 51,995 
Diluted income per share$0.62 $0.58 $1.77 $1.13 

Basic earnings per share is calculated using the Company's weighted-average outstanding common stock. Diluted earnings per share is calculated using its weighted-average outstanding common stock including the dilutive effect of stock awards as determined under the treasury stock method. For the three and nine months ended December 26, 2020, weighted average shares outstanding, assuming dilution, excludes the impact of 0.4 million and 0.6 million anti-dilutive shares, respectively. For both the three and nine months ended December 28, 2019, weighted average shares outstanding, assuming dilution, excludes the impact of 0.2 million anti-dilutive shares.

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8. REVENUE

The Company's revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 606, Revenue from Contracts with Customers. Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; this occurs with the transfer of control of the Company’s goods or services. The Company considers revenue to be earned when all of the following criteria are met: it has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the consideration it expects to receive for transferring goods or providing services, is determinable and it has transferred control of the promised items to the customer. A promise in a contract to transfer a distinct good or service to the customer is identified as a performance obligation. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of the Company’s contracts have multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the estimated standalone selling prices of the good or service in the contract. For goods or services for which observable standalone selling prices are not available, the Company uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

As of December 26, 2020, the Company had $17.9 million of its transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more. The Company expects to recognize approximately 59% of this amount as revenue within the next twelve months and the remaining balance thereafter.

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

As of December 26, 2020 and March 28, 2020, the Company had contract assets of $5.4 million and $5.0 million, respectively. The change is primarily due to the delay in billings compared to the revenue recognized. Contract assets are classified as other current assets and other long-term assets on the condensed consolidated balance sheets.

As of December 26, 2020 and March 28, 2020, the Company had contract liabilities of $16.7 million and $20.8 million, respectively. During the three and nine months ended December 26, 2020, the Company recognized $2.5 million and $16.3 million, respectively, of revenue that was included in the above March 28, 2020 contract liability balance. Contract liabilities decreased by an additional $2.5 million during the three and nine months ended December 26, 2020 as a result of the sale of certain U.S. blood donor management software solution assets and the Company's wholly-owned subsidiary Inlog Holdings France SAS. Refer to Note 5, Divestitures for additional detail. Contract liabilities are classified as other liabilities and other long-term liabilities on the condensed consolidated balance sheets.

9. INVENTORIES

Inventories are stated at the lower of cost or market and include the cost of material, labor and manufacturing overhead. Cost is determined using the first-in, first-out method.
(In thousands)December 26,
2020
March 28,
2020
Raw materials$74,437 $76,867 
Work-in-process22,030 11,021 
Finished goods203,243 182,388 
Total inventories$299,710 $270,276 

10. LEASES

Lessee Activity

During the first quarter of fiscal 2021, the Company entered into a lease for manufacturing space in Clinton, PA. The Company's current manufacturing operations in Leetsdale, PA will be relocated. The lease term associated with the new manufacturing facility is 15 years and 7 months and includes two five year renewal options followed by one four year renewal option. During the first quarter of fiscal 2021, the Company recorded a right-of-use asset of $11.3 million and corresponding liabilities of $15.4 million upon commencement of the lease term in May 2020. In addition, the Company recorded a $4.1
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million lease incentive receivable associated with this lease agreement which was received during the third quarter of fiscal 2021.

Lessor Activity

Assets on the Company's balance sheet classified as Haemonetics equipment primarily consists of medical devices installed at customer sites but owned by Haemonetics. These devices are leased to customers under contractual arrangements that typically include an operating or sales-type lease as well as the purchase and consumption of a certain level of disposable products. Sales-type leases are not significant. Contract terms vary by customer and may include options to terminate the contract or options to extend the contract. Where devices are provided under operating lease arrangements, a substantial majority of the entire lease revenue is variable and subject to subsequent non-lease component (disposable products) sales. The allocation of revenue between the lease and non-lease components is based on stand-alone selling prices. Operating lease revenue represents less than 3 percent of the Company's total net sales.

11. NOTES PAYABLE AND LONG-TERM DEBT

On June 15, 2018, the Company entered into a credit agreement with certain lenders which provided for a $350.0 million term loan (the “Term Loan”) and a $350.0 million revolving loan (the “Revolving Credit Facility” and together with the Term Loan, the “Credit Facilities”). The Credit Facilities expire on June 15, 2023. Interest on the Credit Facilities is established using LIBOR plus 1.13% - 1.75%, depending on the Company's leverage ratio. Under the Credit Facilities, the Company is required to maintain certain leverage and interest coverage ratios specified in the credit agreement as well as other customary non-financial affirmative and negative covenants. At December 26, 2020, $310.6 million was outstanding under the Term Loan with an effective interest rate of 1.4%. There were no borrowings outstanding on the Revolving Credit Facility. The Company also has $26.2 million of uncommitted operating lines of credit to fund its global operations under which there were 0 outstanding borrowings as of December 26, 2020.

The Company has required scheduled principal payments of $8.7 million during the remainder of fiscal 2021, $17.5 million during fiscal 2022, $214.4 million during fiscal 2023 and $70.0 million during fiscal 2024.

The Company was in compliance with the leverage and interest coverage ratios specified in the Credit Facilities as well as all other bank covenants as of December 26, 2020.

12. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company manufactures, markets and sells its products globally. During the three and nine months ended December 26, 2020, 38.6% and 40.7%, respectively, of the Company's sales were generated outside the U.S., generally in foreign currencies. The Company also incurs certain manufacturing, marketing and selling costs in international markets in local currency.

Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, the Company's reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily the Japanese Yen and the Euro, and to a lesser extent the Swiss Franc, Australian Dollar, Canadian Dollar and the Mexican Peso. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation.

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Designated Foreign Currency Hedge Contracts

All of the Company's designated foreign currency hedge contracts as of December 26, 2020 and March 28, 2020 were cash flow hedges under ASC 815, Derivatives and Hedging (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company would reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. The Company had designated foreign currency hedge contracts outstanding in the contract amount of $78.8 million as of December 26, 2020 and $93.8 million as of March 28, 2020. At December 26, 2020, a loss of $1.4 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of December 26, 2020 mature within twelve months.

Non-Designated Foreign Currency Contracts

The Company manages its exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. It uses foreign currency forward contracts as a part of its strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These foreign currency forward contracts are entered into for periods consistent with currency transaction exposures, generally one month. They are not designated as cash flow or fair value hedges under ASC 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings. The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $90.5 million as of December 26, 2020 and $98.0 million as of March 28, 2020.

Interest Rate Swaps

On June 15, 2018, the Company entered into Credit Facilities which provided for a $350.0 million Term Loan and a $350.0 million Revolving Credit Facility. Under the terms of the Credit Facilities, interest is established using LIBOR plus 1.13% - 1.75%. As a result, the Company's earnings and cash flows are exposed to interest rate risk from changes to LIBOR. Part of the Company's interest rate risk management strategy includes the use of interest rate swaps to mitigate its exposure to changes in variable interest rates. The Company's objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations.

In August 2018, the Company entered into 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 Swaps, 70% of the Term Loan previously exposed to interest rate risk from changes in LIBOR is now fixed at a rate of 4.05%. The Swaps mature on June 15, 2023. The Company designated the Swaps as cash flow hedges of variable interest rate risk associated with $345.6 million of indebtedness. For the nine months ended December 26, 2020, a gain of $0.3 million, net of tax, was recorded in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges.

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Trade Receivables

In the ordinary course of business, the Company grants trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all customers, (ii) performs ongoing credit evaluations of customers’ financial condition, (iii) monitors the payment history and aging of customers’ receivables, and (iv) monitors open orders against an individual customer’s outstanding receivable balance.

The Company's allowance for credit losses is maintained for trade accounts receivable based on the expected collectability, the historical collection experience, the length of time an account is outstanding, the financial position of the customer and information provided by credit rating services. Effective March 29, 2020, the Company adopted Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which requires consideration of events or circumstances indicating historic collection rates may not be indicative of future collectability. For example, potential adverse changes to customer liquidity from new macroeconomic events such as the COVID-19 pandemic must be taken into consideration. To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns as a result of the pandemic.

The following is a rollforward of the allowance for credit losses:

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

Fair Value of Derivative Instruments

The following table presents the effect of the Company's derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in its condensed consolidated statements of income and comprehensive income for the nine months ended December 26, 2020:

(In thousands)Amount of Gain
(Loss) Recognized
in Accumulated Other Comprehensive Loss
Amount of Gain (Loss) Reclassified
from Accumulated Other Comprehensive Loss into
Earnings
Location in
Condensed Consolidated Statements of Income and Comprehensive Income
Amount of Gain (Loss) Excluded from
Effectiveness
Testing
Location in
Condensed Consolidated Statements of Income and Comprehensive Income
Designated foreign currency hedge contracts, net of tax$1,378 $(1,538)Net revenues, COGS and SG&A$(671)Interest and other expense, net
Non-designated foreign currency hedge contracts$$ $(5,218)Interest and other expense, net
Designated interest rate swaps, net of tax$(2,996)$(3,326)Interest and other expense, net$

The Company did not have fair value hedges or net investment hedges outstanding as of December 26, 2020 or March 28, 2020. As of December 26, 2020, 0 material deferred tax assets were recognized for designated foreign currency hedges.

ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures, by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities. In certain instances, the Company may utilize financial models to measure fair value. Generally, it uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of December 26, 2020, the Company has classified its derivative
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assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.

The following tables present the fair value of the Company's derivative instruments as they appear in its condensed consolidated balance sheets as of December 26, 2020 and March 28, 2020:
(In thousands)Location in Condensed Consolidated
Balance Sheets
As ofAs of
December 26, 2020March 28, 2020
Derivative Assets:   
Designated foreign currency hedge contractsOther current assets$191 $839 
Non-designated foreign currency hedge contractsOther current assets69 377 
  $260 $1,216 
Derivative Liabilities:   
Designated foreign currency hedge contractsOther current liabilities$919 $1,854 
Non-designated foreign currency hedge contractsOther current liabilities206 1,435 
Designated interest rate swapsOther current liabilities5,697 5,581 
Designated interest rate swapsOther long-term liabilities6,323 9,475 
  $13,145 $18,345 

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.

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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 December 26, 2020 and March 28, 2020.
As of December 26, 2020
(In thousands)Level 1Level 2Level 3Total
Assets   
Money market funds$79,773 $$— $79,773 
Designated foreign currency hedge contracts191 — 191 
Non-designated foreign currency hedge contracts69 — 69 
 $79,773 $260 $ $80,033 
Liabilities   
Designated foreign currency hedge contracts$$919 $— $919 
Non-designated foreign currency hedge contracts206 — 206 
Designated interest rate swaps12,020 — 12,020 
Contingent consideration— — 3,920 3,920 
 $0 $13,145 $3,920 $17,065 
As of March 28, 2020
Level 1Level 2Level 3Total
Assets
Money market funds$44,564 $$— $44,564 
Designated foreign currency hedge contracts839 — 839 
Non-designated foreign currency hedge contracts377 — 377 
 $44,564 $1,216 $ $45,780 
Liabilities   
Designated foreign currency hedge contracts$$1,854 $— $1,854 
Non-designated foreign currency hedge contracts1,435 — 1,435 
Designated interest rate swaps15,056 — 15,056 
$0 $18,345 $ $18,345 

Foreign currency hedge contracts - The fair value of foreign currency hedge contracts was measured using significant other observable inputs and valued by reference to over-the-counter quoted market prices for similar instruments. The Company does not believe that the fair value of these derivative instruments differs significantly from the amount that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows.

Interest rate swaps - The fair values of interest rate swaps are measured using the present value of expected future cash flows using market-based observable inputs, including credit risk and interest rate yield curves. The Company does not believe that the fair values of these derivative instruments differ significantly from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows.

Contingent consideration - The fair value of contingent consideration liabilities is based on significant unobservable inputs, including management estimates and assumptions, and is measured based on the probability-weighted present value of the payments expected to be made. Accordingly, the fair value of contingent consideration has been classified as level 3 within the fair value hierarchy. The recurring level 3 fair value measurements of contingent consideration liabilities include the following significant unobservable inputs:

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Fair Value atValuationUnobservable
(In thousands)December 26, 2020TechniqueInputRange
Revenue-based payments$1,920 Discounted cash flowDiscount rate8.5%
Projected year of payment2021 - 2023
Regulatory-based payment$2,000 Discounted cash flowDiscount rate4.9%
Probability of payment0% - 100%
Projected year of payment2021 - 2023

As of December 26, 2020, the maximum potential contingent consideration that the Company could be required to pay is $4.5 million. The fair value of contingent consideration associated with acquisitions was $3.9 million at December 26, 2020. As of December 26, 2020, $0.5 million was included in other liabilities and $3.4 million was included in other long-term liabilities on the condensed consolidated balance sheet.

A reconciliation of the change in the fair value of contingent consideration is included in the following table:

(In thousands)
Balance at March 28, 2020$
Acquisition date fair value of contingent consideration3,920 
Change in fair value— 
Balance at December 26, 2020$3,920 

Other Fair Value Disclosures

The Term Loan, which is carried at amortized cost, accounts receivable and accounts payable approximate fair value.

13. 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 there are no proceedings or claims pending against it the ultimate resolution of which could have a material adverse effect on the financial condition or results of operations. At each reporting period, the Company 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.

During the third quarter of fiscal 2021, the Company received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts. The subpoena requests certain documents regarding the Company’s apheresis and autotransfusion devices and disposables, including documents relating to product complaints and adverse event reporting, regulatory clearances and product design changes, among other matters. The Company is fully cooperating with this inquiry.

14. SEGMENT AND ENTERPRISE-WIDE INFORMATION

The Company determines its reportable segments by first identifying its 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. Historically, the Company's operating segments were 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, reorganized its reporting structure to align with its 3 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 as follows:
Plasma
Blood Center
Hospital

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-
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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, gains on divestitures and sale of assets, asset impairments and other related charges, accelerated depreciation and related costs, costs related to compliance with the European Union Medical Device Regulation, transaction costs and certain 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; therefore, segment information is presented on this basis.

Selected information by reportable segment is presented below:
Three Months EndedNine Months Ended
(In thousands)December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Net revenues
Plasma$102,154 $120,997 $249,587 $348,141 
Blood Center80,417 85,314 234,446 246,977 
Hospital52,334 50,753 148,927 147,602 
Net revenues by business unit234,905 257,064 632,960 742,720 
Service (1)
4,972 5,197 15,396 15,339 
Effect of exchange rates494 (3,291)(2,922)(8,072)
Net revenues$240,371 $258,970 $645,434 $749,987 
(1) Reflects revenue for service, maintenance and parts
Three Months EndedNine Months Ended
(In thousands)December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Segment operating income
Plasma$52,673 $59,343 $129,846 $169,844 
Blood Center36,424 42,197 108,926 121,124 
Hospital22,430 20,593 61,672 60,360 
Segment operating income111,527 122,133 300,444 351,328 
  Corporate expenses (1)
(63,202)(63,080)(185,005)(188,363)
  Effect of exchange rates4,286 2,521 8,644 7,791 
  Deal amortization(7,805)(5,772)(24,204)(17,681)
  Restructuring and turnaround costs(3,143)(7,798)(11,583)(13,582)
  Transaction costs(3,063)
  PCS2 accelerated depreciation and related costs(1,146)(6,649)(3,332)(18,708)
  European Medical Device Regulation costs and other(1,207)(448)(2,696)(304)
  Impairment of assets and other related charges(896)(51,220)
  Gains on divestitures and sale of assets1,115 32,613 8,083 
Operating income$40,425 $40,907 $110,922 $77,344 
(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.

Management reviews revenue based on the reportable segments noted above. Although these 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.

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Net revenues by product line are as follows:
 Three Months EndedNine Months Ended
(In thousands)December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
Plasma products and services$123,510 $141,231 $309,933 $406,825 
Blood Center products and services62,787 66,126 182,687 191,648 
Hospital products and services54,074 51,613 152,814 151,514 
Net revenues$240,371 $258,970 $645,434 $749,987 
Net revenues generated in the Company's principle operating regions on a reported basis are as follows:
Three Months EndedNine Months Ended
(In thousands)December 26,
2020
December 28,
2019
December 26,
2020
December 28,
2019
United States$147,607 $167,238 $382,600 $485,493 
Japan20,854 19,268 57,330 55,111 
Europe41,874 40,984 123,541 115,811 
Asia29,050 29,436 77,602 88,269 
Other986 2,044 4,361 5,303 
Net revenues$240,371 $258,970 $645,434 $749,987 

15. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of Accumulated Other Comprehensive Loss are as follows:
(In thousands)Foreign CurrencyDefined Benefit PlansNet Unrealized Gain/Loss on DerivativesTotal
Balance as of March 28, 2020$(31,100)$(209)$(13,826)$(45,135)
Other comprehensive income (loss) before reclassifications(1)
12,031 (1,618)10,413 
Amounts reclassified from Accumulated Other Comprehensive Loss(1)
4,864 4,864 
Net current period other comprehensive income12,031 3,246 15,277 
Balance as of December 26, 2020$(19,069)$(209)$(10,580)$(29,858)
(1) Presented net of income taxes, the amounts of which are insignificant.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with both our interim condensed consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q and our annual consolidated financial statements, notes thereto and the MD&A contained in our Annual Report on Form 10-K for the fiscal year ended March 28, 2020. The following discussion may contain forward-looking statements and should be read in conjunction with the “Cautionary Statement Regarding Forward-Looking Information” in this discussion.

Introduction

Haemonetics is a global healthcare company dedicated to providing a suite of innovative hematology products and solutions to customers to help 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.

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We view our operations and manage our business in three principal reporting segments: Plasma, Blood Center and 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 whole blood. “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 growth 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 evaluating opportunities to exit unfavorable customer contracts.

Recent Developments

Acquisitions

Cardiva Medical, Inc.

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

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

HAS Intellectual Property

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

enicor GmbH

On April 1, 2020, we acquired enicor GmbH (“enicor”), the manufacturer of ClotPro®, a new generation whole blood coagulation testing system that is currently available in select European and Asia Pacific markets, for total consideration of $20.5 million, which consisted of upfront payments of $16.6 million and the fair value of contingent consideration of $3.9 million. The contingent consideration, which could total a maximum of $4.5 million, consists of payments related to the achievement of certain revenue and regulatory milestones. The acquisition of this viscoelastic diagnostic device augments the Company's portfolio of hemostasis analyzers within the Hospital business unit.

Refer to Note 4, Acquisitions, to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.

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PersonaTM

On October 2, 2020, we received FDA 510(k) clearance for our NexSys PCS® with Persona technology. NexSys PCS with Persona technology uses a percent plasma nomogram that customizes plasma collection based on an individual donor's body composition. The new, proprietary Persona technology strengthens the NexSys PCS value proposition and reinforces our commitment to supporting the plasma industry.

COVID-19

We continue to closely manage the impacts of the COVID-19 pandemic on our business results of operations and financial condition. The progression of the COVID-19 pandemic during fiscal 2021 significantly impacted our financial results. While the duration and additional implications remain uncertain, the full extent of the 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 contain it or treat its impact and the economic impact on local, regional, national and international markets.

Our priorities continue to be the safety of our employees and business continuity while continuing to invest in growth opportunities. Our manufacturing and supply chain remain operational without significant disruptions and we continue to operate in all of our markets.

Although the pace and timing of the recovery is uncertain, we remain confident in the long term strength of the end markets that we serve across our three business units. For additional information regarding the expected impacts to our business 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 this Quarterly Report on Form 10-Q.

Divestitures

Fajardo, Puerto Rico Manufacturing Operations

On June 29, 2020, we sold our Fajardo, Puerto Rico, manufacturing operations to GVS, S.p.A (“GVS”), a leading provider of advanced filtration solutions for critical applications for $15.1 million ($7.8 million, net of cash transferred). Under the terms of the agreement, Haemonetics retained all intellectual property rights to its proprietary blood filters currently manufactured at its Fajardo facility and GVS acquired certain assets consisting primarily of property, plant and equipment, inventory and cash and has assumed certain related liabilities. In addition, the two parties entered into a long-term supply and development agreement that, among other things, grants GVS exclusive rights to manufacture and supply the blood filters currently produced at the Fajardo facility for Haemonetics. This divestiture will allow Haemonetics to utilize GVS' experience and scale in filtration to deliver reliable, cost-efficient products to its customers.

U.S. Blood Donor Management Software

On July 1, 2020, we sold certain U.S. blood donor management software solution assets within our Blood Center business unit to the GPI Group for an upfront cash payment of $14.0 million ($13.6 million, net of working capital adjustments) and recognized a $13.2 million gain on the sale. In addition to the cash received upon closing, we may also receive up to an additional $14.0 million, contingent upon the achievement of certain performance measures. This divestiture better positions Haemonetics for sustainable growth by enabling the Company to focus on its core capabilities while delivering quality products and services where it brings distinct value.

Inlog Holdings France

On September 18, 2020, we sold our wholly-owned subsidiary Inlog Holdings France SAS to Abénex Capital (“Abénex”), a private equity firm based in France for $30.5 million ($24.5 million, net of cash transferred) and recognized a gain of $19.8 million. Inlog Holdings France SAS, through its subsidiary In Log SAS, develops and sells blood bank and hospital software solutions used predominantly in France and in several other countries outside of the U.S. This divestiture and the sale of our U.S. blood donor management software better position us to focus on our growth segments.

Refer to Note 5, Divestitures, to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information pertaining to these divestitures.

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Restructuring Program

In July 2019, our Board of Directors approved a new Operational Excellence Program (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. 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 three and nine months ended December 26, 2020, we incurred $3.1 million and $11.1 million, respectively, of restructuring and turnaround costs under this program.

Financial Summary
 Three Months EndedNine Months Ended
(In thousands, except per share data)December 26,
2020
December 28,
2019
% Increase/
(Decrease)
December 26,
2020
December 28,
2019
% Increase/
(Decrease)
Net revenues$240,371 $258,970 (7.2)%$645,434 $749,987 (13.9)%
Gross profit$120,257 $128,050 (6.1)%$316,031 $370,956 (14.8)%
% of net revenues50.0 %49.4 %49.0 %49.5 %
Operating expenses$79,832 $87,143 (8.4)%$205,109 $293,612 (30.1)%
Operating income$40,425 $40,907 (1.2)%$110,922 $77,344 43.4 %
% of net revenues16.8 %15.8 %17.2 %10.3 %
Interest and other expense, net$(3,051)$(3,078)(0.9)%$(10,612)$(12,152)(12.7)%
Income before provision for income taxes$37,374 $37,829 (1.2)%$100,310 $65,192 53.9 %
Provision for income taxes$5,492 $7,934 (30.8)%$9,800 $6,290 55.8 %
% of pre-tax income14.7 %21.0 %9.8 %9.6 %
Net income$31,882 $29,895 6.6 %$90,510 $58,902 53.7 %
% of net revenues13.3 %11.5 %14.0 %7.9 %
Net income per share - basic$0.63 $0.59 6.8 %$1.79 $1.16 54.3 %
Net income per share - diluted$0.62 $0.58 6.9 %$1.77 $1.13 56.6 %

Net revenues decreased 7.2% and 13.9% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. Without the effect of foreign exchange, net revenues decreased 8.5% and 14.5% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. Revenue decreases in Plasma due to the COVID-19 pandemic primarily drove the overall decrease in revenue during the three and nine months ended December 26, 2020.

Operating income decreased during the three months ended December 26, 2020, as compared with the same period of fiscal 2020, due to the impact of the COVID-19 pandemic on revenue and gross margin, net of savings in operating expenses from cost containment actions taken to offset these negative effects. Operating income increased during the nine months ended December 26, 2020, as compared with the same period of fiscal 2020, due to the gains on divestitures, incremental savings from the 2020 Program and the absence of impairment charges associated with the divestiture of our plasma liquid solutions operations in the prior year.

Management's Use of Non-GAAP Measures

Management uses non-GAAP financial measures, in addition to financial measures in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), to monitor 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 revenue 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.

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RESULTS OF OPERATIONS

Net Revenues by Geography
 Three Months Ended
(In thousands)December 26,
2020
December 28,
2019
Reported growthCurrency impact
Constant currency growth (1)
United States$147,608 $167,238 (11.7)%— %(11.7)%
International92,763 91,732 1.1 %4.0 %(2.9)%
Net revenues$240,371 $258,970 (7.2)%1.3 %(8.5)%
(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.

 Nine Months Ended
(In thousands)December 26,
2020
December 28,
2019
Reported growthCurrency impact
Constant currency growth (1)
United States$382,601 $485,493 (21.2)%— %(21.2)%
International262,833 264,494 (0.6)%2.6 %(3.2)%
Net revenues$645,434 $749,987 (13.9)%0.6 %(14.5)%
(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.

Our principal operations are in the U.S, Europe, Japan and other parts of Asia. Our products are marketed in approximately 85 countries around the world through a combination of our direct sales force, independent distributors and agents. Our revenue generated outside the U.S. was 38.6% and 40.7%, respectively, of total net revenues during the three and nine months ended December 26, 2020, as compared with 35.4% and 35.3%, respectively, during the three and nine months ended December 28, 2019. International sales are generally conducted in local currencies, primarily Japanese Yen, Euro, Chinese Yuan and Australian Dollars. Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen, Euro and Australian Dollar relative to the U.S. Dollar. We have placed foreign currency hedges to mitigate our exposure to foreign currency fluctuations.

Please see the section entitled “Foreign Exchange” in this discussion for a more complete explanation of how foreign currency affects our business and our strategy for managing this exposure.
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Net Revenues by Business Unit
 Three Months Ended
(In thousands)December 26,
2020
December 28,
2019
Reported growthCurrency impact
Constant currency growth (1)
Plasma$101,934 $120,420 (15.4)%0.2 %(15.6)%
Blood Center80,920 83,411 (3.0)%2.7 %(5.7)%
Hospital (2)
52,651 50,266 4.7 %1.6 %3.1 %
Service4,866 4,873 (0.1)%4.2 %(4.3)%
Net revenues$240,371 $258,970 (7.2)%1.3 %(8.5)%
(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 $28.5 million and $24.7 million during the three months ended December 26, 2020 and December 28, 2019, respectively. Hemostasis Management revenue increased 15.2% in the third quarter of fiscal 2021, as compared with the same period of fiscal 2020. Without the effect of foreign exchange, Hemostasis Management revenue increased 14.2% in the third quarter of fiscal 2021, as compared with the same period of fiscal 2020.

 Nine Months Ended
(In thousands)December 26,
2020
December 28,
2019
Reported growthCurrency impact
Constant currency growth (1)
Plasma$248,553 $346,767 (28.3)%— %(28.3)%
Blood Center233,622 241,196 (3.1)%2.0 %(5.1)%
Hospital (2)
148,468 147,665 0.5 %(0.4)%0.9 %
Service14,791 14,359 3.0 %2.6 %0.4 %
Net revenues$645,434 $749,987 (13.9)%0.6 %(14.5)%
(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 $78.5 million and $73.9 million during the nine months ended December 26, 2020 and December 28, 2019, respectively. Hemostasis Management revenue increased 6.2% in the first nine months of fiscal 2021, as compared with the same period of fiscal 2020. Without the effect of foreign exchange, Hemostasis Management revenue increased 7.7% in the first nine months of fiscal 2021, as compared with the same period of fiscal 2020.

Plasma

Plasma revenue decreased 15.4% and 28.3% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. Without the effect of foreign exchange, Plasma revenue decreased 15.6% and 28.3% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. This revenue decrease during the three and nine months ended December 26, 2020 was driven by a decline in the volume of plasma disposables, primarily in the U.S., due to the COVID-19 pandemic and declines in plasma liquid solutions as a result of certain strategic exits within our liquid solutions business. Additionally, declines in software revenue due to a one time favorable impact in the prior year period also contributed to the decrease during the nine months ended December 26, 2020.

While we experienced growth rate improvements during the three months ended December 26, 2020 compared with the second quarter of fiscal 2021, the timing of plasma collection recovery remains uncertain and we anticipate a continued negative impact from COVID-19 on our fiscal 2021 Plasma results. We continue to view the impacts of the pandemic on plasma collection as temporary and remain confident in the strength of the plasma end market growth as the long-term global demand for plasma-derived pharmaceuticals is expected to continue.

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Blood Center

Blood Center revenue decreased 3.0% and 3.1% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. Without the effect of foreign exchange, Blood Center revenue decreased 5.7% and 5.1% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. These decreases were primarily driven by continued declines in whole blood disposables and the divestiture of certain blood donor management software solution assets, partially offset by increases in apheresis revenue, including distributor stocking orders in the first quarter of fiscal 2021, despite certain customers conversions to alternative sources of supply. The expected impact of the loss of this apheresis business is an incremental revenue decline of approximately $17.0 million in fiscal 2021 as compared with fiscal 2020.

While we have not yet experienced the reversal of the large stocking orders made by distributors and blood collectors during the first quarter of fiscal 2021 in response to the COVID-19 pandemic, we may experience a partial reversal in future periods.

Hospital

Hospital revenue increased 4.7% and 0.5% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. Without the effect of foreign exchange, Hospital revenue increased 3.1% and 0.9% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. The increase during the three and nine months ended December 26, 2020 was primarily due to an increase in TEG disposables revenue in the U.S. and equipment sales in Europe. These increases were partially offset by declines in Cell Salvage revenue. The divestiture of certain blood bank and hospital software solution assets also contributed to the decline during the three months ended December 26, 2020.

During the nine months ended December 26, 2020, revenue in the Hospital business unit was negatively impacted by COVID-19. We experienced these declines primarily in China and the U.S. However, we had consistent improvement in the second and third quarters of fiscal 2021 in both markets as restrictions in China eased and hospitals in the U.S. experienced an increase in procedure volume. We believe that the demand for our hospital products is inherently strong and that procedure volumes will continue to improve with a return to normal levels in future periods.

Gross Profit
 Three Months EndedNine Months Ended
(In thousands)December 26,
2020
December 28,
2019
% Increase/
(Decrease)
December 26,
2020
December 28,
2019
% Increase/
(Decrease)
Gross profit$120,257 $128,050 (6.1)%$316,031 $370,956 (14.8)%
% of net revenues50.0 %49.4 % 49.0 %49.5 % 

Gross profit decreased 6.1% and 14.8% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. Without the effect of foreign exchange, gross profit decreased 8.4% and 15.6% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. The decrease in gross profit margin during the three and nine months ended December 26, 2020 was primarily driven by decreased volumes,
28


unfavorable product mix, higher operational costs and the impact of the COVID-19 pandemic and recent divestitures. The decline was partially offset by productivity savings from the 2020 Program and lower depreciation expense.

Operating Expenses
 Three Months EndedNine Months Ended
(In thousands)December 26,
2020
December 28,
2019
% Increase/
(Decrease)
December 26,
2020
December 28,
2019
% Increase/
(Decrease)
Research and development$7,501 $7,000 7.2 %$22,014 $21,909 0.5 %
% of net revenues3.1 %2.7 % 3.4 %2.9 % 
Selling, general and administrative$73,446 $78,267 (6.2)%$214,680 $229,189 (6.3)%
% of net revenues30.6 %30.2 % 33.3 %30.6 % 
Impairment of assets$— $1,876 (100.0)%$1,028 $50,597 (98.0)%
% of net revenues— %0.7 %0.2 %6.7 %
Gains on divestitures and sale of assets$(1,115)$— n/m$(32,613)$(8,083)n/m
% of net revenues(0.5)%— %(5.1)%(1.1)%
Total operating expenses$79,832 $87,143 (8.4)%$205,109 $293,612 (30.1)%
% of net revenues33.2 %33.6 % 31.8 %39.1 % 

Research and Development

Research and development expenses increased 7.2% and 0.5% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. Without the effect of foreign exchange, research and development expenses increased 6.9% and 0.6% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. The increase during the three and nine months ended December 26, 2020 was due to continued investments, primarily in our Hospital Business unit as well as increased spend related to a recent acquisition. The increases were partially offset by cost savings primarily related to the 2020 Program.

Selling, General and Administrative

Selling, general and administrative expenses decreased 6.2% and 6.3% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. Without the effect of foreign exchange, selling, general, and administrative expenses decreased 7.3% and 6.5% during the three and nine months ended December 26, 2020, respectively, as compared with the same periods of fiscal 2020. These decreases were due to cost containment actions taken to offset the negative effects related to the COVID-19 pandemic, a reduction in variable compensation and incremental productivity savings from the 2020 Program. These decreases were partially offset by continued investments and higher transaction costs.

Impairment of assets

We recognized impairment charges of $1.0 million during the nine months ended December 26, 2020 in connection with the sale of our Fajardo, Puerto Rico, manufacturing operations. There were no impairments recognized during the three months ended December 26, 2020. During the nine months ended December 28, 2019 we recognized $50.6 million of impairment charges primarily in connection with the sale of our Union, South Carolina facility. During the three months ended December 28, 2019, we recognized an additional $1.9 million of other asset impairments.

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Gains on divestitures

We recognized gains on divestitures of $1.1 million and $32.6 million, respectively, during the three and nine months ended December 26, 2020. Refer to Note 5, Divestitures, to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information pertaining to these divestitures. We recognized gains on sale of assets of $8.1 million during the nine months ended December 28, 2019 due to the sale of assets associated with our Braintree corporate headquarters. There were no gains on sale of assets during the three months ended December 28, 2019.

Interest and Other Expense, Net

Interest expense from our $350.0 million term loan and $350.0 million revolving loan constitutes the majority of our interest and other expenses. During the three and nine months ended December 26, 2020, our interest expense associated with this debt declined by $1.6 million and $4.8 million, respectively, despite higher loan balances in the current year period due to a decrease in the effective interest rate. The effective interest rate on total debt outstanding as of December 26, 2020 was 1.4%.

Income Taxes

We conduct business globally and report our results of operations in a number of foreign jurisdictions in addition to the United States. Our reported tax rate is 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.  

For the three and nine months ended December 26, 2020, we reported income tax expense of $5.5 million and $9.8 million, respectively, representing effective tax rates of 14.7% and 9.8%, respectively. The effective tax rate for the three and nine months ended December 26, 2020 includes discrete tax benefits recognized from excess stock compensation deductions of $1.0 million and $5.1 million, respectively. The effective tax rates were also impacted by the jurisdictional mix of earnings including divestiture transactions. During the three and nine months ended December 26, 2020, we sold our Fajardo, Puerto Rico manufacturing operations, certain U.S. blood donor management software solution assets, and our wholly-owned subsidiary Inlog Holdings France SAS. The tax expense on divestitures, including the associated valuation allowance impacts, were included in the computation of the annual effective tax rate. Refer to Note 5, Divestitures, to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for information pertaining to these divestitures.

For the three and nine months ended December 28, 2019, we reported an income tax provision of $7.9 million and $6.3 million, respectively, representing effective tax rates of 21.0% and 9.6%, respectively. The effective tax rate for the three and nine months ended December 28, 2019 was lower than the U.S. statutory tax rate primarily due to a discrete tax benefit recognized from excess stock compensation deductions of $3.1 million and $12.4 million, respectively. The effective tax rates were also impacted by the jurisdictional mix of earnings and the impact of the divestiture of the Union, South Carolina facility in the first quarter of fiscal 2020.

Liquidity and Capital Resources

The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:
(Dollars in thousands)December 26,
2020
March 28,
2020
Cash & cash equivalents$189,002 $137,311 
Working capital$473,964 $328,817 
Current ratio3.4 2.2 
Net debt(1)
$(120,774)$(245,182)
Days sales outstanding (DSO)55 62 
Inventory turnover1.3 1.7 
(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 2023. During the three and nine months ended December 26, 2020, we incurred $3.1 million and $11.1 million, respectively, of restructuring and turnaround costs under this program.
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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. We believe these sources are sufficient to fund our cash requirements over at least the next twelve months. Our expected cash outlays relate primarily to acquisitions, investments, capital expenditures, including production of the NexSys PCS and the build out of our new manufacturing facility in Clinton, PA, cash payments under the loan agreement and restructuring and turnaround initiatives.

As of December 26, 2020, we had $189.0 million in cash and cash equivalents, the majority of which is held in the U.S. or in countries from which it can be repatriated to the U.S. On June 15, 2018, we entered into a five-year credit agreement which provided for a $350.0 million term loan and a $350.0 million revolving loan (together with the term loan, the “Credit Facilities”). 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 customary non-financial affirmative and negative covenants. At December 26, 2020, $310.6 million was outstanding under the term loan with an effective interest rate of 1.4%. There were no borrowings outstanding on the revolving loan. We also had $26.2 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of December 26, 2020. We expect to finance the Cardiva acquisition through a combination of cash on hand, revolving credit facility and an additional $150.0 million term loan under our existing credit facility. The transaction is expected to close in the fourth quarter of fiscal 2021.

We have scheduled principal payments of $8.7 million required during the remainder of fiscal 2021. 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 December 26, 2020.

We continue to manage the ongoing impacts of the COVID-19 pandemic. While the duration and impacts of the pandemic remain uncertain, we have been successful in preserving cash by implementing a number of actions including restricting travel, reducing certain compensation-related items and non-essential spending and delaying hiring. Our capital allocation strategy continues to prioritize organic investments followed by inorganic opportunities and share repurchases. Our commitment to our shareholders will continue to be an important element of our capital allocation strategy, however, our priority will be focused on providing the appropriate levels of funding across our organization and ensuring that we are well positioned to address any challenges that may arise over the course of the pandemic.

In May 2019, our Board of Directors authorized the repurchase of up to $500.0 million of Haemonetics common shares over the next two years. As of December 26, 2020, the total remaining authorization for repurchases of the Company's common stock under the share repurchase program was $325.0 million. We do not expect to make additional share repurchases prior to the expiration of the share repurchase program in May 2021.

Cash Flows
 Nine Months Ended
(In thousands)December 26,
2020
December 28,
2019
Increase/
(Decrease)
Net cash provided by (used in):   
Operating activities$107,258 $111,811 $(4,553)
Investing activities3,658 (12,041)15,699 
Financing activities(65,307)(142,580)77,273 
Effect of exchange rate changes on cash and cash equivalents(1)
6,082 (124)6,206 
Net change in cash and cash equivalents$51,691 $(42,934)
(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 removed the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents.

Net cash provided by operating activities decreased by $4.6 million during the nine months ended December 26, 2020, as compared with the nine months ended December 28, 2019. The decrease in cash provided by operating activities was primarily the result of a reduction in net income, as adjusted for depreciation, amortization and other non-cash charges compared with the prior year period. A decrease in working capital as compared with the prior year period due to lower inventory growth, primarily related to NexSys PCS devices, a decline in the build of accounts receivable due to lower sales and improved collection timing, and a large payment to a key service provider in the prior year period, partially offset this decrease.

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Net cash provided by investing activities increased by $15.7 million during the nine months ended December 26, 2020, as compared with the nine months ended December 28, 2019. The increase in cash provided by investing activities was primarily the result of cash received from divestitures. This was partially offset by the cash paid for an acquisition during fiscal 2021 and proceeds received related to the divestiture of our plasma liquid solutions operations and Braintree headquarter facility in the prior year period, as well as a reduction in capital expenditures.

Net cash used in financing activities decreased by $77.3 million during the nine months ended December 26, 2020, as compared with the nine months ended December 28, 2019, primarily due to a decrease in share repurchases compared with the prior year period, partially offset by a reduction in borrowings on our revolving credit facility, net of payments, during fiscal 2021.

Concentration of Credit Risk

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. Certain 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 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.

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 the three and nine months ended December 26, 2020, 38.6% and 40.7%, respectively, 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
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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

In May 2020,the Securities and Exchange Commission (“SEC”) issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses. The amendments primarily relate to disclosures required by Rule 3-05 and Article 11 of Regulation S-X and modifies the tests provided in Rule 1-02(w) of Regulation S-X used to determine whether a subsidiary or an acquired or disposed business is significant and modifies the number of years of audited financial statements required for acquisitions with significance levels greater than specified percentages. The amendments are effective for annual periods beginning after January 1, 2021 but early adoption is permitted. We plan to early adopt the amendments during the fourth quarter of fiscal 2021.

In December 2019, the FASB issued ASC Update No. 2019-12, Income Taxes (Topic 740). The new guidance will improve consistent application of and simplify the accounting for income taxes by removing certain exceptions to the general principals in Topic 740. ASC Update No. 2019-12 is effective for annual periods beginning after December 15, 2020, and is applicable to us in fiscal 2022. We are in the process of determining the effect that the adoption will have on our financial position and results of operations.

Cautionary Statement Regarding Forward-Looking Information

Certain statements that we make from time to time, including statements contained in this Quarterly Report on Form 10-Q and incorporated by reference into this report, constitute “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 do 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,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and other words of similar meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial performance; impacts of the COVID-19 pandemic; the Company’s strategy for growth; product development, commercialization and anticipated performance and benefits; regulatory approvals; impact of planned acquisitions or dispositions, including the Company's pending acquisition of Cardiva; market position and expenditures.
Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which 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 statements. For further discussion of these and other factors, see Item 1A. Risk Factors in our most recent Annual Report on Form 10-K.
The effect of the ongoing COVID-19 pandemic, or outbreaks of communicable diseases, on our business, financial conditions and results of operations, which 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;
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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, including the Operational Excellence Program;

The potential that the expected strategic benefits and opportunities from the Company's pending acquisition of Cardiva and any other planned or completed acquisition or divestiture by the Company may not be realized or may take longer to realize than expected;

The impact of enhanced requirements to obtain 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 FCPA, 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 debt obligations, including from the increased amount of debt we anticipate incurring to fund our pending acquisition of Cardiva, and raise additional capital when desired 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 possibility 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 or identify all such factors and should not consider the risks described above and in Item 1A. Risk Factors in our Annual Report on Form 10-K to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure relative to market risk is 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.
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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 $12.0 million increase in the fair value of the forward contracts; whereas a 10% weakening of the U.S. Dollar would result in a $13.7 million decrease of the fair value of the forward contracts.

Interest Rate Risk

Our exposure to changes in interest rates is associated with borrowings under our Credit Facilities, all of which is variable rate debt. Total outstanding debt under our Credit Facilities as of December 26, 2020 was $310.6 million with an interest rate of 1.4% based on prevailing LIBOR rates. An increase of 100 basis points in LIBOR rates would result in additional annual interest expense of $0.8 million. On August 21, 2018, we entered into two interest rate swap agreements to effectively convert $241.9 million of borrowings under our Credit Facilities from a variable rate to a fixed rate. These interest rate swaps are intended to mitigate the exposure to fluctuations in interest rates and qualify for hedge accounting treatment as cash flow hedges.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, as of December 26, 2020, 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 Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of December 26, 2020.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three and nine months ended December 26, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Information with respect to this Item may be found in Note 13, Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors

There are no material changes from the Risk Factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 28, 2020.

Item 2. Issuer Purchases of Equity Securities

In May 2019, our Board of Directors authorized the repurchase of up to $500 million of Haemonetics common shares over the next two years. We had no share repurchases during the nine months ended December 26, 2020. The total remaining authorization for repurchases of our common stock under the share repurchase program was $325 million as of December 26, 2020. We do not expect to make additional share repurchases prior to the expiration of the share repurchase program in May 2021.

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Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.
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Item 6. Exhibits
Restated Articles of Organization of Haemonetics Corporation, reflecting Articles of Amendment dated August 23, 1993, August 21, 2006, July 26, 2018 and July 25, 2019 (filed as Exhibit 3.1 to the Company’s Form 8-K dated July 29, 2019 and incorporated herein by reference).
By-Laws of the Company, as amended through June 29, 2020 (filed as Exhibit 3.1 to the Company’s Form 8-K dated June 30, 2020 and incorporated herein by reference).
First Amendment to Industrial Lease Agreement, dated as of October 1, 2020, by and between Clinton Commerce III, LLC and the Company.
Twelfth Amendment to Agreement of Lease, dated as of May 22, 2020, by and between The Buncher Company and the Company.*
Thirteenth Amendment to Agreement of Lease, dated as of December 21, 2020, by and between The Buncher Company and the Company.*
Agreement and Plan of Merger, dated as of January 17, 2021, by and among the Company, Concordia Merger Sub, Inc., Cardiva Medical, Inc. and Fortis Advisors LLC, as the Seller Representative.*
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.
101**The following materials from Haemonetics Corporation on Form 10-Q for the quarter ended December 26, 2020, formatted in inline Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Statements of Income and Comprehensive Income, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.
104Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
_____________________________
*Certain portions of this exhibit are considered confidential and have been omitted as permitted under SEC rules and regulations.
**In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Form 10-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.
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SIGNATURES

Pursuant to the requirements 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 
February 2, 2021By:  /s/ Christopher A. Simon   
  Christopher A. Simon,
President and Chief Executive Officer
 
  (Principal Executive Officer)  
February 2, 2021By:  /s/ William Burke
  William Burke, Executive Vice President, Chief Financial Officer
(Principal Financial Officer) 


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