What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-10 · 133 added, 96 removed, 202 unchanged (53% of the section changed)

11 unchanged sentences

“Hospital”, which is comprised of Hemostasis Management, Cell Salvage, Transfusion Management and Vascular Closure products, includes devices and methodologies for measuring coagulation characteristics of blood, surgical blood salvage systems, specialized blood cell processing systems and disposables, blood transfusion management software and vascular closure devices.

We believe that Plasma and Hospital have growth potential, while Blood Center competes in challenging markets that 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

Share Repurchase Program

In August 2022, we announced that our Board of Directors had authorized the repurchase of up to $300 million of Haemonetics common shares over the next three years.

This new share repurchase program will help to offset the dilutive impact of recent and future employee equity grants.

The timing and amounts of activity under the repurchase program will be at the Company’s discretion with the intent of beginning activity under the program during fiscal 2023.

In August 2022, our Board of Directors authorized the repurchase of up to $300 million of Haemonetics common stock from time to time, based on market conditions, over the next three years.

Subsequent to our announcement of the share repurchase program, in August 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) with Citibank N.A.

(“Citibank”) to repurchase $75.0 million of the Company's common stock.

Pursuant to the terms of the ASR, we paid Citibank $75.0 million in cash and received an initial delivery of 0.8 million shares of the Company's common stock based on a closing market price on the New York Stock Exchange on August 16, 2022 of $76.32.

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

The ASR was completed in November 2022 and approximately 0.2 million additional shares were delivered upon settlement.

As of October 1, 2022, the total remaining authorization for repurchase of the Company’s common stock was $225 million.

Debt Issuance and Repayment

On July 26, 2022, we entered into an amended and restated credit agreement with certain lenders to refinance the credit facilities under our 2018 credit agreement (as amended from time to time) and extend the applicable maturity date through June 2025.

The amended and restated credit agreement provides for a $280 million senior unsecured term loan, the proceeds of

which have been used to retire the balance of the term loan under our 2018 credit agreement, and a $420 million senior unsecured revolving credit facility.

The amended and restated credit agreement provides for a $280 million senior unsecured term loan, the proceeds of which have been used to retire the balance of the term loan under our 2018 credit agreement, and a $420 million senior unsecured revolving credit facility.

In September 2022, we amended two prior interest rate swap agreements and entered into certain supplemental interest rate swap agreements to effectively convert between 70% to 80% of borrowings under our Revised Credit Facilities from a variable Term Secured Overnight Financing Rate (“SOFR”) rate to a fixed rate of interest through June 2025.

In September 2022, we amended two prior interest rate swap agreements and entered into certain supplemental interest rate swap agreements to effectively convert between 70% to 80% of borrowings under our Revised Credit Facilities from a variable Term SOFR rate to a fixed rate of interest through June 2025.

Operational Excellence Program

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The majority of charges will result in cash outlays, including severance and other employee costs, and will be incurred as the specific actions required to execute these initiatives are identified and approved.

During the three months ended July 2, 2022 and July 3, 2021, the Company incurred $3.5 million and $9.9 million , respectively, of restructuring and restructuring related costs under this program.

Total cumulative charges under this program are $59.2 million as of July 2, 2022.

During the three and six months ended October 1, 2022 , the Company incurred $3.1 million and $6.6 million , respectively, of restructuring and restructuring related costs under this program.

Total cumulative charges under this program are $62.3 million as of October 1, 2022.

Financial Summary

Three Months Ended

(In thousands, except per share data) July 2,

Three Months Ended Six Months Ended

(In thousands, except per share data) October 1,

2022 October 2,

2021 % Increase October 1,

2022 October 2,

2021 % Increase

6 unchanged sentences

Interest and other expense, net $ (5,673) $ (4,588) 23.6 % $ (10,946) $ (8,986) 21.8 %

Income (loss) before provision for income taxes $ 25,494 $ (3,008) n/m

Income before provision for income taxes $ 41,059 $ 19,922 106.1 % $ 66,553 $ 16,914 293.5 %

Provision for income taxes $ 7,862 $ 5,066 55.2 % $ 13,479 $ 6,512 107.0 %

% of pre-tax income 19.1 % 25.4 % 20.3 % 38.5 %

Net income (loss) $ 19,877 $ (4,454) n/m

Net income $ 33,197 $ 14,856 123.5 % $ 53,074 $ 10,402 410.2 %

% of net revenues 11.2 % 6.2 % 9.5 % 2.2 %

Net income (loss) per share - basic $ 0.39 $ (0.09) n/m

Net income (loss) per share - diluted $ 0.38 $ (0.09) n/m

Net reven ues increased 14.4% during the three months ended July 2, 2022, respectively, as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, net revenues increased 16.6% during the three months ended July 2, 2022, respectively, as compared with the same periods of fiscal 2022 .

Revenue increases including both volume and price in our Plasma and Hospital businesses drove the overall increase in revenue during the three months ended July 2, 2022.

Operating income increased during the three months ended July 2, 2022 as compared with the same period of fiscal 2022, primarily due to increased revenues in Plasma and Hospital and savings from the 2020 Program, as well as decreased spending on acquisition costs in the current year, partially offset by lower revenues in Blood Center, increased freight costs in our global supply chain and increased sales and marketing expense.

Net income per share - basic $ 0.65 $ 0.29 124.1 % $ 1.04 $ 0.20 420.0 %

Net income per share - diluted $ 0.64 $ 0.29 120.7 % $ 1.03 $ 0.20 415.0 %

Net reven ues increased 24.0% and 19.3% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, net revenues increased 27.0% and 21.9% during the three and six months ended October 1, 2022, respectively, as co mpared with the same periods of fiscal 2022.

Revenue increases in our Plasma and Hospital businesses, primarily related to volume and price, drove the overall increase in revenue during the three and six months ended October 1, 2022.

Operating income increased during the three and six months ended October 1, 2022 as compared with the same period of fiscal 2022, primarily due to increased revenues in Plasma and Hospital, savings from the 2020 Program and decreased spending on acquisitions in the current year periods, partially offset by lower revenues in Blood Center, increased freight costs in our global supply chain, increased sales and marketing expense and higher performance-based compensation.

Management’s Use of Non-GAAP Measures

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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.

We have provided this non-GAAP financial measure because we believe it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented.

RESULTS OF OPERATIONS

1 unchanged sentence

Three Months Ended

(In thousands) July 2,

(In thousands) October 1,

2022 October 2,

2021 Reported growth Currency impact Constant currency growth (1)

4 unchanged sentences

See “ Management’s Use of Non-GAAP Measures.

Six Months Ended

(In thousands) October 1,

2022 October 2,

2021 Reported growth Currency impact Constant currency growth (1)

United States $ 393,720 $ 293,134 34.3 % — % 34.3 %

International 165,223 175,291 (5.7) % (6.5) % 0.8 %

Net revenues $ 558,943 $ 468,425 19.3 % (2.6) % 21.9 %

(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 90 countries around the world through a combination of our direct sales force, independent distributors and agents.

During the three months ended July 2, 2022 our revenue generated outside the U.S .

was 30.4% of total net revenues, as compared with 38.3% during the three months ended July 3, 2021, respectively.

During the three and six months ended October 1, 2022 our revenue generated outside the U.S .

was 28.8% and 29.6% of total net revenues, respectively, as compared with 36.6% and 37.4% during the three and six months ended October 2, 2021, respectively.

International sales are generally conducted in local currencies, primarily Japanese Yen, Euro, Chinese Yuan and Australian Dollars.

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Three Months Ended

(In thousands) July 2,

(In thousands) October 1,

2022 October 2,

2021 Reported growth Currency impact Constant currency growth (1)

6 unchanged sentences

See “ Management’s Use of Non-GAAP Measures.

(2) Hospital revenue includes Hemostasis Management revenue of $33.5 million and $32.2 million during the three months ended July 2, 2022 and July 3, 2021, respectively.

Hemostasis Management revenue increas ed 4.1% in t he first quarter of fiscal 2023, as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Hemostasis Management revenue increas ed 5.8% in t he first quarter of fiscal 2023, as compared with the same period of fiscal 2022.

Vascular Closure revenue increased 35.9% in the first quarter of fiscal 2023 as compared with the same period of fiscal 2022.

Plasma revenue increased 42.5% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Plasma revenue increased 43.5% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022 .

The increase during the three months ended July 2, 2022, as compared with the same period of fiscal 2021 was driven by volume and price.

In early April 2021, CSL Plasma, Ltd.

(“CSL”) informed us of its intent not to renew its supply agreement for the use of PCS2 plasma collection system devices and the purchase of disposable plasmapheresis kits that was initially set to expire in June 2022.

In fiscal 2022, revenue under this Supply Agreement was $102.4 million.

During the third quarter of fiscal 2022, we amended the supply agreement to allow CSL to continue to use our PCS2 devices and purchase disposables through December 2023.

The extension provides CSL the ability to utilize our devices and disposables in their collection centers on a non-exclusive basis, and CSL has committed to a minimum of $88.0 million of disposable purchases in fiscal 2023.

Blood Center revenue decreased 9.9% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Blood Center revenue decreased 7.2% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

The decrease during the three months ended July 2, 2022 as compared with the same periods of fiscal 2022 was primarily driven by a decline in the volume of apheresis disposables.

Hospital revenue increased 12.7% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Hospital revenue increased 14.9% during the three months ended July 2, 2022, as compared with the same periods of fiscal 2022.

The increase during the three months ended July 2, 2022 was primarily attri butable to Vascular Closure revenue, as well as increases in TEG disposables revenue in the U.S.

and Transfusion Management revenue.

Three Months Ended

(In thousands) July 2,

(2) Hospital revenue includes Hemostasis Management revenue of $34.3 million and $31.5 million during the three months ended October 1, 2022 and October 2, 2021, respectivel y.

Hemostasis Management revenue increased 8.9% in the second quarter of fiscal 2023, as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Hemostasis Management revenue increased 11.2% in the second quarter of fiscal 2023, as compared with the same period of fiscal 2022.

Vascular Closure revenue increased 42.1% in the second quarter of fiscal 2023 as compared with the same period of fiscal 2022.

Six Months Ended

(In thousands) October 1,

2022 October 2,

2021 Reported growth Currency impact Constant currency growth (1)

Plasma $ 230,274 $ 153,784 49.7 % (1.1) % 50.8 %

Blood Center 139,377 149,687 (6.9) % (3.7) % (3.2) %

179,349 154,801 15.9 % (2.5) % 18.4 %

Service 9,943 10,153 (2.1) % (5.3) % 3.2 %

Net revenues $ 558,943 $ 468,425 19.3 % (2.6) % 21.9 %

(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 $67.8 million and $63.7 million during the six months ended October 1, 2022 and October 2, 2021, respectively.

Hemostasis Management revenue increased 6.5% in the first six months of fiscal 2023, as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, Hemostasis Management revenue increased 8.5% in the first six months of fiscal 2023, as compared with the same period of fiscal 2022.

Vascular Closure revenue increased 38.9% in the first six months of fiscal 2023 as compared with the same period of fiscal 2022.

Plasma revenue increased 56.1% and 49.7% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, Plasma revenue increased 57.2% and 50.8% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

The increases during the three and six months ended October 1, 2022, as compared with the same period of fiscal 2021 were driven by volume and price.

During the third quarter of fiscal 2022, we amended our supply agreement with CSL Plasma, Ltd.

(“CSL”), which CSL had previously notified us of its intent not to renew and was initially set to expire in June 2022, to allow CSL to continue to use our PCS2 plasma collection system devices and purchase disposable plasmapheresis kits through December 2023.

The extension provides CSL the ability to utilize our devices and disposables in their collection centers on a non-exclusive basis and includes an $88.0 million minimum purchase commitment in fiscal 2023.

Blood Center revenue decreased 4.0% and 6.9% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, Blood Center revenue increased 0.5% and decreased 3.2% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022 .

The decreases during the three and six months ended October 1, 2022 as compared with the same periods of fiscal 2022 was primarily driven by a decline in the volume of apheresis disposables.

Hospital revenue increased 19.1% and 15.9% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, Hospital revenue increased 21.9% and 18.4% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

The increase during the three and six months ended October 1, 2022 was primarily attributable to Vascular Closure revenue, as well as increases in Transfusion Management revenue and TEG disposables revenue.

Three Months Ended Six Months Ended

(In thousands) October 1,

2022 October 2,

2021 % Increase October 1,

2022 October 2,

2021 % Increase

1 unchanged sentence

% of net revenues 53.1 % 51.1 % 53.7 % 49.2 %

Gross profit increased 31.6% during the three months ended July 2, 2022 as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, gross profit increased 34.4% during the three months ended July 2, 2022, as compared with the same period of fiscal 2022 .

The increase during the three months ended July 2, 2022 was primarily driven by volume and mix, price and productivity savings from the Operational Excellence Program, partially offset by inflationary pressures in our global manufacturing and supply chain and increased depreciation expense.

Gross profit increased 28.8% for both the three and six months ended October 1, 2022 as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, gross profit increased 34.7% and 34.6% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

The increase during the three and six months ended October 1, 2022 was primarily driven by volume and mix and productivity savings from the 2020 Program, partially offset by inflationary pressures in our global manufacturing and supply chain and increased depreciation expense.

Operating Expenses

Three Months Ended

(In thousands) July 2,

Three Months Ended Six Months Ended

(In thousands) October 1,

2022 October 2,

2021 % Increase/

(Decrease) October 1,

2022 October 2,

2021 % Increase/

Research and development $ 10,896 $ 10,853 0.4 % $ 21,798 $ 23,554 (7.5) %

4 unchanged sentences

% of net revenues 2.8 % 4.8 % 3.0 % 5.1 %

Gains on divestitures and sale of assets $ — $ (9,603) n/m

Gains on divestiture $ (382) $ — n/m $ (382) $ (9,603) (96.0) %

% of net revenues (0.1) % — % (0.1) % (2.1) %

2 unchanged sentences

Research and Development

Research and development expenses decreased 14.2% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, research and development expenses decreased 13.6% during the three months ended July 2, 2022, as compared with the same period of fiscal 2022.

This decrease was primarily due to the timing of investments across quarters and cost savings related to the 2020 Program.

Research and development expenses increased 0.4% and decreased 7.5% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, research and development expenses increased 0.8% and decreased 6.9% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

This increase for the three months ended October 1, 2022, was due to continued growth investments.

The decrease in the six months ended October 1, 2022, was primarily due to the timing of investments across quarters and cost savings related to the 2020 Program.

Selling, General and Administrative

Sell ing, general and administrative expenses increased 1.1% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effect of foreign exchange, selling, general, and administrative expenses increased 2.3% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

The increase during the three months ended July 2, 2022 was primarily driven by inflationary pressures and higher freight costs in our global supply chain, and higher investments in sales and marketing, partially offset by cost savings related to the 2020 Program and decreased spend on acquisitions in the current year.

Sell ing, general and administrative expenses increased 21.9% and 10.6% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

Without the effect of foreign exchange, selling, general, and administrative expenses increased 24.4% an d 12.4% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

The increase during the three and six months ended October 1, 2022 was primarily driven by inflationary pressures and higher freight costs in our global supply chain, higher investments in sales and marketing and higher performance-based compensation, partially offset by cost savings related to the 2020 Program and decreased acquisition related costs in the current year.

Amortization of Intangible Assets

We recognized amortization expense of $8.4 million during the three months ended July 2, 2022 and $12.4 million during the three months ended July 3, 2021.

We recognized amortization expense of $8.2 million and $16.6 million during the three and six months ended October 1, 2022, respectively, and $11.4 million and $23.8 million during the three and six months ended October 2, 2021, respectively.

The decrease is primarily the result of intangible assets that became fully amortized during fiscal 2022.

Gains on Divestitures

We recognized gains on divestitures of $9.6 million during the three months ended July 3, 2021, with no gains on divestitures during the three months ended July 2, 2022.

Gains on Divestiture

We recognized gains on divestiture of $0.4 million during the three and six months ended October 1, 2022 and $9.6 million during the six months ended October 2, 2021.

Interest and Other Expense, Net

Interest and other expenses increased 19.9% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

Without the effects of foreign exchange, interest and other expenses increased 18.2% during the three months ended July 2, 2022 as compared with the same period of fiscal 2022.

The increase was primarily driven by higher interest rates which impacted the interest incurred on our term loan.

Interest and other expenses increased 23.6% and 21.8% during the three and six months ended October 1, 2022, respectively, as compared with the same period of fiscal 2022.

Without the effects of foreign exchange, interest and other expenses increased 20.7% and 19.5% during the three and six months ended October 1, 2022, respectively, as compared with the same periods of fiscal 2022.

The increase was primarily driven by higher foreign currency impact due to market and rate volatility and higher interest rates which impacted the interest incurred on our term loan.

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

1 unchanged sentence

statutory tax rate.

For the three months ended July 2, 2022, we reported income tax expense of $5.6 million representing an effective tax rate of 22.0%.

The effective tax rate for the three months ended July 2, 2022 includes $0.6 million discrete tax expense relating to stock compensation shortfalls.

For the three months ended July 3, 2021, we reported income tax expense of $1.4 million representing an effective tax rate of (48.1)%.

The effective tax rate for the three months ended July 3, 2021 includes $0.8 million discrete tax expense relating to stock compensation shortfalls.

For the three and six months ended October 1, 2022, we reported income tax expense of $7.9 million and $13.5 million, respectively, representing effective tax rates of 19.1% and 20.3%, respectively.

The effective tax rate for the six months ended October 1, 2022, include a discrete tax benefit of $0.5 million related to tax rate changes enacted during the quarter and $0.3 million of discrete tax expense relating to stock compensation shortfalls.

The effective tax rate for the three months ended October 1, 2022, include a discrete tax benefit of $0.5 million related to tax rate changes enacted during the quarter and $0.3 million of discrete tax benefit relating to stock compensation windfalls.

For the three and six months ended October 2, 2021, we reported income tax expense of $5.1 million and $6.5 million, respectively, representing effective tax rates of 25.4% and 38.5%, respectively.

The effective tax rate for the three and six months ended October 2, 2021 includes discrete tax expense relating to stock compensation shortfalls of $0.1 million and $0.9 million, respectively.

Liquidity and Capital Resources

The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:

(Dollars in thousands) July 2,

(Dollars in thousands) October 1,

2022 April 2,

6 unchanged sentences

(1) Net debt position is the sum of cash and cash equivalents less total debt.

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.

Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations and our revolving credit facility.

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 enhancements to our North American manufacturing facilities, cash payments under our credit agreement and restructuring initiatives.

Our expected cash outlays relate primarily to acquisitions, investments, capital expenditures, including enhancements to our North American manufacturing facilities, share repurchases, cash payments under our revised credit agreement and restructuring initiatives.

In March 2021, the Company issued $500.0 million aggregate principal amount of 0% convertible senior notes due 2026, or the 2026 Notes.

3 unchanged sentences

The 2026 Notes will mature on March 1, 2026, unless earlier converted, redeemed or repurchased.

The 2026 Notes have an effective interest rate of 0.5% as of July 2, 2022.

As of July 2, 2022, we had $214.9 million in cash and cash equivalents, the majority of which is held in the U.S.

The 2026 Notes have an effective interest rate of 0.5% as of October 1, 2022.

As of October 1, 2022, we had $241.2 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 credit agreement with certain lenders that provided for a $350.0 million term loan and a $350.0 million revolving loan (together with the term loan, as amended from time to time, the “2018 Credit Facilities”) that mature on June 15, 2023.

Interest on the 2018 Credit Facilities is established using LIBOR plus 1.13% - 1.75%, depending on our leverage ratio.

Under the 2018 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.

As of July 2, 2022, $280.0 million was outstanding under the term loan with an effective interest rate of 3.4%.

There were no borrowings outstanding on the revolving loan.

We also had $20.9 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of July 2, 2022.

Additionally, the Company was in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as of July 2, 2022.

On July 26, 2022, the Company entered into an amended and restated credit agreement with certain lenders to refinance the 2018 Credit Facilities and extend the maturity date through June 2025.

On July 26, 2022, we entered into an amended and restated credit agreement with certain lenders to refinance our prior credit agreement entered into on June 15, 2018, which consisted of a $350.0 million term loan and a $350.0 million revolving loan (together, as amended from time to time, the “2018 Credit Facilities”), and extend the maturity date through June 2025.

The amended and restated credit agreement provides for a $280 million senior unsecured term loan, the proceeds of which have been used to retire the balance of the term loan under the 2018 Credit Facilities, and a $420 million senior unsecured revolving credit facility (together, the “Revised Credit Facilities”).

Loans under the Revised Credit Facilities will initially bear interest at an annual rate equal to the Adjusted Term SOFR Rate (as specified in the amended and restated credit agreement), which is subject to a floor of 0%, plus an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio (as specified in the amended and restated credit agreement) at the applicable measurement date.

Loans under the Revised Credit Facilities bear interest at an annual rate equal to the Adjusted Term SOFR Rate (as specified in the amended and restated credit agreement), which is subject to a floor of 0%, plus an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio (as specified in the amended and restated credit agreement) at the applicable measurement date.

Adjusted Term SOFR Rate loans are also subject to a credit spread adjustment of 0.10% per annum.

3 unchanged sentences

The principal amount of the term loan under the Revised Credit Facilities is repayable quarterly through the maturity date at a rate of 2.5% for the first year and 5% thereafter, with the unpaid balance due at maturity.

The Company has scheduled principal payments of $5.3 million and $12.3 million required during the remainder of fiscal 2023 and during fiscal 2024, respectively.

As of October 1, 2022, $278.3 million was outstanding under the term loan with an effective interest rate of 4.2%.

There was $50.0 million outstanding under the revolving credit facility at October 1, 2022, which the Company repaid in full in October 2022.

We also had $19.6 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of October 1, 2022.

Additionally, the Company was in compliance with the leverage and interest coverage ratios specified in the amended and restated credit agreement as well as all other bank covenants as of October 1, 2022.

The Company has scheduled principal payments of $8.8 million required during the remainder of fiscal 2023.

During fiscal 2022, our Board of Directors approved a revised 2020 Program.

1 unchanged sentence

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 2025.

During the three months ended July 2, 2022, we incurred $3.5 million of restructuring and restructuring related costs under this program.

Three Months Ended

(In thousands) July 2,

During the three and six months ended October 1, 2022, we incurred $3.1 million and $6.6 million, respectively, of restructuring and restructuring related costs under this program.

Six Months Ended

(In thousands) October 1,

2022 October 2,

Net cash provided by (used in):

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents (1)

(8,965) (345)

Net change in cash and cash equivalents $ (18,296) $ 115

2 unchanged sentences

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 increased by $43.7 million during the three months ended July 2, 2022, as compared with the three months ended July 3, 2021.

The increase in cash provided by operating activities was primarily the result of an increase in net income, higher collections of accounts receivable and a decrease in inventories driven by NexSys PCS device placements.

Net cash used in investing activities increased by $42.4 million during the three months ended July 2, 2022, as compared with the three months ended July 3, 2021.

The increase in cash used in investing activities was primarily the result of an increase in capital expenditures, driven by NexSys PCS device placements, and other investments in the current year.

Net cash used in financing activities increased by $21.8 million during the three months ended July 2, 2022, as compared with the three months ended July 3, 2021, primarily due to acquisition-related contingent consideration payments made in the current year.

Net cash provided by operating activities increased by $87.3 million during the six months ended October 1, 2022, as compared with the six months ended October 2, 2021.

The increase in cash provided by operating activities was primarily the result of an increase in net income, a decrease in inventories driven by NexSys PCS device placements and higher other net working capital, including higher performance-based compensation.

Net cash used in investing activities increased by $52.9 million during the six months ended October 1, 2022, as compared with the six months ended October 2, 2021.

The increase in cash used in investing activities was primarily the result of an increase in capital expenditures, driven by NexSys PCS device placements, and other investments made in the current year period, which was partially offset by increased sales of property, plant and equipment.

Net cash used in financing activities increased by $44.1 million during the six months ended October 1, 2022, as compared with the six months ended October 2, 2021, primarily due to share repurchases and acquisition-related contingent consideration payments made in the current year, partially offset by the $50.0 million draw down on the revolving credit facility.

Concentration of Credit Risk

9 unchanged sentences

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.

We experienced rising inflationary pressures in our global supply chain that had an impact on our results of operations during the three months ended July 2, 2022.

We experienced rising inflationary pressures in our global supply chain that had an impact on our results of operations during the three and six months ended October 1, 2022.

We continue to monitor inflationary pressures generally and raw materials indices that may affect our procurement and production costs.

3 unchanged sentences

Foreign Exchange

During the three months ended July 2, 2022, 30.4% of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S.

During the three and six months ended October 1, 2022, 28.8% and 29.6%, respectively, of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S.

We also incur certain manufacturing, marketing and selling costs in international markets in local currency.

12 unchanged sentences

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, Chinese Yuan and Mexican Pesos.

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, Chinese Yuan 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.

21 unchanged sentences

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, including the time it will take for vaccines to be broadly distributed and administered worldwide, and the effectiveness of such vaccines in slowing or stopping the spread of COVID-19 and its variants and mitigating the economic effects of the pandemic, including inflationary pressures and higher freight costs in our global supply chain;

variants and mitigating the economic effects of the pandemic, including inflationary pressures and higher freight costs in our global supply chain;

• Failure to achieve our long-term strategic and financial-improvement goals;

28 unchanged sentences

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 2. Management’s Discussion and Analysis