NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Haemonetics Corporation ("Haemonetics" or the "Company") is a global healthcare company dedicated to providing a suite of innovative hematology products and solutions to customers to help improve patient care and reduce the cost of healthcare. Its technology addresses important medical markets including blood and plasma component collection, the surgical suite, and hospital transfusion services.
Blood is essential to a modern healthcare system. Blood and its components (plasma, platelets and red cells) 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 develops and markets a wide range of devices and solutions to serve its customers. The Company provides plasma collection systems and software that enable the collection of plasma used by biopharmaceutical companies to make life saving pharmaceuticals and also provides analytical devices for measuring hemostasis that enable healthcare providers to better manage their patients’ bleeding risk. In addition, the Company makes blood processing systems and software that make blood donation more efficient and track life giving blood components. Finally, Haemonetics supplies systems and software that facilitate blood transfusions and cell processing.
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 has assessed its ability to continue as a going concern. As of
March 30, 2019
, Haemonetics has concluded that substantial doubt about its ability to continue as a going concern does not exist.
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Refer to Note
20
,
Subsequent Events
,
for information pertaining to the divestiture of a manufacturing facility.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
Haemonetics' fiscal year ends on the Saturday closest to the last day of March. Fiscal
2019
,
2018
and
2017
include
52
weeks with each quarter having
13
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.
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 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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reclassifications
Certain immaterial reclassifications have been made to prior years' amounts to conform to the current year's presentation.
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.
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 (contract assets), and customer advances and deposits (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.
Non-Income Taxes
The Company is required to collect sales or valued added taxes in connection with the sale of certain of its products. The Company reports revenues net of these amounts as they are promptly remitted to the relevant taxing authority.
The Company is also required to pay a medical device excise tax relating to U.S. sales of Class I, II and III medical devices. This excise tax, which went into effect January 1, 2013, was established as part of the March 2010 U.S. healthcare reform legislation and was included in selling, general and administrative expenses. In December 2015, this tax was suspended for
two
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
years
, beginning on January 1, 2016. In January 2018, another temporary
two
year suspension of the excise tax was passed, extending the suspension until December 31, 2019.
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 (loss). 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.
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
March 30, 2019
, cash and cash equivalents consisted of investments in United States Government Agency and institutional money market funds.
Allowance for Doubtful Accounts
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 market 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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 their related useful lives 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 with these devices, from which it generate 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 (loss).
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. Instead goodwill is 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. Its reporting units for purposes of assessing goodwill impairment are organized primarily based on operating segments and geography and include: (a) North America Plasma, (b) North America Blood Center, (c) North America Hospital, (d) Europe, Middle East and Africa (collectively "EMEA"), (e) Asia-Pacific and (f) Japan.
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
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 2019
and
2018
, the Company performed its annual goodwill impairment test under the guidelines of ASC Update No. 2017-04. 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 2019
and
2018
annual test date. During fiscal 2017, the Company recorded goodwill impairment charges of
$57.0 million
.
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. During fiscal
2019
and
2018
the Company did not incur any intangible asset impairments. During
fiscal 2017
, the Company impaired
$4.8 million
of intangible assets. See Note
9
,
Goodwill & Intangible Assets
.
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
2019
and
2018
. During
fiscal 2017
, the Company recorded
$4.0 million
of impairment charges. 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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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)
|
March 30,
2019
|
|
March 31,
2018
|
VAT liabilities
|
$
|
3,995
|
|
|
$
|
2,932
|
|
Forward contracts
|
5,348
|
|
|
1,583
|
|
Deferred revenue
|
27,279
|
|
|
25,814
|
|
Accrued taxes
|
8,451
|
|
|
5,340
|
|
All other
|
46,459
|
|
|
29,991
|
|
Total
|
$
|
91,532
|
|
|
$
|
65,660
|
|
Other Long-Term Liabilities
Other long-term liabilities represent items that are not payable or expected to settle within the next twelve months. The items included in the fiscal year end balances were:
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30,
2019
|
|
March 31,
2018
|
Unfunded pension liability
|
13,766
|
|
|
14,045
|
|
Unrecognized tax benefit
|
2,895
|
|
|
2,850
|
|
Transition tax liability
|
6,305
|
|
|
7,837
|
|
All other
|
5,814
|
|
|
9,526
|
|
Total
|
$
|
28,780
|
|
|
$
|
34,258
|
|
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 (loss). Advertising expenses were
$4.5 million
,
$3.1 million
and
$2.5 million
in fiscal
2019
,
2018
and
2017
, 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
4
,
Income Taxes
,
for further information and discussion of the Company's income tax provision and balances including a discussion of the impact of the Tax Cuts and Jobs Act (the "Act") enacted in December 2017.
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
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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 (loss), 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
$2.3 million
,
$0.2 million
and
$1.8 million
in fiscal
2019
,
2018
and
2017
, 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 consider 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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 Obligation
s. 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 (loss). Additionally, costs directly related to the Company's active restructuring initiatives, including program management costs, accelerated depreciation and costs to transfer product lines among facilities are included within costs of goods sold and selling, general and administrative costs in its consolidated statement of income (loss). See 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 historical information and market assumptions based upon the assumptions of a market participant. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.
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 2019
,
2018
and
2017
, the Company's ten largest customers accounted for approximately
52%
,
45%
and
42%
of net revenues, respectively. In
fiscal 2019
, 2018 and 2017 two Plasma customers, CSL Plasma Inc. ("CSL") and Grifols S.A. ("Grifols"), each were greater than 10% of total net revenue and in total accounted for approximately
27%
,
26%
and
24%
of net revenues, respectively. Additionally, one Blood Center customer accounted for greater than 10% of the Japan segment’s net revenues in fiscal 2019, 2018 and 2017.
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
Leases (Topic 842)
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") Update No. 2016-02,
Leases (Topic 842)
. ASC Update No. 2016-02 is intended to increase the transparency and comparability among organizations by recognizing lease asset and lease liabilities on the balance sheet, including those previously classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. ASC Update No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is applicable to us in fiscal 2020. Earlier adoption is permitted. In July 2018, the FASB issued an update to the leasing guidance
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to allow an additional transition option which would allow companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented. We adopted the new standard on March 31, 2019.
Upon transition, the Company plans to apply the package of practical expedients permitted under ASC Update No. 2016-02 transition guidance to its entire lease portfolio at March 31, 2019. As a result, the Company is not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases, and (iii) initial direct costs for any existing leases.
As a result of adopting ASC Update No. 2016-02, the Company expects to recognize additional right-of-use assets and corresponding liabilities for the Company's existing lease portfolio on the consolidated balance sheets of approximately
$20 million
to
$25 million
, with no material impact to the consolidated statements of operations or consolidated statements of cash flows. Additionally, the Company is in the process of implementing a new lease administration and lease accounting system, and updating its controls and procedures for maintaining and accounting for its lease portfolio under the new standard.
Standards Implemented
Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued ASC Update No. 2014-09,
Revenue from Contracts with
Customers (Topic 606)
. ASC Update No. 2014-09 stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
In March 2016, the FASB issued ASC Update No. 2016-08,
Revenue from Contracts with Customers (Topic 606):
Principal versus
Agent Considerations (Reporting Revenue Gross versus Net)
. The purpose of ASC Update No. 2016-08 is to clarify the guidance on principal versus agent considerations. It includes indicators that help to determine whether an entity controls the specified good or service before it is transferred to the customer and to assist in determining when the entity satisfied the performance obligation and as such, whether to recognize a gross or a net amount of consideration in its consolidated statement of operations.
In April 2016, the FASB issued ASC Update No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing
. The guidance clarifies that entities are not required to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract. ASC Update No. 2016-10 also addresses how to determine whether promised goods or services are separately identifiable and permits entities to make a policy election to treat shipping and handling costs as fulfillment activities. In addition, it clarifies key provisions in Topic 606 related to licensing.
The Company adopted ASC Update No. 2014-09 on April 1, 2018 using the modified retrospective method. Under this method, entities recognize the cumulative effect of applying the new standard at the date of initial application with no restatement of comparative periods presented. The cumulative effect of applying the new standard resulted in an increase to opening retained earnings of
$1.5 million
upon adoption of Topic 606 in April 2018, primarily related to deferred revenue associated with software contracts. Software revenue accounted for approximately
8.2%
and
8.6%
of total revenue for
fiscal year ended March 30, 2019
and
March 31, 2018
, respectively. The new standard has been applied only to those contracts that were not completed as of March 31, 2018. The impact of adopting ASC Update No. 2014-09 was not significant to individual financial statement line items in the consolidated balance sheet and consolidated statement of income (loss) and comprehensive income (loss).
Other Recent Accounting Pronouncements
In October 2016, the FASB issued ASC Update No. 2016-16,
Income Taxes (Topic 740)
. The guidance requires companies to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period in which the transfer occurs. The Company adopted ASC Update No. 2016-16 during the first quarter of fiscal 2019. The adoption of ASC Update No. 2016-16 did not have a material impact on the Company's consolidated financial statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2016, the FASB issued ASC Update No. 2016-15,
Statement of Cash Flow (Topic 230)
. The guidance reduces diversity in how certain cash receipts and cash payments are presented and classified in the consolidated statements of cash flows. The Company adopted ASC Update No. 2016-15 during the first quarter of fiscal 2019. The adoption of ASC Update No. 2016-15 did not have a material impact on the Company's consolidated financial statements.
In May 2017, the FASB issued ASC Update No. 2017-09,
Compensation - Stock Compensation: Scope of Modification Accounting (Topic 718)
. The guidance clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. The Company adopted ASC Update No. 2017-09 during the first quarter of fiscal 2019. The adoption of ASC Update No. 2017-09 did not have a material impact on the Company's consolidated financial statements.
In August 2017, the FASB issued ASC Update No. 2017-12,
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815)
. The new guidance makes more financial and non-financial hedging strategies eligible for hedge accounting, amends the presentation and disclosure requirements for hedging activities and changes how companies assess hedge effectiveness. The Company early adopted ASC Update No. 2017-12 during the second quarter of fiscal 2019. The adoption of ASC Update No. 2017-12 did not have an impact on the Company's consolidated financial statements or the classification of its designated and non-designated hedge contracts.
In August 2018, the Securities and Exchange Commission adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532,
Disclosure Update and Simplification
. This amendment require companies to disclose a reconciliation of changes in stockholders’ equity to prior periods. A presentation showing the activity for the year to date period and comparable prior year detail are shown in the disclosure.
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.
During fiscal 2018, the Company launched a Complexity Reduction Initiative (the "2018 Program"), a company-wide restructuring program designed to improve operational performance and reduce cost, freeing up resources to invest in accelerated growth. This program includes a reduction of headcount and operating costs to enable a more streamlined organizational structure. The Company expects to incur aggregate charges between
$50 million
and
$60 million
associated with these actions, of which it expects
$35 million
to
$40 million
will consist of severance and other employee costs and the remainder will consist of other exit costs, primarily related to third party services. These charges, substantially all of which will result in cash outlays, will be incurred as the specific actions required to execute on these initiatives are identified and approved and are expected to continue through fiscal 2020. During
fiscal 2019
and 2018, the Company incurred
$13.7 million
and
$36.6 million
of restructuring and turnaround costs under this program, respectively. Total cumulative charges under this program are
$50.3 million
as of
March 30, 2019
.
During fiscal 2017, the Company launched a restructuring program (the "2017 Program") designed to reposition its organization and improve its cost structure. The Company did not incur any charges under this program during
fiscal 2019
. During fiscal 2018 and 2017, the Company incurred
$7.2 million
and
$28.7 million
of restructuring and turnaround charges under this program, respectively. The 2017 Program is substantially complete.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the activity for restructuring reserves related to the 2018 Program and the 2017 and Prior Programs for the fiscal years ended
March 30, 2019
,
March 31, 2018
and
April 1, 2017
, substantially all of which relates to employee severance and other employee costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2018 Program
|
|
2017 and Prior Programs
|
|
Total
|
Balance at April 2, 2016
|
$
|
—
|
|
|
$
|
8,752
|
|
|
$
|
8,752
|
|
Costs incurred, net of reversals
|
—
|
|
|
21,833
|
|
|
21,833
|
|
Payments
|
—
|
|
|
(22,317
|
)
|
|
(22,317
|
)
|
Non-cash adjustments
|
—
|
|
|
(800
|
)
|
|
(800
|
)
|
Balance at April 1, 2017
|
$
|
—
|
|
|
$
|
7,468
|
|
|
$
|
7,468
|
|
Costs incurred, net of reversals
|
29,694
|
|
|
835
|
|
|
30,529
|
|
Payments
|
(1,363
|
)
|
|
(6,897
|
)
|
|
(8,260
|
)
|
Non-cash adjustments
|
(1,202
|
)
|
|
—
|
|
|
(1,202
|
)
|
Balance at March 31, 2018
|
$
|
27,129
|
|
|
$
|
1,406
|
|
|
$
|
28,535
|
|
Costs incurred, net of reversals
|
431
|
|
|
(36
|
)
|
|
395
|
|
Payments
|
(20,742
|
)
|
|
(650
|
)
|
|
(21,392
|
)
|
Non-cash adjustments
|
(96
|
)
|
|
37
|
|
|
(59
|
)
|
Balance at March 30, 2019
|
$
|
6,722
|
|
|
$
|
757
|
|
|
$
|
7,479
|
|
The substantial majority of restructuring costs during fiscal
2019
,
2018
and 2017 have been included as a component of selling, general and administrative expenses in the accompanying consolidated statements of income (loss). As of
March 30, 2019
, the Company had a restructuring liability of
$7.5 million
, of which, approximately
$6.7 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
$13.2 million
,
$13.6 million
and
$12.5 million
in
fiscal 2019
,
2018
and 2017, respectively, that do not constitute as restructuring under ASC 420,
Exit and Disposal Cost Obligations,
which the Company refers to as turnaround costs. These costs, substantially all of which have been included as a component of selling, general and administrative expenses in the accompanying consolidated statements of income (loss), consist primarily of expenditures directly related to the restructuring actions and include program management costs associated with the implementation of outsourcing initiatives and recent accounting standards.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below present restructuring and turnaround costs by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Japan
|
$
|
102
|
|
|
$
|
514
|
|
|
$
|
819
|
|
EMEA
|
730
|
|
|
1,496
|
|
|
4,272
|
|
North America Plasma
|
(20
|
)
|
|
565
|
|
|
366
|
|
All Other
|
(417
|
)
|
|
27,954
|
|
|
16,376
|
|
Total
|
$
|
395
|
|
|
$
|
30,529
|
|
|
$
|
21,833
|
|
|
|
|
|
|
|
Turnaround costs
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Japan
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
EMEA
|
108
|
|
|
(107
|
)
|
|
94
|
|
North America Plasma
|
136
|
|
|
976
|
|
|
972
|
|
All Other
|
12,984
|
|
|
12,727
|
|
|
11,415
|
|
Total
|
$
|
13,228
|
|
|
$
|
13,596
|
|
|
$
|
12,483
|
|
|
|
|
|
|
|
Total restructuring and turnaround
|
$
|
13,623
|
|
|
$
|
44,125
|
|
|
$
|
34,316
|
|
4. INCOME TAXES
Domestic and foreign income before provision for income tax is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Domestic
|
$
|
26,665
|
|
|
$
|
3,534
|
|
|
$
|
(44,724
|
)
|
Foreign
|
46,968
|
|
|
56,098
|
|
|
17,248
|
|
Total
|
$
|
73,633
|
|
|
$
|
59,632
|
|
|
$
|
(27,476
|
)
|
The income tax provision from continuing operations contains the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
$
|
(4,165
|
)
|
|
$
|
9,927
|
|
|
$
|
(1,424
|
)
|
State
|
844
|
|
|
1,024
|
|
|
436
|
|
Foreign
|
8,584
|
|
|
8,937
|
|
|
6,580
|
|
Total current
|
$
|
5,263
|
|
|
$
|
19,888
|
|
|
$
|
5,592
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
12,220
|
|
|
(5,350
|
)
|
|
(8,711
|
)
|
State
|
463
|
|
|
344
|
|
|
(953
|
)
|
Foreign
|
668
|
|
|
(822
|
)
|
|
2,864
|
|
Total deferred
|
$
|
13,351
|
|
|
$
|
(5,828
|
)
|
|
$
|
(6,800
|
)
|
Total
|
$
|
18,614
|
|
|
$
|
14,060
|
|
|
$
|
(1,208
|
)
|
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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the third quarter of
fiscal 2018
, the Tax Cuts and Jobs Act (the "Act") was enacted in the United States. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. In addition, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
that directed taxpayers to consider the impact of the U.S. legislation as “provisional” when they do not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete their accounting for the change in tax law.
During
fiscal 2018
, the Company recognized a provisional amount of
$2.0 million
as a reasonable estimate of the impact of the provisions of the Act, which was included as a component of income tax expense in the consolidated statements of income (loss). During
fiscal 2019
, the Company completed its accounting for the tax effects of the enactment of the Act. The Company recognized a
$0.4 million
adjustment to the provisional tax expense recorded in
fiscal 2018
.
The Company has incorporated the other impacts of the Act that became effective in
fiscal 2019
in the calculation of the tax provision and effective tax rate, including the provisions related to global intangible low taxed income (“GILTI”), foreign derived intangible income (“FDII”), base erosion anti abuse Tax (“BEAT”), as well as other provisions which limit tax deductibility of expenses. For
fiscal 2019
, the GILTI provisions have the most significant impact to the Company. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. The ability to benefit a deduction and foreign tax credits against a portion of the GILTI income may be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income, and other potential limitations within the foreign tax credit calculation.
Interpretive guidance on the accounting for GILTI states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. For the year ended
March 30, 2019
, the Company made the accounting policy election to recognize GILTI as a period expense.
The Company's subsidiary in Puerto Rico has been granted a
fifteen
-year tax grant that expires in calendar 2027. Its qualification for the tax grant is dependent on the continuation of its manufacturing activities in Puerto Rico. The Company benefits from a reduced tax rate on its earnings in Puerto Rico under the tax grant.
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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Tax affected, significant temporary differences comprising the net deferred tax liability are as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30,
2019
|
|
March 31,
2018
|
Deferred tax assets:
|
|
|
|
Depreciation
|
$
|
2,277
|
|
|
$
|
1,345
|
|
Amortization of intangibles
|
1,091
|
|
|
964
|
|
Inventory
|
3,541
|
|
|
3,183
|
|
Accruals, reserves and other deferred tax assets
|
15,802
|
|
|
16,939
|
|
Net operating loss carry-forward
|
4,931
|
|
|
10,810
|
|
Stock based compensation
|
3,728
|
|
|
3,292
|
|
Tax credit carry-forward, net
|
4,176
|
|
|
3,479
|
|
Gross deferred tax assets
|
35,546
|
|
|
40,012
|
|
Less valuation allowance
|
(11,322
|
)
|
|
(11,090
|
)
|
Total deferred tax assets (after valuation allowance)
|
24,224
|
|
|
28,922
|
|
Deferred tax liabilities:
|
|
|
|
Depreciation
|
(23,102
|
)
|
|
(17,732
|
)
|
Amortization of goodwill and intangibles
|
(13,959
|
)
|
|
(11,942
|
)
|
Unremitted earnings
|
(801
|
)
|
|
(274
|
)
|
Other deferred tax liabilities
|
(1,909
|
)
|
|
(1,539
|
)
|
Total deferred tax liabilities
|
(39,771
|
)
|
|
(31,487
|
)
|
Net deferred tax liabilities
|
$
|
(15,547
|
)
|
|
$
|
(2,565
|
)
|
The valuation allowance increased by
$0.2 million
during
fiscal 2019
, primarily as a result of net operating losses and tax credits generated in jurisdictions in which the Company has concluded that its deferred tax assets are not more-likely-than-not realizable, offset by the release of the valuation allowance against deferred tax assets in certain foreign subsidiaries. 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. 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
March 30, 2019
includes deferred tax liabilities related to amortizable tax basis in goodwill, which are indefinite lived and can only be used as a source of income to benefit other indefinite lived assets.
As of
March 30, 2019
, the Company maintains a valuation allowance against certain U.S. state deferred tax assets that are not more-likely-than-not realizable and maintains a full valuation allowance against the net deferred tax assets of certain foreign subsidiaries.
As of
March 30, 2019
, the Company has U.S. federal net operating losses of approximately
$5.8 million
that will begin to expire in fiscal 2036. The Company has U.S. state net operating losses of
$21.7 million
of which
$21.3 million
will begin to expire in fiscal 2020 and
$0.4 million
can be carried forward indefinitely. The Company has federal and state tax credits of
$0.5 million
and
$4.7 million
, respectively, which will begin to expire in fiscal 2039 and fiscal 2025, respectively.
The Company's net operating loss and tax credit carry-forwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant 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 April 2, 2011 through December 31, 2017. The study concluded that there were no limitations on the Company’s net operating losses and tax credit carryforwards as of December 31, 2017. The Company does not believe it has had an ownership change through
March 30, 2019
. Subsequent ownership changes may further affect the limitation in future years.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of
March 30, 2019
, the Company has foreign net operating losses of approximately
$12.6 million
that are available to reduce future income of which
$3.7 million
will begin to expire in fiscal 2034 and
$8.9 million
can be carried forward indefinitely.
As of
March 30, 2019
, substantially all of the unremitted earnings of the Company have been taxed in the U.S. as a result of tax reform. The Company has provided
$0.8 million
of net foreign withholding taxes on approximately
$154.0 million
of unremitted earnings that are not indefinitely reinvested. The Company has not provided U.S. deferred income taxes or foreign withholding taxes on unremitted earnings of foreign subsidiaries of approximately
$287.9 million
as such amounts are considered to be indefinitely reinvested in the business or could be remitted without a future tax cost. The accumulated earnings in the foreign subsidiaries are primarily utilized to fund working capital requirements as its subsidiaries continue to expand their operations, to service existing debt obligations 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.
The income tax provision from continuing operations differs from tax provision computed at the U.S. federal statutory income tax rate due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Tax at federal statutory rate
|
$
|
15,463
|
|
|
21.0
|
%
|
|
$
|
18,807
|
|
|
31.5
|
%
|
|
$
|
(9,616
|
)
|
|
35.0
|
%
|
Difference between U.S. and foreign tax
|
(1,423
|
)
|
|
(1.9
|
)%
|
|
(9,264
|
)
|
|
(15.5
|
)%
|
|
137
|
|
|
(0.5
|
)%
|
State income taxes net of federal benefit
|
902
|
|
|
1.2
|
%
|
|
29
|
|
|
—
|
%
|
|
(495
|
)
|
|
1.8
|
%
|
Change in uncertain tax positions
|
267
|
|
|
0.4
|
%
|
|
1,095
|
|
|
1.8
|
%
|
|
862
|
|
|
(3.1
|
)%
|
Global intangible low taxed income
|
5,954
|
|
|
8.1
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Unremitted earnings
|
527
|
|
|
0.7
|
%
|
|
(791
|
)
|
|
(1.3
|
)%
|
|
330
|
|
|
(1.2
|
)%
|
Deferred statutory rate changes
|
1,183
|
|
|
1.6
|
%
|
|
(3,193
|
)
|
|
(5.4
|
)%
|
|
(383
|
)
|
|
1.4
|
%
|
Non-deductible goodwill impairment
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
3,703
|
|
|
(13.5
|
)%
|
Non-deductible executive compensation
|
1,588
|
|
|
2.2
|
%
|
|
221
|
|
|
0.4
|
%
|
|
40
|
|
|
(0.1
|
)%
|
Non-deductible other
|
462
|
|
|
0.6
|
%
|
|
22
|
|
|
—
|
%
|
|
856
|
|
|
(3.1
|
)%
|
Stock compensation benefits
|
(5,382
|
)
|
|
(7.3
|
)%
|
|
(2,544
|
)
|
|
(4.3
|
)%
|
|
—
|
|
|
—
|
%
|
Research credits
|
(768
|
)
|
|
(1.0
|
)%
|
|
(763
|
)
|
|
(1.3
|
)%
|
|
(561
|
)
|
|
2.0
|
%
|
One-time transition tax from tax reform
|
26
|
|
|
—
|
%
|
|
25,798
|
|
|
43.3
|
%
|
|
—
|
|
|
—
|
%
|
Tax amortization of goodwill
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
(10,564
|
)
|
|
38.4
|
%
|
Valuation allowance
|
(184
|
)
|
|
(0.3
|
)%
|
|
(15,541
|
)
|
|
(25.9
|
)%
|
|
13,505
|
|
|
(49.2
|
)%
|
Other, net
|
(1
|
)
|
|
—
|
%
|
|
184
|
|
|
0.3
|
%
|
|
978
|
|
|
(3.5
|
)%
|
Income tax provision (benefit)
|
$
|
18,614
|
|
|
25.3
|
%
|
|
$
|
14,060
|
|
|
23.6
|
%
|
|
$
|
(1,208
|
)
|
|
4.4
|
%
|
The Company recorded an income tax provision of
$18.6 million
, representing an effective tax rate of
25.3%
. The effective tax rate is higher than the U.S. statutory rate of
21.0%
primarily as a result of the impact of GILTI, non-deductible executive compensation, and foreign losses not benefited, including an asset impairment expense of
$21.2 million
recorded in pretax income for which no tax benefit was recognized due to a valuation allowance maintained against its deferred tax assets in the impacted jurisdiction. Refer to Note
8
,
Property, Plant & Equipment
,
for additional details. The effective tax rate has been favorably impacted by excess stock compensation benefits, research tax credits generated, jurisdictional mix of earnings, and the release of valuation allowance against its net deferred tax assets in certain foreign jurisdictions. The Company has recorded
$0.5 million
tax expense related to unremitted foreign earnings that are not considered permanently reinvested.
Unrecognized Tax Benefits
Unrecognized tax benefits represent uncertain tax positions for which reserves have been established. As of
March 30, 2019
, the Company had
$4.7 million
of unrecognized tax benefits, of which
$3.9 million
would impact the effective tax rate, if recognized. As of
March 31, 2018
, the Company had
$4.5 million
of unrecognized tax benefits, of which
$3.8 million
would impact the effective tax rate, if recognized. At
April 1, 2017
, the Company had
$3.4 million
of unrecognized tax benefits, of which
$1.5 million
would impact the effective tax rate, if recognized.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the fiscal year ended
March 30, 2019
the Company's unrecognized tax benefits were increased by
$0.2 million
, primarily relating to uncertain tax positions established against various federal and state tax credits.
The following table summarizes the activity related to its gross unrecognized tax benefits for the fiscal years ended
March 30, 2019
,
March 31, 2018
and
April 1, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
Beginning Balance
|
$
|
4,450
|
|
|
$
|
3,370
|
|
|
$
|
2,523
|
|
Additions for tax positions of current year
|
282
|
|
|
289
|
|
|
—
|
|
Additions for tax positions of prior years
|
—
|
|
|
1,203
|
|
|
1,279
|
|
Reductions of tax positions
|
(52
|
)
|
|
(252
|
)
|
|
(29
|
)
|
Closure of statute of limitations
|
(23
|
)
|
|
(160
|
)
|
|
(403
|
)
|
Ending Balance
|
$
|
4,657
|
|
|
$
|
4,450
|
|
|
$
|
3,370
|
|
As of
March 30, 2019
, the Company anticipates that the liability for unrecognized tax benefits for uncertain tax positions could change by up to
$1.3 million
in the next twelve months, as a result of closure of various statutes of limitations and potential settlements with tax authorities.
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
of gross interest and penalties were accrued at both
March 30, 2019
and
March 31, 2018
and are not included in the amounts above. There was a nominal benefit included in tax expense for accrued interest and penalties during fiscal
2019
, 2018 and
2017
.
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 2016 and foreign income tax examinations for years before fiscal 2014. 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.
5. 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)
|
2019
|
|
2018
|
|
2017
|
Basic EPS
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
55,019
|
|
|
$
|
45,572
|
|
|
$
|
(26,268
|
)
|
Weighted average shares
|
51,533
|
|
|
52,755
|
|
|
51,524
|
|
Basic income (loss) per share
|
$
|
1.07
|
|
|
$
|
0.86
|
|
|
$
|
(0.51
|
)
|
Diluted EPS
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
55,019
|
|
|
$
|
45,572
|
|
|
$
|
(26,268
|
)
|
Basic weighted average shares
|
51,533
|
|
|
52,755
|
|
|
51,524
|
|
Net effect of common stock equivalents
|
1,409
|
|
|
746
|
|
|
—
|
|
Diluted weighted average shares
|
52,942
|
|
|
53,501
|
|
|
51,524
|
|
Diluted income (loss) per share
|
$
|
1.04
|
|
|
$
|
0.85
|
|
|
$
|
(0.51
|
)
|
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. For
fiscal 2019
and
2018
, weighted average shares outstanding, assuming dilution, excludes the impact of
0.2 million
and
0.4 million
anti-dilutive shares, respectively. For
fiscal 2017
, the Company recognized a
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
net loss; therefore it excluded the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect.
Share Repurchase Plan
In May 2019, the Company announced that its Board of Directors had authorized the repurchase of up to
$500 million
of Haemonetics common shares over the next two years. This new share repurchase program will help to offset the dilutive impact of recent and future employee equity grants. The timing and amounts of activity under the repurchase program will be at management’s discretion with the intent of beginning activity under the program during fiscal 2020.
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.
On February 6, 2018, the Company announced that its Board of Directors authorized the repurchase of up to
$260 million
of its outstanding common stock from time to time, based on market conditions, through March 30, 2019. In May 2018, the Company completed a
$100.0 million
repurchase of its common stock pursuant to an accelerated share repurchase agreement ("ASR") entered into with Citibank N.A (“Citibank”) in February 2018. The total number of shares repurchased under the ASR was approximately
1.4 million
at an average price per share upon final settlement of
$72.51
. In August 2018, the Company completed an additional
$80.0 million
repurchase of its common stock pursuant to an ASR entered into with Citibank in June 2018. The total number of shares repurchased under the ASR was approximately
0.9 million
at an average price per share upon final settlement of
$93.83
. In December 2018, the Company repurchased the remaining
$80.0 million
of its common stock under the Company's share repurchase authorization pursuant to an ASR entered into with Citibank in November 2018. The total number of shares repurchased under the ASR was approximately
0.8 million
at an average price per share upon final settlement of
$103.74
. As of March 30, 2019, the Company had utilized the full
$260 million
share repurchase authorization, which resulted in approximately
3.0 million
total shares repurchased at an average price of
$86.58
per share.
6.
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
. The Company adopted Topic 606 as of April 1, 2018 using the modified retrospective method. Under this method, entities recognize the cumulative effect of applying the new standard at the date of initial application with no restatement of comparative periods presented. The cumulative effect of applying the new standard resulted in an increase to opening retained earnings of
$1.5 million
upon adoption of Topic 606 on April 1, 2018, primarily related to deferred revenue associated with software revenue. The new standard has been applied only to those contracts that were not completed as of March 31, 2018.
The impact of adopting Topic 606 was not significant to individual financial statement line items in the consolidated balance sheet as of
March 30, 2019
or in the consolidated statements of income (loss) and comprehensive income (loss) for
fiscal 2019
.
As of
March 30, 2019
, the Company had
$23.9 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
56%
of this amount as revenue within the next
twelve months
and the remaining balance thereafter.
As of
March 30, 2019
and April 1, 2018, the Company had contract assets of
$5.6 million
and
$2.7 million
, respectively. The change is primarily due to the delay in billings compared to the revenue recognized. Contract assets are classified as other current assets and other long-term assets on the consolidated balance sheet.
As of
March 30, 2019
and April 1, 2018, the Company had contract liabilities of
$20.3 million
and
$16.6 million
, respectively. During
fiscal 2019
, the Company recognized
$15.0 million
of revenue that was included in the above April 1, 2018 contract liability balance. Contract liabilities are classified as other current liabilities and other long-term liabilities on the consolidated balance sheet.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. INVENTORIES
Inventories are stated at the lower of cost or market and include the cost of material, labor and manufacturing overhead. Cost is determined with the first-in, first-out method.
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30,
2019
|
|
March 31,
2018
(1)
|
Raw materials
|
$
|
69,420
|
|
|
$
|
52,997
|
|
Work-in-process
|
12,610
|
|
|
10,774
|
|
Finished goods
|
112,307
|
|
|
97,028
|
|
Total Inventories
|
$
|
194,337
|
|
|
$
|
160,799
|
|
(1)
The Company corrected the classification of inventory as of March 31, 2018. This correction did not change total inventories and did not have a financial statement impact.
8. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 30, 2019
|
|
March 31, 2018
|
Land
|
|
$
|
7,337
|
|
|
$
|
7,450
|
|
Building and building improvements
|
|
118,821
|
|
|
114,646
|
|
Plant equipment and machinery
|
|
301,297
|
|
|
291,537
|
|
Office equipment and information technology
|
|
132,783
|
|
|
134,412
|
|
Haemonetics equipment
|
|
372,984
|
|
|
325,401
|
|
Total
|
|
933,222
|
|
|
873,446
|
|
Less: accumulated depreciation and amortization
|
|
(589,243
|
)
|
|
(541,290
|
)
|
Property, plant and equipment, net
|
|
$
|
343,979
|
|
|
$
|
332,156
|
|
Depreciation expense was
$76.8 million
,
$57.7 million
and
$66.5 million
in fiscal
2019
,
2018
and
2017
, respectively. There were
no
asset impairments included in depreciation expense during
fiscal 2019
. Fiscal
2018
and
2017
include
$0.3 million
and
$10.0 million
, respectively, of additional depreciation expense due to asset impairments.
As part of the acquisition of the whole blood business from Pall Corporation (“Pall”) in fiscal 2012, Pall agreed to manufacture and install in one of the Company's facilities a filter media manufacturing line (the “HDC line”) for which the Company agreed to pay Pall approximately
$15.0 million
(plus pre-approved overages). Pall also agreed to supply media to the Company for use in leukoreduction filters until such time as the Company accepted the HDC line.
In May 2018, the Company entered into a long-term supply agreement with Pall under which Pall will continue to supply media to the Company for use in leukoreduction filters. As a condition of the supply agreement, the Company agreed to accept the HDC line and to make a final payment of
$9.0 million
to Pall for the HDC line.
As a result of the decision to continue to source media for leukoreduction filters from Pall rather than producing them internally, the Company does not expect to utilize the HDC line for future production and expects that the asset’s future cash flows will not be sufficient to recover its carrying value of
$19.8 million
. Accordingly, during the first quarter of
fiscal 2019
the Company recorded impairment charges of
$19.8 million
for the HDC line.
During
fiscal 2019
, the Company impaired an additional
$1.4 million
of property, plant and equipment as a result of the Company's review of non-core and underperforming assets, resulting in total impairment charges of
$21.2 million
during
fiscal 2019
. These impairments were included within cost of goods sold on the consolidated statements of income (loss) and impacted the All Other reporting segment. During
fiscal 2018
and
2017
, the Company impaired
$2.2 million
and
$13.3 million
of property, plant and equipment, respectively.
Additionally, the Company has changed the estimated useful lives of PCS
®
2 devices, included within Haemonetics Equipment, as these will be replaced by the NexSys PCS
®
which the Company began placing during the second quarter of fiscal 2019. During
fiscal 2019
, the Company incurred
$18.0 million
of accelerated depreciation expense related to this change in estimate.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by operating segment for fiscal
2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Japan
|
|
EMEA
|
|
North America Plasma
|
|
All Other
|
|
Total
|
Carrying amount as of April 1, 2017
|
$
|
24,880
|
|
|
$
|
20,543
|
|
|
$
|
26,415
|
|
|
$
|
139,003
|
|
|
$
|
210,841
|
|
Currency translation
|
162
|
|
|
134
|
|
|
—
|
|
|
258
|
|
|
554
|
|
Carrying amount as of March 31, 2018
|
$
|
25,042
|
|
|
$
|
20,677
|
|
|
$
|
26,415
|
|
|
$
|
139,261
|
|
|
$
|
211,395
|
|
Transfer of goodwill between segments
|
—
|
|
|
(1,084
|
)
|
|
—
|
|
|
1,084
|
|
|
—
|
|
Currency translation
|
(168
|
)
|
|
(139
|
)
|
|
—
|
|
|
(269
|
)
|
|
(576
|
)
|
Carrying amount as of March 30, 2019
|
$
|
24,874
|
|
|
$
|
19,454
|
|
|
$
|
26,415
|
|
|
$
|
140,076
|
|
|
$
|
210,819
|
|
The results of the Company's goodwill impairment test performed in the fourth quarter of
fiscal 2019
and
2018
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
2019
and
2018
annual test dates. During fiscal 2017, the Company recorded goodwill impairment charges of
$57.0 million
. During
fiscal 2019
, management reorganized its operating segments such that certain immaterial components of the EMEA operating segment became components of the All Other operating segment. As a result, the Company transferred
$1.1 million
of goodwill to the All Other operating segment, which represented the portion of goodwill associated with these components.
The gross carrying amount of intangible assets and the related accumulated amortization as of
March 30, 2019
and
March 31, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
As of March 30, 2019
|
|
|
|
|
|
|
|
Amortizable:
|
|
|
|
|
|
Patents
|
$
|
9,635
|
|
|
$
|
8,444
|
|
|
$
|
1,191
|
|
Capitalized software
|
66,631
|
|
|
34,737
|
|
|
31,894
|
|
Other developed technology
|
103,321
|
|
|
73,271
|
|
|
30,050
|
|
Customer contracts and related relationships
|
194,793
|
|
|
142,747
|
|
|
52,046
|
|
Trade names
|
5,169
|
|
|
4,280
|
|
|
889
|
|
Total
|
$
|
379,549
|
|
|
$
|
263,479
|
|
|
$
|
116,070
|
|
Non-amortizable:
|
|
|
|
|
|
In-process software development
|
$
|
8,740
|
|
|
|
|
|
In-process patents
|
2,883
|
|
|
|
|
|
Total
|
$
|
11,623
|
|
|
|
|
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
As of March 31, 2018
|
|
|
|
|
|
|
|
Amortizable:
|
|
|
|
|
|
Patents
|
$
|
9,301
|
|
|
$
|
8,262
|
|
|
$
|
1,039
|
|
Capitalized software
|
54,095
|
|
|
27,117
|
|
|
26,978
|
|
Other developed technology
|
117,959
|
|
|
80,622
|
|
|
37,337
|
|
Customer contracts and related relationships
|
197,266
|
|
|
127,338
|
|
|
69,928
|
|
Trade names
|
7,178
|
|
|
5,939
|
|
|
1,239
|
|
Total
|
$
|
385,799
|
|
|
$
|
249,278
|
|
|
$
|
136,521
|
|
Non-amortizable:
|
|
|
|
|
|
In-process software development
|
$
|
17,717
|
|
|
|
|
|
In-process patents
|
2,351
|
|
|
|
|
|
Total
|
$
|
20,068
|
|
|
|
|
|
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
5
to
18
years. The changes to the net carrying value of the Company's intangible assets from
March 31, 2018
to
March 30, 2019
reflect the impact of amortization expense, partially offset by the investment in capitalized software.
Aggregate amortization expense for amortized intangible assets for
fiscal 2019
,
2018
, and
2017
was
$32.6 million
,
$31.9 million
and
$37.2 million
, respectively. During
fiscal 2017
, the Company impaired
$4.8 million
of intangible assets. Amortization expense for
fiscal 2017
included
$4.0 million
of amortization expense resulting from these intangible asset impairments. There were
no
intangible asset impairments during fiscal
2019
and
2018
.
Future annual amortization expense on intangible assets is estimated to be as follows:
|
|
|
|
|
|
(In thousands)
|
|
|
Fiscal 2020
|
|
$
|
28,226
|
|
Fiscal 2021
|
|
$
|
26,593
|
|
Fiscal 2022
|
|
$
|
12,013
|
|
Fiscal 2023
|
|
$
|
9,375
|
|
Fiscal 2024
|
|
$
|
4,991
|
|
10. CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS
The cost of software that is developed or obtained for internal use is accounted for pursuant to ASC Topic 350,
Intangibles — Goodwill and Other
. Pursuant to ASC Topic 350, the Company capitalizes costs incurred during the application development stage of software developed for internal use and expense costs incurred during the preliminary project and the post-implementation operation stages of development. The costs capitalized for each project are included in intangible assets in the consolidated financial statements.
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 Company capitalized
$3.5 million
and
$9.3 million
in software development costs for ongoing initiatives during
fiscal 2019
and
2018
, respectively. At
March 30, 2019
and
March 31, 2018
, the Company had a total of
$75.4 million
and
$71.8 million
of software costs capitalized, of which
$8.7 million
and
$17.7 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. In
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
connection with these development activities, the Company capitalized interest of
$0.3 million
in both fiscal
2019
and
2018
. The Company amortizes capitalized costs when the products are released for sale. During
fiscal 2019
and
2018
,
$12.5 million
and
$4.4 million
of capitalized costs were placed into service, respectively. Amortization of capitalized software development cost expense was
$7.6 million
,
$6.8 million
and
$9.7 million
for
fiscal 2019
,
2018
and
2017
, respectively and has been included as a component of cost of goods sold within the accompanying consolidated statements of income (loss). There were
no
impairment charges recorded during
fiscal 2019
and
2018
. Amortization expense in
fiscal 2017
includes
$4.0 million
of impairment charges. The costs capitalized for each project are included in intangible assets in the consolidated financial statements.
11. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30, 2019
|
|
March 31, 2018
|
Term loan, net of financing fees
|
$
|
334,859
|
|
|
$
|
253,305
|
|
Other borrowings
|
15,261
|
|
|
377
|
|
Less current portion
|
(27,666
|
)
|
|
(194,259
|
)
|
Long-term debt
|
$
|
322,454
|
|
|
$
|
59,423
|
|
On June 15, 2018, the Company entered into a credit agreement with certain lenders which provided for a
$350.0 million
term loan (the "Term Loan") and a
$350.0 million
revolving loan (the "Revolving Credit Facility" and together with the Term Loan, the "Credit Facilities"). The Credit Facilities expire on June 15, 2023. Interest on the Credit Facilities is established using LIBOR plus
1.13%
-
1.75%
, depending on the Company's leverage ratio. A portion of the net proceeds of
$347.8 million
was used to pay down the
$253.7 million
remaining outstanding balance on the 2012 credit agreement, as amended in fiscal 2014. The remainder of the proceeds were used to support the launch of the NexSys PCS device and for general corporate purposes. At
March 30, 2019
,
$336.9 million
was outstanding under the Term Loan and
$15.0 million
was outstanding on the Revolving Credit Facility, both with an effective interest rate of
3.8%
. The Company also had
$25.1 million
of uncommitted operating lines of credit to fund its global operations under which there were
no
outstanding borrowings as of
March 30, 2019
.
Under the 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 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 Leverage Ratio is calculated as Consolidated Total Debt divided by Consolidated EBITDA. Consolidated EBITDA includes EBITDA adjusted by non-recurring and unusual transactions specifically as defined in the Credit Facilities.
The 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, 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 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 Credit Facilities include customary events of default, in certain cases subject to customary cure periods. As of
March 30, 2019
, the Company was in compliance with the covenants.
Commitment Fee
Pursuant to the 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
0.150%
to
0.275%
. The current commitment fee on the undrawn portion of the Revolving Credit Facility is
0.175%
.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
March 30, 2019
, the
$336.9 million
term loan balance was netted down by the
$2.0 million
of remaining debt discount, resulting in a net note payable of
$334.9 million
.
Interest expense was
$13.1 million
,
$7.7 million
and
$7.9 million
for
fiscal 2019
,
2018
and
2017
, 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
March 30, 2019
and
March 31, 2018
, the Company had an insignificant amount of accrued interest associated with the outstanding debt.
The aggregate amount of debt maturing during the next five fiscal years and thereafter are as follows:
|
|
|
|
|
Fiscal year
(In thousands)
|
|
2020
|
$
|
28,262
|
|
2021
|
21,942
|
|
2022
|
17,528
|
|
2023
|
214,394
|
|
2024
|
70,009
|
|
Thereafter
|
—
|
|
12. DERIVATIVES AND FAIR VALUE MEASUREMENTS
The Company manufactures, markets and sells its products globally. For the fiscal year ended
March 30, 2019
,
37.3%
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 the Japanese Yen and the Euro, and to a lesser extent the Swiss Franc, Australian Dollar, Canadian Dollar and the Mexican Peso. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts one year out, rates are fixed for a
one
-year period, thereby facilitating financial planning and resource allocation.
Designated Foreign Currency Hedge Contracts
All of the Company's designated foreign currency hedge contracts as of
March 30, 2019
and
March 31, 2018
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
$81.5 million
as of
March 30, 2019
and
$86.0 million
as of
March 31, 2018
. At
March 30, 2019
, gains of
$2.6 million
, net of tax, will be reclassified to earnings within the next twelve months. Substantially all currency cash flow hedges outstanding as of
March 30, 2019
mature within twelve months.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
$37.4 million
as of
March 30, 2019
and
$36.3 million
as of
March 31, 2018
.
Interest Rate Swaps
On June 15, 2018, the Company entered into Credit Facilities which provided for a
$350 million
Term Loan and a
$350 million
Revolving Credit Facility. Under the terms of the Credit Facilities, interest is established using LIBOR plus
1.13%
-
1.75%
. As a result, the Company's earnings and cash flows are exposed to interest rate risk from changes to LIBOR. Part of the Company's interest rate risk management strategy includes the use of interest rate swaps to mitigate its exposure to changes in variable interest rates. The Company's objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations.
In August 2018, the Company entered into
two
interest rate swap agreements (the "Swaps") to pay an average fixed rate of
2.80%
on a total notional value of
$241.9 million
of debt. As a result of the interest rate swaps,
70%
of the Term Loan exposed to interest rate risk from changes in LIBOR are fixed at a rate of
4.05%
. The Swaps mature on June 15, 2023. The Company designated the Swaps as cash flow hedges of variable interest rate risk associated with
$345.6 million
of indebtedness. For
fiscal 2019
, the Company recorded a loss of
$5.2 million
in accumulated other comprehensive loss to recognize the effective portion of the fair value of the Swaps that qualify as cash flow hedges.
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 (loss) and comprehensive income (loss) for the
fiscal year ended March 30, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments
|
|
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss
|
|
Amount of Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings
|
|
Location in Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
|
|
Amount of Gain Excluded from
Effectiveness
Testing
|
|
Location in Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Designated foreign currency hedge contracts, net of tax
|
|
$
|
2,610
|
|
|
$
|
577
|
|
|
Net revenues, COGS and SG&A
|
|
$
|
1,601
|
|
|
Interest and other expense, net
|
Non-designated foreign currency hedge contracts
|
|
—
|
|
|
—
|
|
|
|
|
$
|
1,355
|
|
|
Interest and other expense, net
|
Designated interest rate swaps, net of tax
|
|
$
|
(4,487
|
)
|
|
$
|
(377
|
)
|
|
Interest and other expense, net
|
|
$
|
—
|
|
|
|
The Company did not have fair value hedges or net investment hedges outstanding as of
March 30, 2019
or
March 31, 2018
. As of
March 30, 2019
, no deferred tax assets were recognized for designated foreign currency hedges.
ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820,
Fair Value Measurements and Disclosures
, by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, current interest rate curves, interest rate volatilities, the creditworthiness of the counterparty for assets, and its creditworthiness for liabilities. In
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 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
March 30, 2019
, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.
The following tables present the fair value of the Company's derivative instruments as they appear in its consolidated balance sheets as of
March 30, 2019
and
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Location in
Balance Sheet
|
|
As of March 30, 2019
|
|
As of March 31, 2018
|
Derivative Assets:
|
|
|
|
|
|
|
|
Designated foreign currency hedge contracts
|
Other current assets
|
|
$
|
1,208
|
|
|
$
|
780
|
|
Non-designated foreign currency hedge contracts
|
Other current assets
|
|
69
|
|
|
324
|
|
|
|
|
$
|
1,277
|
|
|
$
|
1,104
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
Designated foreign currency hedge contracts
|
Other current liabilities
|
|
$
|
145
|
|
|
$
|
1,445
|
|
Non-designated foreign currency hedge contracts
|
Other current liabilities
|
|
—
|
|
|
138
|
|
Designated interest rate swaps
|
Other current liabilities
|
|
5,203
|
|
|
—
|
|
|
|
|
$
|
5,348
|
|
|
$
|
1,583
|
|
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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
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
March 30, 2019
and
March 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 30, 2019
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Total
|
Assets
|
|
|
|
|
|
|
Money market funds
|
|
$
|
36,980
|
|
|
$
|
—
|
|
|
$
|
36,980
|
|
Designated foreign currency hedge contracts
|
|
—
|
|
|
1,208
|
|
|
$
|
1,208
|
|
Non-designated foreign currency hedge contracts
|
|
—
|
|
|
69
|
|
|
$
|
69
|
|
|
|
$
|
36,980
|
|
|
$
|
1,277
|
|
|
$
|
38,257
|
|
Liabilities
|
|
|
|
|
|
|
Designated foreign currency hedge contracts
|
|
$
|
—
|
|
|
$
|
145
|
|
|
$
|
145
|
|
Designated interest rate swaps
|
|
—
|
|
|
5,203
|
|
|
$
|
5,203
|
|
|
|
$
|
—
|
|
|
$
|
5,348
|
|
|
$
|
5,348
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
Assets
|
|
|
|
|
|
|
Money market funds
|
|
$
|
75,450
|
|
|
$
|
—
|
|
|
$
|
75,450
|
|
Designated foreign currency hedge contracts
|
|
—
|
|
|
780
|
|
|
$
|
780
|
|
Non-designated foreign currency hedge contracts
|
|
—
|
|
|
324
|
|
|
$
|
324
|
|
|
|
$
|
75,450
|
|
|
$
|
1,104
|
|
|
$
|
76,554
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Designated foreign currency hedge contracts
|
|
$
|
—
|
|
|
$
|
1,445
|
|
|
$
|
1,445
|
|
Non-designated foreign currency hedge contracts
|
|
—
|
|
|
138
|
|
|
$
|
138
|
|
|
|
$
|
—
|
|
|
$
|
1,583
|
|
|
$
|
1,583
|
|
Other Fair Value Disclosures
The Term Loan (which is carried at amortized cost), accounts receivable and accounts payable approximate fair value. Details pertaining to the Term Loan can be found in Note
11
,
Notes Payable and Long-Term Debt
.
13. PRODUCT WARRANTIES
The Company generally provides warranty on parts and labor for
one year
after the sale and installation of each device. The Company also warrants disposables products through their use or expiration. The Company estimates potential warranty expense based on historical warranty experience and periodically assesses the adequacy of the warranty accrual, making adjustments as necessary.
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30,
2019
|
|
March 31,
2018
|
Warranty accrual as of the beginning of the year
|
$
|
316
|
|
|
$
|
176
|
|
Warranty provision
|
660
|
|
|
1,082
|
|
Warranty spending
|
(742
|
)
|
|
(942
|
)
|
Warranty accrual as of the end of the year
|
$
|
234
|
|
|
$
|
316
|
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
14. RETIREMENT PLANS
Defined Contribution Plans
The Company has a Savings Plus Plan (the "401k Plan") that is a 401(k) 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
$5.0 million
,
$5.5 million
and
$5.1 million
in fiscal
2019
,
2018
and
2017
, respectively. Upon Board approval, additional discretionary contributions can also be made.
No
discretionary contributions were made for the 401k Plan in fiscal
2019
,
2018
, or
2017
.
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
,
$0.7 million
and
0.8 million
in fiscal
2019
,
2018
and
2017
, 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 (loss).
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)
|
2019
|
|
2018
|
|
2017
|
Service cost
|
$
|
1,893
|
|
|
$
|
2,651
|
|
|
$
|
3,404
|
|
Interest cost on benefit obligation
|
340
|
|
|
293
|
|
|
287
|
|
Expected return on plan assets
|
(208
|
)
|
|
(215
|
)
|
|
(308
|
)
|
Actuarial loss
|
132
|
|
|
186
|
|
|
532
|
|
Amortization of unrecognized prior service cost
|
(86
|
)
|
|
(121
|
)
|
|
(119
|
)
|
Amortization of unrecognized transition obligation
|
—
|
|
|
—
|
|
|
37
|
|
Plan settlements and curtailments
|
(82
|
)
|
|
(445
|
)
|
|
289
|
|
Totals
|
$
|
1,989
|
|
|
$
|
2,349
|
|
|
$
|
4,122
|
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The activity under those defined benefit plans are as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30,
2019
|
|
March 31,
2018
|
Change in Benefit Obligation:
|
|
|
|
|
|
Benefit Obligation, beginning of year
|
$
|
(30,476
|
)
|
|
$
|
(31,345
|
)
|
Service cost
|
(1,893
|
)
|
|
(2,651
|
)
|
Interest cost
|
(340
|
)
|
|
(293
|
)
|
Benefits paid
|
902
|
|
|
518
|
|
Actuarial gain
|
(367
|
)
|
|
2,381
|
|
Employee and plan participants contribution
|
(1,815
|
)
|
|
(3,441
|
)
|
Plan settlements and curtailments
|
3,069
|
|
|
5,064
|
|
Foreign currency changes
|
283
|
|
|
(709
|
)
|
Benefit obligation, end of year
|
$
|
(30,637
|
)
|
|
$
|
(30,476
|
)
|
Change in Plan Assets:
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
$
|
16,322
|
|
|
$
|
17,285
|
|
Company contributions
|
1,329
|
|
|
1,542
|
|
Benefits paid
|
(795
|
)
|
|
(434
|
)
|
(Loss) gain on plan assets
|
265
|
|
|
(200
|
)
|
Employee and plan participants contribution
|
1,801
|
|
|
3,490
|
|
Plan settlements
|
(2,916
|
)
|
|
(4,531
|
)
|
Foreign currency changes
|
281
|
|
|
(830
|
)
|
Fair value of plan assets, end of year
|
$
|
16,287
|
|
|
$
|
16,322
|
|
Funded Status
*
|
$
|
(14,350
|
)
|
|
$
|
(14,154
|
)
|
Unrecognized net actuarial loss
|
2,245
|
|
|
2,187
|
|
Unrecognized prior service cost
|
(714
|
)
|
|
(698
|
)
|
Net amount recognized
|
$
|
(12,819
|
)
|
|
$
|
(12,665
|
)
|
*
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
$6.1 million
and
$6.5 million
at
March 30, 2019
and
March 31, 2018
, respectively. The total liability for this plan, which is included in the table above, was
$9.4 million
and
$9.9 million
as of
March 30, 2019
and
March 31, 2018
, respectively.
The accumulated benefit obligation for all plans was
$28.6 million
and
$29.6 million
for
fiscal 2019
and
2018
, respectively. There were no plans where the plan assets were greater than the accumulated benefit obligation as of
March 30, 2019
and
March 31, 2018
.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, April 2, 2016
|
$
|
(7,492
|
)
|
Obligation at transition
|
32
|
|
Actuarial loss
|
5,126
|
|
Prior service cost
|
62
|
|
Balance as of April 1, 2017
|
$
|
(2,272
|
)
|
Actuarial loss
|
1,922
|
|
Prior service cost
|
(125
|
)
|
Plan settlements and curtailments
|
152
|
|
Balance as of March 31, 2018
|
$
|
(323
|
)
|
Actuarial loss
|
(51
|
)
|
Prior service cost
|
(80
|
)
|
Plan settlements and curtailments
|
(73
|
)
|
Balance as of March 30, 2019
|
$
|
(527
|
)
|
The Company expects to amortize
$0.3 million
from accumulated other comprehensive loss to net periodic benefit cost during fiscal
2020
.
The weighted average rates used to determine the net periodic benefit costs and projected benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Discount rate
|
0.97
|
%
|
|
1.07
|
%
|
|
0.76
|
%
|
Rate of increased salary levels
|
1.78
|
%
|
|
1.73
|
%
|
|
1.43
|
%
|
Expected long-term rate of return on assets
|
0.75
|
%
|
|
0.90
|
%
|
|
1.10
|
%
|
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
March 30, 2019
. Using the same three-level valuation hierarchy for disclosure of fair value measurements as described in Note
12
,
Derivatives 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
March 30, 2019
. 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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated future benefit payments are as follows:
|
|
|
|
|
(In thousands)
|
|
|
Fiscal 2020
|
$
|
1,503
|
|
Fiscal 2021
|
1,252
|
|
Fiscal 2022
|
1,540
|
|
Fiscal 2023
|
1,331
|
|
Fiscal 2024
|
1,370
|
|
Fiscal 2025-2029
|
6,447
|
|
|
$
|
13,443
|
|
The Company's contributions for
fiscal 2020
are expected to be consistent with the current year.
15. COMMITMENTS AND CONTINGENCIES
The Company leases facilities and certain equipment under operating leases expiring at various dates through fiscal 2026. Facility leases require the Company to pay certain insurance expenses, maintenance costs and real estate taxes.
Approximate future basic rental commitments under operating leases as of
March 30, 2019
are as follows:
|
|
|
|
|
Fiscal Year
|
|
|
(In thousands)
|
|
2020
|
$
|
4,041
|
|
2021
|
3,726
|
|
2022
|
3,281
|
|
2023
|
3,146
|
|
2024
|
2,142
|
|
Thereafter
|
1,336
|
|
|
$
|
17,672
|
|
Rent expense in fiscal
2019
,
2018
and
2017
was
$6.4 million
,
$6.4 million
and
$6.2 million
, respectively. Some of the Company's operating leases include renewal provisions and escalation clauses that the Company leases.
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.
Product Recalls
In March 2018, the Company issued a voluntary recall of specific lots of its Acrodose
TM
Plus and PL Systems sold to its Blood Center customers in the U.S. The recall resulted from reports of low pH readings for platelets stored in the CLX HP bag and, in some instances, an accompanying yellow discoloration of the storage bag. For a period of nine weeks, the Company was unable to provide its customers with its Acrodose Plus and PL Systems. As a result of the recall, Blood Center customers may have discarded collected platelets and incurred other damages. During
fiscal 2019
the Company entered into settlement agreements with certain customers responsible for substantially all of the total outstanding claims against it. As of
March 30, 2019
, the Company has recorded cumulative charges of
$2.2 million
associated with this recall which consists of
$1.3 million
of charges associated with customer returns and inventory reserves and
$0.9 million
of charges associated with customer claims. Substantially all of these claims have been paid as of
March 30, 2019
.
In August 2018, the Company issued a voluntary recall of certain whole blood collection kits sold to its Blood Center customers in the U.S. The recall resulted from some collection sets' filters failing to adequately remove leukocytes from collected blood. As a result of the recall, the Company's Blood Center customers may have conducted tests to confirm that the collected blood was adequately leukoreduced, sold the collected blood labeled as non-leukoreduced at a lower price or
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
discarded the collected blood. As of
March 30, 2019
, the Company has recorded cumulative charges of
$1.9 million
associated with this recall which consists of
$0.1 million
of charges associated with customer returns and inventory reserves and
$1.8 million
of charges associated with customer claims. The Company may record incremental charges for customer claims in future periods associated with this recall.
16. CAPITAL STOCK
Stock Plans
The 2005 Long-Term Incentive Compensation Plan (the “2005 Incentive Compensation Plan”) permits the award of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, deferred stock/restricted stock units, other stock units and performance shares to the Company’s key employees, officers and directors. The 2005 Incentive Compensation Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”) consisting of
four
independent members of the Company's Board of Directors.
The maximum number of shares available for award under the 2005 Incentive Compensation Plan is
19,824,920
. The maximum number of shares that may be issued pursuant to incentive stock options may not exceed
500,000
. Any shares that are subject to the award of stock options shall be counted against this limit as
one
share for every one share issued. Any shares that are subject to awards other than stock options shall be counted against this limit as
3.02
shares for every one share granted. The total shares available for future grant as of
March 30, 2019
were
3,897,238
.
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, was as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Selling, general and administrative expenses
|
$12,878
|
|
$9,960
|
|
$6,894
|
Research and development
|
2,972
|
|
|
2,114
|
|
|
1,549
|
|
Cost of goods sold
|
1,338
|
|
|
951
|
|
|
707
|
|
|
$17,188
|
|
$13,025
|
|
$9,150
|
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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of stock option activity for the fiscal year ended
March 30, 2019
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise Price
per Share
|
|
Weighted
Average
Remaining
Life (years)
|
|
Aggregate
Intrinsic
Value
($000’s)
|
Outstanding at March 31, 2018
|
1,197,438
|
|
|
$
|
36.68
|
|
|
4.71
|
|
$
|
43,685
|
|
Granted
|
209,675
|
|
|
94.67
|
|
|
|
|
|
|
Exercised
|
(290,824
|
)
|
|
35.87
|
|
|
|
|
|
|
Forfeited/Canceled
|
(102,886
|
)
|
|
40.01
|
|
|
|
|
|
|
Outstanding at March 30, 2019
|
1,013,403
|
|
|
$
|
48.55
|
|
|
4.48
|
|
$
|
40,902
|
|
|
|
|
|
|
|
|
|
Exercisable at March 30, 2019
|
366,857
|
|
|
$
|
36.63
|
|
|
3.06
|
|
$
|
18,655
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at March 30, 2019
|
936,291
|
|
|
$
|
47.16
|
|
|
4.20
|
|
$
|
38,931
|
|
The total intrinsic value of options exercised was
$19.4 million
,
$15.4 million
and
$8.3 million
during fiscal
2019
,
2018
and
2017
, respectively.
As of
March 30, 2019
, there was
$7.3 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
2.8
years.
The fair value was estimated using the Black-Scholes option-pricing model based on the average of the high and low stock prices 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Volatility
|
26.1
|
%
|
|
24.2
|
%
|
|
24.0
|
%
|
Expected life (years)
|
4.9
|
|
|
4.8
|
|
|
4.9
|
|
Risk-free interest rate
|
2.8
|
%
|
|
1.7
|
%
|
|
1.2
|
%
|
Dividend yield
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Grant-date fair value per Option
|
$
|
26.67
|
|
|
$
|
10.25
|
|
|
$
|
7.61
|
|
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.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of RSU activity for the fiscal year ended
March 30, 2019
is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
Unvested at March 31, 2018
|
417,714
|
|
|
$
|
38.95
|
|
Granted
|
108,611
|
|
|
94.55
|
|
Vested
|
(150,583
|
)
|
|
40.04
|
|
Forfeited
|
(66,520
|
)
|
|
44.15
|
|
Unvested at March 30, 2019
|
309,222
|
|
|
$
|
57.07
|
|
The weighted-average grant-date fair value of RSUs granted and total fair value of RSUs vested are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Grant-date fair value per RSU
|
$
|
94.55
|
|
|
$
|
41.87
|
|
|
$
|
32.61
|
|
Fair value of RSUs vested
|
$
|
40.04
|
|
|
$
|
33.03
|
|
|
$
|
34.98
|
|
As of
March 30, 2019
, there was
$13.1 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
2.6
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 to total shareholder return of the PSU comparison group, measured over a
three
year performance period. The PSU comparison group consists of the S&P Mid Cap 400 and the S&P Small Cap 600 indices. 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. In addition to these relative total shareholder return PSUs, the Company's Chief Executive Officer received PSU grants during both fiscal 2018 and 2017 with performance conditions based on the financial results of the Company and other internal metrics. As a result, the Company may issue up to
872,887
shares related to outstanding performance based awards.
A summary of PSU activity for the fiscal year ended
March 30, 2019
is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
Unvested at March 31, 2018
|
388,107
|
|
|
$
|
39.63
|
|
Granted
|
94,460
|
|
|
115.64
|
|
Vested
(1)
|
(12,352
|
)
|
|
29.20
|
|
Forfeited
|
(21,559
|
)
|
|
49.50
|
|
Unvested at March 30, 2019
(2)(3)
|
448,656
|
|
|
$
|
54.22
|
|
(1)
Includes the vesting of
6,176
shares that were earned in connection with awards granted in fiscal 2016 for the
three
-year performance cycle award period ended September 30, 2018, based on actual relative total shareholder return of
200%
.
(2)
Includes
48,851
shares that were earned in connection with the fiscal 2018 and 2017 internal metrics awards granted to the Company's Chief Executive Officer for the performance period ended March 30, 2019, disclosed in this table at the target number of
100%
. The fiscal 2018 and 2017 awards were certified by the Committee in May 2019 at
144.31%
and
80.05%
, respectively.
(3)
Includes
65,525
shares that were earned for awards granted in fiscal 2017 for the performance period ended March 30, 2019, disclosed in this table at the target number of
100%
. Shares earned under this award were certified by the Committee in April 2019 based on the actual relative total shareholder return of
200%
.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Expected stock price volatility
|
27.07
|
%
|
|
26.11
|
%
|
|
26.39
|
%
|
Peer group stock price volatility
|
34.98
|
%
|
|
34.13
|
%
|
|
33.86
|
%
|
Correlation of returns
|
47.57
|
%
|
|
49.51
|
%
|
|
51.17
|
%
|
The weighted-average grant-date fair value of PSUs granted and total fair value of PSUs vested are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Grant-date fair value per PSU
|
$
|
115.64
|
|
|
$
|
46.49
|
|
|
$
|
34.07
|
|
Fair value of PSUs vested
|
$
|
29.20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As of
March 30, 2019
, there was
$11.7 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
1.9
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:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Volatility
|
30.0
|
%
|
|
22.6
|
%
|
|
31.3
|
%
|
Expected life (months)
|
6
|
|
|
6
|
|
|
6
|
|
Risk-free interest rate
|
2.3
|
%
|
|
1.2
|
%
|
|
0.5
|
%
|
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
$21.51
,
$9.66
and
$7.79
during fiscal
2019
,
2018
and
2017
, respectively.
17. 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 operating segments are based primarily on geography. North America Plasma is a separate operating segment with dedicated segment management due to the size and scale of the Plasma business unit. It aggregates components within an operating segment that have similar economic characteristics.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s reportable segments are as follows:
•
Japan
•
EMEA
•
North America Plasma
•
All Other
The Company has aggregated the Americas Blood Center and Hospital and Asia - Pacific operating segments into the All Other reportable segment based upon their similar operational and economic characteristics.
The Company measures and evaluates the operating segments based on operating income. It excludes certain corporate expenses from segment operating income. In addition, certain amounts that the Company considers to be non-recurring or non-operational are excluded from segment operating income because it evaluates the operating results of the segments excluding such items. These items include restructuring and turnaround costs, deal amortization, asset impairments, PCS2 accelerated depreciation and related costs and certain legal charges. Although these amounts are excluded from segment operating income, as applicable, they are included in the reconciliations that follow. The Company measures and evaluates its 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.
During fiscal 2019, the Company reorganized its operating segments such that certain immaterial components of EMEA are now reported as components of All Other. Accordingly, the prior year numbers have been updated to reflect this reclassification as well as other changes within the cost reporting structure that occurred in the first quarter of fiscal 2019. These changes did not have an impact on the Company's ability to aggregate Americas Blood Center and Hospital with Asia - Pacific.
Selected information by business segment is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Net revenues
|
|
|
|
|
|
Japan
|
$
|
70,227
|
|
|
$
|
68,172
|
|
|
$
|
74,695
|
|
EMEA
|
169,862
|
|
|
173,551
|
|
|
188,907
|
|
North America Plasma
|
395,922
|
|
|
333,831
|
|
|
309,718
|
|
All Other
|
337,054
|
|
|
333,763
|
|
|
326,260
|
|
Net revenues before foreign exchange impact
|
973,065
|
|
|
909,317
|
|
|
899,580
|
|
Effect of exchange rates
|
(5,486
|
)
|
|
(5,394
|
)
|
|
(13,464
|
)
|
Net revenues
|
$
|
967,579
|
|
|
$
|
903,923
|
|
|
$
|
886,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Segment operating income
|
|
|
|
|
|
Japan
|
$
|
36,226
|
|
|
$
|
40,193
|
|
|
$
|
43,042
|
|
EMEA
|
49,730
|
|
|
68,897
|
|
|
74,878
|
|
North America Plasma
|
167,205
|
|
|
129,697
|
|
|
109,889
|
|
All Other
|
141,070
|
|
|
140,623
|
|
|
141,427
|
|
Segment operating income
|
394,231
|
|
|
379,410
|
|
|
369,236
|
|
Corporate operating expenses
|
(237,568
|
)
|
|
(252,222
|
)
|
|
(249,048
|
)
|
Effect of exchange rates
|
8,367
|
|
|
4,059
|
|
|
(4,772
|
)
|
Restructuring and turnaround costs
|
(13,660
|
)
|
|
(44,125
|
)
|
|
(34,337
|
)
|
Deal amortization
|
(24,803
|
)
|
|
(26,013
|
)
|
|
(27,107
|
)
|
Impairment of assets
|
(21,170
|
)
|
|
(1,941
|
)
|
|
(73,353
|
)
|
Legal charges
|
(2,726
|
)
|
|
(3,011
|
)
|
|
—
|
|
PCS2 accelerated depreciation and related costs
|
(19,126
|
)
|
|
—
|
|
|
—
|
|
Operating income (loss)
|
$
|
83,545
|
|
|
$
|
56,157
|
|
|
$
|
(19,381
|
)
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Depreciation and amortization
|
|
|
|
|
|
Japan
|
$
|
520
|
|
|
$
|
486
|
|
|
$
|
827
|
|
EMEA
|
4,153
|
|
|
4,464
|
|
|
4,255
|
|
North America Plasma
|
39,497
|
|
|
16,060
|
|
|
13,022
|
|
All Other
|
65,248
|
|
|
68,237
|
|
|
71,629
|
|
Total depreciation and amortization (excluding impairment charges)
|
$
|
109,418
|
|
|
$
|
89,247
|
|
|
$
|
89,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
Long-lived assets
(1)
|
|
|
|
|
|
Japan
|
$
|
26,660
|
|
|
$
|
26,640
|
|
|
$
|
21,412
|
|
EMEA
|
71,048
|
|
|
74,783
|
|
|
63,854
|
|
North America Plasma
|
113,921
|
|
|
91,815
|
|
|
142,164
|
|
All Other
|
132,350
|
|
|
138,918
|
|
|
96,432
|
|
Total long-lived assets
|
$
|
343,979
|
|
|
$
|
332,156
|
|
|
$
|
323,862
|
|
(1)
Long-lived assets are comprised of property, plant and equipment.
|
Selected information by principle operating regions is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Net Revenues
|
|
|
|
|
|
United States
|
$
|
606,845
|
|
|
$
|
548,731
|
|
|
$
|
522,686
|
|
Japan
|
69,908
|
|
|
67,319
|
|
|
79,266
|
|
Europe
|
164,504
|
|
|
164,226
|
|
|
166,007
|
|
Asia
|
118,700
|
|
|
115,127
|
|
|
109,858
|
|
Other
|
7,622
|
|
|
8,520
|
|
|
8,299
|
|
Net revenues
|
$
|
967,579
|
|
|
$
|
903,923
|
|
|
$
|
886,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
Long-lived assets
(1)
|
|
|
|
|
|
United States
|
$
|
269,849
|
|
|
$
|
236,603
|
|
|
$
|
241,610
|
|
Japan
|
1,726
|
|
|
1,511
|
|
|
1,691
|
|
Europe
|
11,200
|
|
|
13,696
|
|
|
12,952
|
|
Asia
|
30,930
|
|
|
36,431
|
|
|
34,174
|
|
Other
|
30,274
|
|
|
43,915
|
|
|
33,435
|
|
Total long-lived assets
|
$
|
343,979
|
|
|
$
|
332,156
|
|
|
$
|
323,862
|
|
(1)
Long-lived assets are comprised of property, plant and equipment.
|
The Company's products are organized into
three
categories for purposes of evaluating their growth potential: Plasma, Blood Center and Hospital. Management reviews revenue trends based on these business units.
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net revenues by business unit are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2019
|
|
2018
|
|
2017
|
Plasma
|
501,837
|
|
|
435,956
|
|
|
410,727
|
|
Blood Center
|
269,203
|
|
|
284,902
|
|
|
303,890
|
|
Hospital
|
196,539
|
|
|
183,065
|
|
|
171,499
|
|
Net revenues
|
$
|
967,579
|
|
|
$
|
903,923
|
|
|
$
|
886,116
|
|
18. 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
March 30, 2019
and
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Foreign currency
|
|
Defined benefit plans
|
|
Net Unrealized Gain/loss on Derivatives
|
|
Total
|
Balance, April 1, 2017
|
|
$
|
(29,835
|
)
|
|
$
|
(2,272
|
)
|
|
$
|
(766
|
)
|
|
$
|
(32,873
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
13,430
|
|
|
2,394
|
|
|
(2,796
|
)
|
|
13,028
|
|
Amounts reclassified from accumulated other comprehensive loss
(1)
|
|
—
|
|
|
(445
|
)
|
|
1,299
|
|
|
854
|
|
Net current period other comprehensive (loss) income
|
|
13,430
|
|
|
1,949
|
|
|
(1,497
|
)
|
|
13,882
|
|
Balance, March 31, 2018
|
|
$
|
(16,405
|
)
|
|
$
|
(323
|
)
|
|
$
|
(2,263
|
)
|
|
$
|
(18,991
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(9,108
|
)
|
|
(139
|
)
|
|
(1,877
|
)
|
|
(11,124
|
)
|
Amounts reclassified from accumulated other comprehensive loss
(1)
|
|
—
|
|
|
(65
|
)
|
|
(200
|
)
|
|
(265
|
)
|
Net current period other comprehensive income (loss)
|
|
(9,108
|
)
|
|
(204
|
)
|
|
(2,077
|
)
|
|
(11,389
|
)
|
Balance, March 30, 2019
|
|
$
|
(25,513
|
)
|
|
$
|
(527
|
)
|
|
$
|
(4,340
|
)
|
|
$
|
(30,380
|
)
|
(1)
Presented net of income taxes, the amounts of which are insignificant.
|
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19. SUMMARY OF QUARTERLY DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
Three months ended
|
Fiscal 2019
|
|
June 30,
2018
|
|
September 29,
2018
|
|
December 29,
2018
|
|
March 30,
2019
|
Net revenues
|
|
$
|
229,347
|
|
|
$
|
241,581
|
|
|
$
|
247,356
|
|
|
$
|
249,295
|
|
Gross profit
|
|
$
|
83,244
|
|
|
$
|
111,907
|
|
|
$
|
111,175
|
|
|
$
|
111,210
|
|
Operating income
|
|
$
|
5,293
|
|
|
$
|
26,076
|
|
|
$
|
28,320
|
|
|
$
|
23,856
|
|
Net income (loss)
|
|
$
|
(2,819
|
)
|
|
$
|
18,726
|
|
|
$
|
18,277
|
|
|
$
|
20,835
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.36
|
|
|
$
|
0.36
|
|
|
$
|
0.41
|
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.35
|
|
|
$
|
0.35
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
Three months ended
|
Fiscal 2018
|
|
July 1,
2017
|
|
September 30,
2017
|
|
December 30,
2017
|
|
March 31,
2018
|
Net revenues
|
|
$
|
210,951
|
|
|
$
|
225,377
|
|
|
$
|
234,043
|
|
|
$
|
233,552
|
|
Gross profit
|
|
$
|
91,665
|
|
|
$
|
104,562
|
|
|
$
|
111,295
|
|
|
$
|
104,386
|
|
Operating income
|
|
$
|
16,611
|
|
|
$
|
24,258
|
|
|
$
|
1,013
|
|
|
$
|
14,275
|
|
Net (loss) income
|
|
$
|
20,137
|
|
|
$
|
20,102
|
|
|
$
|
(6,547
|
)
|
|
$
|
11,880
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
(0.12
|
)
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
(0.12
|
)
|
|
$
|
0.22
|
|
The operating results for the fourth quarter of fiscal 2018 include certain misstatements that were determined to be immaterial both individually and in the aggregate. The misstatement in the fourth quarter of fiscal 2018 was primarily driven by an over accrual of certain professional fees in the third quarter of fiscal 2018.
Below is a summary of the net overstatement/(understatement) of the Company’s reported operating income and net income for the fourth quarter of fiscal 2018.
|
|
|
|
|
|
|
|
(In thousands)
|
|
Overstatement/(Understatement)
|
Three Months Ended
|
|
Operating (Loss) Income
|
|
Net (Loss) Income
|
March 31, 2018
|
|
2,835
|
|
|
2,426
|
|
20. SUBSEQUENT EVENT
On May 21, 2019, we transferred to CSL Plasma Inc. (“CSL”) substantially all of the tangible assets held by Haemonetics relating to the manufacture of anti-coagulant and saline (together, “Liquids”) at our Union, South Carolina facility (“Union”), which consist primarily of property, plant and equipment and inventory, and CSL assumed certain related liabilities pursuant to the terms of a settlement, release and asset transfer agreement (the “Asset Transfer”) between the parties dated May 13, 2019. The Asset Transfer excludes all other assets related to Union, including accounts receivable, customer contracts and our U.S. Food and Drug Administration (“FDA”) product approvals for manufacturing Liquids.
At closing, Haemonetics received approximately
$10 million
of proceeds for the Asset Transfer and were concurrently released from our obligations to supply Liquids under a 2014 supply agreement with CSL. In connection with the Asset Transfer, CSL and Haemonetics also entered into related transition services, supply and manufacturing services and quality agreements (the “Transition Agreements”) that, among other things, permit CSL to manufacture Liquids under our FDA product approvals,
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
exclusively for Haemonetics and CSL, until CSL obtains separate product approvals to manufacture the Liquids from the FDA. CSL also agreed to extend offers of employment to substantially all employees of Haemonetics located at the Union facility.
We will continue to supply Liquids to our customers following the Asset Transfer pursuant to our supplier arrangements with contract manufacturers. We expect that cost savings generated from the Asset Transfer, including the release from our Liquids supply obligations under the 2014 supply agreement with CSL, will be reallocated to general corporate purposes.
In connection with our entry into the Agreement, we classified the Union assets and liabilities related to the Asset Transfer under the Agreement as held-for-sale in our consolidated financial statements for the first quarter of fiscal 2020 prior to the closing of the Asset Transfer. Accordingly, we recorded these assets and liabilities at fair value, less estimated sales costs. Such assets and liabilities were previously classified as held-and-used as of March 30, 2019 and determined to be recoverable when evaluated within the broader North America Plasma asset group that is profitable. As a result of the classification as held-for-sale, we recognized a pre-tax impairment charge of approximately
$49 million
in the first quarter of fiscal 2020, primarily related to the carrying balances of the property, plant and equipment exceeding the consideration received under the terms of the Agreement. The charge will not result in any future cash expenditures.