HAEMONETICS CORP - Annual Report: 2023 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 1, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-14041
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
| Massachusetts | 04-2882273 | |||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| 125 Summer Street, | 02110 | |||||||||||||
| Boston, | Massachusetts | (Zip Code) | ||||||||||||
(Address of principal executive offices) | ||||||||||||||
| (781) | 848-7100 | |||||||||||||
(Registrant's telephone number, including area code) | ||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Exchange on Which Registered | ||||||||||||
| Common stock, $.01 par value per share | HAE | New York Stock Exchange | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☑ No ☐
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☑ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming for these purposes that all executive officers and directors are “affiliates” of the registrant) as of October 1, 2022, the last business day of the registrant’s most recently completed second fiscal quarter was $3,725,273,032 (based on the closing sale price of the registrant’s common stock on that date as reported on the New York Stock Exchange).
The number of shares of $0.01 par value common stock outstanding as of May 18, 2023 was 50,540,770.
Documents Incorporated By Reference
Portions of the definitive proxy statement for our Annual Meeting of Shareholders to be held on August 4, 2023 are incorporated by reference in Part III of this report.
TABLE OF CONTENTS
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ITEM 1. BUSINESS
Company Overview
Haemonetics is a global healthcare company dedicated to providing a suite of innovative medical products and solutions for customers, to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite and hospital transfusion services. When used in this report, the terms “we,” “us,” “our,” “Haemonetics” and the “Company” mean Haemonetics Corporation.
Blood is essential to a modern healthcare system. Blood and its components (plasma, red cells and platelets) have many vital and frequently life-saving clinical applications. Plasma is used for patients with major blood loss and is manufactured into biopharmaceuticals to treat a variety of illnesses, including immune diseases and coagulation disorders. Red cells treat trauma patients or patients undergoing surgery with high blood loss, such as open heart surgery or organ transplant. Platelets have many uses in patient care, including supporting cancer patients undergoing chemotherapy.
We view our operations and manage our business in three principal reporting segments: Plasma, Blood Center and Hospital. For that purpose, “Plasma” includes plasma collection devices and disposables, plasma donor management software, and anticoagulant and saline sold to plasma customers. “Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and whole blood. “Hospital”, which is comprised of Hemostasis Management, Vascular Closure, Cell Salvage and Transfusion Management products, includes devices and methodologies for measuring coagulation characteristics of blood, vascular closure devices, specialized blood cell processing systems and disposables, surgical blood salvage systems and blood transfusion management software. Financial information concerning these segments is provided in Note 18, Segment and Enterprise-Wide Information, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
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.
Market and Products
Product Lines
The following describes our principal products in each of our segments. Availability of products may vary from one country or region to another as a result of specific local regulatory approval or clearance requirements. Applicable laws may restrict the sale, distribution or use of these products to, by, or on the order of a licensed healthcare practitioner.
•Plasma
Our Plasma business offers automated plasma collection systems, donor management software and supporting software solutions that improve the yield, efficiency, quality, safety and overall donor experience at plasma collection centers. We continue to invest in technology that lowers the overall cost to collect plasma while maintaining high standards of quality and safety.
Plasma Collection Market for Fractionation — Human plasma is collected for two purposes. First, it is used for transfusions in patients, such as trauma victims who need to compensate for extreme blood loss. Second, it is processed into pharmaceuticals that aid in the treatment of a broad range of immune system diseases and blood-related disorders.
Plasma for transfusion is almost exclusively collected by blood centers as part of their broader mission to supply blood components. Plasma that is fractionated and manufactured into pharmaceuticals - frequently referred to as “source plasma” - is mainly collected by vertically integrated biopharmaceutical companies that operate their own collection centers and recruit donors specifically for source plasma donation. The markets for transfusion plasma and source plasma have different participants, product requirements and growth profiles. We serve the market for plasma that is processed into pharmaceuticals through our Plasma business, and we serve the market for transfusion plasma through our Blood Center business.
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One of the distinguishing features of the source plasma market is the method of collection. There are three primary ways to collect plasma. The first is to collect it from whole blood donations. When whole blood is processed, plasma can be separated at the same time as red cells and platelets and stored for future use. The second is as part of an apheresis procedure that also collects another blood component. These two methods are mainly used by blood centers to collect plasma for transfusions. The third method is a dedicated apheresis procedure that only collects plasma and returns the other blood components to the donor. This third method is almost exclusively used for source plasma collection.
Our Plasma business unit focuses on the collection of source plasma for pharmaceutical manufacturers using apheresis devices that only collect plasma and software solutions that support the efficient operation of dedicated source plasma collection centers. Our Blood Center business supports the collection of plasma for blood collectors, such as the American Red Cross, using both whole blood collections sets and multi-component apheresis collection devices.
Over the last 20 years, the collection of source plasma has increasingly been performed by vertically integrated biopharmaceutical companies such as CSL Limited (together with its affiliates, “CSL”), Grifols S.A. (together with its affiliates, “Grifols”), Octapharma AG and Takeda’s BioLife Plasma subsidiary. With their global operations and management expertise, these companies are focused on efficient plasma supply chain management and leveraging information technology to manage operations from the point of plasma donation through fractionation to the production of the final pharmaceutical product.
Demand for source plasma has continued to grow because of an expanding end user market for plasma-derived biopharmaceuticals. In particular, therapies that require a significant quantity of plasma to create have fueled an increase in the number of donations and dedicated source plasma collection centers. A significant portion of this collection growth has occurred in the United States with U.S. produced plasma now meeting an increasing percentage of plasma volume demand worldwide. U.S. regulations are more favorable relative to other markets for plasma collectors. The frequency an individual may donate, the volume of plasma that may be donated each time and the ability to remunerate donors are all more favorable to efficient operations and output, leading to approximately 70% of worldwide source plasma collections occurring in the United States. Plasma collectors have long sought revisions to plasma collection regulations outside of the U.S. to allow for greater frequency, volume per donation, and remuneration, but updates have been limited and no significant short-term changes are foreseen in the prevalence of U.S. collections.
Plasma Products — Our automated plasma collection devices, related disposables, software and services are designed to support multiple facets of plasma collector operations. We have a long-standing commitment to understanding our customers’ collection and manufacturing processes. As a result, we aim to design equipment that is durable, dependable, and easy to use and to provide comprehensive training and support to help our customers optimize their plasma collections.
Today, nearly all source plasma collections worldwide are performed using automated collection technology at dedicated facilities. We offer multiple products to support these dedicated source plasma operations, including our NexSys PCS® and PCS2® plasmapheresis equipment, related disposables and solutions. We also offer a portfolio of integrated information technology platforms for plasma customers to manage their donors, operations and supply chain. Our software products, including our latest NexLynk DMS® donor management system and Donor360® app, automate the donor interview and qualification process, streamline the workflow process in the plasma center, provide the controls necessary to evaluate donor suitability, determine the ability to release units collected and manage unit distribution. With our software solutions, plasma collectors can manage processes across the plasma supply chain, ensure high quality and compliance process support, react quickly to business changes and implement opportunities to reduce costs.
With our PCS brand, we have provided an automated platform dedicated to the collection of plasma for over 30 years. In fiscal 2018, we began transitioning customers from our PCS2 equipment to NexSys PCS.
NexSys PCS is designed to enable higher plasma yield collections, improve productivity in our customers’ centers, enhance the overall donor experience and provide safe and reliable collections that will become life-changing medicines for patients. NexSys PCS includes bi-directional connectivity to the NexLynk DMS donor management system to improve operational efficiency within plasma centers, through automated programming of donation procedures and automated data capture of procedure data.
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Our NexSys PCS with YES® Technology is a yield-enhancing solution that enables increases in plasma yield per collection by an additional 18-26 mL per donation, on average. In fiscal 2021, we received FDA 510(k) clearance for our NexSys PCS with proprietary Persona® Technology. NexSys PCS with Persona Technology uses a percent plasma nomogram that customizes plasma collection based on an individual donor’s body composition, and enables a 9% to 12% average increase in plasma volume per donation, based on our PCS2 baseline device, software configuration and donor population. The new, proprietary Persona Technology strengthens the NexSys PCS value proposition and reinforces our commitment to supporting our Plasma customers. We expect to pursue further regulatory clearances for additional enhancements to the overall product offering.
We have entered into agreements with all major U.S. customers to adopt NexSys PCS somewhere in their global collection network and we provide ongoing support of NexSys PCS devices and NexLynk DMS donor management software for these Plasma customers.
Our Plasma business unit represented 42.5%, 35.4% and 38.2% of our total revenue in fiscal 2023, 2022 and 2021, respectively.
•Blood Center
Our Blood Center business offers a range of solutions that improve donor collection centers’ ability to collect and separate blood components for transfusions. We continue to look for solutions to help our customers improve donor safety, enhance yields and control costs through the existing product portfolio. Our products and technologies help donor collection centers optimize blood collection capabilities and donor processing management.
Blood Center Market — There are over 100 million blood donations around the world each year that produce blood products for transfusion to surgical, trauma or chronically ill patients. Patients typically receive only the blood components necessary to treat a particular clinical condition. Platelet therapy is frequently used to alleviate the effects of chemotherapy and to help patients with bleeding disorders. Red cells are often transfused to patients to replace blood lost during surgery and transfused to patients with blood disorders, such as sickle cell anemia or aplastic anemia. Plasma, in addition to its role in creating life-saving pharmaceuticals, is frequently transfused to replace blood volume in trauma victims and surgical patients.
When collecting blood components there are two primary collection methods, manual whole blood donations and automated component blood collections. While most donations are manual whole blood, the benefit of automated component blood collections is the ability to collect more than one unit of the targeted blood component. Manual whole blood donations are collected from the donor and then transported to a laboratory where the blood is separated into its components. Automated component blood collections separate the blood component real-time while a person is donating. In this method, only the specific target blood component is collected and the remaining components are returned to the blood donor.
While overall we expect total demand for blood to remain stable to slightly declining, demand in individual markets and for individual components can vary greatly. The development in mature markets of more minimally invasive procedures with lower associated blood loss, as well as hospitals’ improved blood management techniques and protocols have more than offset the increasing demand for blood from aging populations. Emerging markets are seeing demand growth with expanded healthcare coverage and greater access to more advanced medical treatments.
Blood Center Products — We offer automated blood component and manual whole blood collection systems to blood collection centers to collect blood products efficiently and cost effectively.
•We market the MCS® brand apheresis equipment which is designed to collect specific blood components from the donor. Utilizing the MCS automated platelet collection protocols, blood centers collect one or more therapeutic “doses” of platelets during a single donation.
•Our portfolio of disposable whole blood collection and component storage sets offer flexibility in collecting a unit of whole blood and the subsequent production and storage of blood components, including options for in-line or dockable filters for leukoreduction.
Our Blood Center business unit represented 24.0%, 30.1% and 35.3% of our total revenue in fiscal 2023, 2022 and 2021, respectively.
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•Hospital
Hospitals are called upon to provide the highest standard of patient care while at the same time to reduce operating costs. Haemonetics’ Hospital business has four product lines: Hemostasis Management, Vascular Closure, Cell Salvage and Transfusion Management. Vascular Closure became a product line during fiscal 2021 as a result of the March 2021 acquisition of Cardiva Medical, Inc. (“Cardiva”), a market leader in vascular closure devices. Each product line has a leading market position and a mission of helping hospitals and clinicians provide the highest standard of patient care while at the same time reducing operating and procedural costs and helping decision makers in hospitals optimize blood acquisition, storage and usage in critical settings.
Hemostasis Management
Hemostasis Management Market — Hemostasis refers to a patient’s ability to form and maintain blood clots. The clinical management of hemostasis requires that physicians have the most complete information to make decisions on how to best maintain a patient’s coagulation equilibrium between hemorrhage (bleeding) and thrombosis (clotting). Hemostasis is a critical challenge in various medical procedures, including cardiovascular surgery, organ transplantation, trauma, post-partum hemorrhage and percutaneous coronary intervention. By understanding a patient’s hemostasis status, clinicians can better plan for the patient’s care pathway. For example, they may decide whether to start or discontinue the use of certain drugs or determine the need for a transfusion and which specific blood components would be most effective in minimizing blood loss and reducing clotting risk. Such planning supports better care, which can lead to lower hospital costs through a reduction in unnecessary blood product transfusions, reduced adverse transfusion reactions and shorter intensive care unit and hospital stays.
Hemostasis Management Products — Our portfolio of hemostasis diagnostic systems enables clinicians to assess holistically the coagulation status of a patient at the point-of-care or laboratory setting. We have four viscoelastic testing systems that we market to hospitals and laboratories as an alternative to routine blood tests: the TEG® 5000 hemostasis analyzer system, the TEG 6s hemostasis analyzer system, the ClotPro® hemostasis analyzer system and the HAS-100 hemostasis analyzer system. While the TEG and HAS platforms utilize thromboelastography and the ClotPro system utilizes thromboelastometry, all of the platforms provide a method of testing the efficiency of blood coagulation using whole blood samples.
Each hemostasis diagnostic system consists of an analyzer that is used with single-use reagents and disposables. In addition, TEG Manager® software connects multiple TEG 5000 and TEG 6S analyzers throughout the hospital, providing clinicians with remote access to both active and historical test results that inform treatment decisions.
The TEG 5000 system is approved for a broad set of indications in all of our markets. The TEG 6s system is approved for the same set of indications as the TEG 5000 in Europe, Australia and Japan. We continue to pursue a broader set of indications for TEG 6s in the U.S. In 2019, we received FDA clearance for the use of TEG 6s in adult trauma settings. This clearance builds on the previous indication for the TEG 6s system in cardiovascular surgery and cardiology procedures, making it the first cartridge-based system available in the U.S. to evaluate the hemostasis condition in adult trauma patients. The ClotPro system is CE marked and is currently available in select European and Asia Pacific markets. The HAS-100 device is currently commercialized in China.
Vascular Closure
Vascular Closure Market — Catheter-based, minimally invasive alternatives to open surgery have transformed cardiovascular medicine. The majority of these procedures gain access to the vascular system through the femoral artery or vein. These access sites in the vessel require closure post procedure. Even with the major advances in technology over the last 40 years, the most common complications in coronary and peripheral procedures are still related to the access site. Manual compression, the traditional standard of care, involves the application of pressure in order to facilitate the formation of a blood clot at the access site. Vascular closure devices improve upon manual compression by rapidly closing the access site and facilitating more efficient workflow.
Vascular Closure Products — The VASCADE® technology platform was developed to address the limitations of manual compression and existing vascular closure devices. Our VASCADE family of products consists of two devices, VASCADE and VASCADE MVP®, which share a common, innovative technology that features a simple, catheter-based delivery system and leverages the natural clot-inducing properties of collagen. This novel design significantly reduces access site complications, increases patient satisfaction and improves hospital workflow metrics that, in turn, drive economic benefits and cost savings. Our Vascular Closure devices address the growing number of
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catheter-based coronary, peripheral and electrophysiology procedures that require vascular access site closure each year.
Designed around an easy to use, catheter-based delivery system and the natural clot-inducing properties of collagen, our VASCADE product is the only marketed vascular closure device clinically proven to both increase workflow efficiency and reduce access site complications relative to manual compression for coronary and peripheral procedures. Similarly, our VASCADE MVP device is the only marketed vascular closure device clinically proven and labeled to improve workflow relative to manual compression for electrophysiology procedures. Importantly, these improvements drive meaningful cost savings for hospitals, ambulatory surgery centers and other treatment facilities. VASCADE MVP is the first and only vascular closure device to receive a U.S. Food and Drug Administration (“FDA”) indication for same-day discharge following atrial fibrillation ablation.
Cell Salvage
Cell Salvage Market — The Cell Salvage market is mainly comprised of devices designed to collect, wash and prepare a patient’s own blood for reinfusion during or after surgery. Loss of blood is common in many surgical procedures, including open heart, trauma, transplant, vascular and orthopedic procedures, and the need for transfusion of oxygen-carrying red cells to make up for lost blood volume is routine. Patients commonly receive donor (or allogeneic) blood which carries various risks for transfusion reactions including chills, fevers or other side effects that can prolong a patient’s recovery.
An alternative to allogeneic blood is surgical cell salvage, also known as autotransfusion, which reduces or eliminates a patient’s need for blood donated from others and ensures that the patient receives the freshest and safest blood possible - his or her own. Surgical cell salvage involves the collection of a patient’s own blood during or after surgery with the intent of reinfusion of red cells to that patient. Blood is suctioned from the surgical site or collected from a wound or chest drain, processed and washed through a centrifuge-based system that yields concentrated red cells, available in a reinfusion bag, for transfusion back to the patient at the physician’s discretion. This process occurs in a sterile, closed-circuit, single-use consumable set that is fitted into an electromechanical device. We market our surgical blood salvage products to surgical specialists, primarily cardiovascular, orthopedic and trauma surgeons, OB-GYN and to anesthesiologists and surgical suite service providers.
Cell Salvage Products — Our Cell Saver® Elite®+ autologous blood recovery system is a surgical blood salvage system targeted to medium to high blood loss procedures, such as cardiovascular, orthopedic, trauma, transplant, vascular, obstetrical and gynecological surgeries. The Cell Saver Elite + is designed to minimize allogeneic blood use and reliably recover and prepare a patient’s own high-quality blood for reinfusion.
Transfusion Management
Transfusion Management Market — Hospital transfusion services professionals and clinicians are facing cost restraints in addition to the pressure to enhance patient safety, compliance and operational efficiency. Managing the safety and traceability of the blood supply chain and comprehensive management of patients, orders, specimens, blood products, derivatives and accessories across the hospital network is challenging. In addition, providing clinicians with the vital access to blood when needed most while maintaining traceability is a key priority. Frequently when blood products leave the blood bank, the transfusion management staff loses control and visibility of the blood components. They often do not know if the blood was handled, stored or transfused properly, which may lead to negative effects on patient safety, product quality, inventory availability and staff efficiency as well as increased waste.
Transfusion Management Products — Our Transfusion Management solutions are designed to help provide safety, traceability and compliance from the hospital blood bank to the patient bedside and enable consistent care across the hospital network. Our SafeTrace Tx® transfusion management software is considered the system of record for all hospital blood bank and transfusion service information. BloodTrack® blood management software is a modular suite of blood management and bedside transfusion solutions that combines software with hardware components and acts as an extension of the hospital’s blood bank information system. The software is designed to work with blood storage devices, including the BloodTrack HaemoBank®.
Our Hospital business unit represented 31.8%, 32.5% and 24.2% of our total revenue in fiscal 2023, 2022 and 2021, respectively.
The Company also has revenue associated with certain services, maintenance and parts, representing approximately 1.7%, 2.0% and 2.3% of our total revenue in fiscal 2023, 2022 and 2021, respectively.
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Marketing/Sales/Distribution
We market and sell our products in approximately 90 countries through our own direct sales force (including full-time sales representatives and clinical specialists) as well as independent distributors. Our customers include biopharmaceutical companies, blood collection groups and independent blood centers, hospitals and hospital service providers, group purchasing organizations and national health organizations. Sales representatives target the primary decision-makers within each of those organizations.
Research and Development
Our research and development centers in the U.S. ensure that protocol variations are incorporated to closely match local customer requirements. In addition, Haemonetics maintains software development operations in Canada. Customer collaborations are also an important part of our technical strength and competitive advantage. These collaborations with customers and transfusion experts provide us with ideas for new products and applications, enhanced protocols and potential test sites as well as objective evaluations and expert opinions regarding technical and performance issues.
The development of blood component separation products, hemostasis analyzers and software has required us to maintain technical expertise in various engineering disciplines, including mechanical, electrical, software, biomedical engineering and chemistry. Innovations resulting from these various engineering efforts enable us to develop systems that are faster, smaller and more user-friendly, or that incorporate additional features important to our customer base.
In fiscal 2023, research and development resources were allocated to support innovation across our product portfolio. In fiscal 2023, the VASCADE and VASCADE MVP systems received CE mark clearance, providing a pathway for country-specific introduction of these products in the European Union (“EU”). We also received 510(k) clearance from the FDA on Intelligent Control, the next-generation software for the Cell Saver Elite+ Autotransfusion System, which offers customers key enhancements to help simplify operations, supporting enhanced efficiency and an improved user experience. Additionally, we have continued to make investments related to our next generation plasma collection and software systems, the European Medical Device Regulation and In Vitro Diagnostic Regulation and our Hemostasis Management product line.
Manufacturing
We endeavor to supply products that are both high quality and cost competitive for our customers by leveraging continuous improvement methodologies, focusing on our core competencies and partnering with strategic suppliers that complement our capabilities. In general, we design our equipment and consumables and use contract manufacturers to build the devices, while the majority of consumables are manufactured by us.
Our production activities occur in controlled settings or “clean room” environments and have built-in quality checks throughout the manufacturing processes. Our manufacturing teams are focused on continuously improving our productivity, product cost and product quality through change control procedures, validations and strong supplier management programs. We regularly review our logistics capabilities, inventory and safety stock levels and maintain business continuity plans to address supply disruptions that may occur.
Our primary consumable manufacturing operations are located in North America and Malaysia. Contract manufacturers also supply component sets and liquid solutions according to our specifications, with component sets manufactured in Japan, Singapore, Thailand, Indonesia and the Philippines and liquid solutions manufactured in Europe. Our capital equipment is principally manufactured in Malaysia, Australia and the U.S.
We have experienced increased levels of unpredictability in the supply of certain raw materials and components used in the manufacturing of our products. While we continue to believe we will have access to the raw materials and components that we need, these supply chain dynamics could result in increased costs to us or an inability to fully meet customer demand for certain of our products.
Intellectual Property
We consider our intellectual property rights to be important to our business. We rely on a combination of patent, trademark, copyright and trade secret laws, as well as provisions in our agreements with third parties, to protect our intellectual property rights.
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We hold numerous patents in the United States and have applied for numerous additional U.S. patents relating to our products and related technologies. We also own or have applied for corresponding patents in selected foreign countries. These patents cover certain elements of our products and processes, including protocols employed in our equipment and aspects of certain of our disposables. Our patents may cover current products, products in markets we plan to enter, or products in markets we plan to license to others. Certain patents may also be defensive in that they are directed to technologies not currently embodied in our current products. We also may license patent rights from third parties that cover technologies that we use or plan to use in our business.
We own various trademarks that have been registered in the United States and certain other countries.
Our policy is to obtain patent and trademark rights in the U.S. and foreign countries where such rights are available and we believe it is commercially advantageous to do so. However, the standards for international protection of intellectual property vary widely. We cannot assure that pending patent and trademark applications will result in issued patents and registered trademarks, that patents issued to or licensed by us will not be challenged or circumvented by competitors, or that our patents will not be determined invalid.
To maintain our competitive position, we also rely on the technical expertise and know-how of our personnel. We believe that unpatented know-how and trade secrets relied upon in connection with our business and products are generally as important as patent protection in establishing and maintaining a competitive advantage.
Competition
To remain competitive, we must continue to develop and acquire new cost-effective products, information technology platforms and business services. We believe that our ability to maintain a competitive advantage will continue to depend on a combination of factors. Some factors are largely within our control such as: (i) maintenance of a positive reputation among our customers, (ii) development of new products that meet our customer’s needs, (iii) obtaining regulatory approvals for our products in key markets, (iv) obtaining patents that protect our innovations, (v) development and protection of proprietary know-how in important technological areas, (vi) product quality, safety and cost effectiveness and (vii) continual and rigorous documentation of clinical performance. Other factors are outside of our control. We could see changes in regulatory standards or clinical practice that favor a competitor’s technology or reduce revenues in key areas of our business.
Our technical staff is highly skilled, but certain competitors have substantially greater financial resources and larger technical staff at their disposal. There can be no assurance that competitors will not direct substantial efforts and resources toward the development and marketing of products competitive with those of Haemonetics.
In addition, we face competition from several large, global companies with product offerings similar to ours. Terumo Blood and Cell Technologies (“Terumo BCT”) and Fresenius SE & Co. KGaA, in particular, have significant financial and other resources and are strong competitors in a number of our businesses. The following provides an overview of the key competitors in each of our three global product enterprises.
•Plasma
In the automated plasma collection market, we principally compete with Fresenius’ Fenwal Aurora and Aurora Xi device product lines and Terumo BCT’s Rika device on the basis of procedure and enabled door-to-door time duration, plasma yield per donation, product quality and reliability, ease of use, services and technical features of the collection systems, supply chain reliability and on the long-term cost-effectiveness of equipment and disposables. In China, the market is populated by local producers, including Nigale and Haier Medical, which offer plasmapheresis device products that are intended to be similar to ours. In recent years, Nigale has expanded to markets beyond China, competing in European and South American countries. Scinomed competes in select European countries as well. In the field of plasma related software, we principally compete with applications developed internally by certain of our customers as well as MAK Systems.
•Blood Center
Most donations worldwide are traditional manual whole blood collections and approximately 30% of the Blood Center portfolio competes in this space. We face intense competition in our whole blood business on the basis of quality and price. Our main competitors are Fresenius, MacoPharma and Terumo BCT.
Our MCS automated component blood collections, which represents approximately 60% of the Blood Center portfolio, not only compete against the traditional manual whole blood collection market (particularly in red cells) but also
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compete with products from Terumo BCT and Fresenius. Technology is the key differentiator in automated component blood collections, with speed, as measured by the time to collect more than one unit of a specific targeted blood component, quality, reliability, ease of use, service and other technical features being key factors. In markets with a significant number of people eligible to donate more than one unit in a single donation, the processing speed can be a significant competitive differentiator. This is particularly relevant in platelet donations and can drive market share shifts in certain markets.
•Hospital
Hemostasis Management
Our hemostasis analyzer systems are used primarily in surgical applications. Competition includes routine coagulation tests, such as prothrombin time, partial thromboplastin time and platelet count marketed by various manufacturers, such as Instrumentation Laboratory, Diagnostica Stago SAS and Sysmex. The TEG® analyzer competes with these routine laboratory tests based on its ability to provide a more complete picture of a patient’s hemostasis at a single point in time and to measure the clinically relevant platelet function for an individual patient.
In addition, TEG and ClotPro systems compete more directly with other viscoelastic testing systems, including ROTEM® analyzers, the VerifyNow™ System and HemoSonics Quantra®. ROTEM and VerifyNow instruments are marketed by Instrumentation Laboratory, a subsidiary of Werfen. HemoSonics is owned and offered by Diagnostica Stago. There are also additional technologies being explored to assess viscoelasticity and other characteristics that can provide insights into the coagulation status of a patient. In the advanced viscoelastic testing segment, Haemonetics is the global market leader.
Vascular Closure
The vascular closure industry is highly competitive and has been evolving rapidly with the introduction of new products, technologies, regulations and activities of industry participants. Our VASCADE family of products serves as an alternative to existing methods of femoral vascular access site closure in interventional procedures, including manual compression and other femoral access closure devices. Our main competitors in femoral access closure for coronary and peripheral procedures include Terumo BCT, Abbott Laboratories and Cardinal Health. There are not currently any competing vascular access site closure devices that are labeled for electrophysiology procedures that require multiple access sites.
We compete primarily on the basis that our products are optimized for the requirements of coronary, peripheral and electrophysiology procedures, including procedures that require multiple access sites. In addition, our value proposition is supported by robust clinical trial evidence and study data, which demonstrate reduced access site complication rates as well as workflow improvements compared to manual compression that lead to cost savings.
Cell Salvage
In the intraoperative autotransfusion market, competition is based on reliability, ease of use, service, support and price. For high-volume platforms, each manufacturer's technology is similar and our Cell Saver® technology competes principally with products offered by LivaNova PLC, Medtronic and Fresenius.
Transfusion Management
SafeTrace Tx® and BloodTrack® compete in the transfusion management software market within the broader category of hospital information systems. SafeTrace Tx is an FDA regulated blood bank information system (“BBIS”) that integrates and communicates with other healthcare information systems such as the electronic health record and laboratory information system within the hospital. The BloodTrack software, also FDA regulated, is an extension of the BBIS and provides secure, traceable blood units at the point-of-care, including trauma, surgery, outpatient and critical care settings. Growth drivers for these markets include patient safety, operational efficiencies and compliance.
SafeTrace Tx competition primarily consists of stand-alone BBIS including WellSky and some electronic health record software that includes a built-in transfusion management solution including Cerner. Global competition for BloodTrack varies by country including MSoft in Europe and established blood practices in the U.S. such as using standard refrigerators and manual movement of blood products. BloodTrack integrates with the hospital’s existing lab or blood bank system allowing for greater market acceptance.
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Significant Customers
In fiscal 2023, 2022 and 2021, our ten largest customers accounted for approximately 48%, 45% and 49% of our net revenues, respectively. In fiscal 2023, one Plasma customer, CSL, was greater than 10% of total net revenues and in total accounted for approximately 14% of net revenues. In addition to CSL, two customers also accounted for greater than 10% of the Plasma segment’s net revenues and one customer accounted for greater than 10% of the Blood Center segment's net revenues, but did not exceed 10% of total net revenues, in fiscal 2023.
Government Regulation
Due to the variety of products that we manufacture, we and our products are subject to a wide range of regulations from numerous government agencies, including the FDA, and similar agencies outside the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our products.
In the United States, medical devices, drugs and biological products are subject to extensive regulation by FDA under the Federal Food, Drug, and Cosmetic Act, or FDCA, and other federal and state statutes and regulations. The failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to clear or approve applications, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Medical Device Regulation
Premarket Requirements - U.S.
Unless an exemption applies, all medical devices introduced to the U.S. market are required by the FDA, as a condition of marketing, to secure clearance of a 510(k) premarket notification, grant of a request for de novo classification, or approval of a premarket approval application, or PMA. The FDA classifies medical devices into one of three classes based on risk. Devices deemed to pose a low or moderate risk are placed in Class I or II. Manufacturers of most Class II devices, and a few Class I devices, must submit to the FDA a 510(k) premarket notification requesting clearance for commercial distribution. Devices deemed by the FDA to pose the greatest risk or devices deemed not substantially equivalent to a previously cleared 510(k) device are placed in Class III, requiring submission and approval of a PMA or risk-based classification through the de novo process.
To obtain 510(k) clearance, we must submit a premarket notification demonstrating that the proposed device is “substantially equivalent” to a previously 510(k)-cleared device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of PMAs, or a device that has been the subject of a de novo classification. The FDA’s 510(k) clearance pathway usually takes from three to 12 months from the date the notification is submitted, but it can take longer, depending on the extent of the FDA’s requests for additional information and the amount of time a sponsor takes to fulfill them. We may need to first obtain an investigational device exemption (for significant risk devices), known as an IDE, in order to conduct extensive clinical testing of the device to obtain the necessary clinical data for submission to the FDA. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance or could require premarket approval.
A device that cannot demonstrate substantial equivalence to a previously marketed predicate is automatically deemed Class III. The de novo process provides a pathway to classify novel medical devices for which general controls alone, or general and special controls, provide reasonable assurance of safety and effectiveness for the intended use, but for which there is no legally marketed predicate device. Once a request for de novo classification is granted by the FDA, the newly classified device may be used as a predicate by the applicant or a competitor in a future 510(k) notification submission, if the FDA determines that new devices of the same type require 510(k) clearance.
Devices deemed by the FDA to pose the greatest risk are placed in Class III. A PMA is required for most Class III devices. The PMA process is generally more detailed, lengthier and more expensive than the 510(k) and de novo processes. Prior to the acquisition of Cardiva in March 2021, we had not been required to obtain a PMA for any of our products and did not have any Class III products in our product pipeline. Our VASCADE and VASCADE MVP products are both Class III products for which PMAs were previously obtained. The 510(k) clearance, de novo classification, and PMA processes can be resource intensive, expensive, lengthy and require payment of significant user fees.
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Postmarket Requirements - U.S.
After the FDA permits a device to enter commercial distribution, numerous regulatory requirements continue to apply. Generally, establishments that design and/or manufacture devices are required to register with the FDA. They also must provide the FDA with a list of the devices that they design and/or manufacture at their facilities. Other postmarket requirements include compliance with:
•The Quality System Regulation, or QSR, which sets forth current good manufacturing practice, or cGMP, requirements for medical devices. The QSR applies to manufacturers, including contract manufacturers, of finished medical devices, and governs methods, facilities, and controls used in designing, manufacturing, packaging, labeling, storing, installing and servicing such devices. Among other requirements, manufacturers of medical devices must establish a quality system appropriate for the devices they manufacture.
•Labeling regulations, including unique device identification;
•Medical device reporting, or MDR, regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; and
•Medical device correction and removal (recall) regulations with their associated reporting obligations.
Additionally, we and the manufacturing facilities of some of our suppliers are subject to unannounced inspections by the FDA to determine our compliance with the QSR and other applicable regulations described above. The FDA can issue Form 483 Notices of Observation, warning letters or untitled letters, seek a court order detaining or seizing certain devices, seek an injunction, suspend regulatory clearance or approvals, ban certain medical devices, order repair, replacement or refund of those devices and require notification of health professionals and others with regard to medical devices that present risks of substantial harm to the public health. The FDA may also initiate action for criminal prosecution of violations.
The FDA also may require post market testing, surveillance, or other measures to monitor the effects of an approved or cleared product. The FDA may place conditions on a PMA-approved device that could restrict the distribution or use of the product. In addition, quality control, manufacture, cybersecurity, packaging and labeling procedures must continue to conform to QSRs after approval and clearance, and manufacturers are subject to periodic inspections by the FDA. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with QSRs. The FDA may withdraw product approvals or recommend or require product recalls if a company fails to comply with regulatory requirements.
Advertising, marketing and promotional activities for devices are also subject to FDA oversight. The failure to comply with the requirements applicable to these activities can result in FDA enforcement action.
Manufacturers of medical devices are permitted to promote products solely for the uses and indications set forth in the approved or cleared product labeling. Promotion of products for uses not described in the approved or cleared labeling (“off-label” uses) has resulted in enforcement actions against manufacturers, including actions alleging violation of the Federal False Claims Act, federal and state healthcare fraud and abuse laws, and state consumer protection laws. The failure to comply with prohibitions on “off-label” promotion can result in significant monetary penalties, suspension of sales of certain products, product recalls, civil or criminal sanctions, exclusion from participating in federal healthcare programs, or other enforcement actions. In the United States, allegations of such wrongful conduct could also result in a corporate integrity agreement with the U.S. government that imposes significant administrative obligations and costs.
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Requirements Outside the U.S.
The regulatory review process varies from country to country and may in some cases require the submission of clinical data. Our international sales are subject to regulatory requirements in the countries in which our products are sold. For example, the EU has adopted the EU Medical Device Regulation (the “EU MDR”) and the EU In Vitro Diagnostic Regulation (the “EU IVDR”), each of which impose stricter requirements for the marketing and sale of medical devices, including in the area of clinical evaluation requirements, quality systems and postmarket surveillance, than the medical device directives they replace. The EU MDR became fully applicable as of May 26, 2021 and the EU IVDR became fully applicable as of May 26, 2022.
There is a conditional transition period after the date of full application, the duration of which is dependent on the classification of the device. A new EU certificate under the applicable regulations must be obtained prior to the end of the transition period if there is to be no interruption in manufacturing and supply of devices to the market. There are nevertheless a number of provisions that need to be complied with from the date of application, including updating the postmarket surveillance process, appointing an importer for the EU, appointing a person responsible for regulatory compliance, and updating economic operator agreements. Complying with the requirements of these regulations has and will continue to require us to incur significant expenditures. Failure to meet these requirements could adversely impact our business in the EU and other regions that tie their product registrations to the EU requirements. Similarly, the separation of states from participation in the EU, such as through the cessation of the UK’s membership in the EU (commonly known as “Brexit”) and the separation of the Swiss and EU medical product markets with the adoption of the EU MDR (commonly referred to as “Swexit”), may result in further regulatory risk and complexity as the former EU member or participant state establishes separate laws and regulations governing medical products. Regulatory requirements in other jurisdictions also continue to become more stringent, increasing regulatory requirements to register and maintain products in these markets.
Drug Regulation
Development and Approval
Under the FDCA, FDA approval of a new drug application, or NDA, is generally required before any new drug can be marketed in the U.S. NDAs require extensive studies and submission of a large amount of data by the applicant.
A generic version of an approved drug is approved by means of an abbreviated new drug application, or ANDA, by which the sponsor demonstrates that the proposed product is the same as the approved, brand-name drug, which is referred to as the “reference listed drug,” or RLD. Generally, an ANDA must contain data and information showing that the proposed generic product and RLD have the same active ingredient, in the same strength and dosage form, to be delivered via the same route of administration, are intended for the same uses and are bioequivalent. This more limited data set is in lieu of independently demonstrating the proposed product’s safety and effectiveness, which are inferred from the fact that the product is the same as the RLD, which the FDA previously found to be safe and effective.
We currently hold NDAs and ANDAs for liquid solutions (including anticoagulants, intravenous saline and a red blood cell storage solution), which we sell with our blood component and whole blood collection systems.
Post-Approval Regulations
After the FDA permits a drug to enter commercial distribution, numerous regulatory requirements continue to apply. These include the FDA's current cGMPs, which include a series of requirements relating to organization and training of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, quality control and quality assurance, packaging and labeling controls, holding and distribution, and laboratory controls and records and reports. The FDA has also established labeling regulations, advertising and promotion requirements and restrictions, regulations regarding conducting recalls of product and requirements relating to the reporting of adverse events.
Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse publicity, such as warning letters, and enforcement action by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and entering into agreements with the government that materially restrict the manner in which a company promotes or distributes drug or biological products.
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Requirements Outside the U.S.
We must obtain the requisite marketing authorizations from regulatory authorities in foreign countries prior to marketing of a product in those countries. The requirements and process governing product licensing vary from country to country. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, warning letters or untitled letters, injunctions, civil, administrative, or criminal penalties, monetary fines or imprisonment, suspension or withdrawal of regulatory approvals, suspension of ongoing clinical studies, refusal to approve pending applications or supplements to applications filed by us, suspension or the imposition of restrictions on operations, product recalls, the refusal to permit the import or export of our products or the seizure or detention of products.
Conflict Minerals
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use of “Conflict Minerals” mined from the Democratic Republic of Congo and adjoining countries in products, whether or not these products are manufactured by third parties. The conflict minerals include tin, tantalum, tungsten and gold and their derivatives. These requirements could affect the pricing, sourcing and availability of minerals used in the manufacture of our products. There may be material additional costs associated with complying with the disclosure requirements, such as costs related to determining the source of any conflict minerals used in our products. Our supply chain is complex and we may be unable to verify the origins for all metals used in our products as well as costs of possible changes to products processes, or sources of supply as a consequence of such verification activities.
Fraud and Abuse Laws
We are subject to fraud and abuse and other healthcare laws and regulations that constrain the business or financial arrangements and relationships through which we market, sell and distribute our products. In addition, we are subject to transparency laws and patient privacy regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business. We have described below some of the key federal, state and foreign healthcare laws and regulations that apply to our business.
The federal healthcare program Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any healthcare item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between manufacturers of federally reimbursed products on one hand and prescribers, purchasers and others in a position to recommend, refer, or order federally reimbursed products on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration to those who prescribe, purchase, or recommend medical devices or pharmaceutical and biological products, including certain discounts, or engaging consultants as speakers or consultants, may be subject to scrutiny if they do not fit squarely within the exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, there are no safe harbors for many common practices, such as educational and research grants. Liability may be established without a person or entity having actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.
The federal civil False Claims Act prohibits, among other things, any person from knowingly presenting, or causing to be presented, a false, fraudulent or materially incomplete claim for payment of government funds, or knowingly making, using, or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government. In recent years, companies in the healthcare industry have faced enforcement actions under the federal False Claims Act for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product or causing false claims to be submitted because of the company’s marketing the product for unapproved and thus non-reimbursable, uses. False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties of tens of thousands of dollars per false claim or statement. Healthcare companies also are subject to other federal false claims laws, including, among others, federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs.
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The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, among other things, imposes criminal and civil liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third party payers and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
In addition, the Physician Payment Sunshine Act, implemented as the Open Payments program, requires manufacturers of certain products reimbursed by Medicare, Medicaid, or the Children’s Health Insurance Program to track and report information to the federal government on certain payments or transfers of value that they make to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Manufacturers are also required to collect information regarding payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse-midwives for reporting. The reported data is made available in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties.
Many states have adopted analogous laws and regulations, including state anti-kickback and false claims laws, which may apply to items or services reimbursed under Medicaid and other state programs or, in several states, regardless of the payer. Several states have enacted legislation requiring pharmaceutical and medical device companies to, among other things, establish marketing compliance programs; file periodic reports with the state, including reports on gifts and payments to individual health care providers; make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities; and/or register their sales representatives. Some states prohibit specified sales and marketing practices, including the provision of gifts, meals, or other items to certain health care providers and/or offering co-pay support to patients for certain prescription drugs.
Other countries, including a number of EU Member States, have laws of similar application.
Environmental Matters
Failure to comply with international, federal and local environmental protection laws or regulations could have an adverse impact on our business or could require material capital expenditures. We continue to monitor changes in U.S. and international environmental regulations and emerging industry expectations that may present a significant risk to the business, including laws or regulations relating to the manufacture or sale of products using plastics and evolving customer expectations with respect to environmental stewardship.
Human Capital
We are committed to building a collaborative, performance-driven culture that attracts and retains top talent. As of April 1, 2023, we employed the full-time equivalent of 3,034 persons. Approximately 79% of our employees are located in North America and the remaining 21% are located across 19 other countries.
In our industry, there is substantial competition for key personnel in the regions in which we operate. Recruiting, developing, engaging and retaining talented employees is critical to both our strategy and our ability to compete effectively in the markets we serve. Our human capital strategy focuses on a complementary set of initiatives designed to support our corporate strategy and secure top talent, including the following:
•We dedicate meaningful time and resources to employee development, training and succession planning. Pursuant to our Principles of Corporate Governance, our Board of Directors plans for succession to the position of Chief Executive Officer as well as other senior leadership positions and reviews potential successors to these roles at least annually. We maintain a robust performance management review process for our permanent employees below the senior leadership level to help develop talent and ensure alignment of performance goals at every level of the organization throughout the fiscal year. Additionally, we offer a variety of programs and resources designed to facilitate our employees’ career development, training and networking, including:
◦Individual development planning by employees, in consultation with their managers, to help define individual development goals and facilitate manager coaching and feedback;
◦Manager development sessions focused on developing core leadership competencies, including performance management training, coaching and feedback and building trust;
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◦Continuous improvement training for employees, including through our internal learning management platform, to promote individual development, strengthen our culture and drive compliance and quality across our organization;
◦Tuition reimbursement programs that provide eligible U.S. and Canadian employees with the opportunity to be reimbursed (up to a set dollar limit) for tuition and certain other expenses associated with degree programs, certifications and continuing education courses that relate to their work at the Company; and
◦Regular recognition of employees across the organization who personify our core values.
•We engage regularly with our employees. Our senior leadership team participates in scheduled meetings with our employees throughout the fiscal year – including quarterly Town Halls with our global workforce – to reiterate strategic priorities, provide business updates, recognize employee contributions and answer employee questions. We also conduct an annual employee engagement survey, with at least 90% global participation since 2018. Feedback from these surveys is shared across the organization and informs both Company-sponsored initiatives and shared action plans between managers and direct reports.
•We seek to foster a diverse workforce and an inclusive culture. We recognize that the diversity of our teams and their ideas helps build our collaborative, performance-driven culture, and we are committed to providing an inclusive environment where every individual has the opportunity to thrive. Accordingly, we focus attention and purposeful investments on developing our diversity, equity and inclusion programs and practices and take steps to ensure consistent and fair pay practices. We also require that employees complete annual training on our Code of Conduct (which includes specific modules on how to promote an inclusive culture and help identify and prevent unlawful discrimination) as well as standalone anti-harassment and anti-discrimination training. Additionally, we maintain company-sponsored Colleague Resource Groups designed to provide a forum for employees with shared affinities to connect, advance business priorities and drive talent strategies with an inclusive focus.
•We offer market-competitive compensation opportunities and benefits that are designed to attract, retain and motivate exceptional employees and drive both individual and company performance. In addition to base salary, most of our employees have variable components to their compensation that are tied to achievement of corporate and individual performance goals, the fluctuations of our stock price, or a combination of both. We also offer a comprehensive package of global benefits to support the health and well-being of our employees and their families and continually introduce new and enhanced benefit offerings to meet the evolving needs of our workforce and to remain competitive in local markets, including a hybrid work offering for our corporate offices in the U.S. and certain other jurisdictions.
•We maintain policies and practices to promote employee health and safety. As a Company, we are committed to making our workplaces safe and secure. This includes eliminating unsafe work practices and workplace injuries and illnesses and promoting the health, safety and well-being of all employees, contractors and visitors. Important objectives in achieving our vision include: creating a positive safety culture, maintaining an effective safety management system and reducing risk in the workplace. Among other things, we utilize a third-party enterprise compliance and risk management solution at all of our locations to track incidents. We also require tailored health and safety compliance training for all site employees as well as annual training for all employees on our Code of Conduct, which includes a specific module on health and safety.
Availability of Reports and Other Information
Our Principles of Corporate Governance, Code of Conduct and the charters of the Audit, Compensation, Governance and Compliance and Technology Committees of our Board of Directors are published on the Investor Relations section of our website at www.haemonetics.com. On this website the public can also access, free of charge, our annual, quarterly and current reports and other documents filed or furnished to the Securities and Exchange Commission, or SEC, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file documents electronically.
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Cautionary Statement Regarding Forward-Looking Information
Certain statements that we make from time to time, including statements contained in this Annual Report on Form 10-K and incorporated by reference into this report, constitute “forward looking-statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements do not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “foresees,” “potential” and other words of similar meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial performance; the Company’s strategy for growth; product development, commercialization and anticipated performance and benefits; regulatory approvals; impacts of acquisitions or dispositions; and market position and expenditures.
Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which are outside of the Company’s control. Investors should realize that if underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, the Company’s actual results and financial condition could vary materially from expectations and projections expressed or implied in its forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements.
The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements. For further discussion of these and other factors, see Item 1A. Risk Factors in this report.
•Our ability to achieve our long-term strategic and financial-improvement goals;
•Demand for and market acceptance risks for new and existing products, including material reductions in purchasing from or loss of a significant customer;
•Our ability to develop, manufacture and market new products and technologies successfully and in a timely manner and the ability of our competitors and other third parties to develop products or technologies that render our products or technologies noncompetitive or obsolete;
•Product quality or safety concerns, leading to product recalls, withdrawals, regulatory action by the FDA (or similar non-U.S. regulatory agencies), reputational damage, declining sales or litigation;
•Security breaches of our information technology systems or our products, which could impair our ability to conduct business or compromise sensitive information of the Company or its customers, suppliers and other business partners, or of customers’ patients;
•Pricing pressures resulting from trends toward healthcare cost containment, including the continued consolidation among healthcare providers and other market participants;
•The continuity, availability and pricing of plastic and other raw materials, finished goods and components used in the manufacturing of our products (including those purchased from sole-source suppliers) and the related continuity of our manufacturing, sterilization, supply and distribution;
•Our ability to obtain the anticipated benefits of restructuring programs that we have or may undertake, including the Operational Excellence Program;
•The potential that the expected strategic benefits and opportunities from completed or planned acquisitions, divestitures or other strategic investments by the Company may not be realized or may take longer to realize than expected;
•The impact of enhanced requirements to obtain regulatory approval in the U.S. and around the world and the associated timing and cost of product approval;
•Our ability to comply with established and developing U.S. and foreign legal and regulatory requirements, including FCPA, EU MDR/EU IVDR and similar laws in other jurisdictions, as well as U.S. and foreign export and import restrictions and tariffs;
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•Our ability to meet our debt obligations and raise additional capital when desired on terms reasonably acceptable to us;
•The potential impact of our convertible senior notes and related capped call transactions;
•Geopolitical and economic conditions in China, Russia and other foreign jurisdictions where we do business;
•Our ability to execute and realize anticipated benefits from our investments in emerging economies;
•The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses and resulting margins;
•The impact of changes in U.S. and international tax laws;
•Our ability to protect intellectual property and the outcome of patent litigation;
•Costs and risks associated with product liability and other litigation claims we may be subject to now or in the future;
•The impact of actual or threatened public health emergencies;
•Our ability to retain and attract key personnel;
•Market conditions impacting our stock price and/or our share repurchase program, and the possibility that such share repurchase program may be delayed, suspended or discontinued; and
•Our ability to achieve against our corporate responsibility initiatives and meet evolving stakeholder expectations concerning corporate responsibility matters.
Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described above and in Item 1A. Risk Factors to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.
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ITEM 1A. RISK FACTORS
In addition to the other information contained in this Annual Report on Form 10-K and the exhibits hereto, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, cash flows or results of operations could be materially adversely affected by any of these risks. This section contains forward-looking statements. Please refer to the cautionary statements made under the heading “Cautionary Statement Regarding Forward-Looking Information” at the end of Item 1 of this Annual Report on Form 10-K for more information on the qualifications and limitations on forward-looking statements.
Risks Related to our Business and Industry
If our business strategy does not yield the expected results or we fail to implement the necessary changes to our operations, we could see material adverse effects on our business, financial condition or results of operations.
We view our operations and manage our business in three principal reporting segments: Plasma, Blood Center and Hospital. 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. If we have not correctly identified the product categories with greatest growth potential, we will not allocate our resources appropriately which could have a material adverse effect on our business, financial condition or results of operations.
Material reductions in purchasing from or loss of a significant customer could adversely affect our business.
In fiscal 2023, our ten largest customers accounted for approximately 48% of our net revenues. As previously disclosed, our largest Plasma customer, CSL, informed us in April 2021 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 in the U.S. following the expiration of the then current term of its contract, which was subsequently extended on a non-exclusive basis through December 2025. Any non-renewal, termination or material reduction in purchasing by any of our largest customers for any reason, including material decreases in demand for plasma or development of alternative processes, could have a material adverse effect on our business, financial condition or results or operations.
We face intense competition, and if we are unable to successfully expand our product lines through internal research and new product development or keep pace with rapid technological changes in the healthcare industry, our business may be materially and adversely affected.
A significant element of our strategy is to increase revenue growth by focusing on innovation and new product development. The medical device markets in which we participate, however, are highly competitive. We encounter significant competition across our product lines and in each market in which our products are sold from various medical device companies, some of whom have greater financial and marketing resources than we do. In addition, the medical device markets in which we participate and healthcare industry generally are characterized by extensive research and development and rapid technological change.
New product development requires significant investment in research and development, clinical trials and regulatory approvals. The results of our product development efforts may be affected by a number of factors, including our ability to anticipate customer needs, innovate and develop new products and technologies, successfully complete clinical trials, obtain regulatory approvals in the United States and abroad, manufacture products in a cost-effective manner, obtain appropriate intellectual property protection for our products, and gain and maintain market acceptance of our products. In addition, patents attained by others could preclude or delay our commercialization of a product. There can be no assurance that any products now in development or that we may seek to develop in the future will achieve technological feasibility, obtain regulatory approval or gain market acceptance. If we fail to develop new products or enhance existing products, or if competitive technologies or therapeutic alternatives to plasma-derived pharmaceuticals in development, such as FcRn-targeted therapies, emerge and gain market acceptance, such events could have a material adverse effect on our business, financial condition or results of operations. In addition, a delay in the timing of the launch of next-generation products and the overall performance of, and continued customer confidence in, those products may result in declines in our market share and have an adverse impact on our business, financial condition or results of operations.
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Defects or quality issues associated with our products could adversely affect the results of operations.
Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Manufacturing or design defects, component failures, unapproved or improper use of our products, or inadequate disclosure of risks or other information relating to the use of our products can lead to injury or other serious adverse events. These events could lead to recalls or safety alerts relating to our products (either voluntary or as required by the FDA or similar governmental authorities in other countries), and could result, in certain cases, in the removal of a product from the market. A recall could result in significant costs and lost sales and customers, enforcement actions and/or investigations by state and federal governments or other enforcement bodies, as well as negative publicity and damage to our reputation that could reduce future demand for our products. Personal injuries relating to the use of our products can also result in significant product liability claims being brought against us. In some circumstances, such adverse events could also cause delays in regulatory approval of new products or the imposition of post-market approval requirements.
We are increasingly dependent on information technology systems and subject to privacy and security laws and a cyber-attack or other breach of these systems could have a material adverse effect on our business, financial condition or results of operations.
We increasingly rely on information technology systems, including cloud-based computing, to process, transmit and store electronic information for our day-to-day operations and for our customers, including sensitive personal information and proprietary or confidential information. Additionally, certain of our products collect data regarding patients and donors and connect to our systems for maintenance and other purposes or are actively managed by Haemonetics on behalf of specific customers. Similar to other large multi-national companies, the size and complexity of our information technology systems makes them vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy, or other significant disruption. We also outsource certain elements of our information technology systems to third parties that, as a result of this outsourcing, could have access to certain confidential information and whose systems may also be vulnerable to these types of attacks or disruptions. Security threats, including cyber and other attacks are becoming increasingly sophisticated, frequent, and adaptive and, like other large multi-national companies, we have experienced cyber incidents in the past and may experience them in the future. Accordingly, our information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information and changing customer patterns. Although prior cyber incidents have not had a material effect on our business and we have invested and continue to invest in the protection of personal information and proprietary or confidential information, there can be no assurance that our efforts will prevent cyber-attacks, intrusions, breakdowns or other incidents or ensure compliance with all applicable securities and privacy laws, regulations, standard standards. In addition, third parties may attempt to hack into our products to obtain data relating to patients with our products or our proprietary information. Any failure by us or third parties we work with to maintain or protect our respective information technology systems and data integrity, including from cyber-attacks, intrusions or other breaches, could result in the unauthorized access to patient data and personally identifiable information, theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Any of these events, in turn, may cause us to lose existing customers, have difficulty preventing, detecting and controlling fraud, have disputes with customers, physicians and other healthcare professionals, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition or results of operations.
Additionally, the legal and regulatory environment surrounding information security and privacy is increasingly demanding, with the imposition of new and changing requirements across businesses. We are required to comply with increasingly complex and changing legal and regulatory requirements that govern the collection, use, storage, security, transfer, disclosure and other processing of personal data in the United States and in other countries, including, but not limited to, HIPAA, HITECH, the California Consumer Privacy Act, or CCPA, the California Privacy Rights Act, and the EU’s General Data Protection Regulation, or GDPR. The GDPR imposes stringent EU data protection requirements and provides for significant penalties for noncompliance. HIPAA also imposes stringent data privacy and security requirements and the regulatory authority has imposed significant fines and penalties on organizations found to be out of compliance. CCPA provides consumers with a private right of action against companies who have a security breach due to lack of appropriate security measures, and several other U.S. states have introduced or proposed similar privacy laws which may apply to us directly or indirectly through our customers, manufacturers, suppliers or other third-party partners. In addition, new information security and privacy laws have also come into effect in China and other countries where we conduct business. We or our third-party providers and business partners may also be subjected to audits or investigations by one or more domestic or foreign government agencies relating to compliance
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with information security and privacy laws and regulations, and noncompliance with the laws and regulations could results in material fines or litigation.
We outsource certain aspects of our business to a single third-party vendor that subjects us to risks, including disruptions in business and increased costs.
Currently, we rely on a single vendor to support several of our business processes, including customer service and support and elements of enterprise technology, procurement, accounting and human resources. We make diligent efforts to ensure that the provider of these outsourced services is observing proper internal control practices. However, there are no guarantees that failures will not occur. Accordingly, we are subject to the risks associated with the vendor’s ability to successfully provide the necessary services to meet our needs.
If our vendor is unable to adequately protect our data or information is lost, if our ability to deliver our services is interrupted (including as a result of significant outbreaks of disease, natural disasters, extreme weather and other conditions caused by or related to climate change, strikes, terrorism attacks or other adverse events in the countries in which the vendor operates), if our vendor's fees are higher than expected, if our vendor makes mistakes in the execution of operations support, or if the vendor terminates our relationship, then our business and operating results may be negatively affected.
A significant portion of our revenue derives from the sale of blood collection supplies. Declines in the number of blood collection procedures have adversely impacted our business and future declines may have an adverse effect on our business, financial condition and results of operations.
The demand for whole blood disposable products in the U.S. continues to decrease due to sustained declines in transfusion rates caused by hospitals’ improved blood management techniques and protocols. In response to this trend, U.S. blood center collection groups are primarily focused on obtaining the lowest average selling prices for their whole blood collection products. We expect to see continued declines in transfusion rates and the market to remain price-focused and highly competitive for the foreseeable future. Continued declines in this market could have a material adverse effect on our liquidity and results of operations.
Consolidation of healthcare providers and blood collectors, healthcare cost containment pressures, government payment and delivery system reforms and changes in private payer policies could decrease demand for our products, the prices which customers are willing to pay for those products and/or the number of procedures performed using our devices, which could have an adverse effect on our business, financial condition and results of operations.
Political, economic and policy influences are causing the healthcare and blood collection industries to make substantial structural and financial changes that affect our results of operations. Government and private sector initiatives limiting the growth of healthcare costs are causing structural reforms in healthcare delivery, including the reduction in blood use and reduced payments for care. These trends have placed greater pricing pressure on suppliers and, in some cases, decreased average selling prices and increased the number of sole source relationships. This pressure impacts our Hospital and Blood Center businesses. Our Vascular Closure devices, for example, are often perceived as physician preference devices with a relatively higher price point compared to certain vascular closure alternatives such as sutures or manual compression, and purchases are commonly made by a hospital only after approval by its value analysis committee. If a hospital value analysis committee does not approve or revokes prior approval for any of the reasons set forth above, the demand for our vascular closure devices may decrease and we could experience an adverse effect on our results of operations or financial condition. Additionally, while Hospital capital purchase patterns have increased from initially depressed levels earlier in the COVID-19 pandemic, it is difficult to predict the long-term impact of the pandemic on hospital spending patterns.
The influence of integrated delivery networks, group purchasing organizations and large single accounts has the potential to put price pressure on our Hospital business. It also puts price pressure on our U.S. Blood Center customers who are also facing reduced demand for red cells. Our Blood Center customers have responded to this pressure by creating their own group purchasing organizations and resorting to single source tenders to create incentives for suppliers, including us, to significantly reduce prices.
We expect that market demand, government regulation, third-party reimbursement policies, government contracting requirements and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers and competitors. This may exert further downward pressure on the prices of our products and adversely impact our business, financial condition or results of operations.
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An interruption in our ability to manufacture our products, obtain key components or raw materials, or the failure of a sole source supplier or sterilization service provider may adversely affect our business.
We have a complex global supply chain that involves integrating key suppliers and our manufacturing capacity into a global movement of components and finished goods.
We manufacture certain key disposables and devices at single locations with limited alternate facilities. If natural disasters, extreme weather and other conditions caused by or related to climate change, strikes, terrorism attacks or other adverse events occur that result in the closure of or damage to one or more of these facilities, we may be unable to supply the relevant products at previous levels or at all for some period. Additionally, for reasons of quality assurance or cost effectiveness, we purchase certain finished goods, components and raw materials from sole suppliers who have their own complex supply chains. We have experienced increased levels of unpredictability in the supply of certain raw materials and components, including semiconductor chips, used in the manufacturing of our products. While we continue to believe we will have access to the raw materials and components that we need, any disruption to one or more of our suppliers’ production or delivery of sufficient volumes of raw materials and components conforming to our specifications could disrupt or delay our ability to deliver finished products to our customers. For example, we purchase components in Asia for use in manufacturing in the U.S. and Mexico. We source all of our apheresis equipment from Asia and regularly ship finished goods from the U.S. and Mexico to the rest of the world.
Many of our products also require sterilization prior to sale or distribution and we utilize a mix of internal resources and contract sterilizers to perform this service. To the extent we or our contract sterilizers are unable to sterilize our products, whether due to capacity, availability of materials for sterilization, regulatory or other constraints, including federal and state regulations on the use of ethylene oxide, we may be unable to transition to alternative internal or external resources or methods in a timely or cost effective manner, or at all, which could have a material impact on our results of operations and financial condition.
In addition, we manufacture our vascular closure devices under a shelter plan service agreement with Offshore International Incorporated (d/b/a Tetakawi) pursuant to which we lease our manufacturing facility in Guaymas, Mexico. Tetakawi is responsible for a number of ongoing services related to the facility, including provision of external security and maintenance, manufacturing personnel related human resource matters, recruiting support, government compliance, workforce transportation and cross-border shipping of raw components. We are reliant on Tetakawi to provide these services and any disruption in these services or our failure to maintain our contractual relationship with Tetakawi could significantly harm our ability to manufacture our vascular closure devices and maintain sufficient quality standards, which would negatively impact our business and results of operations.
Due to the high standards and stringent requirements of the FDA and other similar non-U.S. regulatory agencies applicable to manufacturing our products, such as the FDA’s QSR and cGMP regulations, we also may not be able to quickly establish additional or replacement sources for certain raw materials, components or finished goods. A reduction or interruption in manufacturing, or an inability to secure alternative sources of raw materials, components or finished goods on commercially reasonable terms or in a timely manner, could compromise our ability to manufacture our products on a timely and cost-competitive basis, which may have a material adverse effect on our business, financial condition and results of operations.
Changes in the cost, composition or availability of the plastics and resins we purchase, or of other raw materials and components used in our products, could adversely affect our business, financial condition and results of operations.
We face risks related to the price, composition and availability of plastic raw materials used in our disposable products, which represent a substantial portion of our revenues. Material or sustained increases in the price of petroleum or petroleum derivatives could have an adverse impact on the costs to procure plastic raw materials. Additionally, our results of operations could be negatively impacted by volatility in the cost or availability of these and other raw materials and components used in our products that, in turn, increase the costs of producing and distributing our products. In recent years, we have experienced inflationary pressures that have significantly increased the cost of raw materials, transportation, construction, services and energy necessary for the production and distribution of our products. Continued uncertainty around inflationary pressures, rising interest rates and macroeconomic conditions have increased the risk of creating new, or exacerbating existing, economic challenges we face. While we have implemented cost containment measures, selective price increases and taken other actions to offset these inflationary pressures in our global supply chain, we may not be able to completely offset all the increases in our operational costs. Additionally, climate change (including laws or regulations passed in response thereto) could increase our supply costs, including energy and transportation/freight-related expenses, or reduce the availability of raw materials.
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The composition of the plastic we purchase is also important. Today, we purchase plastics that contain DEHP and other phthalates, which are used to make plastic malleable. Due to regulatory changes and evolving customer expectations, we may be required to remove materials such as phthalates from our devices, find alternative materials which then need to be validated or obtain regulatory approvals from the regulatory authorities for a number of products.
While we have not experienced significant shortages in the past, any interruption in the supply for certain plastics could have a material impact on our business by limiting our ability to manufacture and sell the products that represent a significant portion of our revenues. These outcomes may in turn result in customers transitioning to available competitive products, loss of market share, negative publicity, reputational damage, loss of customer confidence or other negative consequences (including a decline in stock price).
We may not realize the benefits we expect from our Operational Excellence Program.
In July 2019, our Board of Directors approved a new Operational Excellence Program, also referred to in this report as the 2020 Program, and delegated authority to management to determine the detail of the initiatives that will comprise the program. While cost savings from the 2020 Program to date have been consistent with our expectations, it is possible that events and circumstances, such as rising interest rates, macroeconomic uncertainty and the related impacts on us, our customers and suppliers could result in our not realizing all of the anticipated benefits or our not realizing the anticipated benefits on our expected timetable. Additionally, any material reduction in purchases by significant customers and any actions we take in response to such anticipated reduction could result in a decrease in benefits we realize under the 2020 Program. Our inability to realize all of the anticipated benefits from the 2020 Program could have a material adverse effect on our business, results of operations, cash flows and financial condition.
If our business development activities are unsuccessful, we may not realize the intended benefits.
We have sought and in the future may seek to supplement our organic growth through strategic acquisitions, investments and alliances. We have also sought and in the future may seek to divest certain assets deemed non-core to our long-term strategic objectives. Such transactions are inherently risky and require significant effort and management attention. The success of any acquisition, investment or alliance, or of any divestiture, may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate any business we may acquire into our existing business.
Promising partnerships and acquisitions may also not be completed for reasons such as competition among prospective partners or buyers, the inability to reach satisfactory terms, the need for regulatory approvals or the existence of economic conditions affecting our access to capital for acquisitions and other capital investments.
If our business development activities are unsuccessful, we may not realize the intended benefits of such activities, including that acquisition and integration costs may be greater than expected or the possibility that expected return on investment synergies and accretion, or on new growth opportunities funded in whole or part by divestitures, will not be realized or will not be realized within the expected timeframe.
Risks Related to Government Regulation
As a medical device and drug manufacturer, we operate in a highly regulated industry, and non-compliance with applicable laws or regulations could adversely affect our financial condition and results of operations.
The manufacture, distribution and marketing of our products are subject to extensive regulation by the FDA and other state and non-U.S. regulatory bodies. Our operations are also subject to review and monitoring by the FDA and other regulatory authorities. Government regulation of medical devices is meant to assure their safety and effectiveness, and includes regulation of, among other things, the product’s development, testing, premarket clearance and approval, manufacture, marketing, labeling, post-market surveillance, reporting, and imports and exports. Before a new medical device, or a new use of an existing product can be marketed in the United States, it must first receive either premarket clearance under Section 510(k) of the U.S. Federal Food, Drug, and Cosmetic Act, or FDCA, a grant of a request for de novo classification or a Premarket Approval, or PMA, from the FDA, unless an exemption applies. The process of obtaining regulatory clearances or approvals to market a medical device can be costly and time-consuming, and we may not be able to obtain these clearances or approvals on a timely basis, if at all.
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Many of our currently commercialized products have received 510(k) clearance. In the future, the FDA may determine that our products will require more costly, lengthy and uncertain de novo or PMA processes. Modifications to Class III devices, like our Vascular Closure products, may require additional clinical studies or supplemental PMA submissions. If the FDA requires us to go through a lengthier, more rigorous process for future products or modifications to existing products, our product introductions or modifications could be delayed or canceled, which could adversely affect our revenue. In particular, the FDA has recently placed increased scrutiny on cybersecurity for medical devices which may necessitate additional time and cost for product development, submission and approval or clearance. In addition, even if we do obtain clearance or approval, the FDA may not approve or clear these products for the indications that we requested. Any delay in, or failure to receive or maintain, clearances or approvals for our products under development could prevent us from generating revenue from these products.
Failure to substantially comply with applicable regulations could subject our products to recall or seizure of our products by government authorities, or an order to suspend manufacturing and distribution activities. If our products were determined to have design or manufacturing flaws, this could also result in their recall or seizure. Either of these situations could also result in the imposition of fines, administrative actions like untitled or warning letters, and other penalties or sanctions.
Our products are also subject to approval and regulation by foreign regulatory and safety agencies. For example, the EU has adopted the EU Medical Device Regulation, or EU MDR, and EU In Vitro Diagnostic Regulation, or EU IVDR, each of which impose stricter requirements for the marketing and sale of medical devices beyond those of the current medical device directives they replace, including in the area of clinical evaluation requirements, quality systems and post-market surveillance. Complying with the requirements of these regulations may require us to incur significant expenditures and we may experience delays that negatively impact the ability to sell our full suite of products in certain jurisdictions. Similarly, the separation of states from participation in the EU, such as through the cessation of the UK’s membership in the EU (commonly known as “Brexit”) and the separation of the Swiss and EU medical product markets with the adoption of the EU MDR (commonly referred to as “Swexit”), may result in further regulatory risk and complexity as the former EU member or participant state establishes separate laws and regulations governing medical products. More stringent regulations have also been introduced in many countries outside of Europe that previously did not have medical device regulations, had minimal regulations or relied on reciprocal recognition of approval in other markets. Failure to meet these requirements could adversely impact our business in the EU and other applicable regions.
If we or our suppliers fail to comply with laws and regulations governing the manufacture and production of our products, our products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain clearance or approval, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities for such product, will be subject to continued regulatory review, oversight and periodic inspection (both routine and unannounced) by the FDA and other domestic and foreign regulatory bodies. In particular, we and our third-party suppliers must comply with the FDA’s QSR or cGMP requirements (depending on the products at issue), which address, among other things, the methods of documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products.
Any future failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA or other regulatory authority could result in administrative actions, field actions, or civil or criminal enforcement actions.
Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all. Any sanctions by the FDA or other regulatory authority could have a material adverse effect on our reputation, business, results of operations and financial condition.
We are also subject to environmental laws, which are becoming more stringent throughout the world. For example, the U.S. Environmental Protection Agency regulates the use of ethylene oxide for sterilization of medical devices, and is increasingly focused on reducing emissions from the ethylene oxide sterilization process, which could increase our costs of operations and necessitate changes to our manufacturing plants and processes. Other environmental laws may have similar consequences to us or our suppliers, or result in liability to us. Additionally, increased environmental regulation, including the enactment of laws and regulations to address climate change, may increase our compliance costs or restrict certain aspects of our activities.
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If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting requirements.
Under the FDA’s medical device reporting regulations, medical device manufacturers are required to report to the FDA information of which they become aware that a device has or may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or one of our similar devices were to recur. Similar reporting requirements exist in some of the other jurisdictions in which we operate. Failure to report these events to the FDA or other applicable regulatory authorities within the required timeframes, or at all, could lead to enforcement actions, fines and criminal sanctions against us.
Our relationships with customers and third-party payers are subject to applicable anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion, contractual damages, reputational harm and diminished profits and future earnings.
We are subject to fraud and abuse and other healthcare laws and regulations that constrain the business or financial arrangements and relationships through which we market, sell and distribute our products. In addition, we are subject to transparency laws and patient privacy regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business.
The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that a healthcare or pharmaceutical company may fail to comply fully with one or more of these requirements. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with applicable fraud and abuse or other healthcare laws and regulations or guidance, or anti-bribery laws such as the Foreign Corrupt Practices Act of 1977, or equivalent laws in other jurisdictions. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our financial condition and divert resources and the attention of our management from operating our business.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition, results of operations and/or liquidity.
We are subject to income taxes, non-income based taxes and tax audits in the U.S. and various foreign jurisdictions. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision and have established contingency reserves for material, known tax exposures. However, the calculation of such tax exposures involves the application of complex tax laws and regulations in many jurisdictions, as well as interpretations as to the legality under various rules in certain jurisdictions. Therefore, there can be no assurance that we will accurately predict the outcomes of these disputes or other tax audits or that issues raised by tax authorities will be resolved at a financial cost that does not exceed our related reserves and the actual outcomes of these disputes and other tax audits could have a material impact on our results of operations or financial condition.
The tax regimes we are subject to or operate under are unsettled and may be subject to significant change. For example, in August 2022, the United States enacted the Inflation Reduction Act that imposes a 15% minimum tax for large corporations on global adjusted financial statement income for tax years beginning after December 31, 2022, and a 1% excise tax on certain share repurchases occurring after December 31, 2022. We do not currently expect that the Inflation Reduction Act will have a material impact on our income tax liability, but we will continue to monitor this change in future periods. We are unable to predict what changes to the tax laws of the U.S. and other jurisdictions may be proposed or enacted in the future or what effect such changes would have on our business. Any significant increase in our future effective tax rate could have a material adverse impact on our business, financial condition, results of operations, or cash flows.
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There is also a high level of uncertainty in the current tax environment stemming from both global initiatives put forth by the Organization for Economic Co-operation and Development (the “OECD”) and unilateral measures being implemented by various countries due to a lack of consensus on these global initiatives. Further, unilateral measures in response to such measures are creating additional uncertainty.
As we expand the scale of our international business activities, any changes in the U.S. or foreign taxation of such activities may increase our worldwide effective tax rate and harm our business, financial condition and results of operations. Such changes may also apply retroactively to our historical operations and result in taxes greater than the amounts estimated and recorded in our financial statements.
Risks Related to our Financial Obligations and Indebtedness
We have a significant amount of debt that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur additional debt in the future, which may adversely affect our operations and financial results.
In July 2022, the Company entered into an amended and restated credit agreement with certain lenders to refinance the existing term loan and revolving loan and extend their maturity date through June 2025. The amended and restated credit agreement provides for a $280.0 million term loan and access to a $420.0 million revolving loan (together, the “Revised Credit Facilities”). As of April 1, 2023, in addition to our $500.0 million aggregate principal amount of indebtedness under our convertible senior notes due 2026 (the “2026 Notes”), the Company had $274.7 million of debt outstanding under the term loan and no borrowings were outstanding under the revolving credit facility.
Our Revised Credit Facilities contain financial covenants that require us to maintain specified financial ratios that may limit our ability to borrow additional funds and that require us to make interest and principal payments. As of April 1, 2023, we were in compliance with the covenants pursuant to our Revised Credit Facilities, and we currently forecast that we will be in compliance with these covenants through the period ending March 30, 2024.
The conditional conversion feature of the 2026 Notes, if triggered, may adversely affect our financial condition and operating results.
Under certain circumstances, the noteholders may convert their 2026 Notes at their option prior to the scheduled maturities. If one or more noteholders elect to convert their 2026 Notes, we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, holders of our 2026 Notes will have the right to require us to repurchase their 2026 Notes upon the occurrence of a fundamental change (as defined in the indenture, dated as of March 5, 2021, between U.S. Bank National Association, as trustee (the “Trustee”) and us (the “Indenture”)), at a repurchase price equal to the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special interest, if any, to but not including, the fundamental change repurchase date. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2026 Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the 2026 Notes or pay the cash amounts due upon conversion. Our failure to repurchase the 2026 Notes or to pay the cash amounts due upon conversion when required will constitute a default under the Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, including our Revised Credit Facilities, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Notes.
Even if holders do not elect to convert their 2026 Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2026 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
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The Capped Call Transactions may affect the value of the 2026 Notes and our common stock.
In connection with the 2026 Notes issuance, we entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain financial institutions (the “Option Counterparties”). The Capped Call Transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2026 Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.
From time to time, the Option Counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2026 Notes. This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the 2026 Notes.
We are subject to counterparty risk with respect to the Capped Call Transactions.
The Option Counterparties are financial institutions, and we are subject to the risk that one or more of the Option Counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the Capped Call Transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral. Past global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an Option Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transactions with such Option Counterparty. Our exposure depends on many factors, but our exposure will generally increase if the market price or the volatility of our common stock increases. In addition, upon default by an Option Counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the Option Counterparties.
In addition, the Capped Call Transactions are complex, and they may not operate as planned. For example, the terms of the Capped Call Transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur. Accordingly, these transactions may not operate as we intend if we are required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the Capped Call Transactions.
Provisions in the Indenture could delay or prevent an otherwise beneficial takeover of us.
Certain provisions in the 2026 Notes and the Indenture could make a third party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their 2026 Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the 2026 Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.
Conversion of the 2026 Notes may dilute the ownership interest of existing stockholders.
The conversion of some or all of the Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the 2026 Notes. Any sales in the public market of the common stock issuable upon such conversion could adversely affect our common stock’s prevailing market prices. In addition, the existence of the 2026 Notes may encourage short selling by market participants because the conversion of the 2026 Notes could be used to satisfy short positions, or anticipated conversion of the 2026 Notes into shares of our common stock could depress the price of our common stock.
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Risks Related to Operating Internationally
As a substantial amount of our revenue comes from outside the U.S., we are subject to geopolitical events, economic volatility, violations of anti-corruption laws, export and import restrictions and tariffs, decisions by local regulatory authorities and the laws and medical practices in foreign jurisdictions.
We do business in over 90 countries and have distributors in approximately 80 of these countries. This exposes us to currency fluctuation, geopolitical risk, economic volatility, anti-corruption laws, export and import restrictions, local regulatory authorities and the laws and medical practices in foreign jurisdictions.
U.S. legislation aimed at boosting competitiveness of U.S. businesses may have unintended effects on our business. Tariffs and other protectionist measures directed at China and other markets, as well as prolonged uncertainty regarding such measures as administrations change, may have adverse effects on our ability to source, manufacture and distribute products, or receive payments, in a timely and cost effective manner, thereby adversely affecting our business. Additionally, the military conflict between Russia and Ukraine has resulted in the implementation of sanctions by the U.S. and other governments against Russia and has caused significant volatility and disruptions to the global markets. It is not possible to predict the short- and long-term implications of this conflict, which could include but are not limited to further sanctions, uncertainty about economic and political stability, increases in inflation rate and energy prices, cyber-attacks, supply chain challenges and adverse effects on currency exchange rates and financial markets. We are continuing to monitor the situation in Ukraine and globally as well as assess its potential impact on our business. Although our business in Russia accounted for only about 1% of fiscal 2023 net revenues, a significant escalation or further expansion of the conflict’s current scope or related disruptions to the global markets could have a material adverse effect on our results of operations.
Our international operations are governed by the U.S. Foreign Corrupt Practices Act, or FCPA, and other similar anti-corruption laws in other countries. Generally, these laws prohibit companies and their business partners or other intermediaries from making improper payments to foreign governments and government officials in order to obtain or retain business. Global enforcement of such anti-corruption laws has increased in recent years, including aggressive investigations and enforcement proceedings. While we have an active compliance program and various other safeguards to discourage impermissible practices, we have distributors in approximately 80 countries, several of which are considered high risk for corruption. As a result, our global operations carry some risk of unauthorized impermissible activity on the part of one of our distributors, employees, agents or consultants. Any alleged or actual violation could subject us to government scrutiny, severe criminal or civil fines, or sanctions on our ability to export product outside the U.S., which could adversely affect our reputation and financial condition.
Export of U.S. technology or goods manufactured in the U.S. to some jurisdictions requires special U.S. export authorization or local market controls that may be influenced by factors, including political dynamics, outside our control.
Finally, any other significant changes in the competitive, legal, regulatory, reimbursement or economic environments of the jurisdictions in which we conduct our international business could have a material impact on our business.
We sell our products in certain emerging economies which exposes us to less mature regulatory systems, more volatile markets for our products and greater credit risks. A loss of funding for our products or changes to the regulatory regime could lead to lost revenue or account receivables.
There are risks with doing business in emerging economies, such as Brazil, Russia, India and China. These economies tend to have less mature product regulatory systems and more volatile financial markets. In addition, the government controlled healthcare system’s ability to invest in our products and systems may abruptly shift due to changing government priorities, geopolitical events or funding capacity. Our ability to sell products in these economies is dependent upon, among other factors, our ability to hire qualified employees or agents to represent our products locally and our ability to obtain and maintain the necessary regulatory approvals in a less mature regulatory environment. If we are unable to retain qualified representatives or maintain the necessary regulatory approvals, we will not be able to continue to sell products in these markets. We are also exposed to a higher degree of financial risk if we extend credit to customers in these economies.
In many of the international markets in which we do business, including certain parts of Europe, South America, the Middle East and Asia, our employees, agents or distributors offer to sell our products in response to public tenders issued by various governmental agencies.
There is additional risk in selling our products through agents or distributors, particularly in public tenders. If they misrepresent our products, do not provide appropriate service and delivery, or commit a violation of local or U.S. law, our reputation could be harmed and we could be subject to fines, sanctions or both.
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We are exposed to fluctuations in currency exchange rates, which could adversely affect our cash flows and results of operations.
International revenues and expenses account for a substantial portion of our operations. In fiscal 2023, our international revenues accounted for 27.9% of our total revenues. The exposure to fluctuations in currency exchange rates takes different forms. Reported revenues, as well as manufacturing and operational costs denominated in foreign currencies by our international businesses, fluctuate due to exchange rate movement when translated into U.S. dollars for financial reporting purposes. Fluctuations in exchange rates could adversely affect our profitability in U.S. dollars of products and services sold by us into international markets, where payment for our products and services and related manufacturing and operational costs is made in local currencies.
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of amounts that have been accrued.
We are subject to taxation in numerous countries, states and other jurisdictions. In preparing our financial statements, we record the amount of tax payable in each of the jurisdictions in which we operate. Our future effective tax rate, however, may be lower or higher than prior years due to numerous factors, including a change in our geographic earnings mix, changes in the measurement of our deferred taxes and recently enacted and future tax law changes in jurisdictions in which we operate. Changes in our operations, including headcount in Switzerland or Malaysia, could adversely affect our tax rate due to favorable tax rulings in these jurisdictions. We are also subject to tax audits in various jurisdictions and tax authorities may disagree with certain positions we have taken and assess additional taxes. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations, which could adversely affect our business, results of operations and cash flows.
Risks Related to Intellectual Property and Litigation
There is a risk that our intellectual property may be subject to misappropriation in some countries.
Certain countries, particularly China and Russia, do not enforce compliance with laws that protect intellectual property rights with the same degree of vigor as is available under the U.S. and European systems of justice. In order to aggressively protect our intellectual property throughout the world, we have a program of patent disclosures and filings in markets where we conduct significant business. While we believe this program is reasonable and adequate, the risk of loss is inherent in litigation as different legal systems offer different levels of protection to intellectual property and it is still possible that even patented technologies may not be protected absolutely from infringement.
Pending and future intellectual property litigation could be costly and disruptive to us.
We operate in an industry that is susceptible to significant intellectual property litigation. This type of litigation is expensive, complex and lengthy and its outcome is difficult to predict. Patent litigation may result in adverse outcomes and could significantly divert the attention of our technical and management personnel.
Our products may be determined to infringe another party’s patent, which could lead to financial losses or adversely affect our ability to market our products.
There is a risk that one or more of our products may be determined to infringe a patent held by another party. If this were to occur, we may be subject to an injunction or to payment of royalties, or both, which may adversely affect our ability to market the affected product or otherwise have an adverse effect on our results of operations. In addition, competitors may patent technological advances that may give them a competitive advantage or create barriers to entry.
In order to guard against the risk of infringement of intellectual property rights held by third parties we conduct freedom to operate studies through qualified counsel on all newly developed or acquired technologies. While we believe this practice is reasonable and adequate, there is risk that third party patents or trademarks were not identified in such studies or that litigation outcomes regarding infringement or validity may be contrary to our understanding of the facts or the established law.
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We operate in an industry susceptible to significant product liability claims. Pending and future product liability claims and other litigation may adversely affect our financial condition and results of operations or liquidity, and they also have the potential to damage our reputation, impair our ability to market our products and impact our ability to maintain applicable insurance coverage on reasonable terms or at all.
Our products are relied upon by medical personnel in connection with the treatment of patients and the collection of blood or blood components from donors. In the event that patients or donors sustain injury or death in connection with their condition or treatment, we, along with others, may be sued and whether or not we are ultimately determined to be liable, we may incur significant legal expenses. These claims may be brought by individuals seeking relief on their own behalf or purporting to represent a class. In addition, we may be subject to claims against us even if the apparent injury is due to the actions of others or the pre-existing health of the patient. For example, we rely on physicians and healthcare providers to properly and correctly use our products on patients. If these physicians or healthcare providers are not properly trained, are negligent in using our products or use our products “off-label,” the capabilities of our products may be diminished or the patient may suffer critical injury. We cannot prevent a physician from using our products for off-label applications. In addition, we cannot guarantee that physicians are trained by us or their peers prior to utilizing our products. Complications resulting from the use of our products off-label or use by physicians who have not been trained appropriately, or at all, may expose us to product liability claims and harm our reputation. Any such complications or adverse safety outcomes following use of VASCADE or VASCADE MVP may result in higher payments to our customers under a Performance Guarantee program applicable to those products, which would harm our business and results of operations. In addition, product liability claims may be asserted against us in the future based on events we are not aware of at the present time.
If we cannot successfully defend ourselves against pending or future product liability claims and other litigation (including class actions and stockholder derivative actions), we may incur substantial liabilities or be required to limit or halt commercialization of our products. Even successful defenses require significant financial and management resources. Regardless of the merits or eventual outcome, such litigation could have a material adverse effect on our financial condition, results of operations or liquidity and further could damage our reputation and, therefore, impair our ability to market our products and make applicable insurance coverage more costly or difficult to obtain. While we believe that our current product liability insurance coverage is sufficient, there is no assurance that such coverage will be adequate to cover incurred liabilities or that we will be able to obtain acceptable product and professional liability coverage in the future. Additionally, we do not maintain third-party insurance coverage for all categories of potential liability, which increases our exposure to unanticipated claims and adverse decisions and these losses could have a material adverse effect on our financial condition, results of operations or liquidity.
General Risk Factors
Actual or threatened public health emergencies could harm our business.
Our business and operations could be adversely affected by health epidemics that impact the markets and communities in which we, our partners and our clients operate. The COVID-19 pandemic caused significant disruption to the business and financial markets. We continue to monitor the potential effects of future health epidemics on our business and operations. While the spread and impact of COVID-19 has stabilized, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, which could have the effect of decreasing demand and/or increasing volatility in demand for our products.
Our success depends on our ability to attract and retain key personnel needed to successfully operate the business and to plan for future executive transitions.
Our ability to compete effectively depends on our ability to attract and retain key employees, including people in senior management, sales, marketing and R&D positions, and to facilitate seamless leadership transitions for key positions. Our ability to recruit and retain key talent will depend on a number of factors, including hiring practices of our competitors, compensation and benefits, work location, work environment, hybrid work environment policies and industry economic conditions. If we fail to attract and retain key personnel in senior management and other positions, or if our succession planning efforts are not effective, it could have a material adverse effect on our business, financial condition and results of operations.
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Our share price has been volatile and may fluctuate, and accordingly, the value of an investment in our common stock may also fluctuate.
Stock markets in general and our common stock in particular have experienced significant price and trading volume volatility over recent years. The market price and trading volume of our common stock may continue to be subject to significant fluctuations due to factors described under this Item 1A. Risk Factors, as well as economic and geopolitical conditions in general and to variability in the prevailing sentiment regarding our operations or business prospects, as well as, among other things, changing investment priorities of our shareholders. Because the market price of our common stock fluctuates significantly, shareholders may not be able sell their shares at attractive prices.
Share repurchase programs, including under our existing share repurchase authorization, could affect the price of our common stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock.
In August 2022, we announced that our Board of Directors had approved a new three-year share repurchase program authorizing the repurchase of up to $300.0 million of outstanding shares of our common stock through August 2025. Under the share repurchase program, we are authorized to repurchase, from time to time, outstanding shares of common stock in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended and in privately negotiated transactions. The actual timing, number and value of shares repurchased is determined by us and depends on a number of factors, including market conditions, applicable legal requirements and compliance with the terms of loan covenants. The share repurchase program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our common stock under the programs. Repurchases pursuant to our share repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could also cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. There can be no assurance that any share repurchases will enhance shareholder value because the market price of our common stock may decline below the levels at which we repurchased our common stock. Although our share repurchase program is intended to enhance long-term shareholder value, short-term stock price fluctuations could reduce the program’s effectiveness. Refer to Note 7, Earnings per Share, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.
Our business could be negatively impacted by corporate responsibility matters.
There has been increased focus from certain regulatory bodies, investors, customers, employees and other stakeholders concerning corporate responsibility matters, including topics identified under the framework of Environmental, Social and Governance (“ESG”). For example, customer preferences or requirements may be influenced by company progress across various ESG topics related to, among other things, human capital and environmental impact matters. From time to time, we may announce certain initiatives, including goals, regarding corporate responsibility focus areas for our company. We may not achieve, or may be perceived as not achieving, against such initiatives, including as a result of changes in our business. Moreover, the standards by which corporate responsibility efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions that could change over time. Any failure, or perceived failure, to achieve against our corporate responsibility initiatives or to establish goals that align with stakeholder expectations could result in declines in our market share and have an adverse impact on our business, financial condition or results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
As of April 1, 2023, our global headquarters are located in Boston, Massachusetts and our principal manufacturing centers are located in Pennsylvania and California within the U.S., as well as internationally in Mexico and Malaysia. Our products are distributed worldwide from primary distribution centers in Tennessee, Utah and Switzerland, as well as smaller locations globally. We believe all of these facilities are well-maintained and suitable for the operations conducted in them. These facilities produce and manufacture products for more than one of our business segments.
The following is a summary of our facilities as of April 1, 2023 (in approximate square feet):
| Owned | Leased | Total | |||||||||
| U.S. | 165,385 | 636,489 | 801,874 | ||||||||
| International | 378,000 | 248,909 | 626,909 | ||||||||
| Total | 543,385 | 885,398 | 1,428,783 | ||||||||
ITEM 3. LEGAL PROCEEDINGS
Information with respect to this Item may be found in Note 16, Commitments & Contingencies, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the New York Stock Exchange under the symbol “HAE.” As of April 1, 2023, we had 106 stockholders of record. We have not historically paid cash dividends and do not currently anticipate paying cash dividends in the future.
Issuer Purchases of Equity Securities
In August 2022, the Company’s Board of Directors approved a new three-year share repurchase program authorizing the repurchase of up to $300.0 million of the Company’s common stock from time to time, based on market conditions, through August 2025. Under the Company’s share repurchase program, shares may be repurchased in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Exchange Act, and in privately negotiated transactions. In November 2022, 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. in August 2022. As of April 1, 2023, the total remaining authorization for repurchases of the Company’s common stock under the share repurchase program was $225.0 million.
ITEM 6. RESERVED
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Business
Haemonetics is a global healthcare company dedicated to providing a suite of innovative medical products and solutions for customers, to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite and hospital transfusion services.
We view our operations and manage our business in three principal reporting segments: Plasma, Blood Center and Hospital. For that purpose, “Plasma” includes plasma collection devices and disposables, plasma donor management software and anticoagulant and saline sold to plasma customers. “Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and whole blood. “Hospital”, which is comprised of Hemostasis Management, Vascular Closure, Cell Salvage and Transfusion Management products, includes devices and methodologies for measuring coagulation characteristics of blood, vascular closure devices, specialized blood cell processing systems and disposables, surgical blood salvage systems and blood transfusion management software.
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 approved a new three-year share repurchase program authorizing the repurchase of up to $300.0 million of Haemonetics common stock from time to time, based on market conditions, through August 2025. In November 2022, 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. in August 2022. The total number of shares repurchased under the ASR was 1.0 million at an average price per share upon final settlement of $75.20.
As of April 1, 2023, the total remaining authorization for repurchase of the Company’s common stock was $225.0 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. Our Revised Credit Facilities include a $280.0 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 $420.0 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.
Market Trends
Plasma Market
There are two key aspects to the market for our plasma products - the growth in demand for plasma-derived biopharmaceuticals and the limited number of significant biopharmaceutical companies in this market.
Changes in demand for plasma-derived biopharmaceuticals, particularly immunoglobulin, are the key driver of plasma collection volumes in the biopharmaceutical market. Various factors related to the supply of plasma and the production of plasma-derived biopharmaceuticals also affect collection volume, including the following:
•Biopharmaceutical companies are seeking more yield from each plasma collection to meet growing demand for biopharmaceuticals without requiring an equivalent increase in plasma donations.
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•Newly approved indications for auto-immune diseases treated with plasma-derived therapies, the growing understanding and diagnosis of these diseases, longer lifespans and a growing aging patient population increase the demand for plasma.
•Geographical expansion of biopharmaceuticals also increases demand for plasma.
Despite the overall growth in the market, the number of biopharmaceutical companies that collect and fractionate source plasma is low and industry consolidation is ongoing. Significant barriers to entry exist for new entrants due to high capital outlay requirements for fractionation, long regulatory pathways to the licensing of collection centers and fractionation facilities and approval of plasma-derived biopharmaceuticals. As a result, there are relatively few customers for our Plasma products, especially in the U.S. where approximately 70% of the world’s source plasma is collected and only a few customers provide the majority of our Plasma revenue. However, certain jurisdictions such as Egypt and the United Kingdom have begun to collect or are considering collection of plasma for fractionation for their local needs, which could expand the Plasma market.
Blood Center Market
In the Blood Center market, we sell automated blood component and manual whole blood collection systems. While we sell products around the world, a significant portion of our sales are to a limited number of customers due to relatively limited number of blood collectors.
Within the Blood Center market, we have seen three trends that have negatively impacted growth of the overall marketplace despite the overall increase in aging populations. Overall, we expect a flat to low single-digit decline in this business.
•Declining transfusion rates in mature markets due to the development of more minimally invasive procedures with lower associated blood loss, as well as better blood management.
•Competition in multi-unit collection technology for automated blood component collection systems has intensified and has negatively impacted our sales in markets where these collections are prevalent.
▪Industry consolidation through group purchasing organizations has intensified pricing competition particularly in the manual whole blood collection systems.
Hospital Markets
Hemostasis Management Market - The use of routine coagulation testing is well established throughout the world in various medical procedures, including cardiovascular surgery, organ transplantation, trauma, post-partum hemorrhage and percutaneous coronary intervention. While standard tests like prothrombin time, partial thromboplastin time and platelet count have limited ability to reveal a patient’s risk for bleeding, they do not provide information on the patient’s risk for thrombosis. In addition, these routine tests do not provide specific data about clot quality or stability. As a result of these limitations, clinicians are increasingly utilizing advanced hemostasis testing to provide more information about a patient’s hemostasis status, resulting in improved clinical decision-making. In addition, advanced hemostasis testing supports hospital efforts to reduce the risks, complications and costs associated with unnecessary blood component transfusions.
Haemonetics’ TEG, ClotPro and HAS hemostasis analyzer systems are advanced diagnostic tools that provide a comprehensive assessment of a patient’s overall hemostasis. This information enables clinicians to decide the most appropriate clinical treatment for the patient to minimize blood loss and reduce clotting risk. For example, TEG analyzers have been used to support clinical decision making in open cardiovascular surgery and organ transplantation, becoming the standard of care in liver transplants. In more recent years, interest has grown into the utilization of TEG in trauma and other procedures in which the risk of hemorrhage and thrombosis are high.
Geographically, TEG systems have achieved the highest market penetration in North America, Europe and China. However, there are considerable growth opportunities in these as well as other markets, as TEG systems become more established as the standard of care around the world. Our ClotPro system is currently available in select European and Asian markets and is not available for use or sale in the U.S. The HAS-100 is currently commercialized in China.
Vascular Closure Market - The target markets for our Vascular Closure products, coronary and peripheral procedures and electrophysiology procedures, are highly concentrated in the U.S. The mature market of coronary and peripheral procedures consists of interventions to diagnose and treat vascular diseases. Electrophysiology procedures consist of catheter-based
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interventions to diagnose and treat cardiac arrhythmias. This procedure category is expected to grow based on the increasing incidence and prevalence of cardiac arrhythmias, mainly in the U.S. Additionally, our VASCADE and VASCADE MVP vascular closure systems received CE mark clearance in fiscal 2023, providing a pathway for country-specific introduction of these products in the EU.
Cell Salvage Market - In recent years, more efficient blood use and less invasive surgeries have reduced demand for autotransfusion in these procedures and contributed to intense competition in mature markets, while increased access to healthcare in emerging economies has provided new markets and sources of growth. Orthopedic procedures have seen similar changes with improved blood management practices, including the use of tranexamic acid to treat and prevent postoperative bleeding, significantly reducing the number of transfusions and autotransfusion. Geographically, the Cell Saver has achieved the highest market penetration in North America, Europe and Japan. However, there are considerable growth opportunities in certain Asia Pacific and other emerging markets as addressable procedure volumes grow and the use of autotransfusion is becoming accepted as a standard of care.
Transfusion Management Market - Revenues from BloodTrack have increased in the U.S. and Europe in recent years as hospitals seek means to improve efficiencies and meet compliance guidelines for tracking and dispositioning blood components to patients. SafeTrace Tx’s leading market share in the U.S. remains steady and in fiscal 2021 launched in the United Kingdom. We continue to explore opportunities to expand the portfolio internationally.
Financial Summary
| Fiscal Year | |||||||||||||||||
| (In thousands, except per share data) | 2023 | 2022 | % Increase/(Decrease) | ||||||||||||||
| Net revenues | $ | 1,168,660 | $ | 993,196 | 17.7 | % | |||||||||||
| Gross profit | $ | 615,097 | $ | 505,502 | 21.7 | % | |||||||||||
| % of net revenues | 52.6 | % | 50.9 | % | |||||||||||||
| Operating expenses | $ | 459,064 | $ | 424,752 | 8.1 | % | |||||||||||
| Operating income | $ | 156,033 | $ | 80,750 | 93.2 | % | |||||||||||
| % of net revenues | 13.4 | % | 8.1 | % | |||||||||||||
| Interest and other expense, net | $ | (14,630) | $ | (17,121) | (14.5) | % | |||||||||||
| Income before provision for income taxes | $ | 141,403 | $ | 63,629 | 122.2 | % | |||||||||||
| Provision for income taxes | $ | 26,002 | $ | 20,254 | 28.4 | % | |||||||||||
| % of pre-tax income | 18.4 | % | 31.8 | % | |||||||||||||
| Net income | $ | 115,401 | $ | 43,375 | 166.1 | % | |||||||||||
| % of net revenues | 9.9 | % | 4.4 | % | |||||||||||||
| Net income per share - basic | $ | 2.27 | $ | 0.85 | 167.1 | % | |||||||||||
| Net income per share - diluted | $ | 2.24 | $ | 0.84 | 166.7 | % | |||||||||||
Our fiscal year ends on the Saturday closest to the last day of March. Fiscal years 2023 and 2022 included 52 weeks with each quarter having 13 weeks.
Net revenues for fiscal 2023 increased 17.7% compared with fiscal 2022. Without the effects of foreign exchange, net revenues increased 20.3% compared with fiscal 2022. Revenue increases in our Plasma and Hospital businesses, primarily related to volume and price, drove the overall increase in revenue during the fiscal year ended April 1, 2023.
Operating income increased 93.2% during fiscal 2023 as compared with fiscal 2022, primarily due to increased revenues in Plasma and Hospital, savings from the Operational Excellence Program (“2020 Program”), decreased spending on acquisitions in fiscal 2023 and decreased amortization of acquired intangible assets, partially offset by higher performance-based compensation, lower revenues in Blood Center, increased freight costs in our global supply chain and increased sales and marketing expense.
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Management's Use of Non-GAAP Measures
Management uses non-GAAP financial measures, in addition to financial measures in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), to monitor the financial performance of the business, make informed business decisions, establish budgets and forecast future results. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with U.S. GAAP. Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency conversion rate. We have provided this non-GAAP financial measure because we believe it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented.
RESULTS OF OPERATIONS
Net Revenues by Geography
| Fiscal Year | |||||||||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | Reported Growth | Currency impact | Constant currency growth (1) | ||||||||||||||||||||||||
| United States | $ | 842,897 | $ | 639,322 | 31.8 | % | — | % | 31.8 | % | |||||||||||||||||||
| International | 325,763 | 353,874 | (7.9) | % | (7.1) | % | (0.8) | % | |||||||||||||||||||||
| Net revenues | $ | 1,168,660 | $ | 993,196 | 17.7 | % | (2.6) | % | 20.3 | % | |||||||||||||||||||
(1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See “Management's Use of Non-GAAP Measures.” | |||||||||||||||||||||||||||||
International Operations and the Impact of Foreign Exchange
Our principal operations are in the United States, Europe, Japan and other parts of Asia. Our products are marketed in approximately 90 countries around the world through a combination of our direct sales force and independent distributors and agents.
The percentage of revenue generated in our principal operating regions is summarized below:
| Fiscal Year | |||||||||||
| 2023 | 2022 | ||||||||||
| United States | 72.1 | % | 64.4 | % | |||||||
| Japan | 5.2 | % | 7.6 | % | |||||||
| Europe | 13.4 | % | 16.5 | % | |||||||
| Asia | 8.9 | % | 11.2 | % | |||||||
| Other | 0.4 | % | 0.3 | % | |||||||
| Total | 100.0 | % | 100.0 | % | |||||||
International sales are generally conducted in local currencies, primarily Japanese Yen, Euro and Chinese Yuan. Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen and Euro, relative to the U.S. Dollar. We have placed foreign currency hedges to mitigate our exposure to foreign currency fluctuations.
Please see the section entitled “Foreign Exchange” in this discussion for a more complete explanation of how foreign currency affects our business and our strategy for managing this exposure.
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Net Revenues by Business Unit
| Fiscal Year | ||||||||||||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | Reported Growth | Currency impact | Constant currency growth(1) | |||||||||||||||||||||||||||
| Plasma | $ | 496,923 | $ | 351,347 | 41.4% | (0.8)% | 42.2% | |||||||||||||||||||||||||
| Blood Center | 279,962 | 298,512 | (6.2)% | (4.4)% | (1.8)% | |||||||||||||||||||||||||||
Hospital(2) | 371,731 | 322,804 | 15.2% | (2.4)% | 17.6% | |||||||||||||||||||||||||||
| Service | 20,044 | 20,533 | (2.4)% | (5.3)% | 2.9% | |||||||||||||||||||||||||||
| Net revenues | $ | 1,168,660 | $ | 993,196 | 17.7% | (2.6)% | 20.3% | |||||||||||||||||||||||||
(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 $138.9 million and $127.4 million for fiscal years 2023 and 2022, respectively. Hemostasis Management revenue increased 9.0% during fiscal 2023 as compared with fiscal 2022. Without the effect of foreign exchange, Hemostasis Management revenue increased 11.3% as compared with fiscal 2022. Vascular Closure revenue increased 35.1% during fiscal 2023 as compared with fiscal 2022. | ||||||||||||||||||||||||||||||||
Plasma
Plasma revenue increased 41.4% during fiscal 2023 as compared with fiscal 2022. Without the effect of foreign exchange, Plasma revenue increased 42.2% during fiscal 2023 as compared with fiscal 2022. This revenue increase was primarily driven by volume and price.
During the third quarter of fiscal 2022, we amended our supply agreement with 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 on a non-exclusive basis through December 2023. During the third quarter of fiscal 2023, we further amended our supply agreement with CSL to extend the term through December 2025. CSL has a minimum purchase commitment under the non-exclusive supply agreement that slightly exceeds $100.0 million in fiscal 2024, and we expect that CSL will continue to provide a meaningful contribution to our Plasma business revenue in fiscal 2025.
Blood Center
Blood Center revenue decreased 6.2% during fiscal 2023 as compared with fiscal 2022. Without the effect of foreign exchange, Blood Center revenue decreased 1.8% during fiscal 2023. The decrease was primarily driven by declines in the volume of apheresis disposables, partially offset by an increase in whole blood disposables.
Hospital
Hospital revenue increased 15.2% during fiscal 2023 as compared with fiscal 2022. Without the effect of foreign exchange, Hospital revenue increased 17.6% during fiscal 2023. The increase was primarily attributable to Vascular Closure revenue, as well as increases in Hemostasis Management disposables revenue and Transfusion Management revenue.
Gross Profit
| Fiscal Year | |||||||||||||||||
| (In thousands) | 2023 | 2022 | % Increase/(Decrease) | ||||||||||||||
| Gross profit | $ | 615,097 | $ | 505,502 | 21.7 | % | |||||||||||
| % of net revenues | 52.6 | % | 50.9 | % | |||||||||||||
Gross profit increased 21.7% during fiscal 2023 as compared with fiscal 2022. Without the effects of foreign exchange, gross profit increased 26.1% during fiscal 2023. The increase was primarily driven by volume, price, decreased spend on both restructuring and restructuring related costs and integration and transaction costs, as well as productivity savings from the 2020 Program. These drivers were partially offset by inflationary pressures in our global manufacturing and supply chain and increased depreciation expense.
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Operating Expenses
| Fiscal Year | |||||||||||||||||
| (In thousands) | 2023 | 2022 | % Increase/(Decrease) | ||||||||||||||
| Research and development | $ | 50,131 | $ | 46,801 | 7.1 | % | |||||||||||
| % of net revenues | 4.3 | % | 4.7 | % | |||||||||||||
| Selling, general and administrative | $ | 376,675 | $ | 340,140 | 10.7 | % | |||||||||||
| % of net revenues | 32.2 | % | 34.2 | % | |||||||||||||
| Amortization of acquired intangible assets | $ | 32,640 | $ | 47,414 | (31.2) | % | |||||||||||
| % of net revenues | 2.8 | % | 4.8 | % | |||||||||||||
| Gains on divestiture | $ | (382) | $ | (9,603) | (96.0) | % | |||||||||||
| % of net revenues | — | % | (1.0) | % | |||||||||||||
| Total operating expenses | $ | 459,064 | $ | 424,752 | 8.1 | % | |||||||||||
| % of net revenues | 39.3 | % | 42.8 | % | |||||||||||||
Research and Development
Research and development expenses increased 7.1% during fiscal 2023 as compared with fiscal 2022. Without the effects of foreign exchange, research and development expenses increased 7.4% during fiscal 2023. The increase in fiscal 2023 was primarily due to increased investments into product innovation, partially offset by decreased spend on MDR and IVDR.
Selling, General and Administrative
Selling, general and administrative expenses increased 10.7% during fiscal 2023 as compared with fiscal 2022. Without the effects of foreign exchange, selling, general and administrative expenses increased 12.6% during fiscal 2023. The increase in fiscal 2023 was primarily driven by higher performance-based compensation, inflationary pressures and higher freight costs in our global supply chain and increased investments in sales and marketing, partially offset by cost savings related to the 2020 Program and decreased acquisition costs and restructuring and restructuring related costs in fiscal 2023.
Amortization of Acquired Intangible Assets
We recognized amortization expense related to our acquired intangible assets of $32.6 million and $47.4 million during fiscal 2023 and fiscal 2022, respectively. The decrease in fiscal 2023 is primarily the result of intangible assets that became fully amortized during fiscal 2022.
Gains on Divestitures
We recognized gains on divestitures of $0.4 million and $9.6 million during fiscal 2023 and fiscal 2022, respectively. Refer to Note 5, Divestitures, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.
Interest and Other Expense, Net
Interest and other expenses decreased 14.5% during fiscal 2023 as compared with fiscal 2022. Without the effects of foreign exchange, interest and other expenses decreased 15.9% during fiscal 2023. The decrease was primarily driven by increased interest income on investments due to higher interest rates, lower interest paid on interest rate swaps due to market and rate volatility, partially offset by higher interest incurred on our term loan.
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Income Taxes
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | % Increase/(Decrease) | |||||||||||||||
| Reported income tax rate | 18.4 | % | 31.8 | % | (13.4) | % | |||||||||||
Reported Tax Rate
We conduct business globally and report our results of operations in a number of foreign jurisdictions in addition to the U.S. Our reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which we operate have tax rates that differ from the U.S. statutory tax rate.
We have assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income. As of April 1, 2023, we maintain a valuation allowance against certain U.S. state and foreign tax credit carryforwards that are not more-likely-than-not realizable as well as a valuation allowance against the net deferred tax assets of certain foreign subsidiaries.
For the year ended April 1, 2023, we recorded income tax expense of $26.0 million on our worldwide pre-tax income of $141.4 million, resulting in a reported tax rate of 18.4%. Our effective tax rate for the year ended April 1, 2023 is lower than our effective tax rate of 31.8% for fiscal 2022, primarily due to the release of valuation allowance related to U.S. state deferred tax assets, the absence of provisions related to contingent consideration and decreased disallowed stock compensation expense, partially offset by jurisdictional mix of earnings.
Effective beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the Company to capitalize, and subsequently amortize research and development expenses over five years for research activities conducted in the U.S. and over fifteen years for research activities conducted outside of the U.S. There was not a material impact on our effective tax rate in fiscal 2023 as a result of this requirement.
Liquidity and Capital Resources
The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:
| (In thousands) | April 1, 2023 | April 2, 2022 | |||||||||
| Cash and cash equivalents | $ | 284,466 | $ | 259,496 | |||||||
| Working capital | $ | 517,906 | $ | 313,765 | |||||||
| Current ratio | 3.1 | 1.7 | |||||||||
Net debt position(1) | $ | (481,420) | $ | (514,093) | |||||||
| Days sales outstanding (DSO) | 53 | 54 | |||||||||
| Inventory turnover | 1.8 | 1.4 | |||||||||
(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 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, share repurchases and cash principal and interest payments under our revised credit agreement.
In March 2021, the Company issued $500.0 million aggregate principal amount of 0% convertible senior notes due 2026, or the 2026 Notes. The 2026 Notes are governed by the terms of the Indenture between the Company and U.S. Bank National Association, as trustee. The total net proceeds from the sale of the 2026 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $486.7 million. 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 April 1, 2023.
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As of April 1, 2023, we had $284.5 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 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. Our Revised Credit Facilities include a $280.0 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 $420.0 million senior unsecured revolving credit facility. 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. The revolving credit facility carries an unused fee that ranges from 0.125% to 0.250% annually based on the Company’s consolidated net leverage ratio at the applicable measurement date. Under the Revised Credit Facilities, the Company is required to maintain certain leverage and interest coverage ratios specified in the amended and restated credit agreement as well as other customary non-financial affirmative and negative covenants. The Revised Credit Facilities mature on June 15, 2025. 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.
As of April 1, 2023, $274.7 million was outstanding under the term loan with an effective interest rate of 6.3%. There were no borrowings outstanding on the revolving loan. We also had $21.3 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of April 1, 2023. 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 April 1, 2023.
The Company has scheduled principal payments of $12.3 million required during fiscal 2024.
During fiscal 2022, our Board of Directors approved a revised 2020 Program. We now estimate that we will incur aggregate charges between $95 million and $105 million in connection with the 2020 Program. These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2025. During the fiscal years ended April 1, 2023 and April 2, 2022, the Company incurred $11.5 million and $28.7 million, respectively, of restructuring and restructuring related costs under this program.
Cash Flows
| Fiscal Year | |||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 273,058 | $ | 172,263 | |||||||
| Investing activities | (143,788) | (86,345) | |||||||||
| Financing activities | (100,364) | (15,749) | |||||||||
Effect of exchange rate changes on cash and cash equivalents(1) | (3,936) | (2,978) | |||||||||
| Net change in cash and cash equivalents | $ | 24,970 | $ | 67,191 | |||||||
(1) The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dollars. In accordance with U.S. GAAP, we have eliminated the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents. | |||||||||||
Operating Activities
Net cash provided by operating activities was $273.1 million during fiscal 2023, an increase of $100.8 million as compared with fiscal 2022. The increase in cash provided by operating activities was primarily the result of higher net income, decreased inventory driven by NexSys PCS device placements and increased accrued performance-based compensation, partially offset by increases in accounts receivable during fiscal 2023.
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Investing Activities
Net cash used in investing activities was $143.8 million during fiscal 2023, an increase of $57.4 million as compared with fiscal 2022. 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 fiscal 2023, partially offset by lower proceeds received from divestitures in fiscal 2023.
Financing Activities
Net cash used in financing activities was $100.4 million during fiscal 2023, an increase of $84.6 million as compared with fiscal 2022. The increase in cash used in financing activities during fiscal 2023 was primarily due to share repurchases and acquisition-related contingent consideration payments made in fiscal 2023.
Contractual Obligations
A summary of our contractual and commercial commitments as of April 1, 2023 is as follows:
| Payments Due by Period | |||||||||||||||||||||||||||||
| (In thousands) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||||||||||
| Convertible senior notes | $ | 500,000 | $ | — | $ | 500,000 | $ | — | $ | — | |||||||||||||||||||
| Debt | 274,776 | 12,276 | 262,500 | — | — | ||||||||||||||||||||||||
Interest payments(1) | 37,059 | 17,363 | 19,696 | — | — | ||||||||||||||||||||||||
| Operating leases | 77,630 | 9,813 | 17,608 | 16,563 | 33,646 | ||||||||||||||||||||||||
Purchase commitments(2) | 207,079 | 207,079 | — | — | — | ||||||||||||||||||||||||
| Expected retirement plan benefit payments | 19,475 | 1,453 | 2,826 | 3,542 | 11,654 | ||||||||||||||||||||||||
| Total contractual obligations | $ | 1,116,019 | $ | 247,984 | $ | 802,630 | $ | 20,105 | $ | 45,300 | |||||||||||||||||||
(1) Interest payments reflect the contractual interest payments on our outstanding debt and exclude the impact of interest rate swap agreements. Interest payments are projected using interest rates in effect as of April 1, 2023. Certain of these projected interest payments may differ in the future based on changes in market interest rates. (2) Includes amounts we are committed to spend on purchase orders entered in the normal course of business for capital equipment as well as commitments with contractors for the manufacture of certain disposable products and equipment. The majority of our operating expense spending does not require any advance commitment. | |||||||||||||||||||||||||||||
The above table does not reflect our long-term liabilities associated with unrecognized tax benefits of $3.0 million recorded in accordance with ASC Topic 740, Income Taxes. We cannot reasonably make a reliable estimate of the period in which we expect to settle these long-term liabilities due to factors outside of our control, such as tax examinations.
Concentration of Credit Risk
While approximately 48% of our revenue during fiscal 2023 was generated by our ten largest customers, concentrations of credit risk with respect to trade accounts receivable are generally limited due to our large number of customers and their diversity across many geographic areas. Certain markets and industries, however, can expose us to concentrations of credit risk. For example, in the Plasma business unit, sales are concentrated with several large customers. As a result, accounts receivable extended to any one of these biopharmaceutical customers can be significant at any point in time. In addition, a portion of our trade accounts receivable outside the U.S. include sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays and local economic conditions. Payment is dependent upon the financial stability and creditworthiness of those countries’ national economies.
We have not incurred significant losses on trade accounts or other receivables. We continually evaluate all receivables for potential collection risks associated with the availability of government funding and reimbursement practices. If the financial condition of customers or the countries’ healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods.
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Legal Proceedings
In accordance with U.S. GAAP, we record a liability in our consolidated financial statements for legal matters when a loss is known or considered probable and the amount may be reasonably estimated. Actual settlements may be different than estimated and could have a material impact on our consolidated earnings, financial position and/or cash flows. For a discussion of our material legal proceedings refer to Note 16, Commitments & Contingencies, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Inflation
We continued to experience rising inflationary pressures in our global supply chain that had an impact on our results of operations during fiscal 2023. We continue to monitor inflationary pressures generally and raw materials indices that may affect our procurement and production costs. Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials. Historically, we have been able to limit the impact of the effects of inflation by improving our manufacturing and purchasing efficiencies, by increasing employee productivity and by adjusting the selling prices of products, but we may not be able to fully mitigate these increases in our operational costs in the future.
Foreign Exchange
During fiscal 2023, 27.9% of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S. Dollar. We also incur certain manufacturing, marketing and selling costs in international markets in local currency. Our primary foreign currency exposures relate to sales denominated in Japanese Yen, Euro and Chinese Yuan. We also have foreign currency exposure related to manufacturing and other operational costs denominated in Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit. The Yen, Euro and Yuan sales exposure is partially mitigated by costs and expenses for foreign operations and sourcing products denominated in foreign currencies.
Since our foreign currency denominated Yen, Euro and Yuan sales exceed the foreign currency denominated costs, whenever the U.S. Dollar strengthens relative to the Yen, Euro or Yuan, there is an adverse effect on our results of operations and, conversely, whenever the U.S. Dollar weakens relative to the Yen, Euro or Yuan, there is a positive effect on our results of operations. For Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit, our primary cash flows relate to product costs or costs and expenses of local operations. Whenever the U.S. Dollar strengthens relative to these foreign currencies, there is a positive effect on our results of operations. Conversely, whenever the U.S. Dollar weakens relative to these currencies, there is an adverse effect on our results of operations.
We have a program in place that is designed to mitigate our exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the unforeseen impact on our financial results from changes in foreign exchange rates. We utilize forward foreign currency contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily Japanese Yen and Euro, and to a lesser extent Swiss Franc and Mexican Peso. This does not eliminate the volatility of foreign exchange rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. These contracts are designated as cash flow hedges. The final impact of currency fluctuations on the results of operations is dependent on the local currency amounts hedged and the actual local currency results.
Recent Accounting Pronouncements
There are currently no recent accounting pronouncements that we expect to have a material impact on our financial position and results of operations.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. While all of these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and/or estimates. Actual results may differ from those estimates. We consider an estimate to be a “critical accounting estimate” when (i) the nature of the estimate is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and (ii) the impact of the estimate on
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financial condition or operating performance is material. The accounting policies and estimates identified as critical are as follows:
Revenue Recognition
Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration related to rebates, product returns and volume discounts. These reserves, which are based on estimates of the amounts earned or to be claimed on the related sales, are recorded as a reduction of revenue and a current liability. Our estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. Revenue recognized in the current period related to performance obligations satisfied in prior periods was not material. If we are unable to estimate the expected rebates reasonably, we record a liability for the maximum potential rebate or discount that could be earned. In circumstances where we provide upfront rebate payments to customers, we capitalize the rebate payments and amortize the resulting asset as a reduction of revenue using a systematic method over the life of the contract. Refer to Note 2, Summary of Significant Accounting Policies and Note 8, Revenue, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information.
Goodwill and Intangible Assets
Although we use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in our impairment tests, these estimates are uncertain by nature and can vary from actual results. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows and discount rates could result in different fair value estimates.
Future events that could have a negative impact on the levels of excess fair value over carrying value of our reporting units include, but are not limited to, the following:
•Decreases in estimated market sizes or market growth rates due to greater-than-expected declines in procedural volumes, pricing pressures, product actions and/or competitive technology developments,
•Declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new and next-generation products and technology features in line with our commercialization strategies and market and/or regulatory conditions that may cause significant launch delays or product recalls,
•Decreases in our forecasted profitability due to an inability to implement successfully and achieve timely and sustainable cost improvement measures consistent with our expectations,
•Changes in our reporting units or in the structure of our business as a result of future reorganizations, acquisitions or divestitures of assets or businesses and
•Increases in our market-participant risk-adjusted weighted average cost of capital and increases in our market-participant tax rate and/or changes in tax laws or macroeconomic conditions.
Negative changes in one or more of these factors, among others, could result in future impairment charges.
We review intangible assets subject to amortization for impairment at least annually or more frequently if certain conditions arise to determine if any adverse conditions exist that would indicate that the carrying value of an asset or asset group may not be recoverable, or that a change in the remaining useful life is required. Conditions indicating that an impairment exists include but are not limited to a change in the competitive landscape, internal decisions to pursue new or different technology strategies, a loss of a significant customer or a significant change in the marketplace including prices paid for our products or the size of the market for our products. Refer Note 2, Summary of Significant Accounting Policies and Note 11, Goodwill & Intangible Assets, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information.
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Inventory Provisions
We base our provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales. A significant change in the timing or level of demand for our products as compared with forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future. Additionally, uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to excess, expired and obsolete inventory.
Income Taxes
The income tax provision is calculated for all jurisdictions in which we operate. The income tax provision process involves calculating current taxes due and assessing temporary differences arising from items that are taxable or deductible in different periods for tax and accounting purposes and are recorded as deferred tax assets and liabilities. Deferred tax assets are evaluated for realizability and a valuation allowance is maintained for the portion of our deferred tax assets that are not more-likely-than-not realizable. All available evidence, both positive and negative, has been considered to determine whether, based on the weight of that evidence, a valuation allowance is needed against the deferred tax assets. Refer to Note 6, Income Taxes, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information and discussion of our income tax provision and balances.
We file income tax returns in all jurisdictions in which we operate. We record a liability for uncertain tax positions taken or expected to be taken in income tax returns. Our financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. We record a liability for the portion of unrecognized tax benefits claimed that we have determined are not more-likely-than-not realizable. These tax reserves have been established based on management’s assessment as to the potential exposure attributable to our uncertain tax positions as well as interest and penalties attributable to these uncertain tax positions. All tax reserves are analyzed quarterly and adjustments are made as events occur that result in changes in judgment.
Contingencies
We may become involved in various legal proceedings that arise in the ordinary course of business, including, without limitation, patent infringement, product liability and environmental matters. Accruals recorded for various contingencies including legal proceedings, employee related litigation, self-insurance and other claims are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates. When a loss is probable and a range of loss is established but a best estimate cannot be made, we record the minimum loss contingency amount. These estimates are often initially developed substantially earlier than the ultimate loss is known and the estimates are reevaluated each accounting period, as additional information is available. When we are initially unable to develop a best estimate of loss, we record the minimum amount of loss, which could be zero. As information becomes known, an additional loss provision is recorded when either a best estimate can be made or the minimum loss amount is increased. When events result in an expectation of a more favorable outcome than previously expected, our best estimate is changed to a lower amount. With respect to the specific legal proceedings and claims described below, unless otherwise noted, the amount or range of possible losses is not reasonably estimable. There can be no assurance that the settlement, resolution, or other outcome of one or more matters, including the matters set forth below, during any subsequent reporting period will not have a material adverse effect on the Company’s results of operations or cash flows for that period or on the Company’s financial condition.
Business Combinations
We record tangible and intangible assets acquired and liabilities assumed in business combinations under the purchase method of accounting. Amounts paid for each acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the dates of acquisition. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions including forecasted cash flows, revenues attributable to existing technology and existing customer attrition. When estimating the significant assumptions to be used in the valuation we included a consideration of current industry information, market and economic trends, historical results of the acquired business and other relevant factors. These significant assumptions are forward-looking and could be affected by future economic and market conditions. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill.
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Contingent consideration is recorded at fair value as measured on the date of acquisition using an appropriate valuation model, such as the Monte Carlo simulation model. The value recorded is based on estimates of future financial projections under various potential scenarios, in which the model runs many simulations based on comparable companies’ growth rates and their implied volatility. Our estimates of forecasted revenues in the earn out period include a consideration of current industry information, market and economic trends, historical results of the acquired business and other relevant factors. These cash flow projections are discounted with a risk adjusted rate. Each quarter until such contingent amounts are earned, the fair value of the liability is remeasured at each reporting period and adjusted as a component of operating expenses based on changes to the underlying assumptions. The estimates used to determine the fair value of the contingent consideration liability are subject to significant judgment and given the inherent uncertainties in making these estimates, actual results are likely to differ from the amounts originally recorded and could be materially different.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposures relative to market risk are due to foreign exchange risk and interest rate risk.
Foreign Exchange Risk
See the section above entitled Foreign Exchange for a discussion of how foreign currency affects our business. It is our policy to minimize, for a period of time, the unforeseen impact on our financial results of fluctuations in foreign exchange rates by using derivative financial instruments known as forward contracts to hedge anticipated cash flows from forecasted foreign currency denominated sales and costs. We do not use the financial instruments for speculative or trading activities.
We estimate the change in the fair value of all forward contracts assuming both a 10% strengthening and weakening of the U.S. Dollar relative to all other major currencies. As of April 1, 2023, 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 $4.2 million increase in the fair value of the forward contracts, whereas a 10% weakening of the U.S. Dollar would result in a $4.5 million decrease in the fair value of the forward contracts.
Interest Rate Risk
Our exposure to changes in interest rates is associated with borrowings under our credit facilities, all of which is variable rate debt. Total outstanding debt under our Revised Credit Facilities as of April 1, 2023 was $274.7 million with an interest rate of 6.3% based on prevailing Term SOFR rates. An increase of 100 basis points in Term SOFR rates would result in additional annual interest expense of $0.8 million. In September 2022, we modified our two existing interest rate swaps to align to Term SOFR rather than LIBOR and entered into four additional interest rate swaps to effectively convert $194.8 million of borrowings under our Revised Credit Facilities from a variable rate to a fixed rate. These interest rate swaps are intended to mitigate the exposure to fluctuations in interest rates and qualify for hedge accounting treatment as cash flow hedges.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Haemonetics Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Haemonetics Corporation and subsidiaries (the Company) as of April 1, 2023 and April 2, 2022, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended April 1, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 1, 2023 and April 2, 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 1, 2023, in conformity with U.S. generally accepted accounting principles.
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 1, 2023, 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 22, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
45
| Valuation of goodwill | |||||
| 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 reporting units as of April 1, 2023. The Company performs its annual quantitative impairment analysis as of the first day of the fourth quarter, and more frequently if the Company believes indicators of impairment exist, utilizing a discounted cash flow income approach in order to value reporting units for the test. | ||||
| Auditing the annual goodwill impairment test was especially complex and judgmental due to the significant estimation required in determining the fair values of certain reporting units. In particular, the fair value estimates involve judgmental assumptions including the amount and timing of expected future cash flows from revenue growth rates, which are affected by expectations about future market or economic conditions and reporting unit specific risk factors. | |||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s goodwill impairment review process. For example, we tested controls over management's review of the significant inputs and assumptions used in determining the reporting unit fair values. | ||||
| To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing fair value estimation methodologies, testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to historical financial results of the reporting unit and information generated by external parties. We considered the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. In addition, we involved our valuation professionals to assist in our evaluation of the significant assumptions used to develop the fair value estimates. We also evaluated the reconciliation of the estimated aggregate fair value of the reporting units to the market capitalization of the Company. | |||||
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Boston, Massachusetts
May 22, 2023
46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
| Year Ended | |||||||||||||||||
| April 1, 2023 | April 2, 2022 | April 3, 2021 | |||||||||||||||
| Net revenues | $ | 1,168,660 | $ | 993,196 | $ | 870,463 | |||||||||||
| Cost of goods sold | 553,563 | 487,694 | 472,625 | ||||||||||||||
| Gross profit | 615,097 | 505,502 | 397,838 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | 50,131 | 46,801 | 32,857 | ||||||||||||||
| Selling, general and administrative | 376,675 | 340,140 | 275,216 | ||||||||||||||
| Amortization of acquired intangible assets | 32,640 | 47,414 | 32,830 | ||||||||||||||
| Gains on divestitures and sale of assets | (382) | (9,603) | (32,812) | ||||||||||||||
| Total operating expenses | 459,064 | 424,752 | 308,091 | ||||||||||||||
| Operating income | 156,033 | 80,750 | 89,747 | ||||||||||||||
| Interest and other expense, net | (14,630) | (17,121) | (16,834) | ||||||||||||||
| Income before provision (benefit) for income taxes | 141,403 | 63,629 | 72,913 | ||||||||||||||
| Provision (benefit) for income taxes | 26,002 | 20,254 | (6,556) | ||||||||||||||
| Net income | $ | 115,401 | $ | 43,375 | $ | 79,469 | |||||||||||
| Net income per share – basic | $ | 2.27 | $ | 0.85 | $ | 1.57 | |||||||||||
| Net income per share – diluted | $ | 2.24 | $ | 0.84 | $ | 1.55 | |||||||||||
| Weighted average shares outstanding | |||||||||||||||||
| Basic | 50,783 | 51,047 | 50,688 | ||||||||||||||
| Diluted | 51,420 | 51,353 | 51,292 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
47
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| Year Ended | |||||||||||||||||
| April 1, 2023 | April 2, 2022 | April 3, 2021 | |||||||||||||||
| Net income | $ | 115,401 | $ | 43,375 | $ | 79,469 | |||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||
| Impact of defined benefit plans, net of tax | 2,456 | 2,179 | (351) | ||||||||||||||
| Foreign currency translation adjustment, net of tax | (6,016) | (6,391) | 9,572 | ||||||||||||||
| Unrealized gain (loss) on cash flow hedges, net of tax | 4,269 | 5,785 | (489) | ||||||||||||||
| Reclassifications into earnings of cash flow hedge (gains) losses, net of tax | (5,136) | 2,020 | 6,856 | ||||||||||||||
| Other comprehensive (loss) income | (4,427) | 3,593 | 15,588 | ||||||||||||||
| Comprehensive income | $ | 110,974 | $ | 46,968 | $ | 95,057 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
48
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| April 1, 2023 | April 2, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 284,466 | $ | 259,496 | |||||||
Accounts receivable, less allowance for credit losses of $4,932 at April 1, 2023 and $2,475 at April 2, 2022 | 179,142 | 159,376 | |||||||||
| Inventories, net | 259,379 | 293,027 | |||||||||
| Prepaid expenses and other current assets | 46,735 | 44,132 | |||||||||
| Total current assets | 769,722 | 756,031 | |||||||||
| Property, plant and equipment, net | 310,885 | 258,482 | |||||||||
Intangible assets, less accumulated amortization of $417,422 at April 1, 2023 and $376,552 at April 2, 2022 | 275,771 | 310,261 | |||||||||
| Goodwill | 466,231 | 467,287 | |||||||||
| Deferred tax asset | 5,241 | 4,468 | |||||||||
| Other long-term assets | 106,975 | 63,205 | |||||||||
| Total assets | $ | 1,934,825 | $ | 1,859,734 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Notes payable and current maturities of long-term debt | $ | 11,784 | $ | 214,148 | |||||||
| Accounts payable | 63,929 | 58,371 | |||||||||
| Accrued payroll and related costs | 64,475 | 48,540 | |||||||||
| Other current liabilities | 111,628 | 121,207 | |||||||||
| Total current liabilities | 251,816 | 442,266 | |||||||||
| Long-term debt, net of current maturities | 754,102 | 559,441 | |||||||||
| Deferred tax liability | 36,195 | 28,727 | |||||||||
| Other long-term liabilities | 74,715 | 79,876 | |||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $0.01 par value; Authorized — 150,000,000 shares; Issued and outstanding — 50,448,519 shares at April 1, 2023 and 51,124,240 shares at April 2, 2022 | 504 | 511 | |||||||||
| Additional paid-in capital | 594,706 | 572,476 | |||||||||
| Retained earnings | 253,168 | 202,391 | |||||||||
| Accumulated other comprehensive loss | (30,381) | (25,954) | |||||||||
| Total stockholders’ equity | 817,997 | 749,424 | |||||||||
| Total liabilities and stockholders’ equity | $ | 1,934,825 | $ | 1,859,734 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
49
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income/(Loss) | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||
| Balance, March 28, 2020 | 50,323 | $ | 503 | $ | 553,229 | $ | 78,512 | $ | (45,135) | $ | 587,109 | ||||||||||||||||||||||||
| Employee stock purchase plan | 44 | 1 | 4,012 | — | — | 4,013 | |||||||||||||||||||||||||||||
| Exercise of stock options | 128 | 1 | 6,218 | — | — | 6,219 | |||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellations | 374 | 4 | (4) | — | — | — | |||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | 25,516 | — | — | 25,516 | |||||||||||||||||||||||||||||
| Equity component of convertible notes, net of issuance costs | — | — | 61,156 | — | — | 61,156 | |||||||||||||||||||||||||||||
| Purchase of capped call related to convertible notes | — | — | (47,400) | — | — | (47,400) | |||||||||||||||||||||||||||||
| Net income | — | — | — | 79,469 | — | 79,469 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 15,588 | 15,588 | |||||||||||||||||||||||||||||
| Balance, April 3, 2021 | 50,869 | $ | 509 | $ | 602,727 | $ | 157,981 | $ | (29,547) | $ | 731,670 | ||||||||||||||||||||||||
| Employee stock purchase plan | 74 | — | 4,209 | — | — | 4,209 | |||||||||||||||||||||||||||||
| Exercise of stock options | 66 | 1 | 2,337 | — | — | 2,338 | |||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellations | 115 | 1 | — | — | — | 1 | |||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | 24,359 | — | — | 24,359 | |||||||||||||||||||||||||||||
| Cumulative effect of change in accounting standards | — | — | (61,156) | 1,035 | — | (60,121) | |||||||||||||||||||||||||||||
| Net income | — | — | — | 43,375 | — | 43,375 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 3,593 | 3,593 | |||||||||||||||||||||||||||||
| Balance, April 2, 2022 | 51,124 | $ | 511 | $ | 572,476 | $ | 202,391 | $ | (25,954) | $ | 749,424 | ||||||||||||||||||||||||
| Employee stock purchase plan | 102 | — | 4,378 | — | — | 4,378 | |||||||||||||||||||||||||||||
| Exercise of stock options | 59 | 1 | 2,637 | — | — | 2,638 | |||||||||||||||||||||||||||||
| Shares repurchased | (997) | (10) | (10,366) | (64,624) | — | (75,000) | |||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellations | 161 | 2 | (2) | — | — | — | |||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | 25,583 | — | — | 25,583 | |||||||||||||||||||||||||||||
| Net income | — | — | — | 115,401 | — | 115,401 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (4,427) | (4,427) | |||||||||||||||||||||||||||||
| Balance, April 1, 2023 | 50,449 | $ | 504 | $ | 594,706 | $ | 253,168 | $ | (30,381) | $ | 817,997 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
50
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Year Ended | |||||||||||||||||
| April 1, 2023 | April 2, 2022 | April 3, 2021 | |||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||
| Net income | $ | 115,401 | $ | 43,375 | $ | 79,469 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Non-cash items: | |||||||||||||||||
| Depreciation and amortization | 93,307 | 97,747 | 84,287 | ||||||||||||||
| Impairment of assets | 607 | 7,953 | 21,969 | ||||||||||||||
| Share-based compensation expense | 25,583 | 24,359 | 25,516 | ||||||||||||||
| Gain on divestitures and sale of assets | (382) | (9,603) | (32,812) | ||||||||||||||
| Contingent consideration | (504) | 10,461 | — | ||||||||||||||
| Deferred tax benefit | 4,783 | 5,013 | (19,866) | ||||||||||||||
| Amortization of deferred financing costs | 1,970 | 3,404 | 564 | ||||||||||||||
| Provision (benefit) for losses on inventory | 664 | (861) | 7,860 | ||||||||||||||
| Other non-cash operating activities | 6,126 | 5,592 | 1,500 | ||||||||||||||
| Change in operating assets and liabilities: | |||||||||||||||||
| Change in accounts receivable | (24,421) | (34,974) | 44,121 | ||||||||||||||
| Change in inventories | 30,754 | 24,307 | (38,909) | ||||||||||||||
| Change in prepaid income taxes | 1,688 | 2,870 | (3,822) | ||||||||||||||
| Change in other assets and other liabilities | (22,334) | (15,022) | (4,650) | ||||||||||||||
| Change in accounts payable and accrued expenses | 39,816 | 7,642 | (56,422) | ||||||||||||||
| Net cash provided by operating activities | 273,058 | 172,263 | 108,805 | ||||||||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||
| Capital expenditures | (110,191) | (96,509) | (37,040) | ||||||||||||||
| Proceeds from divestitures | 850 | 10,642 | 44,587 | ||||||||||||||
| Proceeds from sale of property, plant and equipment | 1,608 | 2,022 | 1,815 | ||||||||||||||
| Acquisitions | (2,850) | (2,500) | (434,804) | ||||||||||||||
| Other investments | (33,205) | — | — | ||||||||||||||
| Net cash used in investing activities | (143,788) | (86,345) | (425,442) | ||||||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||
| Term loan borrowings | 280,000 | — | — | ||||||||||||||
| Term loan redemption | (280,000) | — | — | ||||||||||||||
| Repayment of term loan borrowings | (9,625) | (17,500) | (21,875) | ||||||||||||||
| Proceeds from revolving facility | 50,000 | — | — | ||||||||||||||
| Payments on revolving facility | (50,000) | — | — | ||||||||||||||
| Debt issuance costs | (1,118) | — | (13,457) | ||||||||||||||
| Net decrease in short-term loans | — | — | (60,000) | ||||||||||||||
| Proceeds from issuance of convertible notes | — | — | 500,000 | ||||||||||||||
| Purchase of capped call related to convertible notes | — | — | (47,400) | ||||||||||||||
| Contingent consideration payments | (21,593) | (4,791) | — | ||||||||||||||
| Proceeds from employee stock purchase plan | 4,378 | 4,209 | 4,013 | ||||||||||||||
| Proceeds from exercise of stock options | 2,638 | 2,338 | 6,217 | ||||||||||||||
| Share repurchases | (75,000) | — | — | ||||||||||||||
| Other financing activities | (44) | (5) | (46) | ||||||||||||||
| Net cash (used in) provided by financing activities | (100,364) | (15,749) | 367,452 | ||||||||||||||
| Effect of exchange rates on cash and cash equivalents | (3,936) | (2,978) | 4,179 | ||||||||||||||
| Net Change in Cash and Cash Equivalents | 24,970 | 67,191 | 54,994 | ||||||||||||||
| Cash and Cash Equivalents at Beginning of Year | 259,496 | 192,305 | 137,311 | ||||||||||||||
| Cash and Cash Equivalents at End of Year | $ | 284,466 | $ | 259,496 | $ | 192,305 | |||||||||||
| Supplemental Disclosures of Cash Flow Information: | |||||||||||||||||
| Interest paid | $ | 13,587 | $ | 6,187 | $ | 7,824 | |||||||||||
| Income taxes paid | $ | 17,967 | $ | 24,298 | $ | 12,487 | |||||||||||
| Non-Cash Investing and Financing Activities: | |||||||||||||||||
| Transfers from inventory to fixed assets for placement of Haemonetics equipment | $ | 81,136 | $ | 51,800 | $ | 9,287 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
51
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Haemonetics is a global healthcare company dedicated to providing a suite of innovative medical products and solutions for customers, to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite and hospital transfusion services. When used in this report, the terms “we,” “us,” “our,” “Haemonetics” and the “Company” mean Haemonetics Corporation.
Blood is essential to a modern healthcare system. Blood and its components (plasma, red cells and platelets) have many vital and frequently life-saving clinical applications. Plasma is used for patients with major blood loss and is manufactured into biopharmaceuticals to treat a variety of illnesses, including immune diseases and coagulation disorders. Red cells treat trauma patients or patients undergoing surgery with high blood loss, such as open heart surgery or organ transplant. Platelets have many uses in patient care, including supporting cancer patients undergoing chemotherapy.
Haemonetics manages its business in three principal reporting segments: Plasma, Blood Center and Hospital. For that purpose, “Plasma” includes plasma collection devices and disposables, plasma donor management software, and anticoagulant and saline sold to plasma customers. “Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and whole blood. “Hospital”, which is comprised of Hemostasis Management, Vascular Closure, Cell Salvage and Transfusion Management products, includes devices and methodologies for measuring coagulation characteristics of blood, vascular closure devices, specialized blood cell processing systems and disposables, surgical blood salvage systems and blood transfusion management software.
The accompanying consolidated financial statements present separately the Company’s consolidated financial position, results of operations, cash flows and changes in shareholders’ equity. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). All amounts presented, except per share amounts, are stated in thousands of U.S. dollars, unless otherwise indicated.
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. There were no material recognized or unrecognized subsequent events.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
Haemonetics’ fiscal year ends on the Saturday closest to the last day of March. Fiscal years 2023 and 2022 included 52 weeks with each quarter having 13 weeks. Fiscal 2021 included 53 weeks with each of the first three quarters having 13 weeks and the fourth quarter having 14 weeks.
Principles of Consolidation
The accompanying consolidated financial statements include all accounts including those of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, we assess our strategic investments to determine whether they meet the definition of a variable interest entity (“VIE”), and if so, whether the Company has controlling financial interest. Controlling financial interest occurs if the Company has both the power to direct activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company’s strategic investments did not meet the controlling financial interest criteria, as such no VIEs were consolidated during fiscal 2023, 2022 or 2021.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
52
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
could vary from the amounts derived from its estimates and assumptions. The Company considers estimates to be critical if they are required to make assumptions about material matters that are uncertain at the time of estimation or if materially different estimates could have been made or it is reasonably likely that the accounting estimate will change from period to period. The following are areas considered to be critical and require management’s judgment: revenue recognition, inventory provisions, intangible asset and goodwill valuation, legal and other judgmental accruals and income taxes.
Contingencies
The Company may become involved in various legal proceedings that arise in the ordinary course of business, including, without limitation, patent infringement, product liability and environmental matters. Accruals recorded for various contingencies including legal proceedings, employee related litigation, self-insurance and other claims are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates. When a loss is probable and a range of loss is established but a best estimate cannot be made, the Company records the minimum loss contingency amount, which could be zero. These estimates are often initially developed substantially earlier than the ultimate loss is known and the estimates are reevaluated each accounting period, as additional information is available. As information becomes known, an additional loss provision is recorded when either a best estimate can be made or the minimum loss amount is increased. When events result in an expectation of a more favorable outcome than previously expected, the best estimate is changed to a lower amount.
Revenue Recognition
The Company's revenue recognition policy is to recognize revenues from product sales, software and services in accordance with the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2014-19, Revenue from Contracts with Customers (Topic 606). Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; this occurs with the transfer of control of the Company’s goods or services. The Company considers revenue to be earned when all of the following criteria are met: it has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the consideration the Company expects to receive for transferring goods or providing services, is determinable and it has transferred control of the promised items to the customer. A promise in a contract to transfer a distinct good or service to the customer is identified as a performance obligation. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of the Company’s contracts have multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the estimated standalone selling prices of the good or service in the contract. For goods or services for which observable standalone selling prices are not available, the Company uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.
Product Revenues
The majority of the Company’s performance obligations related to product sales are satisfied at a point in time. Product revenue consists of the sale of its disposable blood component collection and processing sets and the related equipment. The Company’s performance obligation related to product sales is satisfied upon shipment or delivery to the customer based on the specified terms set forth in the customer contract. Shipping and handling activities performed after a customer obtains control of the good are treated as fulfillment activities and are not considered to be a separate performance obligation. Revenue is recognized over time for maintenance plans provided to customers that provide services beyond the Company’s standard warranty period. Payment terms between customers related to product sales vary by the type of customer, country of sale, and the products or services offered and could result in an unbilled receivable or deferred revenue balance depending on whether the performance obligation has been satisfied (or partially satisfied).
For product sales to distributors, the Company recognizes revenue for both equipment and disposables upon shipment to distributors, which is when its performance obligations are complete. The Company's standard contracts with its distributors state that title to the equipment passes to the distributors at point of shipment to a distributor’s location. The distributors are responsible for shipment to the end customer along with any installation, training and acceptance of the equipment by the end customer. Payments from distributors are not contingent upon resale of the product.
The Company also places equipment at customer sites. While the Company retains ownership of this equipment, the customer has the right to use it for a period of time provided they meet certain agreed to conditions. The Company recovers the cost of providing the equipment from the sale of its disposables.
53
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Software and Other Revenues
To a lesser extent, the Company enters into other types of contracts including certain software licensing arrangements to provide software solutions to support its plasma, blood collection and hospital customers. A portion of its software sales are perpetual licenses typically accompanied by significant implementation services related to software customization as well as other professional and technical services. The Company generally recognizes revenue from the sale of perpetual licenses and related customization services over time (the Company is creating or enhancing an asset that the customer controls) using an input method which requires it to make estimates of the extent of progress toward completion of the contract. When the Company provides other services, including in some instances hosting, technical support and maintenance, it recognizes these fees and charges over time (the customer simultaneously receives and consumes benefits), as performance obligations for these services are satisfied during the contract period. Certain of the Company’s software licensing arrangements are term-based licenses that include a per-collection or a usage-based fee related to the use of the license and the related technical support and hosting services. For these usage-based arrangements, the Company applies the revenue recognition exception resulting in revenue recognition occurring upon the later of actual usage or satisfaction of the related performance obligations. The payment terms for software licensing arrangements vary by customer pursuant to the terms set forth in the customer contract and result in an unbilled receivable or deferred revenue balance depending on whether the performance obligation has been satisfied (or partially satisfied).
Significant Judgments
Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration related to rebates, product returns and volume discounts. These reserves, which are based on estimates of the amounts earned or to be claimed on the related sales, are recorded as a reduction of revenue and a current liability. The Company’s estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. Revenue recognized in the current period related to performance obligations satisfied in prior periods was not material. If the Company is unable to estimate the expected rebates reasonably, it records a liability for the maximum potential rebate or discount that could be earned. In circumstances where the Company provides upfront rebate payments to customers, it capitalizes the rebate payments and amortizes the resulting asset as a reduction of revenue using a systematic method over the life of the contract.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables and contract assets, as well as customer advances, customer deposits and deferred revenue (contract liabilities) on the consolidated balance sheets. The difference in timing between billing and revenue recognition primarily occurs in software licensing arrangements, resulting in contract assets and contract liabilities.
Practical Expedients
The Company elected not to disclose the value of transaction price allocated to unsatisfied performance obligations for contracts with an original expected length of one year or less. When applicable, the Company has also elected to use the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if it is expected, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service, will be one year or less.
Translation of Foreign Currencies
All assets and liabilities of foreign subsidiaries are translated at the rate of exchange at year-end while sales and expenses are translated at an average rate in effect during the year. The net effect of these translation adjustments is shown in the accompanying financial statements as a component of stockholders’ equity. Foreign currency transaction gains and losses, including those resulting from intercompany transactions, are charged directly to earnings and included in other expense, net on the consolidated statements of income. The impact of foreign exchange on long-term intercompany loans, for which repayment has not been scheduled or planned, are recorded in accumulated other comprehensive loss on the consolidated balance sheet.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash and Cash Equivalents
Cash equivalents include various instruments such as money market funds, U.S. government obligations and commercial paper with maturities of three months or less at date of acquisition. Cash and cash equivalents are recorded at cost, which approximates fair market value. As of April 1, 2023, cash and cash equivalents consisted primarily of investments in United States Government Agency and institutional money market funds.
Allowance for Credit Losses
The Company establishes a specific allowance for customers when it is probable that they will not be able to meet their financial obligations. Customer accounts are reviewed individually on a regular basis and reserves are established as deemed appropriate. The Company also maintains a general reserve using a percentage that is established based upon the age of its receivables and its collection history. The Company establishes allowances for balances not yet due and past due accounts based on past experience.
Inventories
Inventories are stated at the lower of cost or net realizable value and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method. The Company has based its provisions for excess, expired and obsolete inventory primarily on its estimates of forecasted net sales. Significant changes in the timing or level of demand for the Company’s products result in recording additional provisions for excess, expired and obsolete inventory. Additionally, uncertain timing of next-generation product approvals, variability in product launch strategies, non-cancelable purchase commitments, product recalls and variation in product utilization all affect the Company’s estimates related to excess, expired and obsolete inventory.
Property, Plant and Equipment
Property, plant and equipment is recorded at historical cost. The Company provides for depreciation and amortization by charges to operations using the straight-line method in amounts estimated to recover the cost of the building and improvements, equipment and furniture and fixtures over their estimated useful lives as follows:
| Asset Classification | Estimated Useful Lives | |||||||
| Building | 30-40 Years | |||||||
| Building improvements | 5-20 Years | |||||||
| Plant equipment and machinery | 3-15 Years | |||||||
| Office equipment and information technology | 3-10 Years | |||||||
| Haemonetics equipment | 3-7 Years | |||||||
The Company evaluates the depreciation periods of property, plant and equipment to determine whether events or circumstances warrant revised estimates of useful lives. All property, plant and equipment are also tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
The Company’s installed base of devices includes devices owned by the Company and devices sold to the customer. The asset on its balance sheet classified as Haemonetics equipment consists of medical devices installed at customer sites but owned by Haemonetics. Generally, the customer has the right to use it for a period of time as long as they meet the conditions the Company has established, which among other things, generally include one or more of the following:
•Purchase and consumption of a certain level of disposable products
•Payment of monthly rental fees
•An asset utilization performance metric, such as performing a minimum level of procedures per month per device
Consistent with the impairment tests noted below for other intangible assets subject to amortization, the Company reviews Haemonetics equipment and the related useful lives of such equipment at least once a year, or more frequently if certain conditions arise, to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. To conduct these reviews, the Company estimates the future amount and timing of demand for disposables used
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HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
with these devices, from which it generates revenues. The Company also considers product life cycle in its evaluation of useful life and recoverability. Changes in expected demand can result in additional depreciation expense, which is classified as cost of goods sold. Any significant unanticipated changes in demand could impact the value of the Company’s devices and its reported operating results.
Leasehold improvements are depreciated over the lesser of their useful lives or the term of the lease. Maintenance and repairs are generally expensed to operations as incurred. When the repair or maintenance costs significantly extend the life of the asset, these costs may be capitalized. When equipment and improvements are sold or otherwise disposed of, the asset cost and accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is included in the consolidated statements of income.
Goodwill and Intangible Assets
Goodwill represents the excess purchase price over the fair value of the net tangible and other identifiable intangible assets acquired. Goodwill is not amortized and is instead reviewed for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. The Company performs its annual impairment test on the first day of the fiscal fourth quarter for each of its reporting units.
Under ASC Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment entities perform their goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component. The Company determines its reporting units by first identifying its operating segments and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company aggregates components within an operating segment that have similar economic characteristics. The Company’s reportable segments and reporting units are as follows: Plasma, Blood Center and Hospital.
When allocating goodwill from business combinations to its reporting units, the Company assigns goodwill to the reporting units that it expects to benefit from the respective business combination at the time of acquisition. In addition, for purposes of performing its goodwill impairment tests, assets and liabilities, including corporate assets, which relate to a reporting unit’s operations and would be considered in determining its fair value, are allocated to the individual reporting units. The Company allocates assets and liabilities not directly related to a specific reporting unit, but from which the reporting unit benefits, based primarily on the respective revenue contribution of each reporting unit.
The Company uses the income approach, specifically the discounted cash flow method, to derive the fair value of each of its reporting units in preparing its goodwill impairment assessments. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. The Company selected this method as being the most meaningful in preparing its goodwill assessments because the use of the income approach typically generates a more precise measurement of fair value than the market approach. In applying the income approach to its accounting for goodwill, the Company makes assumptions about the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. The amount and timing of future cash flows within the Company’s discounted cash flow analysis is based on its most recent operational budgets, long range strategic plans and other estimates. The terminal value growth rate is used to calculate the value of cash flows beyond the last projected period in the Company’s discounted cash flow analysis and reflects the Company’s best estimates for stable, perpetual growth of its reporting units. The Company uses estimates of market-participant risk adjusted weighted average cost of capital as a basis for determining the discount rates to apply to its reporting units’ future expected cash flows. The Company corroborated the valuations that arose from the discounted cash flow approach by performing both a market multiple valuation and by reconciling the aggregate fair value of its reporting units to its market capitalization at the time of the test.
During the fourth quarter of fiscal 2023, 2022 and 2021, the Company performed its annual goodwill impairment test. The results of the goodwill impairment test performed indicated that the estimated fair value of all of its reporting units exceeded their respective carrying values. There were no reporting units at risk of impairment as of the fiscal 2023, 2022 and 2021 annual test date.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company reviews intangible assets subject to amortization for impairment at least annually or more frequently if certain conditions arise to determine if any adverse conditions exist that would indicate that the carrying value of an asset or asset group may not be recoverable, or that a change in the remaining useful life is required. Conditions indicating that an impairment exists include, but are not limited to, a change in the competitive landscape, internal decisions to pursue new or different technology strategies, a loss of a significant customer or a significant change in the marketplace including prices paid for its products or the size of the market for its products.
When an impairment indicator exists, the Company tests the intangible asset for recoverability. For purposes of the recoverability test, the Company groups its amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), the Company will write the carrying value down to the fair value in the period identified.
The Company generally calculates the fair value of its intangible assets as the present value of estimated future cash flows it expects to generate from the asset using a risk-adjusted discount rate. In determining its estimated future cash flows associated with its intangible assets, the Company uses estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group).
If the Company determines the estimate of an intangible asset’s remaining useful life should be reduced based on its expected use of the asset, the remaining carrying amount of the asset is amortized prospectively over the revised estimated useful life.
The Company has in-process research and development (“IPR&D”) intangible assets with indefinite lives. IPR&D assets are not amortized. The Company reviews these assets for impairment at least annually, or on an interim basis between annual tests when events or circumstances indicate that it is more likely than not that the fair value of the asset is less than its carrying value. The Company performs its annual impairment test on the first day of the fiscal fourth quarter for its IPR&D assets. The Company makes assumptions about future cash flows, terminal value growth, costs for completion and appropriate discount rates. The Company elected qualitative assessments in fiscal 2023 and 2022.
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed
ASC Topic 985-20, Software - Costs of Software to be Sold, Leased or Marketed, specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers, at which point capitalized costs are amortized over their estimated useful life of 5 to 10 years. Technological feasibility is established when it has a detailed design of the software and when research and development activities on the underlying device, if applicable, are completed. The Company capitalizes costs associated with both software that it sells as a separate product and software that is embedded in a device.
The Company reviews the net realizable value of capitalized assets periodically to assess the recoverability of amounts capitalized. There were no impairment charges recorded during fiscal 2023, 2022 and 2021. In the future, the net realizable value may be adversely affected by the loss of a significant customer or a significant change in the market place, which could result in an impairment being recorded.
Other Current Liabilities
Other current liabilities represent items payable or expected to settle within the next twelve months. The items included in the fiscal year end balances were:
| (In thousands) | April 1, 2023 | April 2, 2022 | |||||||||
| Contract liabilities | 30,209 | 26,809 | |||||||||
| Contingent consideration | 863 | 31,184 | |||||||||
| All other | 80,556 | 63,214 | |||||||||
| Total | $ | 111,628 | $ | 121,207 | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Long-Term Liabilities
Other long-term liabilities represent items that are not payable or expected to settle within the next twelve months.
Research and Development Expenses
All research and development costs are expensed as incurred.
Advertising Costs
All advertising costs are expensed as incurred and are included in selling, general and administrative expenses in the consolidated statements of income. Advertising expenses were $7.2 million, $4.4 million and $2.7 million in fiscal 2023, 2022 and 2021, respectively.
Shipping and Handling Costs
Shipping and handling costs are included in selling, general and administrative expenses.
Income Taxes
The income tax provision is calculated for all jurisdictions in which the Company operates. The income tax provision process involves calculating current taxes due and assessing temporary differences arising from items that are taxable or deductible in different periods for tax and accounting purposes and are recorded as deferred tax assets and liabilities. Deferred tax assets are evaluated for realizability and a valuation allowance is maintained for the portion of the Company’s deferred tax assets that are not more-likely-than-not realizable. All available evidence, both positive and negative, has been considered to determine whether, based on the weight of that evidence, a valuation allowance is needed against the deferred tax assets. Refer to Note 6, Income Taxes, for further information and discussion of the Company’s income tax provision and balances.
The Company files income tax returns in all jurisdictions in which it operates. The Company records a liability for uncertain tax positions taken or expected to be taken in income tax returns. The Company’s financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. The Company records a liability for the portion of unrecognized tax benefits claimed that it has determined are not more-likely-than-not realizable. These tax reserves have been established based on management’s assessment as to the potential exposure attributable to the Company’s uncertain tax positions as well as interest and penalties attributable to these uncertain tax positions. All tax reserves are analyzed quarterly and adjustments are made as events occur that result in changes in judgment.
The Company evaluates at the end of each reporting period whether some or all of the undistributed earnings of its foreign subsidiaries are permanently reinvested. The Company recognizes deferred income tax liabilities to the extent that management asserts that undistributed earnings of its foreign subsidiaries are not permanently reinvested or will not be permanently reinvested in the future. The Company’s position is based upon several factors including management’s evaluation of the Haemonetics and its subsidiaries’ financial requirements, the short-term and long-term operational and fiscal objectives of the Company and the tax consequences associated with the repatriation of earnings.
Convertible Senior Notes
Prior to April 4, 2021, the Company accounted for convertible senior notes as separate liability and equity components, determining the fair value of the respective liability components 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.
Effective April 4, 2021, the Company accounted for convertible senior notes as a single liability measured at its amortized cost. See Recent Accounting Pronouncements below. At issuance, the carrying amount is calculated as the proceeds, net of initial debt issuance costs. The difference between the principal amount and carrying value is amortized to interest expense over the term of the convertible senior notes using the effective interest rate method.
A detailed analysis of the terms of the convertible senior notes transactions is required to determine existence of any derivatives that may require separate mark-to-market accounting under applicable accounting guidance.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivative Instruments
The Company accounts for its derivative financial instruments in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”) and ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for the change in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative as a hedging instrument for accounting purposes and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. In addition, ASC 815 provides that, for derivative instruments that qualify for hedge accounting, changes in the fair value are either (a) offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or (b) recognized in equity until the hedged item is recognized in earnings, depending on whether the derivative is being used to hedge changes in fair value or cash flows. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. The Company does not use derivative financial instruments for trading or speculation purposes.
When the underlying hedged transaction affects earnings, the gains or losses on the forward foreign exchange rate contracts designated as hedges are recorded in net revenues, cost of goods sold, operating expenses and other expense, net in the Company’s consolidated statements of income, depending on the nature of the underlying hedged transactions. The cash flows related to the gains and losses are classified in the consolidated statements of cash flows as part of cash flows from operating activities. For those derivative instruments that are not designated as part of a hedging relationship the Company records the gains or losses in earnings currently. These gains and losses are intended to offset the gains and losses recorded on net monetary assets or liabilities that are denominated in foreign currencies. The Company recorded foreign currency losses of $1.0 million, $1.5 million and $0.7 million in fiscal 2023, 2022 and 2021, respectively.
On a quarterly basis, the Company assesses whether the cash flow hedges are highly effective in offsetting changes in the cash flow of the hedged item. The Company manages the credit risk of its counterparties by dealing only with institutions that it considers financially sound and considers the risk of non-performance to be remote. Additionally, the Company’s interest rate risk management strategy includes the use of interest rate swaps to mitigate its exposure to changes in variable interest rates. The Company’s objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations.
The Company’s derivative instruments do not subject its earnings or cash flows to material risk, as gains and losses on these derivatives are intended to offset losses and gains on the item being hedged. The Company does not enter into derivative transactions for speculative purposes and it does not have any non-derivative instruments that are designated as hedging instruments pursuant to ASC 815.
Share-Based Compensation
The Company expenses the fair value of share-based awards granted to employees, board members and others, net of estimated forfeitures. To calculate the grant-date fair value of its stock options the Company uses the Black-Scholes option-pricing model and for performance share units it uses Monte Carlo simulation models.
Costs Associated with Exit Activities
The Company records employee termination costs in accordance with ASC Topic 712, Compensation - Nonretirement and Postemployment Benefits, if it pays the benefits as part of an on-going benefit arrangement, which includes benefits provided as part of its established severance policies or that it provides in accordance with international statutory requirements. The Company accrues employee termination costs associated with an on-going benefit arrangement if the obligation is attributable to prior services rendered, the rights to the benefits have vested, the payment is probable and the liability can be reasonably estimated. The Company accounts for employee termination benefits that represent a one-time benefit in accordance with ASC Topic 420, Exit or Disposal Cost Obligations. It records such costs into expense over the employee’s future service period, if any.
Other costs associated with exit activities may include contract termination costs, including costs related to leased facilities to be abandoned or subleased, consultant fees and impairments of long-lived assets. The costs are expensed in accordance with ASC Topic 420 and ASC Topic 360, Property, Plant and Equipment and are included primarily in selling, general and administrative costs in its consolidated statement of income. Additionally, costs directly related to the Company’s active restructuring initiatives, including program management costs, accelerated depreciation and costs to transfer product lines
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
among facilities are included within costs of goods sold and selling, general and administrative costs in its consolidated statement of income. Refer to Note 3, Restructuring, for further information and discussion of its restructuring plans.
Valuation of Acquisitions
The Company allocates the amounts it pays for each acquisition to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition, including acquired identifiable intangible assets. The Company bases the estimated fair value of identifiable intangible assets on detailed valuations that use significant assumptions including forecasted cash flows, revenues attributable to existing technology and existing customer attrition. When estimating the significant assumptions to be used in the valuation, the Company includes a consideration of current industry information, market and economic trends, historical results of the acquired business, and other relevant factors. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.
Strategic Investments
The Company holds strategic investments, including preferred stock and a special share, in a privately held entity. The special share allows the Company to acquire the entity in accordance with an agreement between the parties. As these equity instruments do not have readily determinable fair values, they have been measured using the measurement alternative, at cost less impairment. The carrying amount for these instruments would be subsequently adjusted for observable price changes, or prices in orderly transactions for an identical investment or similar investment of the same issuer. In addition, these investments are periodically evaluated for impairment. The investments are classified as other long-term assets on the Company’s Consolidated Balance Sheets and the Company has not recorded any adjustments to the carrying value of strategic investments in fiscal 2023.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. In fiscal 2023, 2022 and 2021, the Company’s ten largest customers accounted for approximately 48%, 45% and 49% of net revenues, respectively. In fiscal 2023, one Plasma customer, CSL Limited (together with its affiliates, “CSL”) was greater than 10% of total net revenues and in total accounted for approximately 14% of net revenues. In addition to CSL, two customers also accounted for greater than 10% of the Plasma segment’s net revenues and one customer also accounted for greater than 10% of the Blood Center segment’s net revenues, but did not exceed 10% of total net revenues, in fiscal 2023.
Certain other markets and industries can expose the Company to concentrations of credit risk. For example, in the Plasma business unit, sales are concentrated with several large customers. As a result, accounts receivable extended to any one of these biopharmaceutical customers can be significant at any point in time. Also, a portion of the Company’s trade accounts receivable outside the U.S. include sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries’ national economies. The Company has not incurred significant losses on government receivables. The Company continually evaluates all government receivables for potential collection risks associated with the availability of government funding and reimbursement practices. If the financial condition of customers or the countries’ healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods.
Recent Accounting Pronouncements
Standards Implemented
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326). ASC Update No. 2016-13 is intended to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The Company adopted ASC Update No. 2016-13 during the first quarter of fiscal 2021. The adoption did not have a material impact on the Company’s consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2018, the FASB issued ASC Update No. 2018-15, Intangibles, Goodwill and Other - Internal-Use Software (Subtopic 350-40). The new guidance aligns the accounting implementation costs incurred in a cloud computing arrangement that is a service contract with the accounting for internal-use software licenses. The Company adopted ASC Update No. 2018-15 during the first quarter of fiscal 2021. The adoption did not have a material impact on the Company’s consolidated financial statements.
In May 2020, the Securities and Exchange Commission (“SEC”) issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses. The amendments primarily relate to disclosures required by Rule 3-05 and Article 11 of Regulation S-X and modifies the tests provided in Rule 1-02(w) of Regulation S-X used to determine whether a subsidiary or an acquired or disposed business is significant and modifies the number of years of audited financial statements required for acquisitions with significance levels greater than specified percentages. The Company early adopted these amendments during the fourth quarter of fiscal 2021.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2019-12 — Income Taxes (Topic 740). The new guidance improves consistent application of and simplifies the accounting for income taxes by removing certain exceptions to the general principals in Topic 740. The Company adopted ASC Update No. 2019-12 effective April 4, 2021. The adoption did not have a material impact on the Company’s financial position or results of operations.
In August 2020, the FASB issued ASC ASU Update No. 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company early adopted ASC Update No. 2020-06 effective April 4, 2021 using the modified retrospective method, which resulted in a decrease of $61.2 million to additional paid-in capital, a decrease to non-current deferred tax liabilities of $20.0 million, and an increase of $80.3 million to non-current convertible notes, net, on the consolidated balance sheets. Additionally, retained earnings was adjusted to remove amortization expense recognized in prior periods related to the debt discount and the convertible notes no longer have a debt discount that will be amortized, net of taxes. The impact to retained earnings on the consolidated balance sheets as of April 4, 2021 is an increase of $1.0 million.
In July 2021, the FASB issued ASC Update No. 2021-05 — Leases (Topic 842). The new guidance requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria of ASC 842 and the lessor would have otherwise recognized a day-one loss. The Company prospectively adopted ASC Update No. 2021-05 effective in the second quarter of fiscal year 2022. The adoption did not have a material impact on the Company’s financial position or results of operations.
3. RESTRUCTURING
On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify opportunities for efficiencies, enhance commercial capabilities, align its resources and offer its customers better solutions. In order to realize these opportunities, the Company undertakes restructuring-type activities to transform its business.
In July 2019, the Board of Directors of the Company approved the Operational Excellence Program (the “2020 Program”) and delegated authority to the Company’s management to determine the detail of the initiatives that will comprise the program. During fiscal 2022, the Company revised the program to improve product and service quality, reduce cost principally in its manufacturing and supply chain operations and ensure sustainability while helping to offset impacts from a previously announced customer loss, rising inflationary pressures and effects of the COVID-19 pandemic. The Company expects to incur aggregate charges between $95 million and $105 million by the end of fiscal 2025 under the program. 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 fiscal 2023, 2022 and 2021, the Company incurred $11.5 million, $28.7 million and $15.1 million of restructuring and restructuring related costs under this program, respectively. Total cumulative charges under this program are $67.2 million as of April 1, 2023.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the activity for restructuring reserves related to the 2020 Program and prior programs for the fiscal years ended April 1, 2023, April 2, 2022 and April 3, 2021, substantially all of which relates to employee severance and other employee costs:
| (In thousands) | 2020 Program | Prior Programs | Total | ||||||||||||||
| Balance at March 28, 2020 | $ | 1,136 | $ | 1,512 | $ | 2,648 | |||||||||||
| Costs incurred, net of reversals | 1,501 | (57) | 1,444 | ||||||||||||||
| Payments | (2,062) | (1,018) | (3,080) | ||||||||||||||
| Balance at April 3, 2021 | $ | 575 | $ | 437 | $ | 1,012 | |||||||||||
| Costs incurred, net of reversals | 4,202 | 28 | 4,230 | ||||||||||||||
| Payments | (2,317) | (120) | (2,437) | ||||||||||||||
| Balance at April 2, 2022 | $ | 2,460 | $ | 345 | $ | 2,805 | |||||||||||
| Costs incurred, net of reversals | 576 | 81 | 657 | ||||||||||||||
| Payments | (1,226) | (86) | (1,312) | ||||||||||||||
| Balance at April 1, 2023 | $ | 1,810 | $ | 340 | $ | 2,150 | |||||||||||
The following presents the restructuring costs by line item during fiscal 2023, 2022 and 2021 within our accompanying consolidated statements of income and comprehensive income:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Cost of goods sold | $ | (215) | $ | 2,236 | $ | 390 | |||||||||||
| Research and development | — | 105 | 142 | ||||||||||||||
| Selling, general and administrative expenses | 872 | 1,889 | 912 | ||||||||||||||
| Total | $ | 657 | $ | 4,230 | $ | 1,444 | |||||||||||
As of April 1, 2023, the Company had a restructuring liability of $2.2 million, of which approximately $1.8 million is payable within the next twelve months.
In addition to the restructuring expenses included in the table above, the Company also incurred costs of $10.9 million, $24.6 million and $14.2 million in fiscal 2023, 2022 and 2021, respectively, that do not constitute restructuring costs under ASC 420, Exit and Disposal Cost Obligations, and which the Company instead refers to as restructuring related costs. These costs consist primarily of expenditures directly related to the restructuring actions.
The following presents the restructuring related costs by line item during fiscal 2023, 2022 and 2021 within our accompanying consolidated statements of income and comprehensive income:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Cost of goods sold | $ | 7,991 | $ | 17,832 | $ | 9,318 | |||||||||||
| Research and development | 1,050 | 714 | 1,026 | ||||||||||||||
| Selling, general and administrative expenses | 1,851 | 6,048 | 3,873 | ||||||||||||||
| Total | $ | 10,892 | $ | 24,594 | $ | 14,217 | |||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below present restructuring and restructuring related costs by reportable segment:
| Restructuring costs | |||||||||||||||||
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Plasma | $ | (48) | $ | 2,492 | $ | 454 | |||||||||||
| Blood Center | — | (18) | 201 | ||||||||||||||
| Hospital | 165 | (93) | 322 | ||||||||||||||
| Corporate | 540 | 1,849 | 467 | ||||||||||||||
| Total | $ | 657 | $ | 4,230 | $ | 1,444 | |||||||||||
| Restructuring related costs | |||||||||||||||||
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Plasma | $ | 1,385 | $ | 7,906 | $ | 1,870 | |||||||||||
| Blood Center | 75 | 556 | 1,599 | ||||||||||||||
| Hospital | 546 | 379 | 14 | ||||||||||||||
| Corporate | 8,886 | 15,753 | 10,734 | ||||||||||||||
| Total | $ | 10,892 | $ | 24,594 | $ | 14,217 | |||||||||||
| Total restructuring and restructuring related costs | $ | 11,549 | $ | 28,824 | $ | 15,661 | |||||||||||
4. ACQUISITIONS AND STRATEGIC INVESTMENTS
Acquisitions
Cardiva Medical, Inc.
On January 17, 2021, the Company entered into an Agreement and Plan of Merger with Cardiva Medical, Inc. (“Cardiva”), an industry-leading manufacturer of vascular closure systems based in Santa Clara, California. In connection with this acquisition, which closed on March 1, 2021, the Company acquired 100% of the issued and outstanding shares of capital stock of Cardiva for total consideration of $489.8 million, which consisted of upfront payments in the aggregate of $465.5 million ($418.2 million net of cash acquired) and the fair value of contingent consideration of $24.3 million. Cardiva achieved the contingent consideration maximum payout of $35.0 million, of which the final payment was made in fiscal 2023. The Company financed the acquisition through a combination of cash, borrowings under its revolving credit facility and an additional $150.0 million term loan under its existing credit facility.
Cardiva’s portfolio includes two catheter-based vascular access site closure devices. The VASCADE® vascular closure system is designed for “small-bore” femoral arterial and venous closure, generally used in interventional cardiology and peripheral vascular procedures. The VASCADE MVP® vascular closure system is designed for “mid-bore” multi-access femoral venous closure, generally used in electrophysiology procedures, and is the only U.S. Food and Drug Administration (“FDA”) approved closure device for use following cardiac ablation procedures requiring two or more access sites within the same vessel. The addition of the VASCADE portfolio to the Hospital business unit includes products with demonstrated benefits and enhances penetration into the large and growing interventional cardiology and electrophysiology markets.
Purchase Price Allocation
The Company accounted for the acquisition of Cardiva 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following amounts represent the fair value of the identifiable assets acquired and liabilities assumed for Cardiva:
| (In thousands) | March 1, 2021 | ||||
| Accounts receivable | $ | 7,304 | |||
| Inventories | 18,765 | ||||
| Prepaid expenses and other current assets | 850 | ||||
| Property, plant and equipment | 1,186 | ||||
| Intangible assets | 250,560 | ||||
| Goodwill | 253,707 | ||||
| Other long-term assets | 1,868 | ||||
| Total assets acquired | $ | 534,240 | |||
| Accounts payable | 3,292 | ||||
| Accrued payroll and related costs | 58,211 | ||||
| Other liabilities | 1,903 | ||||
| Deferred tax liability | 26,793 | ||||
| Other long-term liabilities | 1,772 | ||||
| Total liabilities assumed | $ | 91,971 | |||
| Net assets acquired | $ | 442,269 | |||
The Company determined the identifiable intangible assets were completed technology, customer relationships, trademarks and in-process research and development (“IPR&D”). The fair values of intangible assets were based on valuation techniques with estimates and assumptions developed by the Company. Completed technology and IPR&D were valued using the excess earnings method. Customer relationships were valued using the distributor method. Trademarks were valued using the relief from royalty method. The cash flows used in the valuation of the intangible assets were based on estimates used to price the transaction. In developing the discount rates applied to the cash flow projections, the discount rates were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital and then adjusted to reflect the relative risk of the asset.
The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. As a result of the acquisition of Cardiva, the Company recognized goodwill of $253.7 million, which is attributable to the revenue and cash flow projections associated with completed technologies and the development of future technology that does not exist in the current IPR&D pipeline. The goodwill is not deductible for tax purposes and relates entirely to the Hospital reportable segment.
Intangible assets acquired consist of the following:
| (In thousands) | Amount | Weighted-Average Amortization Period | Risk-Adjusted Discount Rates used in Purchase Price Allocation | ||||||||
| Completed technology | $ | 213,290 | 13 years | 13.5 | % | ||||||
| Customer relationships | 18,166 | 12 years | 13.0 | % | |||||||
| Trademarks | 5,437 | 13 years | 13.5 | % | |||||||
| IPR&D | 13,667 | Indefinite | 15.0 | % | |||||||
| Total | $ | 250,560 | |||||||||
The Company recorded a long-term deferred tax liability, net, of $26.8 million primarily related to acquired intangible assets which cannot be deducted for tax purposes, partially offset by deferred tax assets primarily related to net operating losses acquired.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquisition-Related Costs
The amount of acquisition-related costs incurred associated with the acquisition was $9.6 million for the fiscal year ending April 3, 2021. The Company incurred acquisition costs related to legal and other professional fees in the amount of $6.6 million and an additional $3.0 million of debt financing costs and lender fees which were recognized in selling, general and administrative and as interest expense on the consolidated statements of income, respectively.
Unaudited Pro Forma Financial Information
Cardiva contributed revenues of $7.7 million to net revenues and losses of $7.6 million to net income for the period post acquisition through April 3, 2021.
The unaudited estimated pro forma results presented below include the effects of the acquisition of Cardiva as if it was consummated on March 31, 2019. In fiscal 2021, the Company incurred nonrecurring charges attributed to the acquisition of Cardiva, which are presented in the consolidated statements of income for this period. These charges include acquisition-related costs, retention bonuses and severance payments, adjusted for the related tax effects. These nonrecurring charges are reflected as adjustments to the pro forma earnings presented below for fiscal 2021.
Additionally, these pro forma amounts have been calculated, net of tax, after adjusting the results of Cardiva to reflect the additional costs associated with fair value adjustments relating to inventories, leases and intangible assets as if the acquisition had occurred on March 31, 2019 and adjusting interest amounts related to long-term debt assumptions. There was no significant impact to the pro forma amounts after applying the Company’s accounting policies.
The supplemental pro forma information presented below is for informational purposes only and should be read in conjunction with our historical financial statements. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. Accordingly, the unaudited estimated pro forma financial information below is not necessarily indicative of what the actual results of operations of the combined companies would have been had the acquisition of Cardiva occurred as of March 31, 2019, nor are they indicative of future results of operations. The pro forma assumptions and adjustments are reasonable and appropriate under the circumstances and are factually supported based on information currently available.
| (In thousands) (Unaudited) | 2021 | ||||
| Net revenues | $ | 916,601 | |||
| Net income | $ | 53,884 | |||
HAS Intellectual Property
In January 2021, the Company entered into an agreement to acquire certain intellectual property owned by HemoAssay Science and Technology (Suzhou) Co. Ltd., a China-incorporated company, and its affiliates (collectively, “HemoAssay”) underlying their HAS viscoelastic diagnostic devices, related assays and disposables. The Company previously entered into exclusive manufacturing and distribution agreements with HemoAssay pursuant to which it has exclusive rights to commercialize HemoAssay’s HAS devices in China. In connection with the transaction, the Company has agreed to pay up to $15.0 million to HemoAssay in contingent consideration based on certain developmental and manufacturing based milestones. In fiscal years 2023 and 2022, the Company made milestone payments of $2.9 million and $2.5 million, respectively, which were recorded within intangible assets on the consolidated balance sheets. These products augment the Company’s portfolio of hemostasis analyzers within the Hospital business unit.
enicor GmbH
On April 1, 2020, the Company acquired all of the outstanding equity of enicor GmbH (“enicor”), the manufacturer of ClotPro®, a new generation whole blood coagulation testing system that is currently available in select European and Asia Pacific markets, for total consideration of $20.5 million, which consisted of upfront payments of $16.6 million and the fair value of contingent consideration of $3.9 million. The contingent consideration, which could total a maximum of $4.5 million, consists of payments related to the achievement of certain revenue and regulatory milestones. As of April 1, 2023, the Company has made $2.3 million of milestone payments. The acquisition of this viscoelastic diagnostic device augments the Company’s portfolio of hemostasis analyzers within the Hospital business unit.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Purchase Price Allocation
The Company accounted for the acquisition of enicor as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations (Topic 805), recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date.
The following amounts represent the fair value of the identifiable assets acquired and liabilities assumed for enicor completed during fiscal 2021:
| (In thousands) | April 1, 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 | |||||||
| Deferred tax liability | 3,036 | |||||||
| Total liabilities assumed | $ | 3,325 | ||||||
| Net assets acquired | $ | 20,526 | ||||||
The Company determined the identifiable intangible assets were completed technology, customer relationships and a trademark. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a rate of 20%. The cash flows were based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital. The benefits of adding a viscoelastic diagnostic device to the Company’s portfolio of hemostasis analyzers within the Hospital business unit contributed to an acquisition price in excess of the fair value of net assets acquired for enicor, which resulted in the establishment of goodwill. In addition, the benefits of lower cost manufacturing and complementary sales channels also contributed to the establishment of goodwill for this acquisition. The goodwill is not deductible for income tax purposes.
Intangible assets acquired consist of the following:
| (In thousands) | Amount | Weighted-Average Amortization Period | Risk-Adjusted Discount Rates used in Purchase Price Allocation | |||||||||||||||||
| Completed technology | $ | 13,441 | 10 Years | 20 | % | |||||||||||||||
| Customer relationships | 347 | 10 Years | 20 | % | ||||||||||||||||
| Trademark | 302 | 10 Years | 20 | % | ||||||||||||||||
| Total | $ | 14,090 | ||||||||||||||||||
Acquisition-Related Costs
During fiscal 2021, the Company incurred $0.2 million of acquisition-related costs associated with the acquisition.
Unaudited Pro Forma Financial Information
enicor had an immaterial impact to the Company’s net revenues and net income for fiscal 2021. The unaudited estimated pro forma impact of the results of the acquisition of enicor as if it was consummated on April 1, 2019 are immaterial.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Strategic Investments
During fiscal year 2023, the Company made investments in Vivasure Medical LTD (“Vivasure”), totaling €30 million. The investments include both preferred stock and a special share that allows the Company to acquire Vivasure in accordance with an agreement between the parties. The investments are classified as other long-term assets on the consolidated balance sheets and the Company has not recorded any adjustments to the carrying value of our strategic investments in fiscal 2023.
5. DIVESTITURES
Fajardo, Puerto Rico Manufacturing Operations
On June 29, 2020, the Company sold its Fajardo, Puerto Rico, manufacturing operations to GVS, S.p.A (“GVS”), a leading provider of advanced filtration solutions for critical applications for $15.1 million ($7.8 million, net of cash transferred). Under the terms of the agreement, Haemonetics retained all intellectual property rights to its proprietary blood filters currently manufactured at its Fajardo facility and GVS acquired certain assets consisting primarily of property, plant and equipment, inventory and cash and has assumed certain related liabilities. In connection with this transaction, the Company and GVS also entered into a long-term supply and development agreement that, among other things, grants GVS exclusive rights to manufacture and supply the blood filters currently produced at the Fajardo facility for Haemonetics.
As a result of this transaction, Haemonetics recognized a pre-tax impairment charge in its Blood Center business unit of $1.0 million in the first quarter of fiscal 2021 and an incremental loss of $0.4 million based on closing adjustments during the third quarter of fiscal 2021, as the carrying value of the assets and liabilities in the asset transfer exceeded the net of the $15.1 million of cash proceeds and an additional contingent liability of $1.5 million. The disposal group consisted of $3.3 million of inventory, $7.2 million of fixed assets, $3.2 million of other liabilities, and $0.4 million of goodwill allocated based on fair value to the business.
U.S. Blood Donor Management Software
On July 1, 2020, the Company sold certain U.S. blood donor management software solution assets within its Blood Center business unit to the GPI Group (“GPI”) for an upfront cash payment of $14.0 million ($13.6 million, net of working capital adjustments) and up to $14.0 million in additional consideration contingent on the achievement of commercial milestones over the twelve month period immediately following the closing of the transaction. The disposal group consisted of $1.4 million of accounts receivable, $0.9 million of intangible assets, other liabilities of $1.8 million and $1.4 million of goodwill allocated based on fair value to the business. The Company recognized a gain of $13.2 million associated with the transaction in fiscal 2021. In fiscal years 2023 and 2022, the Company recognized additional gains of $0.4 million and $9.6 million, respectively, for contingent consideration earned.
Inlog Holdings France
On September 18, 2020, the Company sold its wholly-owned subsidiary Inlog Holdings France SAS to Abénex Capital (“Abénex”), a private equity firm based in France for $30.5 million ($24.5 million, net of cash transferred). Inlog Holdings France SAS, through its subsidiary In Log SAS, develops and sells blood bank and hospital software solutions used predominantly in France and in several other countries outside of the U.S. The disposal group included $2.2 million of intangible assets, $2.2 million of accounts receivable, $0.3 million of other assets, $3.3 million of liabilities and $3.3 million of goodwill allocated based on the fair value of the business which impacted both the Blood Center and Hospital business units. The Company recognized a gain of $20.0 million associated with the transaction in fiscal 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. INCOME TAXES
Domestic and foreign income before provision (benefit) for income tax is as follows:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Domestic | $ | 85,657 | $ | (5,219) | $ | 5,526 | |||||||||||
| Foreign | 55,746 | 68,848 | 67,387 | ||||||||||||||
| Total | $ | 141,403 | $ | 63,629 | $ | 72,913 | |||||||||||
The income tax provision (benefit) from continuing operations contains the following components:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 6,461 | $ | 3,586 | $ | (289) | |||||||||||
| State | 4,824 | 1,682 | 1,256 | ||||||||||||||
| Foreign | 8,940 | 9,940 | 13,319 | ||||||||||||||
| Total current | $ | 20,225 | $ | 15,208 | $ | 14,286 | |||||||||||
| Deferred | |||||||||||||||||
| Federal | 14,298 | 3,455 | (12,906) | ||||||||||||||
| State | (7,678) | 310 | (2,436) | ||||||||||||||
| Foreign | (843) | 1,281 | (5,500) | ||||||||||||||
| Total deferred | $ | 5,777 | $ | 5,046 | $ | (20,842) | |||||||||||
| Total | $ | 26,002 | $ | 20,254 | $ | (6,556) | |||||||||||
The Company conducts business globally and reports its results of operations in a number of foreign jurisdictions in addition to the United States. The Company’s reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which it operates have tax rates that differ from the U.S. statutory tax rate.
The Company’s subsidiary in Malaysia has been granted a full income tax exemption to manufacture whole blood and apheresis devices that could be in effect for up to ten years, provided certain conditions are satisfied. The income tax exemption was in effect beginning June 1, 2016.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Tax effected, significant temporary differences comprising the net deferred tax liability are as follows:
| (In thousands) | April 1, 2023 | April 2, 2022 | |||||||||
| Deferred tax assets: | |||||||||||
| Depreciation | $ | 174 | $ | 623 | |||||||
| Amortization of intangibles | 1,013 | 1,243 | |||||||||
| Inventory | 7,674 | 6,841 | |||||||||
| Accruals, reserves and other deferred tax assets | 15,680 | 13,020 | |||||||||
| Net operating loss carry-forward | 20,996 | 30,212 | |||||||||
| Stock based compensation | 4,230 | 4,422 | |||||||||
| Operating lease liabilities | 15,851 | 15,777 | |||||||||
| Tax credit carry-forward, net | 5,072 | 6,452 | |||||||||
| Capitalized research expenses | 19,671 | 6,733 | |||||||||
| Gross deferred tax assets | 90,361 | 85,323 | |||||||||
| Less valuation allowance | (8,838) | (14,077) | |||||||||
| Total deferred tax assets (after valuation allowance) | 81,523 | 71,246 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation | (37,400) | (15,727) | |||||||||
| Amortization of goodwill and intangibles | (57,752) | (63,004) | |||||||||
| Unremitted earnings | (1,163) | (1,254) | |||||||||
| Operating lease assets | (13,220) | (12,877) | |||||||||
| Other deferred tax liabilities | (2,942) | (2,643) | |||||||||
| Total deferred tax liabilities | (112,477) | (95,505) | |||||||||
| Net deferred tax liabilities | $ | (30,954) | $ | (24,259) | |||||||
The increase in the worldwide net deferred tax liability is primarily due to tax depreciation deductions in excess of book depreciation expense during fiscal 2023 and utilization of net operating loss carryforwards, partially offset by research expenditures capitalized for tax purposes and impact of the release of valuation allowance previously maintained against certain U.S. state and foreign deferred tax assets.
The valuation allowance decrease of $5.2 million during fiscal 2023 is primarily due to the release of valuation allowance related to certain U.S. state and foreign deferred tax assets and changes in the valuation allowance in other jurisdictions based on current year operating results. The Company has assessed, on a jurisdictional basis, the available means of recovering deferred tax assets, including the ability to carry-back net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies and available sources of future taxable income. It has also considered the ability to implement certain strategies that would, if necessary, be implemented to accelerate taxable income and use expiring deferred tax assets. Based upon cumulative profitability in the U.S. and Malaysia, and increases in future taxable income projections, management has determined there is sufficient positive evidence to release a portion of the valuation allowance previously provided against certain U.S. state and foreign deferred tax assets. The Company has concluded future taxable income can be considered a source of income to realize a benefit for deferred tax assets in certain jurisdictions. The Company believes it is able to support the deferred tax assets recognized as of the end of the year based on all of the available evidence. The worldwide net deferred tax liability as of April 1, 2023 includes deferred tax liabilities related to amortizable tax basis in goodwill and other indefinite lived assets, which can only be used as a source of income to benefit other indefinite lived assets.
As of April 1, 2023, the Company maintains a valuation allowance against certain U.S. tax credit carryforwards that are not more-likely-than-not realizable as well as a valuation allowance against the net deferred tax assets of certain foreign subsidiaries.
In connection with the March 2021 acquisition of Cardiva, the Company acquired federal and state net operating loss carryforwards of $150.9 million and $93.3 million, respectively. The Company also acquired federal and state tax research credit carryforwards of $0.2 million and $0.4 million, respectively. These net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
shareholders over a three-year period in excess of 50 percent as defined under Section 382 and 383 of the U.S. Internal Revenue Code of 1986, respectively, as well as similar state provisions. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. The Company conducted a Section 382 study covering the period of inception (July 2002) through March 1, 2021. The study concluded that ownership changes occurred during that period which limit the amount of the Company’s net operating losses and tax credit carryforwards that can be utilized before expiring. The carryforwards disclosed represent the amount of attributes that can be utilized based on the results of the study. The Company does not believe it has had an ownership change through April 1, 2023. Subsequent ownership changes may further affect the limitation in future years.
As of April 1, 2023, the Company has U.S. federal net operating loss carryforwards of $64.4 million of which $8.4 million will begin to expire in fiscal 2024 and $56.0 million can be carried forward indefinitely. The Company has U.S. state net operating losses of $75.7 million of which $62.3 million will expire at various times between fiscal 2024 and fiscal 2040 and $13.4 million can be carried forward indefinitely. The Company has federal and state tax credits of $0.6 million and $5.4 million, respectively, which will begin to expire in fiscal 2029 and fiscal 2028, respectively.
As of April 1, 2023, the Company has foreign net operating losses of approximately $10.5 million that are available to reduce future income of which $6.9 million will begin to expire in fiscal 2034 and $3.6 million can be carried forward indefinitely.
As of April 1, 2023, substantially all of the unremitted earnings of the Company have been taxed in the U.S. The Company has not provided U.S. deferred income taxes or foreign withholding taxes on unremitted earnings of foreign subsidiaries of approximately $72.0 million as such amounts are considered to be indefinitely reinvested in the business. The accumulated earnings in the foreign subsidiaries are primarily utilized to fund working capital requirements as its subsidiaries continue to expand their operations and to fund future foreign acquisitions. The Company does not believe it is practicable to estimate the amount of income taxes payable on the earnings that are indefinitely reinvested in foreign operations, however a significant portion of the unremitted earnings could be remitted without a future tax cost.
The income tax provision (benefit) from continuing operations differs from the tax provision (benefit) computed at the U.S. federal statutory income tax rate due to the following:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Tax at federal statutory rate | $ | 29,695 | 21.0 | % | $ | 13,362 | 21.0 | % | $ | 15,312 | 21.0 | % | |||||||||||||||||||||||
| Impact of foreign operations | (2,408) | (1.7) | % | (3,799) | (6.0) | % | (7,049) | (9.7) | % | ||||||||||||||||||||||||||
| State income taxes net of federal benefit | 2,939 | 2.1 | % | 1,384 | 2.2 | % | (924) | (1.3) | % | ||||||||||||||||||||||||||
| Change in uncertain tax positions | 81 | 0.1 | % | (777) | (1.2) | % | 1,172 | 1.6 | % | ||||||||||||||||||||||||||
| Global intangible low taxed income | (828) | (0.6) | % | 3,608 | 5.7 | % | (758) | (1.0) | % | ||||||||||||||||||||||||||
| Unremitted earnings | (91) | (0.1) | % | 194 | 0.3 | % | 257 | 0.4 | % | ||||||||||||||||||||||||||
| Deferred statutory rate changes | 82 | 0.1 | % | 40 | 0.1 | % | (243) | (0.3) | % | ||||||||||||||||||||||||||
| Non-deductible executive compensation | 1,439 | 1.0 | % | 1,080 | 1.7 | % | 2,238 | 3.1 | % | ||||||||||||||||||||||||||
| Non-deductible expenses | 827 | 0.6 | % | 741 | 1.2 | % | 2,038 | 2.8 | % | ||||||||||||||||||||||||||
| Stock compensation shortfalls (benefits) | 1,883 | 1.3 | % | 2,070 | 3.3 | % | (5,504) | (7.5) | % | ||||||||||||||||||||||||||
| Research credits | (2,073) | (1.5) | % | (1,496) | (2.4) | % | (1,230) | (1.7) | % | ||||||||||||||||||||||||||
| Contingent consideration | — | — | % | 1,880 | 3.0 | % | — | — | % | ||||||||||||||||||||||||||
| Intercompany sale of intellectual property | — | — | % | — | — | % | (7,550) | (10.4) | % | ||||||||||||||||||||||||||
| Valuation allowance | (5,135) | (3.6) | % | 254 | 0.2 | % | (3,144) | (4.4) | % | ||||||||||||||||||||||||||
| Other, net | (409) | (0.3) | % | 1,713 | 2.7 | % | (1,171) | (1.6) | % | ||||||||||||||||||||||||||
| Income tax provision (benefit) | $ | 26,002 | 18.4 | % | $ | 20,254 | 31.8 | % | $ | (6,556) | (9.0) | % | |||||||||||||||||||||||
The Company recorded an income tax expense of $26.0 million, representing an effective tax rate of 18.4%. The effective tax rate is lower than the U.S. statutory rate of 21.0%, primarily due to jurisdictional mix of earnings, research credits generated and the change in valuation allowance, partially offset by state taxes, non-deductible executive compensation and disallowed stock compensation expense. The Company has recorded an immaterial tax expense related to unremitted foreign earnings that are not considered permanently reinvested.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unrecognized Tax Benefits
Unrecognized tax benefits represent uncertain tax positions for which reserves have been established. As of April 1, 2023, the Company had $3.9 million of unrecognized tax benefits, of which $3.2 million would impact the effective tax rate, if recognized. As of April 2, 2022, the Company had $3.9 million of unrecognized tax benefits, of which $3.1 million would impact the effective tax rate, if recognized. At April 3, 2021, the Company had $6.1 million of unrecognized tax benefits, of which $5.3 million would impact the effective tax rate, if recognized.
The following table summarizes the activity related to its gross unrecognized tax benefits for the fiscal years ended April 1, 2023, April 2, 2022 and April 3, 2021:
| (In thousands) | April 1, 2023 | April 2, 2022 | April 3, 2021 | ||||||||||||||
| Beginning Balance | $ | 3,939 | $ | 6,107 | $ | 4,620 | |||||||||||
| Additions for tax positions of current year | 292 | 219 | 335 | ||||||||||||||
| Additions for tax positions of prior years | — | — | 1,194 | ||||||||||||||
| Reductions of tax positions | (290) | (808) | (42) | ||||||||||||||
| Settlements of tax positions | — | (1,579) | — | ||||||||||||||
| Ending Balance | $ | 3,941 | $ | 3,939 | $ | 6,107 | |||||||||||
As of April 1, 2023, the Company anticipates that the liability for unrecognized tax benefits for uncertain tax positions could change by up to $0.2 million in the next twelve months, as a result of closure of various statutes of limitations.
The Company’s historical practice has been and continues to be to recognize interest and penalties related to federal, state and foreign income tax matters in income tax expense. Approximately $0.2 million and $0.1 million of gross interest and penalties were accrued at April 1, 2023 and April 2, 2022, respectively, and are not included in the amounts above. Additionally, $0.1 million, $0.1 million and $0.9 million of accrued interest and penalties was included in income tax provision (benefit) for the years ended April 1, 2023, April 2, 2022 and April 3, 2021, respectively.
The Company conducts business globally and, as a result, files federal, state and foreign income tax returns in multiple jurisdictions. In the normal course of business, it is subject to examination by taxing authorities throughout the world. With a few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for years before fiscal 2020 and foreign income tax examinations for years before fiscal 2018. To the extent that the Company has tax attribute carry-forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state, or foreign tax authorities to the extent utilized in a future period.
7. EARNINGS PER SHARE
The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.
| (In thousands, except per share amounts) | 2023 | 2022 | 2021 | ||||||||||||||
| Basic EPS | |||||||||||||||||
| Net income | $ | 115,401 | $ | 43,375 | $ | 79,469 | |||||||||||
| Weighted average shares | 50,783 | 51,047 | 50,688 | ||||||||||||||
| Basic income per share | $ | 2.27 | $ | 0.85 | $ | 1.57 | |||||||||||
| Diluted EPS | |||||||||||||||||
| Net income | $ | 115,401 | $ | 43,375 | $ | 79,469 | |||||||||||
| Basic weighted average shares | 50,783 | 51,047 | 50,688 | ||||||||||||||
| Net effect of common stock equivalents | 637 | 306 | 604 | ||||||||||||||
| Diluted weighted average shares | 51,420 | 51,353 | 51,292 | ||||||||||||||
| Diluted income per share | $ | 2.24 | $ | 0.84 | $ | 1.55 | |||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Basic earnings per share is calculated using the Company’s weighted-average outstanding common shares. Diluted earnings per share is calculated using its weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method and the convertible senior notes as determined under the net share settlement method. From the time of the issuance of the convertible senior notes, the average market price of the Company’s common shares has been less than the initial conversion price, and consequently no shares have been included in diluted earnings per share for the conversion value of the convertible senior notes. For fiscal 2023, 2022 and 2021, weighted average shares outstanding, assuming dilution, excludes the impact of 0.6 million, 0.9 million and 0.5 million anti-dilutive shares, respectively.
Share Repurchase Plan
In August 2022, the Company announced that its Board of Directors had approved a new three-year share repurchase program authorizing the repurchase of up to $300.0 million of Haemonetics common stock, based on market conditions, through August 2025. Under the share repurchase program, the Company is authorized to repurchase, from time to time, outstanding shares of common stock in accordance with applicable laws on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions. The actual timing, number and value of shares repurchased will be determined by the Company at its discretion and will depend on a number of factors, including market conditions, applicable legal requirements and compliance with the terms of loan covenants. The share repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program.
In November 2022, 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. in August 2022. The total number of shares repurchased under the ASR was 1.0 million at an average price per share upon final settlement of $75.20.
As of April 1, 2023, the total remaining authorization for repurchases of the Company’s common stock under the share repurchase program was $225.0 million.
8. REVENUE
The Company's revenue recognition policy is to recognize revenues from product sales, software and services in accordance with ASC Topic 606, Revenue from Contracts with Customers. Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; this occurs with the transfer of control of the Company’s goods or services. The Company considers revenue to be earned when all of the following criteria are met: it has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the consideration it expects to receive for transferring goods or providing services, is determinable and it has transferred control of the promised items to the customer. A promise in a contract to transfer a distinct good or service to the customer is identified as a performance obligation. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of the Company’s contracts have multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the estimated standalone selling prices of the good or service in the contract. For goods or services for which observable standalone selling prices are not available, the Company uses an expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.
As of April 1, 2023, the Company had $24.0 million of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more. The Company expects to recognize approximately 77% of this amount as revenue within the next twelve months and the remaining balance thereafter.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables and contract assets, as well as customer advances, customer deposits and deferred revenue (contract liabilities) on the consolidated balance sheets. The difference in timing between billing and revenue recognition primarily occurs in software licensing arrangements, resulting in contract assets and contract liabilities.
As of April 1, 2023 and April 2, 2022, the Company had contract liabilities of $30.2 million and $26.8 million, respectively. During fiscal 2023, the Company recognized $24.3 million of revenue that was included in the above April 2, 2022 contract
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
liability balance. Contract liabilities are classified as other current liabilities on the consolidated balance sheet. As of April 1, 2023 and April 2, 2022, the Company’s contract assets were immaterial.
9. INVENTORIES
Inventories are stated at the lower of cost or net realizable value and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method.
| (In thousands) | April 1, 2023 | April 2, 2022(1) | |||||||||
| Raw materials | $ | 115,016 | $ | 77,846 | |||||||
| Work-in-process | 12,572 | 17,187 | |||||||||
| Finished goods | 131,791 | 197,994 | |||||||||
| Total inventories | $ | 259,379 | $ | 293,027 | |||||||
(1) Prior year raw materials and finished goods balances have been adjusted to conform with current year presentation. | |||||||||||
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
| (In thousands) | April 1, 2023 | April 2, 2022 | ||||||||||||
| Land | $ | 5,358 | $ | 5,165 | ||||||||||
| Building and building improvements | 127,634 | 104,363 | ||||||||||||
| Plant equipment and machinery | 194,539 | 180,140 | ||||||||||||
| Office equipment and information technology | 123,611 | 120,119 | ||||||||||||
| Haemonetics equipment | 463,706 | 405,753 | ||||||||||||
| Construction in progress | 29,367 | 53,607 | ||||||||||||
| Total | 944,215 | 869,147 | ||||||||||||
| Less: accumulated depreciation | (633,330) | (610,665) | ||||||||||||
| Property, plant and equipment, net | $ | 310,885 | $ | 258,482 | ||||||||||
Depreciation expense was $51.2 million, $44.4 million and $43.1 million in fiscal 2023, 2022 and 2021, respectively.
During fiscal 2022, the Company incurred an impairment of property, plant and equipment of $5.2 million in connection with the 2020 Program, refer to Note 3 - Restructuring for details on the 2020 Program, and $2.8 million of accelerated depreciation costs related to disposables manufacturing equipment that was no longer in use. In fiscal 2021, the Company incurred a one-time impairment charge of $20.9 million related to in-process disposables manufacturing equipment that would not be placed in service. These impairment charges were included in cost of goods sold on the consolidated statements of income and impacted the Plasma reporting segment in the respective periods.
11. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by operating segment for fiscal 2023 and 2022 are as follows:
| (In thousands) | Plasma | Blood Center | Hospital | Total | |||||||||||||||||||
| Carrying amount as of April 3, 2021 | $ | 29,043 | $ | 34,528 | $ | 402,873 | $ | 466,444 | |||||||||||||||
| Purchase accounting adjustments | — | — | 2,070 | 2,070 | |||||||||||||||||||
| Currency translation | — | (362) | (865) | (1,227) | |||||||||||||||||||
| Carrying amount as of April 2, 2022 | 29,043 | 34,166 | 404,078 | 467,287 | |||||||||||||||||||
| Currency translation | — | (311) | (745) | (1,056) | |||||||||||||||||||
| Carrying amount as of April 1, 2023 | $ | 29,043 | $ | 33,855 | $ | 403,333 | $ | 466,231 | |||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The results of the Company’s goodwill impairment test performed in the fourth quarter of fiscal 2023, 2022 and 2021 indicated that the estimated fair value of all reporting units exceeded their respective carrying values. There were no reporting units at risk of impairment as of the fiscal 2023, 2022 and 2021 annual test dates.
The gross carrying amount of intangible assets and the related accumulated amortization as of April 1, 2023 and April 2, 2022 is as follows:
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||
| As of April 1, 2023 | |||||||||||||||||
| Amortizable: | |||||||||||||||||
| Patents | $ | 18,504 | $ | 10,831 | $ | 7,673 | |||||||||||
| Capitalized software | 78,962 | 60,776 | 18,186 | ||||||||||||||
| Other developed technology | 362,506 | 153,099 | 209,407 | ||||||||||||||
| Customer contracts and related relationships | 203,240 | 187,774 | 15,466 | ||||||||||||||
| Trade names | 9,508 | 4,942 | 4,566 | ||||||||||||||
| Total | $ | 672,720 | $ | 417,422 | $ | 255,298 | |||||||||||
| Non-amortizable: | |||||||||||||||||
| In-process software development | $ | 3,841 | |||||||||||||||
| In-process research and development | 13,667 | ||||||||||||||||
| In-process patents | 2,965 | ||||||||||||||||
| Total | $ | 20,473 | |||||||||||||||
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||
| As of April 2, 2022 | |||||||||||||||||
| Amortizable: | |||||||||||||||||
| Patents | $ | 14,777 | $ | 9,821 | $ | 4,956 | |||||||||||
| Capitalized software | 76,360 | 52,249 | 24,111 | ||||||||||||||
| Other developed technology | 362,783 | 124,799 | 237,984 | ||||||||||||||
| Customer contracts and related relationships | 204,166 | 185,150 | 19,016 | ||||||||||||||
| Trade names | 9,517 | 4,533 | 4,984 | ||||||||||||||
| Total | $ | 667,603 | $ | 376,552 | $ | 291,051 | |||||||||||
| Non-amortizable: | |||||||||||||||||
| In-process software development | $ | 2,648 | |||||||||||||||
| In-process research and development | 13,667 | ||||||||||||||||
| In-process patents | 2,895 | ||||||||||||||||
| Total | $ | 19,210 | |||||||||||||||
Refer to Note 4, Acquisitions and Strategic Investments, for additional information regarding acquisitions.
Intangible assets include the value assigned to license rights and other developed technology, patents, customer contracts and relationships and trade names. The estimated useful lives for all of these intangible assets are approximately 5 to 15 years.
Aggregate amortization expense for amortized intangible assets for fiscal 2023, 2022 and 2021 was $42.1 million, $56.6 million and $41.2 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future annual amortization expense on intangible assets is estimated to be as follows:
| (In thousands) | ||||||||
| Fiscal 2024 | $ | 35,590 | ||||||
| Fiscal 2025 | $ | 28,170 | ||||||
| Fiscal 2026 | $ | 22,710 | ||||||
| Fiscal 2027 | $ | 20,795 | ||||||
| Fiscal 2028 | $ | 19,089 | ||||||
For costs incurred related to the development of software to be sold, leased, or otherwise marketed, the Company applies the provisions of ASC Topic 985-20, Software - Costs of Software to be Sold, Leased or Marketed, which specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. The costs capitalized for each project are included in intangible assets in the consolidated financial statements.
The Company capitalized $3.8 million and $3.4 million in software development costs for ongoing initiatives during fiscal 2023 and 2022, respectively. At April 1, 2023 and April 2, 2022, the Company had a total of $82.8 million and $79.0 million of software costs capitalized, of which $3.8 million and $5.0 million are related to in process software development initiatives, respectively, and the remaining balance represents in-service assets that are being amortized over their useful lives. Amortization expense for capitalized software was $8.5 million, $8.4 million and $7.8 million for fiscal 2023, 2022 and 2021, respectively.
12. LEASES
Lessee Activity
The Company has operating leases for office space, land, warehouse and manufacturing space, R&D laboratories, vehicles and certain equipment. Finance leases are not significant. Leases with an initial term of 12 months or less are generally not recorded on the balance sheet and expense for these leases is recognized on a 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. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.
During fiscal 2021, the Company entered into a lease for manufacturing space in Clinton, PA. In fiscal 2023, the Company’s manufacturing operations in Leetsdale, PA were relocated to the Clinton, PA facility. 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 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 which was received during fiscal 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents supplemental balance sheet information related to the Company’s operating leases:
| (In thousands) | April 1, 2023 | April 2, 2022 | |||||||||
| Assets | |||||||||||
| $ | 53,413 | $ | 52,749 | ||||||||
| Liabilities | |||||||||||
| $ | 7,162 | $ | 7,196 | ||||||||
| $ | 55,903 | $ | 55,704 | ||||||||
The following table presents the weighted average remaining lease term and discount rate information related to our operating leases:
| April 1, 2023 | April 2, 2022 | ||||||||||
| Weighted average remaining lease term | 9.0 years | 10.0 years | |||||||||
| Weighted average discount rate | 4.95 | % | 4.58 | % | |||||||
The Company’s operating lease costs were $10.6 million, $11.0 million and $11.7 million during fiscal 2023, 2022 and 2021, respectively.
The following table presents supplemental cash flow information related to our operating leases:
| (In thousands) | April 1, 2023 | April 2, 2022 | April 3, 2021 | |||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | ||||||||||||||
| Operating cash flows used for operating leases | $ | 11,450 | $ | 11,014 | $ | 10,456 | ||||||||
| Right of use assets obtained in exchange for new operating lease liabilities | $ | 211 | $ | 587 | $ | 29,595 | ||||||||
The following table presents the maturities of our operating lease liabilities as of April 1, 2023:
Fiscal Year (In thousands) | Operating Leases | |||||||
| 2024 | $ | 9,813 | ||||||
| 2025 | 9,007 | |||||||
| 2026 | 8,601 | |||||||
| 2027 | 9,073 | |||||||
| 2028 | 7,490 | |||||||
| Thereafter | 33,646 | |||||||
| Total future minimum operating lease payments | 77,630 | |||||||
| Less: imputed interest | (14,565) | |||||||
| Present value of operating lease liabilities | $ | 63,065 | ||||||
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 approximately 3 percent of the Company’s total net sales.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
| (In thousands) | April 1, 2023 | April 2, 2022 | |||||||||
| Term loan, net of financing fees | $ | 273,728 | $ | 284,052 | |||||||
| Convertible notes | 492,131 | 489,462 | |||||||||
| Other borrowings | 27 | 75 | |||||||||
| Less current portion | (11,784) | (214,148) | |||||||||
| Long-term debt | $ | 754,102 | $ | 559,441 | |||||||
Convertible Senior Notes
In March 2021, the Company issued $500.0 million aggregate principal amount of 0% convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are governed by the terms of the Indenture between the Company and U.S. Bank National Association, as trustee (the “Indenture”). The total net proceeds from the sale of the 2026 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $486.7 million. The 2026 Notes will mature on March 1, 2026, unless earlier converted, redeemed or repurchased.
Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding September 1, 2025 only under the following circumstances:
•During any calendar quarter (and only during such calendar quarter) beginning after June 30, 2021, if, the last reported sale price per share of the Company’s common stock exceeds 130% of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter;
•During the five business day period after any five consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of the 2026 Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day;
•The Company issues to common stockholders any rights, options, or warrants, entitling them, for a period of not more than 60 days, to purchase shares of common stock at a price per share less than the average closing sale price of 10 consecutive trading days, or the Company’s election to make a distribution to common stockholders exceeding 10% of the previous day’s closing sale price;
•Upon the occurrence of specified corporate events, as set forth in the indenture governing the 2026 Notes; or
•Prior to the related redemption date if the Company calls the 2026 Notes for redemption
On or after September 1, 2025, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2026 Notes, in multiples of $1,000 principal amount, at any time, regardless of the foregoing circumstances. The conversion rate for the 2026 Notes is 5.7033 shares of common stock per $1,000 principal amount of notes (which is equal to an initial conversion price of approximately $175.34 per share of the Company’s common stock), subject to adjustment as set forth in the Indenture. Upon conversion, the Company will pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, common stock or a combination of cash and common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the notes being converted. If a make-whole adjustment event, as described in the Indenture, occurs and a holder elects to convert its 2026 Notes in connection with such make-whole adjustment event, such holder may be entitled to an increase in the conversion rate as described in the Indenture.
During fiscal 2023, the conditions allowing holders of the 2026 Notes to convert have not been met. The 2026 Notes were therefore not convertible as of April 1, 2023 and were classified as long-term debt on the Company’s consolidated balance sheets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The 2026 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after March 5, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately before the date the Company sends the related redemption notice at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date. Upon the occurrence of certain fundamental changes involving the Company, holders of the 2026 Notes may require the Company to repurchase for cash all or part of their 2026 Notes at a repurchase price equal to 100% of the principal amount of the 2026 Notes to be repurchased, plus
accrued and unpaid interest.
On April 4, 2021, the Company adopted ASC Update No. 2020-06 using the modified retrospective method, which resulted in a decrease of $61.2 million to additional paid-in capital, a decrease to non-current deferred tax liabilities of $20.0 million, and an increase of $80.3 million to non-current convertible notes, net, on the consolidated balance sheets. Additionally, retained earnings was adjusted to remove amortization expense recognized in prior periods related to the debt discount and the convertible notes no longer have a debt discount that will be amortized, net of taxes. The impact to retained earnings on the consolidated balance sheets as of April 4, 2021 is an increase of $1.0 million.
As of April 1, 2023, the $500.0 million principal balance was netted down by the $7.9 million of remaining debt issuance costs, resulting in a net convertible note payable of $492.1 million. Interest expense related to the 2026 Notes was $2.7 million for the fiscal year ended April 1, 2023, which is entirely attributable to the amortization of the debt issuance costs. The debt issuance costs are amortized at an effective interest rate of 0.5%.
Capped Calls
In connection with the issuance of the 2026 Notes, the Company entered into capped call transactions with certain counterparties (“Capped Calls”). The Capped Calls each have an initial strike price of approximately $175.34 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes. The Capped Calls have initial cap prices of $250.48 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s common stock upon any conversion of the 2026 Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 2.85 million shares of the Company’s common stock. For accounting purposes, the Capped Calls are separate transactions, and not part of the 2026 Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $47.4 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital in fiscal 2021 and will not be remeasured.
Credit Facilities
On June 15, 2018, the Company 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 were each scheduled to mature on June 15, 2023 with applicable interest rates during the period established using LIBOR plus 1.13% - 1.75%, depending on the Company's leverage ratio.
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 their maturity date through June 2025. The amended and restated credit agreement provides for a $280.0 million senior unsecured term loan, the proceeds of which have been used to settle the balance of the term loan under the 2018 Credit Facilities, and a $420.0 million senior unsecured revolving credit facility (together, the “Revised Credit Facilities”). 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. The revolving credit facility carries an unused fee that ranges from 0.125% to 0.250% annually based on the Company’s consolidated net leverage ratio at the applicable measurement date. Under the Revised Credit Facilities, the Company is required to maintain certain leverage and interest coverage ratios specified in the amended and restated credit agreement as well as other customary non-financial affirmative and negative covenants. The Revised Credit Facilities mature on June 15, 2025. 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company applied modification accounting for the credit facility refinancing. For the term loan under the Revised Credit Facilities, for fiscal 2023, the Company recognized interest expense of $0.5 million for third party fees incurred and capitalized $0.2 million of lender fees related to the term loan. For fiscal 2023, the Company capitalized $1.1 million of lender fees and third-party costs incurred in the refinancing related to the revolving credit facility under the Revised Credit Facilities.
At April 1, 2023, $274.7 million was outstanding under the term loan with an effective interest rate of 6.3%. There were no outstanding borrowings under the revolving credit facility at April 1, 2023. The Company also had $21.3 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of April 1, 2023.
Under the Revised Credit Facilities, the Company is required to maintain a consolidated leverage ratio not to exceed 3.5:1.0 and a consolidated interest coverage ratio not to be less than 4.0:1.0 during periods when the Revised Credit Facilities are outstanding.
In addition, the Company is required to satisfy these covenants, on a pro forma basis, in connection with any new borrowings (including any letter of credit issuances) on the revolving credit facility as of the time of such borrowings. The Consolidated Interest Coverage Ratio is calculated as the consolidated EBITDA divided by consolidated interest expense while the Consolidated Net Leverage ratio is calculated as consolidated total debt minus liquidity, divided by consolidated EBITDA. Consolidated EBITDA includes EBITDA adjusted by non-recurring and unusual transactions specifically as defined in the Revised Credit Facilities.
The Revised Credit Facilities also contain usual and customary non-financial affirmative and negative covenants that include certain restrictions with respect to subsequent indebtedness, liens, loans and investments (including acquisitions), financial reporting obligations, mergers, consolidations, dispositions, dissolutions or liquidation, asset sales, affiliate transactions, change of its business, capital expenditures, share repurchase and other restricted payments. These covenants are subject to exceptions and qualifications set forth in the credit agreement.
Any failure to comply with the financial and operating covenants of the Revised Credit Facilities would prevent the Company from being able to borrow additional funds and would constitute a default, which could result in, among other things, the amounts outstanding including all accrued interest and unpaid fees, becoming immediately due and payable. In addition, the Revised Credit Facilities include customary events of default, in certain cases subject to customary cure periods. As of April 1, 2023, the Company was in compliance with the covenants.
Commitment Fee
Pursuant to the Revised Credit Facilities, the Company is required to pay, on the last day of each calendar quarter, a commitment fee on the unused portion of the revolving credit facility. The commitment fee is subject to a pricing grid based on the Company’s consolidated leverage ratio. The commitment fee ranges from 0.125% to 0.250%. The current commitment fee on the undrawn portion of the revolving credit facility is 0.175%.
Debt Issuance Costs and Interest
Expenses associated with the issuance of the term loan were capitalized and are amortized to interest expense over the life of the term loan using the effective interest method. As of April 1, 2023, the $274.7 million term loan balance was netted down by the $1.0 million of remaining debt discount, resulting in a net note payable of $273.7 million.
Interest expense was $13.0 million, $5.8 million and $9.4 million for fiscal 2023, 2022 and 2021, respectively. Accrued interest associated with the outstanding debt is included as a component of other current liabilities in the accompanying consolidated balance sheets. As of both April 1, 2023 and April 2, 2022, the Company had an insignificant amount of accrued interest associated with the outstanding debt.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The aggregate amount of debt maturing during the next five fiscal years are as follows:
Fiscal year (In thousands) | |||||
| 2024 | $ | 12,276 | |||
| 2025 | $ | 10,500 | |||
| 2026 | $ | 752,000 | |||
| 2027 | $ | — | |||
| 2028 | $ | — | |||
14. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company manufactures, markets and sells its products globally. For the fiscal year ended April 1, 2023, 27.9% of the Company’s sales were generated outside the U.S. in local currencies. The Company also incurs certain manufacturing, marketing and selling costs in international markets in local currency.
Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. Dollar, the Company’s reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily Japanese Yen and Euro, and to a lesser extent Swiss Franc and Mexican Peso. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation.
Designated Foreign Currency Hedge Contracts
All of the Company’s designated foreign currency hedge contracts as of April 1, 2023 and April 2, 2022 were cash flow hedges under ASC 815, Derivatives and Hedging (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will 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 $51.8 million as of April 1, 2023 and $67.3 million as of April 2, 2022. At April 1, 2023, a gain of $2.8 million, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of April 1, 2023 mature within twelve months.
Non-Designated Foreign Currency Contracts
The Company manages its exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. It uses foreign currency forward contracts as a part of its strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These foreign currency forward contracts are entered into for periods consistent with currency transaction exposures, generally one month. They are not designated as cash flow or fair value hedges under ASC 815. These forward contracts are marked-to-market with changes in fair value recorded to earnings. The Company had non-designated foreign currency hedge contracts under ASC 815 outstanding in the contract amount of $44.7 million as of April 1, 2023 and $39.5 million as of April 2, 2022.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Rate Swaps
Part of the Company’s interest rate risk management strategy includes the use of interest rate swaps to mitigate its exposure to changes in variable interest rates. The Company’s objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations.
On June 15, 2018, the Company entered into the 2018 Credit Facilities which provided for a $350.0 million term loan and a $350.0 million revolving credit facility. Under the terms of the 2018 Credit Facilities, interest was established using LIBOR plus the applicable rate ranging from 1.13% to 1.75% based on the Company’s leverage ratio. In August 2018, the Company entered into two interest rate swap agreements to pay an average fixed rate of 2.80% plus the applicable rate on a total notional value of $241.9 million of debt, or 70% of the notional value of the unsecured term loan. The 2018 interest rate swaps mature on June 15, 2023. As a result of the Company’s refinancing of the 2018 Credit Facilities in July 2022, as discussed below, the 2018 interest rate swaps were amended in September 2022 to align with the Term Secured Overnight Financing Rate (“SOFR”) rate rather than LIBOR (the “Amended Swaps”). In order to avoid dedesignation, the Company elected certain practical expedients under ASC 848. As a result, the Company’s earnings and cash flows are exposed to interest rate risk from changes to SOFR. The Company concluded that the Amended Swaps were still effective such that hedge accounting was continued on these swaps.
On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance the 2018 Credit Facilities and extend their maturity date through June 2025. The Revised Credit Facilities include a $280.0 million senior unsecured term loan and a $420.0 million senior unsecured revolving credit facility. Loans under the Revised Credit Facilities bear interest at an annual rate equal to the 1-month USD Term SOFR plus 0.10% and an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio. In September 2022, the Company entered into four additional interest rate swaps, which when combined with the Amended Swaps, result in an average blended fixed interest rate of 3.57% plus the applicable rate on 70% of the notional value of the unsecured term loan until mid-June 2023 and 4.12% plus the applicable rate thereafter on 80% of the notional until the maturity date in June 2025. The Company has concluded that each of these four additional interest rate swaps are effective and qualify for hedge accounting treatment.
The Company held the following interest rate swaps as of April 1, 2023:
| Hedged Item | Original Notional Amount | Notional Amount as of April 1, 2023 | Designation Date | Effective Date | Termination Date | Fixed Interest Rate | Estimated Fair Value Assets (Liabilities) | |||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| 1-month USD Term SOFR | $ | 140,719 | $ | 28,500 | 9/28/2018 | 9/30/2022 | 6/15/2023 | 2.67% | $ | 132 | ||||||||||||||||||||||||||||||||||
| 1-month USD Term SOFR | 101,219 | 20,500 | 9/28/2018 | 9/30/2022 | 6/15/2023 | 2.76% | 91 | |||||||||||||||||||||||||||||||||||||
| 1-month USD Term SOFR | 23,888 | 71,663 | 9/23/2022 | 9/30/2022 | 6/15/2023 | 4.44% | 67 | |||||||||||||||||||||||||||||||||||||
| 1-month USD Term SOFR | 23,888 | 71,663 | 9/23/2022 | 9/30/2022 | 6/15/2023 | 4.46% | 63 | |||||||||||||||||||||||||||||||||||||
| 1-month USD Term SOFR | 109,900 | 109,900 | 9/23/2022 | 6/15/2023 | 6/15/2025 | 4.08% | (464) | |||||||||||||||||||||||||||||||||||||
| 1-month USD Term SOFR | 109,900 | 109,900 | 9/23/2022 | 6/15/2023 | 6/15/2025 | 4.15% | (585) | |||||||||||||||||||||||||||||||||||||
| Total | $ | 509,514 | $ | 412,126 | $ | (696) | ||||||||||||||||||||||||||||||||||||||
For fiscal 2023, the Company recorded a gain of $2.6 million, net of tax, in accumulated other comprehensive loss to recognize the effective portion of the fair value of the swaps that qualify as cash flow hedges.
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Trade Receivables
In the ordinary course of business, the Company grants trade credit to its customers on normal credit terms. In an effort to reduce its credit risk, the Company (i) establishes credit limits for all customers, (ii) performs ongoing credit evaluations of customers’ financial condition, (iii) monitors the payment history and aging of customers’ receivables and (iv) monitors open orders against an individual customer’s outstanding receivable balance.
The Company’s allowance for credit losses is maintained for trade accounts receivable based on the expected collectability, the historical collection experience, the length of time an account is outstanding, the financial position of the customer and information provided by credit rating services. Effective March 29, 2020, the Company adopted Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which requires consideration of events or circumstances indicating historic collection rates may not be indicative of future collectability. To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns.
The following is a roll forward of the allowance for credit losses:
| Twelve Months Ended | ||||||||||||||||||||
| (In thousands) | April 1, 2023 | April 2, 2022 | April 3, 2021 | |||||||||||||||||
| Beginning balance | $ | 2,475 | $ | 2,226 | $ | 3,824 | ||||||||||||||
| Credit (gain) loss | 2,623 | 359 | (991) | |||||||||||||||||
| Write-offs | (166) | (110) | (607) | |||||||||||||||||
| Ending balance | $ | 4,932 | $ | 2,475 | $ | 2,226 | ||||||||||||||
Fair Value of Derivative Instruments
The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges and those not designated as hedging instruments under ASC 815 in its consolidated statements of income and comprehensive income for the fiscal year ended April 1, 2023.
Derivative Instruments | Amount of Gain Recognized in Accumulated Other Comprehensive Loss | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings | Location in Consolidated Statements of Income and Comprehensive Income | Amount of Gain Excluded from Effectiveness Testing | Location in Consolidated Statements of Income and Comprehensive Income | |||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Designated foreign currency hedge contracts, net of tax | $ | 2,828 | $ | 6,255 | Net revenues, COGS and SG&A | $ | 983 | Interest and other expense, net | ||||||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | — | $ | 923 | Interest and other expense, net | |||||||||||||||||||||||||||
| Designated interest rate swaps, net of tax | $ | 1,441 | $ | (1,119) | Interest and other expense, net | |||||||||||||||||||||||||||
The Company did not have fair value hedges or net investment hedges outstanding as of April 1, 2023 or April 2, 2022. As of April 1, 2023, no material deferred taxes were recognized for designated foreign currency hedges.
ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, Fair Value Measurements and Disclosures, by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities. In certain instances, the Company may utilize financial models to measure fair value. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
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in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of April 1, 2023, 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 consolidated balance sheets as of April 1, 2023 and April 2, 2022:
| (In thousands) | Location in Balance Sheet | As of April 1, 2023 | As of April 2, 2022 | ||||||||||||||
| Derivative Assets: | |||||||||||||||||
| Designated foreign currency hedge contracts | Other current assets | $ | 1,401 | $ | 3,133 | ||||||||||||
| Non-designated foreign currency hedge contracts | Other current assets | 302 | 99 | ||||||||||||||
| Designated interest rate swaps | Other current assets | 1,110 | — | ||||||||||||||
| $ | 2,813 | $ | 3,232 | ||||||||||||||
| Derivative Liabilities: | |||||||||||||||||
| Designated foreign currency hedge contracts | Other current liabilities | $ | 24 | $ | 56 | ||||||||||||
| Non-designated foreign currency hedge contracts | Other current liabilities | 58 | 25 | ||||||||||||||
| Designated interest rate swaps | Other current liabilities | — | 1,813 | ||||||||||||||
| Designated interest rate swaps | Other long-term liabilities | 1,807 | — | ||||||||||||||
| $ | 1,889 | $ | 1,894 | ||||||||||||||
Other Fair Value Measurements
Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes the following three-level hierarchy used for measuring fair value:
•Level 1 — Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
•Level 2 — Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
•Level 3 — Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
The Company’s money market funds carried at fair value are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Measured on a Recurring Basis
Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of April 1, 2023 and April 2, 2022.
| As of April 1, 2023 | ||||||||||||||||||||||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Money market funds | $ | 132,341 | $ | — | $ | — | $ | 132,341 | ||||||||||||||||||
| Designated foreign currency hedge contracts | — | 1,401 | — | 1,401 | ||||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | 302 | — | 302 | ||||||||||||||||||||||
| Designated interest rate swaps | — | 1,110 | $ | — | 1,110 | |||||||||||||||||||||
| $ | 132,341 | $ | 2,813 | $ | — | $ | 135,154 | |||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Designated foreign currency hedge contracts | $ | — | $ | 24 | $ | — | $ | 24 | ||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | 58 | — | 58 | ||||||||||||||||||||||
| Designated interest rate swaps | — | 1,807 | — | 1,807 | ||||||||||||||||||||||
| Contingent consideration | — | — | 863 | 863 | ||||||||||||||||||||||
| $ | — | $ | 1,889 | $ | 863 | $ | 2,752 | |||||||||||||||||||
| As of April 2, 2022 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Money market funds | $ | 97,425 | $ | — | $ | — | $ | 97,425 | ||||||||||||||||||
| Designated foreign currency hedge contracts | — | 3,133 | — | 3,133 | ||||||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | 99 | — | 99 | ||||||||||||||||||||||
| $ | 97,425 | $ | 3,232 | $ | — | $ | 100,657 | |||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Designated foreign currency hedge contracts | $ | — | $ | 56 | $ | — | $ | 56 | ||||||||||||||||||
| Non-designated foreign currency hedge contracts | — | 25 | — | 25 | ||||||||||||||||||||||
| Designated interest rate swaps | — | 1,813 | — | 1,813 | ||||||||||||||||||||||
| Contingent consideration | — | — | 33,675 | 33,675 | ||||||||||||||||||||||
| $ | — | $ | 1,894 | $ | 33,675 | $ | 35,569 | |||||||||||||||||||
Foreign currency hedge contracts - The fair value of foreign currency hedge contracts was measured using significant other observable inputs and valued by reference to over-the-counter quoted market prices for similar instruments. The Company does not believe that the fair value of these derivative instruments differs significantly from the amount that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows.
Interest rate swaps - The fair values of interest rate swaps are measured using the present value of expected future cash flows using market-based observable inputs, including credit risk and interest rate yield curves. The Company does not believe that the fair values of these derivative instruments differ significantly from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a significant effect on its results of operations, financial condition or cash flows.
Contingent consideration - The fair value of contingent consideration liabilities is based on significant unobservable inputs, including management estimates and assumptions, and is measured based on the probability-weighted present value of the payments expected to be made. Accordingly, the fair value of contingent consideration has been classified as level 3 within the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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) | April 1, 2023 | Technique | Input | Range | ||||||||||||||||||||||
| Revenue-based payments | $ | 863 | Discounted cash flow | Discount rate | 8.5% | |||||||||||||||||||||
| Projected fiscal year of payment | 2024 | |||||||||||||||||||||||||
The fair value of contingent consideration associated with acquisitions was $0.9 million at April 1, 2023 and was included in other current liabilities. A reconciliation of the change in the fair value of contingent consideration is included in the following table:
| (In thousands) | ||||||||
| Balance at April 2, 2022 | $ | 33,675 | ||||||
| Change in fair value | (504) | |||||||
| Payments | (32,293) | |||||||
| Currency translation | (15) | |||||||
| Balance at April 1, 2023 | $ | 863 | ||||||
Other Fair Value Disclosures
The fair value of the 2026 Notes as of April 1, 2023 was $425.7 million, which was determined based on the quoted price for the 2026 Notes in an inactive market on the last trading day of the reporting period and is considered as level 2 in the fair value hierarchy. In estimating the risk adjusted yield, the Company utilized both an income and market approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the market approach, the Company performed an evaluation of issuances of debt securities issued by other comparable companies and broader market indices.
The term loan (which is carried at amortized cost), accounts receivable and accounts payable approximate fair value.
15. RETIREMENT PLANS
Defined Contribution Plans
The Company has a Savings Plus Plan (the “401k Plan”) that allows its U.S. employees to accumulate savings on a pre-tax basis. In addition, matching contributions are made to the 401k Plan based upon pre-established rates. The Company’s matching contributions amounted to approximately $6.9 million, $6.3 million and $4.9 million in fiscal 2023, 2022 and 2021, respectively. Upon the Company’s Board of Directors’ approval, additional discretionary contributions can also be made. No discretionary contributions were made for the 401k Plan in fiscal 2023, 2022, or 2021.
Some of the Company’s subsidiaries also have defined contribution plans, to which both the employee and the employer make contributions. The employer contributions to these plans totaled $0.6 million, $0.6 million and $0.7 million in fiscal 2023, 2022 and 2021, respectively.
Defined Benefit Plans
ASC Topic 715, Compensation — Retirement Benefits, requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s over-funded status or a liability for a plan’s under-funded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit post retirement plan in the year in which the changes occur. Accordingly, the Company is required to report changes in its funded status in comprehensive loss on its consolidated statement of stockholders’ equity and consolidated statement of comprehensive income.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Benefits under these plans are generally based on either career average or final average salaries and creditable years of service as defined in the plans. The annual cost for these plans is determined using the projected unit credit actuarial cost method that includes actuarial assumptions and estimates that are subject to change.
Some of the Company’s foreign subsidiaries have defined benefit pension plans covering substantially all full time employees at those subsidiaries. Net periodic benefit costs for the plans in the aggregate include the following components:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Service cost | $ | 1,453 | $ | 1,714 | $ | 1,861 | |||||||||||
| Interest cost on benefit obligation | 409 | 242 | 279 | ||||||||||||||
| Expected return on plan assets | (180) | (88) | (66) | ||||||||||||||
| Actuarial loss | 19 | 189 | 119 | ||||||||||||||
| Amortization of unrecognized prior service cost | (180) | (175) | (123) | ||||||||||||||
| Plan settlements | (330) | (184) | — | ||||||||||||||
| Totals | $ | 1,191 | $ | 1,698 | $ | 2,070 | |||||||||||
The activity under those defined benefit plans are as follows:
| (In thousands) | April 1, 2023 | April 2, 2022 | |||||||||
| Change in Benefit Obligation: | |||||||||||
| Benefit Obligation, beginning of year | $ | (30,410) | $ | (31,891) | |||||||
| Service cost | (1,453) | (1,714) | |||||||||
| Interest cost | (409) | (242) | |||||||||
| Benefits paid | 748 | 928 | |||||||||
| Actuarial gain | 3,675 | 3,208 | |||||||||
| Employee and plan participants contribution | (1,599) | (2,093) | |||||||||
| Plan settlements | 1,775 | 1,367 | |||||||||
| Foreign currency changes | 2,208 | 27 | |||||||||
| Benefit obligation, end of year | $ | (25,465) | $ | (30,410) | |||||||
| Change in Plan Assets: | |||||||||||
| Fair value of plan assets, beginning of year | $ | 17,447 | $ | 16,142 | |||||||
| Company contributions | 1,436 | 1,432 | |||||||||
| Benefits paid | (593) | (719) | |||||||||
| Gain (loss) on plan assets | 105 | (108) | |||||||||
| Employee and plan participants contribution | 1,670 | 2,077 | |||||||||
| Plan settlements | (1,647) | (1,356) | |||||||||
| Foreign currency changes | 45 | (21) | |||||||||
| Fair value of plan assets, end of year | $ | 18,463 | $ | 17,447 | |||||||
Funded Status* | $ | (7,002) | $ | (12,963) | |||||||
| Unrecognized net actuarial gain | (3,757) | (236) | |||||||||
| Unrecognized prior service cost | (1,133) | (1,099) | |||||||||
| Net amount recognized | $ | (11,892) | $ | (14,298) | |||||||
* Substantially all of the unfunded status is non-current | |||||||||||
One of the benefit plans is funded by benefit payments made by the Company through the purchase of reinsurance contracts that do not qualify as plan assets under ASC Topic 715. Accordingly, that plan has no assets included in the information presented above. The total asset value associated with the reinsurance contracts was $7.1 million and $6.8 million at April 1, 2023 and April 2, 2022, respectively. The total liability for this plan, which is included in the table above, was $7.5 million and $9.6 million as of April 1, 2023 and April 2, 2022, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The accumulated benefit obligation for all plans was $25.2 million and $28.4 million for fiscal 2023 and 2022, respectively. There were no plans where the plan assets were greater than the accumulated benefit obligation as of April 1, 2023 and April 2, 2022.
The components of the change recorded in the Company’s accumulated other comprehensive loss related to its defined benefit plans, net of tax, are as follows (in thousands):
| Balance as of March 28, 2020 | $ | (209) | |||
| Actuarial loss | (221) | ||||
| Prior service cost | (130) | ||||
| Balance as of April 3, 2021 | $ | (560) | |||
| Actuarial gain | 2,532 | ||||
| Prior service cost | (194) | ||||
| Plan settlements | (159) | ||||
| Balance as of April 2, 2022 | $ | 1,619 | |||
| Actuarial gain | 2,695 | ||||
| Prior service credit | 46 | ||||
| Plan settlements | (285) | ||||
| Balance as of April 1, 2023 | $ | 4,075 | |||
The Company expects to amortize $0.4 million from accumulated other comprehensive loss to net periodic benefit cost during fiscal 2024.
The weighted average rates used to determine the net periodic benefit costs and projected benefit obligations were as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Discount rate | 2.43 | % | 1.38 | % | 0.58 | % | |||||||||||
| Rate of increased salary levels | 1.94 | % | 1.81 | % | 1.64 | % | |||||||||||
| Expected long-term rate of return on assets | 0.87 | % | 0.69 | % | 0.42 | % | |||||||||||
Assumptions for expected long-term rate of return on plan assets are based upon actual historical returns, future expectations of returns for each asset class and the effect of periodic target asset allocation rebalancing. The results are adjusted for the payment of reasonable expenses of the plan from plan assets.
The Company has no other material obligation for post-retirement or post-employment benefits.
The Company’s investment policy for pension plans is to balance risk and return through a diversified portfolio to reduce interest rate and market risk. Maturities are managed so that sufficient liquidity exists to meet immediate and future benefit payment requirements.
ASC Topic 820, Fair Value Measurements and Disclosures, provides guidance for reporting and measuring the plan assets of the Company’s defined benefit pension plan at fair value as of April 1, 2023. Using the same three-level valuation hierarchy for disclosure of fair value measurements as described in Note 14, Financial Instruments and Fair Value Measurements, all of the assets of the Company’s plan are classified within Level 2 of the fair value hierarchy because the plan assets are primarily insurance contracts.
Expected benefit payments for both plans are estimated using the same assumptions used in determining the Company’s benefit obligation at April 1, 2023. Benefit payments will depend on future employment and compensation levels, average years employed and average life spans, among other factors, and changes in any of these factors could significantly affect these estimated future benefit payments. Estimated future benefit payments are as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| (In thousands) | |||||
| Fiscal 2024 | $ | 1,453 | |||
| Fiscal 2025 | 1,352 | ||||
| Fiscal 2026 | 1,474 | ||||
| Fiscal 2027 | 1,733 | ||||
| Fiscal 2028 | 1,809 | ||||
| Fiscal 2029-2033 | 11,654 | ||||
The Company’s contributions for fiscal 2024 are expected to be consistent with the current year.
16. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings and claims arising out of the ordinary course of its business. The Company believes that except for those matters described below, there are no other proceedings or claims pending against it the ultimate resolution of which could have a material adverse effect on its financial condition or results of operations. At each reporting period, management evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies, for all matters. Legal costs are expensed as incurred.
During the third quarter of fiscal 2021, the Company received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts. The subpoena requested certain documents regarding the Company’s apheresis and autotransfusion devices and disposables, including documents relating to product complaints and adverse event reporting, regulatory clearances and product design changes, among other matters. The Company has fully cooperated with this inquiry. On August 16, 2022, the U.S. Department of Justice (“DOJ”) filed a motion on behalf of the United States and 31 states reflecting their decision to not intervene in the underlying qui tam action captioned United States ex rel. Berthelot et al. v. Haemonetics Corp., 1:20-cv-11062-ADB, pending in the U.S. District Court for the District of Massachusetts, indicating that the DOJ had completed its investigative activity based on then available information. The qui tam case was unsealed by order dated August 18, 2022. During the fourth fiscal quarter of 2023, the Company recorded a loss contingency related to this matter, which did not have a material impact on its consolidated financial statements.
In the fourth quarter of fiscal 2021, a putative class action complaint was filed against the Company in the Circuit Court of Cook County, Illinois by Mary Crumpton, on behalf of herself and similarly situated individuals. See Mary Crumpton v. Haemonetics Corporation, Case No. 1:21-cv-1402. In her complaint, the plaintiff asserts that between June 2017 and August 2018 she donated plasma at a center operated by one of the Company’s customers, that the center required her to scan her finger print in a scanner that stored her finger print to identify her prior to plasma donation, and that the Company’s eQue donor management software sent her biometric information to a Company-owned server to be collected and stored in a manner that violated her rights under the Illinois Biometric Information Privacy Act (“BIPA”). The plaintiff seeks statutory damages, attorneys’ fees, and injunctive and equitable relief. In March 2021, the Company moved to dismiss the complaint for lack of personal jurisdiction and concurrently filed a motion to dismiss for failure to state a claim and a motion to stay. In March 2022, the court denied the Company’s motion to dismiss for lack of personal jurisdiction but did not address the merits of the Company’s other positions. In March 2023, the Company filed a second motion to dismiss the complaint, which is pending before the court. The Company believes it has valid and meritorious defenses to the complaint. During the fourth fiscal quarter of 2023, the Company recorded a loss contingency related to this matter, which did not have a material impact on its consolidated financial statements.
17. CAPITAL STOCK
Stock Plans
On July 25, 2019 (the “Effective Date”), the Haemonetics Corporation 2019 Long-Term Incentive Compensation Plan (the “2019 Equity Plan”) was approved and became effective. The 2019 Equity Plan permits the award of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (including performance-based restricted stock units) and other awards to the Company’s key employees, non-employee directors and certain consultants and advisors of the Company and its subsidiaries. The 2019 Equity Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), which consists of four independent members of the Company’s Board of Directors, and
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HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
is the successor to the Haemonetics Corporation 2005 Long-Term Incentive Compensation Plan, as amended (the “2005 Equity Plan”).
Upon the Effective Date, no further awards were granted under the 2005 Equity Plan; however, each outstanding award under the 2005 Equity Plan will remain outstanding under that plan and continue to be governed under its terms and any applicable award agreement. The maximum number of shares available for award under 2019 Equity Plan is 5,759,433, which consists of 2,700,000 shares of common stock authorized for issuance under the 2019 Equity Plan plus 3,059,433 shares of common stock reserved for issuance under the 2005 Equity Plan that remained available for grant under the 2005 Plan as of the Effective Date. Under the 2019 Equity Plan, any shares that are subject to the award of stock options or SARs will be counted against the authorized share reserve as one share for every one share issued and any shares that are subject to awards other than stock options, SARs or cash awards will be counted against the authorized share reserve as 2.76 shares for every one share granted. Shares of common stock subject to outstanding grants under the 2005 Equity Plan as of the Effective Date that terminate, expire, or are otherwise canceled without having been exercised will be added to the share reserve at the applicable 2019 Equity Plan ratios. The total shares available for future grant as of April 1, 2023 were 3,118,602.
Share-Based Compensation
Compensation cost related to share-based transactions is recognized in the consolidated financial statements based on fair value. The total amount of share-based compensation expense, which is recorded on a straight line basis, is as follows:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Selling, general and administrative expenses | $21,903 | $20,694 | $22,888 | ||||||||||||||
| Research and development | 2,364 | 2,537 | 1,874 | ||||||||||||||
| Cost of goods sold | 1,316 | 1,128 | 754 | ||||||||||||||
| $25,583 | $24,359 | $25,516 | |||||||||||||||
Stock Options
Options are granted to purchase common stock at prices as determined by the Committee, but in no event shall such exercise price be less than the fair market value of the common stock at the time of the grant. Options generally vest in equal installments over a four year period for employees and one year from grant for non-employee directors. Options expire not more than 7 years from the date of the grant. The grant-date fair value of options, adjusted for estimated forfeitures, is recognized as expense on a straight line basis over the requisite service period, which is generally the vesting period. Forfeitures are estimated based on historical experience.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of stock option activity for the fiscal year ended April 1, 2023 is as follows:
| Options Outstanding | Weighted Average Exercise Price per Share | Weighted Average Remaining Life (years) | Aggregate Intrinsic Value ($000’s) | ||||||||||||||||||||
| Outstanding at April 2, 2022 | 1,056,638 | $ | 66.87 | 3.79 | $ | 12,423 | |||||||||||||||||
| Granted | 276,928 | 58.02 | |||||||||||||||||||||
| Exercised | (59,400) | 44.82 | |||||||||||||||||||||
| Forfeited/Canceled | (123,972) | 82.42 | |||||||||||||||||||||
| Outstanding at April 1, 2023 | 1,150,194 | $ | 64.21 | 3.55 | $ | 27,481 | |||||||||||||||||
| Exercisable at April 1, 2023 | 618,735 | $ | 62.68 | 1.97 | $ | 16,617 | |||||||||||||||||
| Vested or expected to vest at April 1, 2023 | 1,054,821 | $ | 64.44 | 3.12 | $ | 25,311 | |||||||||||||||||
The total intrinsic value of options exercised was $1.9 million, $1.7 million and $8.2 million during fiscal 2023, 2022 and 2021, respectively.
As of April 1, 2023, there was $9.1 million of total unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 2.6 years.
The fair value was estimated using the Black-Scholes option-pricing model based on the closing stock price at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of the Company’s common stock over the expected term of the option. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued. The expected life of the option was estimated with reference to historical exercise patterns, the contractual term of the option and the vesting period.
The assumptions utilized for option grants during the periods presented are as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Volatility | 45.0 | % | 41.9 | % | 33.5 | % | |||||||||||
| Expected life (years) | 5.0 | 4.9 | 4.9 | ||||||||||||||
| Risk-free interest rate | 2.9 | % | 0.8 | % | 0.4 | % | |||||||||||
| Dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||
| Grant-date fair value per Option | $ | 24.86 | $ | 20.97 | $ | 30.53 | |||||||||||
Restricted Stock Units
Restricted Stock Units (“RSUs”) generally vest in equal installments over a four year period for employees and one year from grant for non-employee directors. The grant-date fair value of RSUs, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The fair market value of RSUs is determined based on the market value of the Company’s shares on the date of grant.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of RSU activity for the fiscal year ended April 1, 2023 is as follows:
| Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at April 2, 2022 | 386,536 | $ | 69.27 | ||||||||
| Granted | 207,177 | 59.36 | |||||||||
| Vested | (161,045) | 70.24 | |||||||||
| Forfeited | (51,360) | 65.64 | |||||||||
| Unvested at April 1, 2023 | 381,308 | $ | 63.94 | ||||||||
The weighted-average grant-date fair value of RSUs granted and total fair value of RSUs vested are as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Grant-date fair value per RSU | $ | 59.36 | $ | 56.96 | $ | 102.19 | |||||||||||
| Fair value of RSUs vested | $ | 70.24 | $ | 79.60 | $ | 66.87 | |||||||||||
As of April 1, 2023, there was $15.4 million of total unrecognized compensation cost related to non-vested restricted stock units. This cost is expected to be recognized over a weighted average period of 2.5 years.
Performance Share Units
The grant date fair value of Performance Share Units (“PSUs”), adjusted for estimated forfeitures, is recognized as expense on a straight line basis from the grant date through the end of the performance period. The value of these PSUs is generally based on relative total shareholder return which equals total shareholder return for the Company as compared with total shareholder return of the PSU comparison group, measured over a three year performance period. The PSUs comparison group consists of the Standard and Poor's (“S&P”) MidCap 400 Index. Depending on the Company’s relative performance during the performance period, a recipient of the award is entitled to receive a number of ordinary shares equal to a percentage, ranging from 0% to 200%, of the award granted. If the Company’s total shareholder return for the performance period is negative, then any share payout will be capped at 100% of the target award, regardless of the Company’s performance relative to the its comparison group. As a result, the Company may issue up to 647,974 shares related to outstanding performance-based awards.
A summary of PSU activity for the fiscal year ended April 1, 2023 is as follows:
| Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at April 2, 2022 | 282,946 | $ | 102.17 | ||||||||
Granted(1) | 88,851 | 84.96 | |||||||||
| Vested | — | — | |||||||||
| Forfeited | (47,810) | 89.43 | |||||||||
| Unvested at April 1, 2023 | 323,987 | $ | 87.35 | ||||||||
(1) Includes the adjustment of 62,577 shares for awards granted in fiscal 2020, based on actual relative total shareholder return of 0% | |||||||||||
The Company uses the Monte Carlo model to estimate the probability of satisfying the performance criteria and the resulting fair value of PSU awards with market conditions. The assumptions used in the Monte Carlo model for PSUs granted during each fiscal year were as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Expected stock price volatility | 52.22 | % | 49.23 | % | 36.79 | % | |||||||||||
| Peer group stock price volatility | 47.43 | % | 45.75 | % | 42.31 | % | |||||||||||
| Correlation of returns | 65.45 | % | 65.06 | % | 65.12 | % | |||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted-average grant-date fair value of PSUs granted and total fair value of PSUs vested are as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Grant-date fair value per PSU | $ | 84.96 | $ | 72.52 | $ | 123.92 | |||||||||||
| Fair value of PSUs vested | $ | — | $ | — | $ | 47.43 | |||||||||||
As of April 1, 2023, there was $14.5 million of total unrecognized compensation cost related to non-vested performance share units. This cost is expected to be recognized over a weighted average period of 1.8 years.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the “Purchase Plan”) under which a maximum of 3,200,000 shares (subject to adjustment for stock splits and similar changes) of common stock may be purchased by eligible employees. Substantially all of its full-time employees are eligible to participate in the Purchase Plan.
The Purchase Plan provides for two “purchase periods” within each of its fiscal years, the first commencing on November 1 of each year and continuing through April 30 of the next calendar year, and the second commencing on May 1 of each year and continuing through October 31 of such year. Shares are purchased through an accumulation of payroll deductions (of not less than 2% or more than 15% of compensation, as defined) for the number of whole shares determined by dividing the balance in the employee’s account on the last day of the purchase period by the purchase price per share for the stock determined under the Purchase Plan. The purchase price for shares is the lower of 85% of the fair market value of the common stock at the beginning of the purchase period, or 85% of such value at the end of the purchase period.
The fair values of shares purchased under the Employee Stock Purchase Plan are estimated using the Black-Scholes single option-pricing model with the following weighted average assumptions:
| 2023 | 2022 | 2021 | |||||||||||||||
| Volatility | 44.9 | % | 55.6 | % | 49.8 | % | |||||||||||
| Expected life (months) | 6 | 6 | 6 | ||||||||||||||
| Risk-free interest rate | 2.9 | % | 0.1 | % | 0.1 | % | |||||||||||
| Dividend Yield | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||
The weighted average grant date fair value of the six-month option inherent in the Purchase Plan was approximately $18.10, $20.77 and $30.77 during fiscal 2023, 2022 and 2021, respectively.
18. SEGMENT AND ENTERPRISE-WIDE INFORMATION
The Company determines its reportable segments by first identifying its operating segments, and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company’s reporting structure aligns with its operating structure of three global business units and the information that is regularly reviewed by the Company’s chief operating decision maker.
The Company’s reportable and operating segments are as follows:
•Plasma
•Blood Center
•Hospital
Management measures and evaluates the operating segments based on operating income. Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-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 integration and transaction costs, amortization of acquired intangible assets, restructuring and restructuring related costs, digital transformation costs related to the upgrade of our enterprise resource planning system, impairments, accelerated device depreciation and related costs, costs related to compliance with the European Union Medical Device Regulation (“MDR”) and In Vitro Diagnostic Regulation (“IVDR”), unusual or infrequent and material litigation-related charges and gains and losses on dispositions and sale of assets. Although these amounts are excluded from
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HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
segment operating income, as applicable, they are included in the reconciliations that follow. Management measures and evaluates the Company’s net revenues and operating income using internally derived standard currency exchange rates that remain constant from year to year; therefore, segment information is presented on this basis.
Selected information by reportable segment is presented below:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Net revenues | |||||||||||||||||
| Plasma | $ | 500,489 | $ | 351,945 | $ | 333,334 | |||||||||||
| Blood Center | 289,365 | 294,541 | 307,370 | ||||||||||||||
| Hospital | 378,206 | 321,580 | 210,606 | ||||||||||||||
| Net revenues by business unit | 1,168,060 | 968,066 | 851,310 | ||||||||||||||
Service (1) | 21,424 | 20,811 | 20,758 | ||||||||||||||
| Effect of exchange rates | (20,824) | 4,319 | (1,605) | ||||||||||||||
| Net revenues | $ | 1,168,660 | $ | 993,196 | $ | 870,463 | |||||||||||
(1) Reflects revenue for service, maintenance and parts. | |||||||||||||||||
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Segment operating income | |||||||||||||||||
| Plasma | $ | 278,580 | $ | 183,131 | $ | 172,463 | |||||||||||
| Blood Center | 132,107 | 136,691 | 141,962 | ||||||||||||||
| Hospital | 154,416 | 129,783 | 84,066 | ||||||||||||||
| Segment operating income | 565,103 | 449,605 | 398,491 | ||||||||||||||
Corporate expenses (1) | (355,089) | (281,476) | (256,751) | ||||||||||||||
| Effect of exchange rates | 8,419 | 18,993 | 12,830 | ||||||||||||||
| Amortization of acquired intangible assets | (32,640) | (47,414) | (32,830) | ||||||||||||||
| Impairment of assets and PCS2 related charges | 616 | (5,732) | (25,696) | ||||||||||||||
| Integration and transaction costs | 411 | (21,604) | (18,421) | ||||||||||||||
| Restructuring and restructuring related costs | (11,549) | (28,824) | (15,661) | ||||||||||||||
| Digital transformation costs | (4,536) | — | — | ||||||||||||||
| MDR and IVDR costs | (9,854) | (11,033) | (4,130) | ||||||||||||||
| Litigation-related charges | (5,230) | (1,368) | (897) | ||||||||||||||
| Gains on divestitures and sale of assets | 382 | 9,603 | 32,812 | ||||||||||||||
| Operating income | $ | 156,033 | $ | 80,750 | $ | 89,747 | |||||||||||
(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. | |||||||||||||||||
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Plasma | $ | 41,612 | $ | 28,314 | $ | 24,093 | |||||||||||
| Blood Center | 13,927 | 32,489 | 39,672 | ||||||||||||||
| Hospital | 37,768 | 36,944 | 20,522 | ||||||||||||||
| Total depreciation and amortization (excluding impairment charges) | $ | 93,307 | $ | 97,747 | $ | 84,287 | |||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| (In thousands) | April 1, 2023 | April 2, 2022 | |||||||||
Long-lived assets(1) | |||||||||||
| Plasma | $ | 202,075 | $ | 129,241 | |||||||
| Blood Center | 68,395 | 82,714 | |||||||||
| Hospital | 40,415 | 46,527 | |||||||||
| Total long-lived assets | $ | 310,885 | $ | 258,482 | |||||||
(1) Long-lived assets are comprised of property, plant and equipment. | |||||||||||
Selected information by operating regions is presented below:
| (In thousands) | April 1, 2023 | April 2, 2022 | |||||||||
Long-lived assets(1) | |||||||||||
| United States | $ | 251,812 | $ | 200,927 | |||||||
| Japan | 997 | 1,096 | |||||||||
| Europe | 14,587 | 11,989 | |||||||||
| Asia | 26,263 | 28,132 | |||||||||
| Other | 17,226 | 16,338 | |||||||||
| Total long-lived assets | $ | 310,885 | $ | 258,482 | |||||||
(1) Long-lived assets are comprised of property, plant and equipment. | |||||||||||
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| United States | $ | 842,897 | $ | 639,322 | $ | 522,607 | |||||||||||
| Japan | 61,295 | 75,562 | 77,676 | ||||||||||||||
| Europe | 156,680 | 163,520 | 159,077 | ||||||||||||||
| Asia | 104,135 | 110,802 | 105,820 | ||||||||||||||
| Other | 3,653 | 3,990 | 5,283 | ||||||||||||||
| Net revenues | $ | 1,168,660 | $ | 993,196 | $ | 870,463 | |||||||||||
Management reviews revenue based on the reportable segments noted above. Although these reportable segments are primarily product-based, they differ from the Company’s product line revenues for Plasma products and services and Blood Center products and services. Specifically, the Blood Center reportable segment includes plasma products utilized for collection in blood centers primarily for transfusion purposes. Additionally, product line revenues also include service revenues which are excluded from the reportable segments.
Net revenues by product line are as follows:
| (In thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Plasma products and services | 563,734 | 427,611 | 414,266 | ||||||||||||||
| Blood Center products and services | 226,819 | 236,158 | 239,614 | ||||||||||||||
| Hospital products and services | 378,107 | 329,427 | 216,583 | ||||||||||||||
| Net revenues | $ | 1,168,660 | $ | 993,196 | $ | 870,463 | |||||||||||
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HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a roll-forward of the components of accumulated other comprehensive loss, net of tax, for the years ended April 1, 2023 and April 2, 2022:
| (In thousands) | Foreign currency | Defined benefit plans | Net Unrealized Gain (Loss) on Derivatives | Total | ||||||||||||||||||||||
| Balance, April 3, 2021 | $ | (21,528) | $ | (560) | $ | (7,459) | $ | (29,547) | ||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (6,391) | 2,179 | 5,785 | 1,573 | ||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive gain(1) | — | — | 2,020 | 2,020 | ||||||||||||||||||||||
| Net current period other comprehensive income (loss) | (6,391) | 2,179 | 7,805 | 3,593 | ||||||||||||||||||||||
| Balance, April 2, 2022 | $ | (27,919) | $ | 1,619 | $ | 346 | $ | (25,954) | ||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (6,016) | 2,456 | 4,269 | 709 | ||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive gain(1) | — | — | (5,136) | (5,136) | ||||||||||||||||||||||
| Net current period other comprehensive income (loss) | (6,016) | 2,456 | (867) | (4,427) | ||||||||||||||||||||||
| Balance, April 1, 2023 | $ | (33,935) | $ | 4,075 | $ | (521) | $ | (30,381) | ||||||||||||||||||
(1) Presented net of income taxes, the amounts of which are insignificant. | ||||||||||||||||||||||||||
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were effective.
Reports on Internal Control
Management’s Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of its internal control over financial reporting as of April 1, 2023. In making this assessment, the management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on our assessment, the Company’s management believes that its internal controls over financial reporting were effective as of April 1, 2023.
Ernst & Young, LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial reporting. This report, in which they expressed an unqualified opinion, is included below.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the quarter ended April 1, 2023 that have materially affected, or are likely to materially affect, our internal control over financial reporting.
96
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Haemonetics Corporation
Opinion on Internal Control over Financial Reporting
We have audited Haemonetics Corporation and subsidiaries’ internal control over financial reporting as of April 1, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Haemonetics Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of April 1, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated May 22, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 22, 2023
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ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer and senior financial officers. The Code of Ethics is incorporated into the Company’s Code of Conduct located on the Company’s website at www.haemonetics.com, under the “Investor Relations” caption and under the “Corporate Governance” sub-caption. A copy of the Code of Conduct will be provided free of charge by making a written request and mailing it to our corporate headquarters offices to the attention of our Investor Relations Department. Any amendments to, or waivers from, a provision of our Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer or senior financial officers will be disclosed on the Company’s website promptly following the date of such amendment or waiver.
The additional information required by this item is incorporated by reference to our Definitive Proxy Statement for our annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our Definitive Proxy Statement for our annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year. Notwithstanding the foregoing, the Compensation Committee Report included within the Proxy Statement is only being “furnished” hereunder and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to our Definitive Proxy Statement for our annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to our Definitive Proxy Statement for our annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to our Definitive Proxy Statement for our annual meeting of shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this report:
A)Financial Statements are included in Part II of this report
| Financial Statements required by Item 8 of this Form | |||||
All other schedules have been omitted because they are not applicable or not required.
B)Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index beginning at page 100, which is incorporated herein by reference.
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EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
Number and Description of Exhibit
| 1. Articles of Organization | ||||||||
| Restated Articles of Organization of Haemonetics Corporation, reflecting Articles of Amendment dated August 23, 1993, August 21, 2006, July 26, 2018 and July 25, 2019 (filed as Exhibit 3.1 to the Company’s Form 8-K dated July 29, 2019 and incorporated herein by reference). | ||||||||
| By-Laws of the Company, as amended through June 29, 2020 (filed as Exhibit 3.1 to the Company’s Form 8-K dated June 30, 2020 and incorporated herein by reference). | ||||||||
| 2. Instruments Defining the Rights of Security Holders | ||||||||
| 4A | Specimen certificate for shares of common stock (filed as Exhibit 4B to the Company’s Amendment No. 1 to Form S-1 No. 33-39490 and incorporated herein by reference). | |||||||
| Description of Common Stock (filed as Exhibit 4B to the Company’s Form 10-K for the fiscal year ended March 28, 2020 and incorporated herein by reference). | ||||||||
| Indenture, dated as of March 5, 2021, between Haemonetics Corporation and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company’s Form 8-K dated March 5, 2021 and incorporated herein by reference). | ||||||||
| Form of certificate representing the 0.00% Convertible Senior Notes due 2026 (included as Exhibit A to Exhibit 4D) (filed as Exhibit 4.2 to the Company’s Form 8-K dated March 5, 2021 and incorporated herein by reference). | ||||||||
| 3. Material Contracts | ||||||||
Haemonetics Corporation 2005 Long-Term Incentive Compensation Plan, reflecting amendments dated July 31, 2008, July 29, 2009, July 21, 2011, November 30, 2012, July 24, 2013, January 21, 2014, and July 23, 2014 (filed as Exhibit 10.1 to the Company’s Form 8-K dated July 25, 2014 and incorporated herein by reference) (1). | ||||||||
Haemonetics Corporation 2019 Long-Term Incentive Compensation Plan (filed as Exhibit 10.1 to the Company’s Form 8-K dated July 29, 2019 and incorporated herein by reference) (1). | ||||||||
Form of Non-Qualified Stock Option Award Agreement under 2005 Long-Term Incentive Compensation Plan for Employees (filed as Exhibit 10S to the Company’s Form 10-K for the fiscal year ended March 30, 2010 and incorporated herein by reference) (1). | ||||||||
Form of Non-Qualified Stock Option Award Agreement under 2005 Long-Term Incentive Compensation Plan for Employees (adopted fiscal 2019) (filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2018 and incorporated herein by reference) (1). | ||||||||
Form of Non-Qualified Stock Option Award Agreement under 2019 Long-Term Incentive Compensation Plan (adopted fiscal 2020) (filed as Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference) (1). | ||||||||
Form of Restricted Stock Unit Award Agreement with Non-Employee Directors under 2019 Long-Term Incentive Compensation Plan (fiscal 2020) (filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference) (1). | ||||||||
Form of Restricted Stock Unit Award Agreement with Employees under 2019 Long-Term Incentive Compensation Plan (adopted fiscal 2020) (filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference) (1). | ||||||||
Form of Performance Share Unit Award Agreement Under 2019 Long-Term Incentive Compensation Plan (rTSR Metrics, adopted fiscal 2020) (filed herewith as Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended September 28, 2019 and incorporated herein by reference) (1). | ||||||||
Amended and Restated 2007 Employee Stock Purchase Plan (as amended and restated on July 21, 2016 incorporated as Exhibit 10.2 to the Company’s Form 10-Q, for the quarter ended July 2, 2016 and incorporated herein by reference) (1). | ||||||||
Employment Agreement effective as of May 16, 2016 between the Company and Christopher A. Simon (filed as Exhibit 10.1 to the Company’s Form 8-K dated May 10, 2016 and incorporated herein by reference) (1). | ||||||||
Executive Severance Agreement between the Company and Christopher A. Simon dated as of November 7, 2017 (filed as Exhibit 10.4 to the Company’s Form 10-Q dated for the quarter ended September 30, 2017 and incorporated herein by reference) (1). | ||||||||
Change in Control Agreement between the Company and Christopher A. Simon dated as of November 7, 2017 (filed as Exhibit 10.5 to the Company’s Form 10-Q dated for the quarter ended September 30, 2017 and incorporated herein by reference) (1). | ||||||||
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Form of Executive Severance Agreement between the Company and executive officers other than Christopher A. Simon (filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended September 30, 2017 and incorporated herein by reference) (1). | ||||||||
Form of Change in Control Agreement between the Company and executive officers other than Christopher A. Simon (filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended September 30, 2017 and incorporated herein by reference) (1). | ||||||||
Haemonetics Corporation Worldwide Employee Bonus Plan (as amended and restated effective April 23, 2019) (filed as Exhibit 10.1 to the Company’s Form 8-K dated April 29, 2019 and incorporated herein by reference) (1). | ||||||||
CFO Retention and Transition Agreement, dated as of November 8, 2021, by and between the Company and William P. Burke (filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended January 1, 2022 and incorporated herein by reference) (1). | ||||||||
| Form of Indemnification Agreement (as executed with each director and executive officer of the Company) (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 29, 2018 and incorporated herein by reference). | ||||||||
| Office Lease Agreement, dated as of December 18, 2018, by and between OPG 125 Summer Owner (DE) LLC and the Company (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended December 29, 2018 and incorporated herein by reference) (2). | ||||||||
| Industrial Lease Agreement, dated as of May 22, 2020, by and between Clinton Commerce III, LLC and the Company (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 27, 2020 and incorporated herein by reference) (3). | ||||||||
| First Amendment to Industrial Lease Agreement, dated as of October 1, 2020, by and between Clinton Commerce III, LLC and the Company (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended December 26, 2020 and incorporated herein by reference). | ||||||||
| Lease dated February 21, 2000 between BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V. with authorization of El Florido California, S.A. de C.V., for property located in Tijuana, Mexico (filed as Exhibit 10J to the Company’s Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). | ||||||||
| Amendment to Lease dated February 21, 2000 made as of July 25, 2008 between BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V., for property located in Tijuana, Mexico (filed as Exhibit 10K to the Company’s Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). | ||||||||
| Extension to Lease dated February 21, 2000, made as of August 14, 2011 between PROCADEF 1, S.A.P.I. de C.V. and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V., for property located in Tijuana, Mexico (Spanish to English translation filed as Exhibit 10L to the Company’s Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). | ||||||||
| Amendment Letter to Lease dated February 21, 2000, made as of August 14, 2011 between BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V., for property located in Tijuana, Mexico (filed as Exhibit 10M to the Company’s Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). | ||||||||
| Notice of Assignment to Lease dated February 21, 2000, made as of February 23, 2012 between BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V. for property located in Tijuana, Mexico (Spanish to English translation filed as Exhibit 10N to the Company’s Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). | ||||||||
Amendment to Lease dated February 21, 2000 made as of January 1, 2018 between MEGA2013, S.A.P.I. de CV (as successor in interest to BBVA Bancomer Servicios, S.A., as Trustee of the “Submetropoli de Tijuana” Trust) and Haemonetics Mexico Manufacturing, S. de R.L. de C.V., as successor in interest to Ensatec, S.A. de C.V., for property located in Tijuana, Mexico (filed as Exhibit 10R to the Company’s Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). | ||||||||
| Lease Agreement effective December 3, 2007 between Mrs. Blanca Estela Colunga Santelices, by her own right, and Pall Life Sciences Mexico, S.de R.L. de C.V. for the property located in Tijuana, Mexico (Spanish to English translation filed as Exhibit 10W to the Company’s Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). | ||||||||
| Assignment to Lease Agreement effective December 3, 2007, made as of December 2, 2011 between Mrs. Blanca Estela Colunga Santelices, by her own right, Pall Life Sciences Mexico, S.de R.L. de C.V., (“Assignor”) and Haemonetics Mexico Manufacturing, S. de R.L. de C.V.as successor in interest to Pall Mexico Manufacturing S. de R.L. de C.V., (“Assignee”) assigned in favor of the property located in Tijuana, Mexico (filed as Exhibit 10X to the Company’s Form 10-K for the year ended March 30, 2013 and incorporated herein by reference). | ||||||||
101
Amendment to Lease Agreement effective December 3, 2007, made in 2017 between Mrs. Blanca Estela Colunga Santelices, by her own right, Pall Life Sciences Mexico, S.de R.L. de C.V. (“Assignor”) and Haemonetics Mexico Manufacturing, S. de R.L. de C.V. as successor in interest to Pall Mexico Manufacturing S. de R.L. de C.V., (“Assignee”) assigned in favor of the property located in Tijuana, Mexico (filed as Exhibit 10U to the Company’s Form 10-K for the year ended March 31, 2018 and incorporated herein by reference). | ||||||||
| Second Amendment to Lease Agreement effective December 3, 2007, made as of June 17, 2022 between Mrs. Blanca Estela Colunga Santelices and Haemonetics Mexico Manufacturing, S. de R.L. de C.V. (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended July 2, 2022 and incorporated herein by reference) (3). | ||||||||
| Lease dated September 19, 2013 between the Penang Development Corporation and Haemonetics Malaysia Sdn Bhd of the property located in Penang, Malaysia (filed as Exhibit 10D to the Company’s 10-Q for the quarter ended June 28, 2014 and incorporated herein by reference). | ||||||||
| Shelter Plan Service Agreement, dated June 10, 2014, by and between Cardiva Medical, Inc. and Offshore International, Incorporated (filed as Exhibit 10.23 to Cardiva Medical, Inc.’s Form S-1 (File No. 333-251885) dated January 4, 2021 and incorporated herein by reference) (3). | ||||||||
| Amendment No. 1 to Shelter Plan Service Agreement dated June 10, 2014, by and between Cardiva Medical, Inc. and Offshore International, Incorporated, dated as of October 30, 2019 (filed as Exhibit 10.23 to Cardiva Medical, Inc.’s Form S-1 (File No. 333-251885) dated January 4, 2021 and incorporated herein by reference) (3). | ||||||||
| Amendment No. 2 to Shelter Plan Service Agreement dated June 10, 2014, by and between Cardiva Medical, Inc. and Offshore International, Incorporated, dated as of August 3, 2022 (filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended October 1, 2022 and incorporated herein by reference) (3). | ||||||||
| Amended and Restated Credit Agreement, dated as of July 26, 2022, by and among the Company, the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Company’s Form 8-K dated August 1, 2022 and incorporated herein by reference). | ||||||||
| Form of Confirmation of Call Option Transaction (filed as Exhibit 10.1 to the Company’s Form 8-K dated as of March 5, 2021 and incorporated herein by reference). | ||||||||
| Form of Confirmation of Additional Call Option Transaction (filed as Exhibit 10.1 to the Company’s Form 8-K dated as of March 16, 2021 and incorporated herein by reference). | ||||||||
| Agreement and Plan of Merger, dated as of January 17, 2021, by and among the Company, Concordia Merger Sub, Inc., Cardiva Medical, Inc. and Fortis Advisors LLC, as the Seller Representative (filed as Exhibit 10.4 to the Company’s 10-Q for the quarter ended December 26, 2020 and incorporated herein by reference) (3). | ||||||||
| 4. Subsidiaries Certifications and Consents | ||||||||
| Subsidiaries of the Company. | ||||||||
| Consent of the Independent Registered Public Accounting Firm. | ||||||||
| Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002, of Christopher A. Simon, President and Chief Executive Officer of the Company. | ||||||||
| Certification pursuant to Section 302 of Sarbanes-Oxley of 2002 of James D'Arecca, Executive Vice President, Chief Financial Officer of the Company. | ||||||||
| Certification Pursuant to 18 United States Code Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Christopher A. Simon, President and Chief Executive Officer of the Company. | ||||||||
| Certification Pursuant to 18 United States Code Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of James D'Arecca, Executive Vice President, Chief Financial Officer of the Company. | ||||||||
| 101* | The following materials from Haemonetics Corporation on Form 10-K for the year ended April 1, 2023, formatted in inline Extensible Business Reporting Language (XBRL) includes: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statement of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. | |||||||
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). | |||||||
| * | Document filed with this report. | |||||||
| ** | Document furnished with this report. | |||||||
| (1) | Agreement, plan, or arrangement related to the compensation of officers or directors. | |||||||
| (2) | Confidential treatment has been requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission. | |||||||
| (3) | Certain portions of this exhibit are considered confidential and have been omitted as permitted under Securities and Exchange Commission rules and regulations. | |||||||
102
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HAEMONETICS CORPORATION | ||||||||
| By: | /s/ Christopher A. Simon | |||||||
| Christopher A. Simon | ||||||||
| President, Chief Executive Officer and a Director | ||||||||
Date: May 22, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ Christopher A. Simon | President, Chief Executive Officer and a Director | May 22, 2023 | ||||||||||||
| Christopher A. Simon | (Principal Executive Officer) | |||||||||||||
| /s/ James C. D’Arecca | Executive Vice President, Chief Financial Officer | May 22, 2023 | ||||||||||||
| James C. D’Arecca | (Principal Financial Officer) | |||||||||||||
| /s/ Maryanne E. Farris | Vice President, Chief Accounting Officer | May 22, 2023 | ||||||||||||
| Maryanne E. Farris | (Principal Accounting Officer) | |||||||||||||
| /s/ Robert E. Abernathy | Director | May 22, 2023 | ||||||||||||
| Robert E. Abernathy | ||||||||||||||
| /s/ Catherine M. Burzik | Director | May 22, 2023 | ||||||||||||
| Catherine M. Burzik | ||||||||||||||
| /s/ Michael J. Coyle | Director | May 22, 2023 | ||||||||||||
| Michael J. Coyle | ||||||||||||||
| /s/ Charles J. Dockendorff | Director | May 22, 2023 | ||||||||||||
| Charles J. Dockendorff | ||||||||||||||
| /s/ Lloyd E. Johnson | Director | May 22, 2023 | ||||||||||||
| Lloyd E. Johnson | ||||||||||||||
| /s/ Mark W. Kroll | Director | May 22, 2023 | ||||||||||||
| Mark W. Kroll | ||||||||||||||
| /s/ Claire Pomeroy | Director | May 22, 2023 | ||||||||||||
| Claire Pomeroy | ||||||||||||||
| /s/ Ellen M. Zane | Director | May 22, 2023 | ||||||||||||
| Ellen M. Zane | ||||||||||||||
103