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Item 1. Financial Statements

2020-08-04 compared with 2020-02-04 · 286 added, 312 removed, 291 unchanged (67% of the section changed)

1 unchanged sentence

HAEMONETICS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(Unaudited in thousands, except per share data)

Three Months Ended

Nine Months Ended

2020 June 29,

Net revenues $ 195,577 $ 238,451

Cost of goods sold 105,547 122,545

Gross profit 90,030 115,906

Operating expenses:

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Total operating expenses 78,315 129,208

Operating income

Operating income (loss) 11,715 ( 13,302 )

Interest and other expense, net ( 3,735 ) ( 4,423 )

Income before provision for income taxes

Provision for income taxes

Net income per share - basic

Net income per share - diluted

Income (loss) before provision for income taxes 7,980 ( 17,725 )

Benefit for income taxes ( 2,547 ) ( 9,246 )

Net income (loss) $ 10,527 $ ( 8,479 )

Net income (loss) per share - basic $ 0.21 $ ( 0.17 )

Net income (loss) per share - diluted $ 0.21 $ ( 0.17 )

Weighted average shares outstanding

Comprehensive income

Basic 50,418 51,010

Diluted 51,247 51,010

Comprehensive income (loss) $ 11,956 $ ( 12,097 )

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

2 unchanged sentences

(Unaudited in thousands, except share data)

2020 March 28,

Current assets:

Cash and cash equivalents $ 275,725 $ 137,311

Accounts receivable, less allowance of $4,097 at December 28, 2019 and $3,937 at March 30, 2019

Accounts receivable, less allowance of $3,446 at June 27, 2020 and $3,824 at March 28, 2020 141,094 165,207

Inventories, net 294,510 270,276

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Property, plant and equipment, net 242,969 253,399

Intangible assets, less accumulated amortization of $287,526 at December 28, 2019 and $263,479 at March 30, 2019

Intangible assets, less accumulated amortization of $299,039 at June 27, 2020 and $296,942 at March 28, 2020 137,520 133,106

Goodwill 217,298 210,652

Deferred tax asset 4,088 3,930

Other long-term assets 71,888 62,384

Total assets $ 1,433,173 $ 1,267,110

LIABILITIES AND STOCKHOLDERS’ EQUITY

11 unchanged sentences

Authorized — 150,000,000 shares;

Issued and outstanding — 50,390,614 shares at December 28, 2019 and 51,019,918 shares at March 30, 2019

Issued and outstanding — 50,671,442 shares at June 27, 2020 and 50,322,930 shares at March 28, 2020 507 503

Additional paid-in capital 562,729 553,229

7 unchanged sentences

(Unaudited in thousands)

Paid-in Capital

Retained Earnings

Comprehensive Loss

Common Stock Additional

Paid-in Capital Retained Earnings Accumulated

Comprehensive Loss Total

Stockholders’ Equity

Shares Par Value

Balance, March 28, 2020 50,323 $ 503 $ 553,229 $ 78,512 $ ( 45,135 ) $ 587,109

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Exercise of stock options 28 1 1,192 — — 1,193

Shares repurchased

Issuance of restricted stock, net of cancellations 298 3 ( 3 ) — — —

Share-based compensation expense — — 6,167 — — 6,167

Other comprehensive loss

Balance, June 29, 2019

Exercise of stock options

Shares repurchased

Issuance of restricted stock, net of cancellations

Share-based compensation expense

Other comprehensive loss

Balance, September 28, 2019

Employee stock purchase plan

Exercise of stock options

Shares repurchased

Issuance of restricted stock, net of cancellations

Share-based compensation expense

Net income — — — 10,527 — 10,527

Other comprehensive income — — — — 1,429 1,429

Balance, December 28, 2019

Paid-in Capital

Retained Earnings

Comprehensive Loss

Balance, June 27, 2020 50,671 $ 507 $ 562,729 $ 89,039 $ ( 43,706 ) $ 608,569

Common Stock Additional

Paid-in Capital Retained Earnings Accumulated

Comprehensive Loss Total

Stockholders’ Equity

Shares Par Value

Balance, March 30, 2019 51,020 $ 510 $ 536,320 $ 161,418 $ ( 30,380 ) $ 667,868

4 unchanged sentences

Share-based compensation expense — — 4,730 — — 4,730

Cumulative effect of change in accounting principles

Net loss — — — ( 8,479 ) — ( 8,479 )

Other comprehensive loss — — — — ( 3,618 ) ( 3,618 )

Balance, June 29, 2019 50,771 $ 508 $ 525,038 $ 99,418 $ ( 33,998 ) $ 590,966

Exercise of stock options

Shares repurchased

Issuance of restricted stock, net of cancellations

Share-based compensation expense

Other comprehensive loss

Balance, September 29, 2018

Employee stock purchase plan

Exercise of stock options

Shares repurchased

Issuance of restricted stock, net of cancellations

Share-based compensation expense

Other comprehensive loss

Balance, December 29, 2018

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

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(Unaudited in thousands)

Nine Months Ended

Three Months Ended

2020 June 29,

Cash Flows from Operating Activities:

Net income (loss) $ 10,527 $ ( 8,479 )

Adjustments to reconcile net income to net cash provided by operating activities:

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Provision for losses on accounts receivable and inventory 1,193 ( 1,378 )

Gain on sale of assets

Other non-cash operating activities 66 50

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Change in inventories ( 24,557 ) ( 37,414 )

Change in prepaid income taxes ( 3,544 ) ( 3,228 )

Change in other assets and other liabilities 865 ( 8,208 )

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Capital expenditures ( 7,696 ) ( 8,249 )

Acquisition ( 16,606 ) —

Proceeds from divestiture — 9,808

Proceeds from sale of property, plant and equipment 406 302

Net cash used in investing activities

Net cash (used in) provided by investing activities ( 23,896 ) 1,861

Cash Flows from Financing Activities:

Net increase in short-term loans 150,000 90,000

Term loan borrowings

Repayment of term loan borrowings ( 4,375 ) ( 4,375 )

2 unchanged sentences

Proceeds from exercise of stock options 1,193 3,635

Net cash used in financing activities

Other ( 11 ) —

Net cash provided by financing activities 148,951 16,090

Effect of exchange rates on cash and cash equivalents 1,547 304

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Transfers from inventory to fixed assets for placement of Haemonetics equipment $ 2,364 $ 2,973

Right-of-use assets and lease incentive acquired

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

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All intercompany transactions have been eliminated.

Certain immaterial reclassifications have been made to prior years' amounts to conform to the current year's presentation.

Operating results for the nine months ended December 28, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 28, 2020 or any other interim period.

Operating results for the three months ended June 27, 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 28, 2019 , the Company has concluded that substantial doubt about its ability to continue as a going concern does not exist.

As of June 27, 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.

Subsequent events have been evaluated as required for the three and nine months ended December 28, 2019 and are disclosed in Note 17, Subsequent Event .

Refer to Note 5, Divestitures and to Note 11, Notes Payable and Long-Term Debt , for information pertaining to three divestitures and a payment on the Company's revolving credit facility, respectively, that occurred subsequent to June 27, 2020.

There were no other material recognized or unrecognized subsequent events as of or for the three months ended June 27, 2020.

RECENT ACCOUNTING PRONOUNCEMENTS

Standards Implemented

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") Update No.

2016-02, Leases (Topic 842) .

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.

2016-02 is intended to increase the transparency and comparability among organizations by recognizing lease asset and lease liabilities on the balance sheet, including those previously classified as operating leases under current U.S.

GAAP and disclosing key information about leasing arrangements.

In July 2018, the FASB issued an update to the leasing guidance to allow an additional transition option which would allow companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented.

The Company adopted the new standard on March 31, 2019.

Upon transition, the Company applied the package of practical expedients permitted under ASC Update No.

2016-02 transition guidance to its entire lease portfolio at March 31, 2019.

As a result, the Company is not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases, and (iii) initial direct costs for any existing leases.

The Company also elected to account for each lease component and the associated non-lease components as a single lease component and also elected not to recognize a lease liability or right-of-use asset for any lease that, at commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

As a result of adopting ASC Update No.

2016-02, the Company recognized additional right-of-use assets of $ 22.9 million and corresponding liabilities of $ 22.7 million for its existing lease portfolio on the condensed consolidated balance sheets, with no material impact to the condensed consolidated statements of operations or condensed consolidated statements of cash flows.

Additionally, the Company implemented a new lease administration and lease accounting system and has updated controls and procedures for maintaining and accounting for its lease portfolio under the new standard.

In March 2017, the FASB issued ASC Update No.

2017-07, Compensation - Retirement Benefits (Topic 715) .

The guidance revises the presentation of net periodic pension cost and net periodic post-retirement benefit cost.

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 of ASC Update No.

2017-07 did not have a material impact on the Company's condensed consolidated financial statements.

In June 2018, the FASB issued ASC Update No.

2018-07, Compensation - Stock Compensation (Topic 718) .

The new guidance aligns the accounting for non-employee share-based payments with the existing employee share-based transactions guidance.

The 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 of ASC Update No.

2018-07 did not have a material impact on the Company's financial position and results of operations.

The adoption did not have a material impact on the Company's unaudited condensed consolidated financial statements.

RESTRUCTURING

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These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2023.

During the three and nine months ended December 28, 2019 , the Company incurred $ 3.9 million and $ 6.8 million , respectively, of restructuring and turnaround costs under this program.

During the three months ended June 27, 2020, the Company incurred $ 3.5 million of restructuring and turnaround costs under this program.

Total cumulative charges under this program are $ 15.4 million.

There were no restructuring and turnaround costs incurred during the three months ended June 29, 2019 under this program.

During fiscal 2018, the Company launched a Complexity Reduction Initiative (the "2018 Program"), a company-wide restructuring program designed to improve operational performance and reduce cost, freeing up resources to invest in accelerated growth.

During the three and nine months ended December 28, 2019 , the Company incurred $ 3.9 million and $ 6.8 million , respectively, of restructuring and turnaround costs under this program.

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

During the three months ended June 27, 2020 and June 29, 2019, the Company incurred $ 0.5 million and $ 2.0 million, respectively, of restructuring and turnaround costs under this program.

Total cumulative charges under this program are $ 58.7 million.

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

(In thousands)

2018 Program and Prior Programs

The 2018 Program is substantially complete.

The following table summarizes the activity for restructuring reserves related to the 2020 Program and the 2018 and Prior Programs for the three months ended June 27, 2020, substantially all of which relates to employee severance and other employee costs:

(In thousands) 2020 Program 2018 and Prior Programs Total

Balance at March 28, 2020 $ 1,136 $ 1,512 $ 2,648

Costs incurred, net of reversals 1,166 ( 101 ) 1,065

Non-cash adjustments

Balance at December 28, 2019

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

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

Payments ( 541 ) ( 633 ) ( 1,174 )

Balance at June 27, 2020 $ 1,761 $ 778 $ 2,539

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

Three Months Ended

Nine Months Ended

(In thousands)

(In thousands) June 27,

2020 June 29,

Cost of goods sold $ 503 $ 159

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Selling, general and administrative expenses 243 796

In addition to the restructuring costs included in the table above, the Company also incurred costs that do not constitute restructuring under ASC 420, Exit and Disposal Cost Obligations, which the Company refers to as turnaround costs.

These costs, substantially all of which have been included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of income, consist primarily of expenditures directly related to the

restructuring actions and include program management costs associated with the implementation of outsourcing initiatives and recent accounting standards.

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

Restructuring costs

Three Months Ended

Nine Months Ended

(In thousands)

December 28, 2019

December 29, 2018

December 28, 2019

December 29, 2018

Turnaround costs

Three Months Ended

Nine Months Ended

(In thousands)

December 28, 2019

December 29, 2018

December 28, 2019

December 29, 2018

$ 1,065 $ 969

As of June 27, 2020, the Company had a restructuring liability of $ 2.5 million, of which $ 2.1 million is payable within the next twelve months.

In addition to the restructuring costs included in the table above, the Company also incurred costs of $ 2.9 million 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.

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

Restructuring costs Three Months Ended

(In thousands) June 27, 2020 June 29, 2019

Plasma $ 568 $ 153

Blood Center 154 42

Hospital 129 203

Corporate 214 571

Total $ 1,065 $ 969

Turnaround costs Three Months Ended

(In thousands) June 27, 2020 June 29, 2019

Plasma $ — $ 48

Blood Center 16 —

Corporate 2,910 1,010

Total $ 2,935 $ 1,058

Total restructuring and turnaround costs $ 4,000 $ 2,027

On May 21, 2019, the Company transferred to CSL Plasma Inc.

(“CSL”) substantially all of its tangible assets held relating to the manufacture of anti-coagulant and saline (together, “Liquids”) at its Union, South Carolina facility (“Union”), which consist primarily of property, plant and equipment and inventory, and CSL assumed certain related liabilities (the “Asset Transfer”) pursuant to the terms of a settlement, release and asset transfer agreement between the parties dated May 13, 2019.

The Asset Transfer excludes all other assets related to Union, including accounts receivable, customer contracts and the Company's U.S.

Food and Drug Administration (“FDA”) product approvals for manufacturing Liquids.

At closing, Haemonetics received $ 9.8 million of proceeds for the Asset Transfer and was concurrently released from its obligations to supply Liquids under a 2014 supply agreement with CSL.

In connection with the Asset Transfer, CSL and Haemonetics also entered into related transition services, supply and manufacturing services and quality agreements that, among other things, permit CSL to manufacture Liquids under the Company's FDA product approvals, exclusively for Haemonetics and CSL, until CSL obtains independent product approvals from the FDA to manufacture the Liquids.

In connection with the Company's and CSL's entry into the May 13, 2019 agreement for the Asset Transfer, the Company recognized a pre-tax impairment charge of $ 48.7 million in the first quarter of fiscal 2020, primarily related to the carrying balances of the property, plant and equipment exceeding the consideration received under the terms of the Agreement.

The charge will not result in any future cash expenditures.

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 GmbH 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 June 27, 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 three months of fiscal 2021:

(In thousands) June 27, 2020

Inventory $ 634

Other current assets 685

Property, plant and equipment 289

Intangible assets 14,090

Goodwill 8,153

Total assets acquired $ 23,851

Other current liabilities 289

Contingent consideration (current) 504

Contingent consideration (non-current) 3,416

Deferred tax liability 3,036

Total liabilities assumed $ 7,245

Net assets acquired $ 16,606

The Company determined the identifiable intangible assets were completed technology, customer relationships and 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.

Intangible assets acquired consist of the following:

(In thousands) Amount Weighted-Average Amortization Period

Completed technology $ 13,441 10

Customer relationships 347 10

Trademark 302 10

Total $ 14,090 10

Acquisition-Related Costs

The amount of acquisition-related costs incurred associated the acquisition was $ 0.2 million for three months ended June 27, 2020.

Unaudited Pro Forma Financial Information

enicor had an immaterial impact to the Company's net sales and net income for the period post acquisition through June 27, 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.

Subsequent to the first quarter, which ended on June 27, 2020, the Company completed or announced the following 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 $ 15.5 million ($ 8.1 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 of $ 1.0 million in the first quarter of fiscal 2021, as the carrying value of the assets and liabilities in the asset transfer exceeded the net of the $ 15.5 million of cash proceeds and the expected costs to sell of $ 1.5 million.

As of June 27, 2020, $ 7.6 million of assets, consisting of the property, plant and equipment included in the transaction and goodwill, were treated as assets held for sale and reclassified to other current assets.

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).

In addition to the cash received upon closing, the Company could receive 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 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.

As of June 27, 2020, the intellectual property and certain other related assets, including goodwill, associated with the transferred assets totaling $ 2.3 million were treated as assets held for sale and reclassified to other current assets.

Inlog Holdings France

On July 23, 2020, the Company entered into a definitive agreement to sell its wholly-owned subsidiary Inlog Holdings France SAS to Abénex Capital ("Abénex"), a private equity firm based in France.

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 transaction is expected to close in the second quarter of fiscal 2021, subject to Abénex's receipt of financing and the satisfaction of other customary closing conditions.

The Company conducts business globally and reports its results of operations in a number of foreign jurisdictions in addition to the United States.

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statutory tax rate.

For the three and nine months ended December 28, 2019 , the Company reported an income tax provision of $ 7.9 million and $ 6.3 million , respectively, representing an effective tax rate of 21.0 % and 9.6 % , respectively.

The effective tax rate for the three and nine months ended December 28, 2019 includes discrete tax benefits recognized from excess stock compensation deductions of $ 3.1 million and $ 12.4 million , respectively.

The effective tax rates were also impacted by the jurisdictional mix

of earnings and the impact of the divestiture of the Union liquid solutions operation in the first quarter of fiscal 2020.

Refer to Note 4, Divestiture, for additional details related to the divestiture of the Union liquid solutions operation.

For the three and nine months ended December 29, 2018 , the Company reported an income tax provision of $ 7.2 million and $ 17.6 million , representing an effective tax rate of 28.2 % and 34.0 % , respectively.

The tax rate for the three and nine months ended December 29, 2018 includes a discrete stock compensation windfall benefit of $ 1.8 million and $ 5.8 million , respectively.

The effective tax rate for the nine months ended December 29, 2018 was higher than the U.S.

statutory tax rate primarily due to an asset impairment of $ 21.2 million recorded in pretax income for which no tax benefit was recognized as a result of the valuation allowance maintained against its deferred tax assets in the impacted jurisdiction.

EARNINGS PER SHARE (“EPS”)

For the three months ended June 27, 2020, the Company reported an income tax benefit of $ 2.5 million, representing an effective tax rate benefit of 31.9 %.

The effective tax rate for the three months ended June 27, 2020 includes discrete tax benefits recognized from excess stock compensation deductions of $ 4.0 million.

The effective tax rates were also impacted by the jurisdictional mix of earnings.

During the three months ended June 27, 2020, the Company transferred certain intangible assets amongst its wholly-owned subsidiaries prior to the divestiture of its Fajardo, Puerto Rico manufacturing operations.

The tax expense on the intercompany sale and the establishment of deferred tax assets (including the associated valuation allowance impacts) were included in the computation of the annual effective tax rate.

For the three months ended June 29, 2019, the Company reported an income tax benefit of $ 9.2 million, representing an effective tax rate of 52.2 %.

The effective tax rate for the three months ended June 29, 2019 was higher than the U.S.

statutory tax rate primarily due to the jurisdictional mix of earnings, as well as the impact of the divestiture of the Union liquid solutions

operation recorded in pretax income which resulted in a worldwide pretax loss for the quarter.

The tax rate for the three months ended June 29, 2019 benefited from a discrete stock compensation windfall benefit of $ 4.9 million.

EARNINGS PER SHARE

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

Three Months Ended

Nine Months Ended

(In thousands, except per share amounts)

(In thousands, except per share amounts) June 27,

2020 June 29,

Net income (loss) $ 10,527 $ ( 8,479 )

Weighted average shares 50,418 51,010

Basic income per share

Basic income (loss) per share $ 0.21 $ ( 0.17 )

Net income (loss) $ 10,527 $ ( 8,479 )

Basic weighted average shares 50,418 51,010

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Diluted weighted average shares 51,247 51,010

Diluted income per share

Diluted income (loss) per share $ 0.21 $ ( 0.17 )

Basic earnings per share is calculated using the Company's weighted-average outstanding common stock.

Diluted earnings per share is calculated using its weighted-average outstanding common stock including the dilutive effect of stock awards as determined under the treasury stock method.

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

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

Share Repurchase Program

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

In July 2019, the Company completed a $ 75.0 million repurchase of its common stock pursuant to an accelerated share repurchase agreement ("ASR") entered into with Citibank N.A.

("Citibank") in June 2019.

The total number of shares repurchased under the ASR was 0.6 million at an average price per share upon final settlement of $ 116.33 .

In October 2019, the Company completed an additional $ 50.0 million repurchase of its common stock pursuant to an ASR entered into with Morgan Stanley & Co.

LLC ("Morgan Stanley") in September 2019.

The total number of shares repurchased under the ASR was 0.4 million at an average price per share upon final settlement of $ 124.37 .

In December 2019, the Company entered into an ASR with Bank of America, N.A.

("Bank of America") to repurchase $ 50.0 million of the Company’s common stock.

Pursuant to the terms of the ASR, in December 2019, the Company paid Bank of America $ 50.0 million in cash and received an initial delivery of 0.3 million shares of the Company's common stock based on a closing market price on the New York Stock Exchange on December 11, 2019 of $ 117.55 .

This initial delivery of shares represented approximately 80 % of the notional amount of the ASR.

On January 23, 2020, the ASR was completed and an additional 0.1 million shares were delivered upon settlement.

The total number of shares repurchased under the ASR was 0.4 million at an average price per share upon final settlement of $ 114.73 .

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

For the three months ended June 27, 2020, weighted average shares outstanding, assuming dilution, excludes the impact of 0.5 million anti-dilutive shares.

For the three months ended June 29, 2019, the Company recognized a net loss;

therefore it excluded the impact of outstanding stock awards from the diluted loss per share calculation as its inclusion would have an anti-dilutive effect.

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 .

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For goods or services for which observable standalone selling prices are not available, the Company uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

As of December 28, 2019 , the Company had $ 22.1 million of its transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more.

As of June 27, 2020, the Company had $ 21.9 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 62 % of this amount as revenue within the next twelve months and the remaining balance thereafter.

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The difference in timing between billing and revenue recognition primarily occurs in software licensing arrangements, resulting in contract assets and contract liabilities.

As of December 28, 2019 and March 30, 2019 , the Company had contract assets of $ 8.0 million and $ 5.6 million , respectively.

As of June 27, 2020 and March 28, 2020, the Company had contract assets of $ 6.1 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 28, 2019 and March 30, 2019 , the Company had contract liabilities of $ 17.4 million and $ 20.3 million , respectively.

During the three and nine months ended December 28, 2019 , the Company recognized $ 3.1 million and $ 16.5 million , respectively, of revenue that was included in the above March 30, 2019 contract liability balance.

As of June 27, 2020 and March 28, 2020, the Company had contract liabilities of $ 21.5 million and $ 20.8 million, respectively.

During the three months ended June 27, 2020, the Company recognized $ 8.9 million of revenue that was included in the above March 28, 2020 contract liability balance.

Contract liabilities are classified as other liabilities and other long-term liabilities on the condensed consolidated balance sheets.

1 unchanged sentence

Cost is determined using the first-in, first-out method.

(In thousands)

(In thousands) June 27,

2020 March 28,

Raw materials $ 76,224 $ 76,867

2 unchanged sentences

Total inventories $ 294,510 $ 270,276

PROPERTY, PLANT AND EQUIPMENT

In December 2018, the Company entered into a lease for office space in Boston, MA to serve as its new corporate headquarters and replace its prior corporate headquarters located in Braintree, MA.

As a result of this lease agreement, the Company received a lease incentive in the form of property, plant and equipment totaling $ 5.6 million which was recorded upon commencement of the lease term in October 2019.

Refer to Note 11, Leases , for additional information regarding this lease.

During the second quarter of fiscal 2020, the Company sold $ 7.8 million of real estate and other assets associated with the Braintree corporate headquarters and entered into a lease with the buyer that allowed the Company to leaseback the facility on a rent-free basis through December 31, 2019 until the completion of its relocation to Boston, MA, which occurred during the third quarter of fiscal 2020.

As a result of this transaction, the Company received net cash proceeds of $ 15.0 million and non-cash consideration of $ 0.9 million related to a free rent period ending in December 2019.

The transaction resulted in a net gain of $ 8.1 million .

During the first quarter of fiscal 2019, the Company recorded impairment charges of $ 21.2 million , which consisted of $ 19.8 million of charges related to the discontinued use of the HDC filter media manufacturing line and $ 1.4 million of charges related to non-core and underperforming assets.

These impairments were included within cost of goods sold on the condensed consolidated statements of income and impacted the Blood Center reporting segment.

GOODWILL AND INTANGIBLE ASSETS

Subsequent to the annual goodwill impairment test performed in the fourth quarter of fiscal 2019, the Company revised the composition of its reportable segments to align with its three global business units, Plasma, Blood Center and Hospital.

Refer to Note 15 , Segment and Enterprise-Wide Information , for additional information regarding the change in the Company's reportable segments .

A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component.

The Company aggregates components within an operating segment that have similar economic characteristics.

Consistent with its reportable segments, reporting units for purposes of assessing goodwill impairment have also been reorganized based on business unit and include:

Plasma, Blood Center and Hospital.

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

In addition, the $ 126.8 million of goodwill previously allocated to the former North America reporting units was reallocated to each new respective global reporting unit.

The following represents our goodwill balance by new global reportable segment.

The prior period information has been restated to conform to the current presentation:

(In thousands)

Carrying amount as of March 30, 2019

Currency translation

Carrying amount as of December 28, 2019

Lessee Activity

The Company has operating leases for office space, land, warehouse and manufacturing space, R&D laboratories, vehicles and certain equipment.

Finance leases are not significant.

Leases with an initial term of 12 months or less are generally not recorded on the balance sheet and expense for these leases is recognized on a straight-line basis over the lease term.

For leases executed in fiscal 2020 and later, the Company accounts for the lease components and the non-lease components as a single lease component.

The Company's leases have remaining lease terms of 1 year to approximately 30 years, some of which may include options to extend the leases for up to 10 years and some include options to terminate early.

These options have been included in the determination of the lease liability when it is reasonably certain that the option will be exercised.

The Company does not have any leases that include residual value guarantees.

The Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of an arrangement.

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term.

The interest rate implicit in lease contracts is typically not readily determinable.

As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment.

For operating leases that commenced prior to the Company's adoption of ASC 842, the Company measured the

lease liabilities and right-of-use assets using the incremental borrowing rate as of March 31, 2019.

Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

During the third quarter of fiscal 2020, the Company entered into a lease for office space in Boston, MA to serve as its new corporate headquarters and completed the relocation to this new office from its previous corporate headquarters located in Braintree, MA.

The lease term associated with the new corporate headquarters extends through June 30, 2032 and includes two five year renewal options.

During the third quarter of fiscal 2020, the Company recorded a right-of-use asset of $ 36.2 million and corresponding liabilities of $ 41.8 million upon commencement of the lease term in October 2019.

In addition, the Company recorded $ 5.6 million of property, plant and equipment as a result of a lease incentive received associated with this lease agreement.

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

(In thousands)

Operating lease right-of-use assets in Other long-term assets

Operating lease liabilities in Other current liabilities

Operating lease liabilities in Other long-term liabilities

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

Weighted average remaining lease term

Weighted average discount rate

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

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

(In thousands)

Three Months Ended December 28, 2019

Nine Months Ended December 28, 2019

Cash paid for amounts included in the measurement of operating lease liabilities

Operating cash flows used for operating leases

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

Fiscal Year ( In thousands )

Operating Leases

2020 (excluding the first nine months of 2020)

Total future minimum operating lease payments

imputed interest

Present value of operating lease liabilities

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.

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 million lease incentive receivable associated with this lease agreement.

NOTES PAYABLE AND LONG-TERM DEBT

3 unchanged sentences

Under the Credit Facilities, the Company is required to maintain certain leverage and interest coverage ratios specified in the credit agreement as well as other customary non-financial affirmative and negative covenants.

At December 28, 2019 , $ 328.1 million was outstanding under the Term Loan with an effective interest rate of 3.0 % and $ 45.0 million was outstanding on the Revolving Credit Facility.

The Company also has $ 25.4 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of December 28, 2019 .

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

The Company was in compliance with the leverage and interest coverage ratios specified in the Credit Facilities as well as all other bank covenants as of December 28, 2019 .

DERIVATIVES AND FAIR VALUE MEASUREMENTS

At June 27, 2020, $ 319.4 million was outstanding under the Term Loan with an effective interest rate of 1.4 % and $ 210.0 million was outstanding on the Revolving Credit Facility.

On July 15, 2020, subsequent to the balance sheet date, the Company reduced its borrowings on the Revolving Credit Facility by $ 60.0 million.

The Company also has $ 26.2 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of June 27, 2020.

The Company has required scheduled principal payments of $ 17.5 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 June 27, 2020.

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company manufactures, markets and sells its products globally.

During the three and nine months ended December 28, 2019 , 35.4 % and 35.3 % , respectively, of the Company's sales were generated outside the U.S., generally in foreign currencies.

During the three months ended June 27, 2020, 43.2 % 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.

7 unchanged sentences

Designated Foreign Currency Hedge Contracts

All of the Company's designated foreign currency hedge contracts as of December 28, 2019 and March 30, 2019 were cash flow hedges under ASC 815, Derivatives and Hedging ("ASC 815").

All of the Company's designated foreign currency hedge contracts as of June 27, 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.

1 unchanged sentence

In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company would reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time.

The Company had designated foreign currency hedge contracts outstanding in the contract amount of $ 23.1 million as of December 28, 2019 and $ 81.5 million as of March 30, 2019 .

At December 28, 2019 , a gain of $ 1.2 million , net of tax, will be reclassified to earnings within the next twelve months .

Substantially all currency cash flow hedges outstanding as of December 28, 2019 mature within twelve months .

The Company had designated foreign currency hedge contracts outstanding in the contract amount of $ 67.5 million as of June 27, 2020 and $ 93.8 million as of March 28, 2020.

At June 27, 2020, a gain of $ 1.9 million, net of tax, will be reclassified to earnings within the next twelve months.

Substantially all currency cash flow hedges outstanding as of June 27, 2020 mature within twelve months.

Non-Designated Foreign Currency Contracts

4 unchanged sentences

These forward contracts are marked-to-market with changes in fair value recorded to earnings.

The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $ 87.4 million as of December 28, 2019 and $ 37.4 million as of March 30, 2019 .

The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $ 131.7 million as of June 27, 2020 and $ 98.0 million as of March 28, 2020.

Interest Rate Swaps

8 unchanged sentences

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 28, 2019 , a loss of $ 4.5 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.

For the three months ended June 27, 2020, a loss of $ 2.1 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.

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 rollfoward of the allowance for credit losses:

Three Months Ended

(In thousands) June 27, 2020 June 29, 2019

Beginning balance $ 3,824 $ 3,937

Credit loss expense ( 259 ) ( 299 )

Write-offs ( 119 ) ( 14 )

Ending balance $ 3,446 $ 3,624

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 28, 2019 :

(In thousands)

Amount of Gain

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 (loss) and comprehensive income (loss) for the three months ended June 27, 2020:

(In thousands) Amount of Gain

(Loss) Recognized

in Accumulated Other Comprehensive Loss

Amount of Gain (Loss) Reclassified

in Accumulated Other Comprehensive Loss Amount of Gain (Loss) Reclassified

from Accumulated Other Comprehensive Loss into

Condensed Consolidated Statements of Income and Comprehensive Income

Amount of Gain (Loss) Excluded from

Earnings Location in

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Amount of Gain (Loss) Excluded from

Effectiveness

Condensed Consolidated Statements of Income and Comprehensive Income

Designated foreign currency hedge contracts, net of tax

Net revenues, COGS and SG&A

Interest and other expense, net

Non-designated foreign currency hedge contracts

Interest and other expense, net

Designated interest rate swaps, net of tax

Interest and other expense, net

The Company did not have fair value hedges or net investment hedges outstanding as of December 28, 2019 or March 30, 2019 .

As of December 28, 2019 , no deferred tax assets were recognized for designated foreign currency hedges.

Testing Location in

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

Designated foreign currency hedge contracts, net of tax $ 1,883 $ ( 129 ) Net revenues, COGS and SG&A $ ( 248 ) Interest and other expense, net

Non-designated foreign currency hedge contracts $ — $ — $ ( 1,842 ) Interest and other expense, net

Designated interest rate swaps, net of tax $ (3,131) $ ( 1,013 ) Interest and other expense, net $ —

The Company did not have fair value hedges or net investment hedges outstanding as of June 27, 2020 or March 28, 2020.

As of June 27, 2020, no material deferred tax assets were recognized for designated foreign currency hedges.

ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet.

5 unchanged sentences

and inputs derived principally from, or corroborated by, observable market data by correlation or other means.

As of December 28, 2019 , the Company has classified its derivative

assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.

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 28, 2019 and March 30, 2019 :

(In thousands)

Location in Condensed Consolidated

Balance Sheets

December 28, 2019

March 30, 2019

As of June 27, 2020, the Company has classified its derivative assets and

liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.

The following tables present the fair value of the Company's derivative instruments as they appear in its condensed consolidated balance sheets as of June 27, 2020 and March 28, 2020:

(In thousands) Location in Condensed Consolidated

Balance Sheets As of As of

June 27, 2020 March 28, 2020

Derivative Assets:

Designated foreign currency hedge contracts

Other current assets

Non-designated foreign currency hedge contracts

Other current assets

Designated foreign currency hedge contracts Other current assets $ 227 $ 839

Non-designated foreign currency hedge contracts Other current assets 164 $ 377

$ 391 $ 1,216

Derivative Liabilities:

Designated foreign currency hedge contracts

Other current liabilities

Non-designated foreign currency hedge contracts

Other current liabilities

Designated interest rate swaps

Other current liabilities

Designated foreign currency hedge contracts Other current liabilities $ 1,073 $ 1,854

Non-designated foreign currency hedge contracts Other current liabilities 68 1,435

Designated interest rate swaps Other current liabilities 5,875 5,581

Designated interest rate swaps Other long-term liabilities 9,243 9,475

$ 16,259 $ 18,345

Other Fair Value Measurements

6 unchanged sentences

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 28, 2019 and March 30, 2019 .

As of December 28, 2019

(In thousands)

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of June 27, 2020 and March 28, 2020.

As of June 27, 2020

(In thousands) Level 1 Level 2 Level 3 Total

Money market funds $ 171,313 $ — $ — $ 171,313

1 unchanged sentence

Non-designated foreign currency hedge contracts — 164 — 164

$ 171,313 $ 391 $ — $ 171,704

Designated foreign currency hedge contracts $ — $ 1,073 $ — $ 1,073

1 unchanged sentence

Designated interest rate swaps — 15,118 — 15,118

Contingent consideration — — 3,920 3,920

$ — $ 16,259 $ 3,920 $ 20,179

As of March 28, 2020

Level 1 Level 2 Level 3 Total

Money market funds $ 44,564 $ — $ — $ 44,564

1 unchanged sentence

Non-designated foreign currency hedge contracts — 377 — 377

$ 44,564 $ 1,216 $ — $ 45,780

Designated foreign currency hedge contracts $ — $ 1,854 $ — $ 1,854

Non-designated foreign currency hedge contracts — 1,435 — 1,435

Designated interest rate swaps — 15,056 — 15,056

$ — $ 18,345 $ — $ 18,345

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 value 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 are 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:

Fair Value at Valuation Unobservable

(In thousands) June 27, 2020 Technique Input Range

Revenue-based payments $ 1,900 Discounted cash flow Discount rate 8.5 %

Projected year of payment 2021 - 2023

Regulatory-based payments $ 2,000 Discounted cash flow Discount rate 4.9 %

Probability of payment 0% - 100%

Projected year of payment 2021 - 2023

As of June 27, 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 June 27, 2020.

As of June 27, 2020, $ 0.5 million was included in other current liabilities and $ 3.4 million was included in other liabilities on the condensed consolidated balance sheet.

Reconciliation of the change in the fair value of contingent consideration are included in the following table:

(In thousands)

Balance at March 28, 2020 $ —

Acquisition date fair value of contingent consideration 3,920

Balance at June 27, 2020 $ 3,920

Other Fair Value Disclosures

2 unchanged sentences

The Company is a party to various legal proceedings and claims arising out of the ordinary course of its business.

The Company believes that except for those matters described below, there are no other proceedings or claims pending against it the ultimate resolution of which could have a material adverse effect on the financial condition or results of operations.

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.

Litigation and Related Matters

Product Recall

In August 2018, the Company issued a voluntary recall of certain whole blood collection kits sold to its Blood Center customers in the U.S.

The recall resulted from some collection sets' filters failing to adequately remove leukocytes from collected blood.

As a result of the recall, the Company's Blood Center customers may have conducted tests to confirm that the collected blood was adequately leukoreduced, sold the collected blood labeled as non-leukoreduced at a lower price or discarded the collected blood.

As of December 28, 2019 , the Company has recorded cumulative charges of $ 1.9 million associated with this recall which consists of $ 0.1 million of charges associated with customer returns and inventory reserves

and $ 1.8 million of charges associated with customer claims.

Substantially all outstanding claims have been paid as of December 28, 2019 .

SEGMENT AND ENTERPRISE-WIDE INFORMATION

3 unchanged sentences

Following the reorganization, the Company's reportable segments are as follows:

• Blood Center

Management measures and evaluates the operating segments based on operating income.

1 unchanged sentence

In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items.

These items include restructuring and turnaround costs, deal amortization, asset impairments, accelerated depreciation, gains and losses on asset dispositions, certain transaction costs and legal charges.

These items include restructuring and turnaround costs, deal amortization, asset impairments, 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.

3 unchanged sentences

Three Months Ended

Nine Months Ended

(In thousands)

(In thousands) June 27,

2020 June 29,

Plasma $ 68,715 $ 110,763

Blood Center 79,314 77,996

Hospital 45,571 47,187

Net revenues by business unit 193,600 235,946

Effect of exchange rates ( 3,105 ) ( 2,361 )

Net revenues $ 195,577 $ 238,451

(1) Reflects revenue for service, maintenance and parts

Three Months Ended

Nine Months Ended

(In thousands)

(In thousands) June 27,

2020 June 29,

Segment operating income

Plasma $ 36,350 $ 53,725

Blood Center 38,745 37,719

Hospital 17,783 18,916

Segment operating income 92,878 110,360

Corporate expenses (1)

( 65,062 ) ( 61,703 )

Effect of exchange rates 711 2,769

2 unchanged sentences

PCS2 accelerated depreciation and related costs ( 1,542 ) ( 5,528 )

Gain on sale of assets

Restructuring and turnaround costs ( 4,000 ) ( 2,027 )

European Medical Device Regulation costs

Legal Charges

Operating income

European Medical Device Regulation costs and other ( 753 ) ( 33 )

Transaction costs ( 1,290 ) —

Operating income (loss) $ 11,715 $ ( 13,302 )

(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.

5 unchanged sentences

Three Months Ended

Nine Months Ended

(In thousands)

(In thousands) June 27,

2020 June 29,

Plasma products and services $ 88,713 $ 129,745

1 unchanged sentence

Hospital products and services 46,197 48,799

Net revenues $ 195,577 $ 238,451

Net revenues generated in the Company's principle operating regions on a reported basis are as follows:

Three Months Ended

Nine Months Ended

(In thousands)

(In thousands) June 27,

2020 June 29,

United States $ 111,009 $ 156,375

Japan 16,831 15,467

Europe 43,019 36,753

Asia 22,384 28,641

Other 2,334 1,215

Net revenues $ 195,577 $ 238,451

ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of Accumulated Other Comprehensive Loss are as follows:

(In thousands)

Foreign Currency

Defined Benefit Plans

Net Unrealized Gain/Loss on Derivatives

(In thousands) Foreign Currency Defined Benefit Plans Net Unrealized Gain/Loss on Derivatives Total

Balance as of March 28, 2020 $ ( 31,100 ) $ ( 209 ) $ ( 13,826 ) $ ( 45,135 )

Other comprehensive loss before reclassifications (1)

Other comprehensive income (loss) before reclassifications (1)

1,534 — ( 1,247 ) 287

Amounts reclassified from Accumulated Other Comprehensive Loss (1)

Net current period other comprehensive loss

Balance as of December 28, 2019

— — 1,142 1,142

Net current period other comprehensive income (loss) 1,534 — ( 105 ) 1,429

Balance as of June 27, 2020 $ ( 29,566 ) $ ( 209 ) $ ( 13,931 ) $ ( 43,706 )

(1) Presented net of income taxes, the amounts of which are insignificant.

SUBSEQUENT EVENT

On January 13, 2020, the Company purchased the technology underlying the TEG ® 6s Hemostasis Analyzer System from Cora Healthcare, Inc.

and CoraMed Technologies, LLC (the "Cora Parties").

In connection with this transaction, the Company acquired ownership of intellectual property previously licensed from the Cora Parties on an exclusive basis in the field of hospitals and hospital laboratories.

This acquisition will allow the Company to pursue site of care opportunities beyond the hospital setting.

The intangible asset acquired as a result of this transaction will be recorded during the fourth quarter of fiscal 2020 in the Company's Hospital business unit.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements