QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
−Removed: The Company’s exposures relative to market risk are due to foreign exchange risk and interest rate risk.
+Added: Our exposures relative to market risk are due to foreign exchange risk and interest rate risk.
Foreign Exchange Risk
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dollar relative to all other major currencies.
−Removed: In the event of a 10% strengthening of the U.S.
+Added: As of April 3, 2021, 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 $7.2 million increase in the fair value of the forward contracts, whereas a 10% weakening of the U.S.
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Our exposure to changes in interest rates is associated with borrowings under our Credit Facilities, all of which is variable rate debt.
−Removed: Total outstanding debt under our Credit Facilities for the fiscal year ended March 28, 2020 was $383.8 million with an interest rate of 2.9% based on prevailing LIBOR rates.
+Added: Total outstanding debt under our Credit Facilities for the fiscal year ended April 3, 2021 was $301.9 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.
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Opinion on the Financial Statements
−Removed: We have audited the accompanying consolidated balance sheets of Haemonetics Corporation and subsidiaries (the Company) as of March 28, 2020 and March 30, 2019 , the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended March 28, 2020 , and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).
−Removed: In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 28, 2020 and March 30, 2019 , and the results of its operations and its cash flows for each of the three years in the period ended March 28, 2020 , in conformity with U.S.
+Added: We have audited the accompanying consolidated balance sheets of Haemonetics Corporation and subsidiaries (the Company) as of April 3, 2021 and March 28, 2020, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended April 3, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).
+Added: In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 3, 2021 and March 28, 2020, and the results of its operations and its cash flows for each of the three years in the period ended April 3, 2021, in conformity with U.S.
generally accepted accounting principles.
−Removed: We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 28, 2020 , based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 20, 2020 expressed an unqualified opinion thereon.
+Added: We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 3, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 26, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standards
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2016-02, Leases (Topic 842), and the related amendments.
−Removed: As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue effective April 1, 2018 due to the adoption of ASU No.
−Removed: 2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments.
Basis for Opinion
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Valuation of goodwill
−Removed: Description of the Matter
−Removed: As discussed in Note 11 to the consolidated financial statements, the Company had approximately $211 million of goodwill allocated among its three reporting units as of March 28, 2020.
+Added: Description of the Matter As discussed in Note 11 to the consolidated financial statements, the Company had approximately $466 million of goodwill allocated among its three reporting units as of April 3, 2021.
The Company performs its annual quantitative impairment analysis as of the first day of the fourth quarter, and more frequently if the Company believes indicators of impairment exist, utilizing a discounted cash flow income approach in order to value reporting units for the test.
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In particular, the fair value estimates involve judgmental assumptions including discount rates, terminal values, and the amount and timing of expected future cash flows, which are all affected by expectations about future market or economic conditions and reporting unit specific risk factors.
−Removed: How We Addressed the Matter in Our Audit
−Removed: We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s goodwill impairment review process.
+Added: How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s goodwill impairment review process.
For example, we tested controls over management's review of the significant inputs and assumptions used in determining the reporting unit fair values.
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Income taxes - valuation allowance
−Removed: Description of the Matter
−Removed: As described in Note 6 to the consolidated financial statements, the Company had gross deferred tax assets on temporary differences of approximately $55 million offset by an approximately $14 million valuation allowance as of March 28, 2020.
+Added: Description of the Matter As described in Note 6 to the consolidated financial statements, the Company had gross deferred tax assets on temporary differences of approximately $94 million offset by an approximately $11 million valuation allowance as of April 3, 2021.
Deferred tax assets are reduced by a valuation allowance if, based upon the weight of all available evidence, both positive and negative, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
Auditing management’s analysis of the realizability of its deferred tax assets was especially challenging and complex in relation to estimating projections of future taxable income that involved significant judgment and assumptions that may be affected by future market or economic conditions.
−Removed: How We Addressed the Matter in Our Audit
−Removed: We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s analysis of the realizability of deferred tax assets.
+Added: How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s analysis of the realizability of deferred tax assets.
This included controls over management’s projections of future taxable income.
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We also considered the historical accuracy of management’s projections and compared the projections of future taxable income with other forecasted financial information prepared by the Company.
+Added: Accounting for Convertible Senior Notes
+Added: Description of the Matter As discussed in Note 13 to the consolidated financial statements, in March 2021 the Company issued $500 million of 0% convertible senior notes due March 2026 (the “2026 Notes”), which requires the Company to settle the principle in cash and any conversion premium in cash or stock at its option.
+Added: Concurrent with the offering of the 2026 Notes, the Company entered into separate capped call transactions to reduce potential dilution upon conversion of the 2026 Notes.
+Added: These transactions are collectively referred to as the Convertible Notes Transactions.
+Added: The financial statement accounts primarily affected by these transactions were debt and equity.
+Added: Auditing the Company’s accounting for the 2026 Notes was complex due to the significant judgment required in determining the liability component of the related convertible senior notes as well as the balance sheet classification of the elements of the Convertible Notes Transactions.
+Added: The Company accounted for the 2026 Notes as separate liability and equity components, determining the fair value of the respective liability component based on an estimate of the fair value of a similar liability without a conversion option and assigning the residual value to the equity component.
+Added: The Company estimated the fair value of the liability component of the 2026 Notes using a discounted cash flow model with a risk adjusted yield for similar debt instruments, absent any embedded conversion feature.
+Added: In estimating the risk adjusted yield, the Company utilized both an income and market approach.
+Added: For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate.
+Added: For the market approach, the Company performed an evaluation of issuances of debt securities issued by other comparable companies and broader market indices.
+Added: Additionally, a detailed analysis of the terms of the Convertible Notes Transactions was required to determine existence of any derivatives that may require separate mark-to-market accounting under applicable accounting guidance.
+Added: How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s Convertible Notes Transactions.
+Added: For example, we tested the Company’s controls over the initial recognition and measurement of the Convertible Notes Transactions, including the recording of the associated liability and equity components.
+Added: Our testing of the Company’s initial accounting for the Convertible Notes Transactions, among other procedures, included reading the underlying agreements and evaluating the Company’s accounting analysis of the initial accounting of the Convertible Notes Transactions, including the determination of the balance sheet classification of each transaction and identification of any derivatives included in the arrangements.
+Added: Our testing of the fair value of the liability component of the 2026 Notes, included, among other procedures, evaluating the Company's selection of the valuation methodology and significant assumptions used by the Company and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.
+Added: Specifically, when assessing the key assumptions, we focused on the Company’s assumptions used to determine the risk adjusted yield, which was based on a calibration to the convertible senior notes’ issuance price and corroborated by an analysis of comparable issuances of debt securities by other companies.
+Added: In addition, we involved valuation professionals to assist in our evaluation of the methodology used by the Company and significant assumptions.
+Added: Accounting for Acquisitions
+Added: Description of the Matter As described in Note 4 to the consolidated financial statements, the Company completed two acquisitions in fiscal year 2021 for total purchase consideration of $510.3 million consisting of a combination of cash and future contingent earnout payments.
+Added: The acquisitions were accounted for as business combinations.
+Added: The most significant was the acquisition of all the outstanding equity of Cardiva Medical, Inc.
+Added: for purchase consideration of $489.8 million.
+Added: The recognition, measurement and disclosure of the Company’s business combinations in the 2021 consolidated financial statements was considered especially challenging and required significant auditor judgment due to the complex nature in the determination by management of the appropriate assumptions and related valuation models for the valuation of acquired assets and assumed liabilities related to the Cardiva Medical, Inc.
+Added: acquisition, including, but not limited to, the developed technology intangible asset and contingent consideration liability.
+Added: The financial statement accounts primarily affected by these transactions were intangible assets, goodwill, and contingent consideration liabilities.
+Added: Auditing the Company's accounting for the Cardiva Medical, Inc.
+Added: acquisition was especially challenging due to the significant estimation required by management in determining the fair value of the developed technology intangible asset and contingent consideration liability of $230 million and $24 million, respectively.
+Added: The significant estimation was primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of the intangible asset and contingent consideration liability, as well as the sensitivity of the respective fair values to the underlying significant assumptions.
+Added: The Company used the income approach to measure the fair value of the intangible asset and a Monte Carlo simulation model to measure the fair value of the contingent consideration liability.
+Added: The significant assumptions used to estimate the fair value of the intangible asset and contingent consideration liability included forecasted revenues attributable to existing technology, forecasted revenues for the contingent consideration earnout period and the discount rates.
+Added: When estimating the significant assumptions to be used in the valuation the Company included a consideration of current industry information, market and economic trends, historical results of the acquired business, and other relevant factors.
+Added: These significant assumptions are forward-looking and could be affected by future economic and market conditions.
+Added: How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s accounting for acquisitions.
+Added: We tested controls over the valuation of intangible assets and contingent consideration liabilities, including the valuation models and underlying assumptions used to develop such estimates.
+Added: To test the fair value of the acquired intangible assets and contingent consideration liability, our audit procedures included, among others, evaluating the significant assumptions used, and the testing of the completeness and accuracy of underlying data.
+Added: We tested the valuation models used to value the acquired intangible assets and contingent consideration liability including consideration of the nature and classification of such contingent liability.
+Added: Our testing procedures over the significant assumptions included, among others, comparing them to current industry, market and economic trends, historical results of the acquired business and to other relevant factors.
+Added: We also performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions.
+Added: In addition, we involved valuation professionals to assist in our evaluation of the methodology, computations, and significant assumptions used by the Company within the valuation.
/s/ Ernst & Young LLP
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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.