SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 1, 2000. Commission file number 1-10730
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
400 Wood Road, Braintree, Massachusetts 02184-9114
(781) 848-7100
--------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------- -----------------------
Common stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sale price of May 15, 2000 was
approximately $391,000,000.
The number of shares of the registrant's common stock, $ .01 par
value, outstanding as of May 15, 2000 was 25,289,499
--------------------
Documents Incorporated By Reference
Part III incorporates information by reference from the definitive
Proxy Statement for the Registrant's Annual Meeting to be held July 25,
2000.
TABLE OF CONTENTS
----------------------------------------------------------------------------
Page Number
-----------
Item 1. Business
(a) New Developments in the Business 3
(b) General History of the Business 5
(c) Financial Information about Industry Segments 5
(d) Narrative Description of Business 6
(e) Financial Information about Foreign and
Domestic Operations and Export Sales 13
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 16
Item 6. Selected Consolidated Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 27
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 50
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors 50
(b) Identification of Executive Officers 50
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management 51
Item 13. Certain Relationships and Related Transactions 51
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) Financial Statement Schedules 52
(b) Reports on Form 8-K 52
(c) Exhibits 52
ITEM 1. BUSINESS
(a) New Developments in the Business
Regulatory Developments
Solutions
Haemonetics is engaged in a long-term worldwide strategy to supply
directly to its customers all of the intravenous ("IV") solutions required
for use with its blood collection disposable kits. Because one to three
units of IV solutions are required for use with every disposable kit sold,
Haemonetics by providing its own IV solutions, will be able to control
costs more effectively.
The Company has a full line of CE approved IV solutions in Europe, but
just recently received its first FDA approval for sale of an IV solution in
the US.
The following milestones were reached in Fiscal Year 2000:
June, 1999 Approval for sale in Canada of 4% sodium citrate, an
anticoagulant used in plasma collection
August, 1999 Approval for sale in Canada of Anticoagulant Citrate
Dextrose Solution ("ACDA"), an anticoagulant used in
platelet collection
March, 2000 Approval for sale in US of 4% sodium citrate
Red Cell
Regulatory bodies around the world, including the US Food & Drug
Administration ("FDA"), support removal of white cells from red blood cells
prior to transfusion to protect the transfusion recipient from the harmful
effects of white cells. The Company believes that FDA will soon mandate
white cell removal - also known as leukoreduction, although it is unclear
when such a mandate will become effective. The Company's red cell collection
technology which is marketed in Europe currently includes an integrated
white cell leukoreduction filter. Following completion of human studies of a
two unit collection, filtered protocol in the US, in December 1999, the
Company submitted its 510(k) application to FDA for approval to market the
new product in the US. The Company hopes to receive FDA clearance by the end
of calendar 2000.
New Business Developments
Divestiture of Management of Blood Banks
In 1998, the Company embarked on an initiative to divest itself of
ownership of seven blood banks (encompassing 17 collection sites) throughout
the US. By May, 1999 the Company completed divestiture of this division with
each blood bank sale resulting in a long-term supply agreement between
Haemonetics and the buyer for purchase of Haemonetics disposables.
Expansion
In April, 1999 the Company announced that it opened a subsidiary in
the Czech Republic which would take over sales from the established
distributor and sell direct in that country.
In November, 1999, the Company acquired a 19.8% ownership stake in
Transfusion Technologies, a privately held device company based in Natick,
MA. The two companies formed a strategic business relationship in which
Haemonetics is the exclusive European and Asian distributor of the
OrthoPAT(R) Autotransfusion System developed by Transfusion Technologies and
fully approved for sale. The OrthoPAT is a blood cell salvage device
designed for use in orthopedic surgeries, the most rapidly growing segment
of the international cell salvage market.
In January, the Company announced an exclusive agreement to
collaborate with V.I. Technologies ("VITEX") on the development of critical
components of a pathogen inactivation system for red blood cells. This is a
process in which pathogens such as HIV, Hepatitis C, and bacteria are
chemically treated and made inactive in red blood cells prior to transfusion
to a patient. With this agreement, VITEX will provide INACTINE, the compound
which inactivates the pathogens, and Haemonetics will provide the system
(device and disposable) required to remove the INACTINE compound from the
red blood cells prior to transfusion to a patient.
Haemonetics estimates that the VITEX pathogen inactivation system
will be ready to launch by fiscal year 2004. Investment analysts project the
global market for red cell pathogen inactivation to be in excess of $2
billion annually.
In January, the Company announced that Tim Surgenor, former President
of the Tissue Repair Division of Genzyme Corporation had been appointed
Corporate Executive Vice President with responsibility for new business
development. This appointment reflects the growing importance of internal
and external new business development in the growth of the Company over the
next several years.
Cultivation of the Emerging Red Blood Cell Market
The Company continued market introduction of the newest application of
its red cell apheresis, a procedure that enables a donor to give twice as
many red blood cells as is possible using manual collection methods. Red
blood cells are the most frequently transfused of the three main blood
components, and their efficient collection constitutes an emerging market
whose value is estimated at $300 million. The Company has projected sales
from this procedure to reach $30 million by fiscal year 2003 and $120
million by fiscal year 2005.
In September, 1999 the Company and the American Red Cross ("ARC")
entered into a long-term supply agreement for use of Haemonetics' technology
in blood collections in New England. Additionally, the ARC will allow its
blood donor center in Braintree, MA to be used as a demonstration site for
Total Apheresis.(TM) using Haemonetics equipment exclusively.
Haemonetics and United Blood Services ("UBS"), a division of Blood
Systems Inc., signed a long-term agreement in November, 1999 in which
Haemonetics will supply UBS with devices and disposables for blood
collection. Implementation began with the gradual roll out of 30 devices at
20 blood donor centers beginning in Q4 of fiscal year 2000. UBS is the
second largest blood collector in the country, representing 8% of the
industry.
At the close of fiscal year 2000, the Company's red blood cell
collection system was accepted for use at blood systems which collect nearly
75% of the blood donated in the US.
Revitalization of Research and Development
The Company continued to demonstrate its commitment to expand
resources to allow more new products to get to market faster. In July, 1999
the FDA approved human studies of a filtered protocol for two unit red cell
collection. The study was completed and a 510(k) submitted in December,
1999.
The Company completed clinical trials on an automated red cell washing
system which will be the first product to allow previously frozen red cells
to be thawed, and then stored for an extended shelf life of up to 14 days.
It completed its submission of a 510(k) and New Drug Application ("NDA") to
the FDA for this device and the solution used with it in March, 1999. Over
40 million units of red cells are transfused each year to patients, and
there are constant supply shortages. Many blood banks worldwide cannot meet
their customers' demands for red cells and, therefore, have to import red
cells from other blood banks. Extending the shelf life of thawed red cells
will help blood centers in managing their red cell inventories because
periodic excess collections can be put into frozen storage to be available
in times of collection shortages.
The Company continued its clinical trials in Japan of a new device,
the Superlite. This device makes Haemonetics' current mobile technology even
more user friendly to a blood collection system where most blood is
collected in a mobile environment, that is, at schools, businesses,
churches, etc. The Superlite is about half the size and weight of
Haemonetics' current technology, allowing even easier transport and more
machines to fit into limited space.
Streamlined Operations
In 1998, the Company undertook a program to re-engineer its
manufacturing, logistics, and other processes to yield a low-cost advantage
in the blood processing industry. This initiative - Customer Oriented
Redesign for Excellence ("CORE") - has three goals: 1) improve customer
satisfaction through top quality and on-time deliveries, 2) lower production
costs, and 3) optimize inventories. The CORE program has already helped
Haemonetics to realize significant cost savings.
In fiscal year 2000, the CORE program yielded savings of $3.6 million
bringing total savings from the program since inception to almost $10
million.
(b) General History of the Business
Haemonetics Corporation was incorporated in Massachusetts in 1985. The
terms "Haemonetics" and the "Company" as used herein include its
subsidiaries and its predecessor where the context so requires.
Haemonetics was founded in 1971 and became a publicly owned company
for the first time in 1979. In August 1983, Haemonetics was acquired by
American Hospital Supply Corporation ("AHS"). In connection with the
acquisition of AHS by Baxter Travenol Laboratories, Inc. in 1985, Baxter
Travenol divested Haemonetics in order to address antitrust concerns related
to that acquisition. Haemonetics was purchased in December, 1985 by
investors that included James L. Peterson, the Company's present chief
executive officer and president, E. I. du Pont de Nemours and Company ("Du
Pont"), and other present and former employees of the Company. In May, 1991,
the Company completed an Initial Public Offering, at which time Du Pont
divested its entire interest in the Company.
Haemonetics is engaged in the manufacture of automated systems for the
collection, processing and surgical salvage of blood. Since the development
of its first proprietary cell washing system in 1971, the Company has
pioneered a family of innovative systems and technologies for blood
processing. The Company's business is focused on surgical blood salvage,
blood component therapy, and automated blood component collection.
Haemonetics blood processing systems consist of proprietary disposable sets
driven by specialized equipment. The Company's equipment is used with more
than 100 different sterile, single-use disposable products. The Company
markets its products to hospitals, independent blood banks, commercial
plasma centers and fractionators, and national health organizations in more
than 50 countries.
(c) Financial Information about Industry Segments
The Company manages its business on the basis of one operating
segment: the design, manufacture and marketing of automated blood processing
systems. Haemonetics' chief operating decision maker uses consolidated
results to make operating and strategic decisions. Manufacturing processes,
as well as the regulatory environment in which the company operates, are
largely the same for all product lines.
The financial information required for the business segment is
included herein in footnote 11of the financial statements, entitled SEGMENT,
GEOGRAPHIC AND CUSTOMER INFORMATION.
(d) Narrative Description of Business
Background
All of the Company's products involve the extracorporeal processing of
human blood. Every human body contains approximately ten units (one unit =
one pint) of blood consisting of both cellular and liquid portions. The
cellular portion, which constitutes approximately 45 percent of the body's
blood by volume, is composed of red blood cells, white blood cells, and
platelets. All of these components are derived from stem cells which
originate in the body's bone marrow. The liquid portion, which constitutes
the remaining 55 percent of blood volume, is made up of plasma and soluble
blood proteins.
The practice of modern medicine is based on the availability of a safe
and adequate blood supply and upon the capability of treating a medical
deficiency in one or more of the above components. These deficiencies can be
related to hereditary disorders (e.g., hemophilia), serious injury, or major
surgery (e.g., open heart surgery).
Traditionally, a deficiency in any one of the components of blood has
been addressed by the transfusion of whole blood or blood components from
one or more third-party donors ("homologous blood transfusion"). Homologous
blood transfusions have major drawbacks. First, they carry the risk of
transfusion reactions, which can range from mild allergic responses to life-
threatening red cell incompatibility. Second, while the vast majority of
blood in the United States and other developed countries is tested for
transfusion-related viruses such as HIV, hepatitis, and cytomegalovirus,
such screening tests are not completely comprehensive, and the evidence of
disease contamination in the blood supply is well documented. This risk is
increased when blood is collected from multiple donors.
As a result of the above risks and limitations of traditional
transfusion treatment, three important trends have emerged in blood
transfusion therapy and practice: increasing acceptance of autologous blood
transfusion (reinfusion of a patient's own blood), increasing use of
techniques and systems that reduce the number of donors to which patients
are exposed in the course of therapies involving donor blood or blood
components, and increasing prevalence of blood component therapy which
requires the administration of only those blood components needed by the
patient.
Markets and Products
Haemonetics' products address four important therapeutic markets for
blood and blood components: surgical blood salvage, blood component therapy,
plasma collection, and automated red cell collection.
Surgical Blood Salvage
Surgical blood salvage, also known as autologous blood transfusion,
involves the rapid and safe collection of a patient's own blood before,
during and after surgery for reinfusion to that patient. This process
normally includes a washing procedure which removes unwanted substances from
the blood prior to its reinfusion.
The need for a blood transfusion during surgery is common with open
heart, trauma, transplant, vascular and orthopedic operations. Surgical
blood salvage reduces or eliminates a patient's dependence on blood donated
from others (homologous blood), which carries the risk of transmission of
viruses , such as HIV and hepatitis, as well as the risk of severe
transfusion reactions. The decision to transfuse a unit of homologous blood
involves weighing the potential therapeutic benefits of such transfusion
against the risks of the transfusion itself. The Company believes there is
increasing recognition within the medical community that blood transfusions
should be autologous wherever possible to avoid the homologous blood
transfusion risks described above. Moreover, patients are becoming
increasingly aware of the availability and advantages of autologous blood
transfusion. Ongoing shortages of blood and blood components have reinforced
the benefits of this approach.
Haemonetics, which pioneered the first autologous blood transfusion
system, has developed a full line of products to address the needs of the
surgical blood salvage market. The Company's core product line, the Cell
Saver(R) autologous blood recovery system, reduces a patient's dependence on
homologous red cell transfusions and enables more rapid delivery of higher
quality, compatible blood to the surgical patient intra- and post-
operatively. An extension of this product line is the HaemoLite(R)
autologous blood recovery system, an automated portable system requiring
limited operator monitoring that is designed for lower blood loss
procedures.
The Company markets these surgical blood salvage products to hospital-
based medical specialists, primarily cardiovascular, orthopedic and trauma
surgeons.
Blood Component Therapy
Blood component therapy involves the treatment of patients by using
specific blood components ? platelets, red blood cells, peripheral blood
stem cells, or white blood cells ? instead of whole blood. Blood component
therapy applications are increasing and have become integral to the
treatment of a wide variety of cancers, blood disorders and conditions
involving hemorrhaging.
Platelet therapy is typically used to alleviate the side effects of
bone marrow suppression, a condition in which bone marrow is unable to
produce a sufficient quantity of platelets. Bone marrow suppression can
result from a number of causes, including infection, but it is usually a
side effect of chemotherapy. The demand for platelets is growing in
conjunction with increasingly aggressive cancer therapies.
Platelets for therapeutic use have traditionally been derived from the
manual separation from blood obtained through whole blood donations.
However, platelets constitute a very small portion of the body's total blood
volume. Hence, a single unit of whole blood contains only one-sixth to one-
eighth the quantity of platelets required for a therapeutically useful
dosage. As a result, the medical community has had to rely on platelet
"pooling" (the combination of platelets from multiple donors) to obtain a
volume of platelets sufficient for therapeutic treatment, thus amplifying
the risks of transmission of a blood-borne disease or of an adverse
reaction.
The Company addresses these drawbacks of platelet therapy with its
apheresis systems, such as the Haemonetics MCS(R)+ mobile collection system.
The apheresis process permits the collection of therapeutically useful
quantities of components, such as platelets, from a single donor. The end
products of platelet apheresis are referred to as single donor platelets (as
opposed to pooled or random donor platelets traditionally available from
blood banks or hospital centers).
Apheresis is beneficial to donors as well as to patients. It conserves
the donor pool in that it enables donors to give non-red cell blood
components more often than whole blood. Donors of whole blood are restricted
by regulatory agencies to eight-week intervals between donations, whereas
apheresis donors may donate as often as twice a week. Apheresis systems
offer a purer and safer blood product to the patient who is the transfusion
recipient because of the significant reduction in the number of donors to
which that recipient is exposed.
The Company markets its automated apheresis systems to hematologists,
oncologists and blood bankers.
Plasma Collection
Many important therapeutic and diagnostic products are derived from
the collection and processing of plasma. Therapeutic products derived from
plasma include albumin and plasma protein fractions, which are used
primarily as volume expanders for burn and shock victims; gamma globulins,
which are used for the prevention of diseases such as tetanus, rabies,
measles, etc.; coagulation-specific concentrate products such as Factor
VIII; and other derivatives such as hepatitis vaccine. Several companies
have developed and applied for United States Food and Drug Administration
("FDA") approval to market non-plasma derived recombinant Factor VIII
products. While such products may reduce demand for plasma-derived Factor
VIII, the Company believes they will have minimal effect on the demand for
other plasma products such as albumin and gamma globulin. Diagnostic
products derived from source plasma include blood grouping sera, test kit
controls, and quality control reagents.
Historically, plasma had been collected by manual techniques as part
of whole blood collection. As in the case of manual collection of other
blood components, manual techniques for the collection of plasma were very
time-consuming and have produced poor yields.
In the United States, commercial operators account for approximately
95 percent of plasma collection, with the remaining 5 percent collected from
volunteer donors at other blood bank organizations. Outside of the United
States, plasma is collected primarily from volunteer donors.
Commercial plasma collection firms in the United States pay donors
for their plasma and then fractionate the collected plasma and sell the
collected plasma or the resultant protein products worldwide for
fractionation purposes. Outside the United States, virtually every
industrialized nation has expressed the desire to increase access to the
worldwide plasma market. This is due to the ever-growing demand for plasma-
based therapeutic products and the universal need to improve the quality of
blood products. The appeal of efficient, user-friendly automated systems
resulted in almost complete conversion from manual to automated plasma
collection techniques in many countries.
Haemonetics automated plasma collection systems, PCS(R) and PCS(R)2,
shortened the collection procedure to approximately forty minutes, from the
ninety minutes required for manual collection. Donor safety also increased.
The donor is never separated from his or her own blood, thereby eliminating
the possibility of returning the wrong red cells to the donor, a risk that
exists in manual collection. The PCS(R) and PCS(R) systems also yield a
higher quality plasma than do manual methods, since a smaller amount of
anticoagulant is needed and the donor is given no intravenous fluids to
dilute his or her native plasma.
Haemonetics aggressively pursued the conversion of commercial plasma
collection firms from manual methods to the Company's automated PCS(R)
systems. The Company's general policy is to place its own equipment at
commercial plasma centers with requirements that the centers purchase a
certain number of disposables and that each machine be utilized for
donations a certain number of times per day. In this way, the Company
recoups the cost of the equipment through disposable sales and maintains
control of the equipment should usage and sales not meet optimal terms.
Plasma collection from donors is undergoing dramatic changes due to
greater focus on the quality, safety and cost of plasma-based therapeutic
products. The Company has been the primary supplier of automated plasma
collection systems to the national blood collection programs of Japan,
France, Sweden, Canada and the United Kingdom.
Haemonetics is one of two vendors worldwide to the commercial plasma
market.
Automated Red Cell Collection
Traditionally, red blood cells have been derived from a manual
separation process after whole blood is obtained through donations. However,
this manual procedure involves time-consuming secondary handling and
processing. It also produces a red cell transfusion product of variable
therapeutic content because of variations found in donor characteristics and
because of the whole blood donation process itself.
Haemonetics has extended its MCS(R)+ system product line to offer
systems for the automated collection of red blood cells. The Company's red
blood cell apheresis systems automate the red blood cell collection process,
thereby producing a more consistent red cell transfusion unit and
eliminating the lengthy secondary handling and processing steps. In
addition, by targeting group O "universal" donors for collection in
multiple units,, blood centers can meet their collection requirements more
efficiently and make better use of a shrinking donor pool.
Revenue Detail
In the year ended April 1, 2000, sales of disposable products
accounted for approximately 90 percent of net revenues. Sales of disposable
products by the Company were 4.6 percent higher in 2000 than in 1999 at
constant currency and reflected on a comparable basis (1.0 percent higher in
2000 than in 1999 with the effects of currency) and grew at a compound
average annual growth rate of 4.4 percent for the three years ended April 1,
2000 at constant currency. Service and other miscellaneous revenues
accounted for approximately 4.4 % percent of the Company's net revenues
during the year ended April 1, 2000.
Sales of equipment accounted for approximately 5.5 percent of net
revenues in fiscal 2000 and approximately 7.4 percent in fiscal 1999.
Variations in the level of the Company's sales of equipment are likely to
occur from year to year and quarter to quarter. These variations reflect the
buying cycles of the Company's customers, a shift in Company policy toward
placing Company-owned equipment versus selling it and the level of equipment
purchases by the national blood organizations in Europe, Japan and other
countries that are implementing programs for national self-sufficiency in
blood products with the use of the Company's products.
Marketing/Sales/Distribution
Haemonetics markets and sells its products to hospitals, large blood
systems and independent blood banks, commercial plasma collection centers,
and national health organizations through its own direct sales force in
North America, Europe and Japan. The sales force is composed of full-time
sales representatives and clinical specialists based in the United States,
the United Kingdom, Germany, France, Sweden, the Netherlands, Luxemburg,
Denmark, Italy, Australia, Austria, Hong Kong, Canada, Japan, Switzerland,
Czech Republic, China, Taiwan, and Belgium. These sales representatives and
clinical specialists interact with physicians, surgeons, and nurses to
promote and sell Haemonetics products and services. The clinical specialists
assist the sales force and Haemonetics customers through demonstrations and
training.
Haemonetics field service engineers support equipment sales through
ongoing professional equipment service worldwide. They check the functional
and safety features of the equipment to ensure correct and reliable
operation. All new equipment is covered by a 12-month warranty. Under the
warranty, all service needs are covered at no charge and all equipment
receives a preventive maintenance check. After the initial warranty period,
the Company offers service under preventive maintenance contracts or through
emergency service fees.
The field service engineering group is supported by a headquarters-
based technical support engineering staff which provides 24-hour phone
support 365 days a year in the US. Haemonetics also maintains technical
support staffs in Europe and Asia. Many hospital customers have their own
staffs of biomedical engineers who rely on the Company's technical training
and spare parts logistic systems.
The Company uses various distributors to market its products in South
America, the Middle East, and parts of Europe and the Far East.
Haemonetics endeavors to minimize the time between receipt of purchase
orders and delivery of products. Accordingly, the Company's backlog as of
the end of any period represents only a portion of actual sales for the
succeeding period.
Haemonetics as a Distributor
During fiscal year 2000 the Company gained exclusive distribution
rights to sell Transfusion Technologies' OrthoPAT autotransfusion system to
the European and Asian markets. The OrthoPAT system is a small portable
system, designed for orthopedic surgery which allows blood to be salvaged
both during and after surgery in a single disposable set.
Research and Development
The development of extracorporeal blood processing systems has
required that Haemonetics maintain technical expertise in various
engineering disciplines, including mechanical, electrical, software,
biomedical, and materials. The Company's mechanical engineers design pumps,
valves, equipment packaging, centrifuge rotors, and disposable plastic
components (e.g., harness sets and processing chambers). Its electrical
engineers design sensors (optical, ultrasonic, pressure, weight, and speed),
motors, control circuits, driver circuits, computers, and display systems.
The software engineers design programs that use input data from sensors to
control the actuation of mechanical components used to collect or manipulate
the blood components. The biomedical engineers monitor products'
biocompatibility and clinical performance and work with major raw materials
and tooling vendors. Innovations resulting from these various engineering
efforts enable the Company to develop systems that are faster, smaller, and
more user-friendly, or that incorporate additional features important to the
Haemonetics customer base.
The Company has also developed expertise in the development and
production of various fluid products that are used in conjunction with its
blood processing systems. The Company's R&D staff includes experts in the
formulation, sterilization and packaging of these solutions. Haemonetics
also has the capability to conduct it's own preclinical testing on blood
products and to manage clinical trials.
Haemonetics operates research and development centers in Switzerland,
Japan, and the United States, so that protocol variations are incorporated
that closely match local customer requirements. The Company's expenditures
for research and development were $14.9 million, $15.1 million and $17.9
million, for the fiscal years 2000, 1999 and 1998, respectively. All
research and development costs are expensed as incurred. The Company expects
to continue to invest substantial resources in research and development.
Customer collaboration is an important part of Haemonetics' technical
strength and competitive advantage. Since its inception, Haemonetics has
built close working relationships with a significant number of blood
processing professionals around the world. This network of individuals
provides the Company with ideas for new products, ways to improve existing
products, new applications, enhanced protocols, information about potential
test sites, objective evaluations, and expert opinions regarding technical
and performance issues.
Manufacturing
Disposables
Each individual blood collection procedure requires a disposable
plastic set, which contains a medical-grade tubing harness, bags, filters,
and processing chamber. Haemonetics molds many of its own components, which
it then assembles with manufactured and purchased tubing and sheeting to
form the final products. The Company tests its product materials for purity
to determine that they are biocompatible and free of contamination. Assembly
is carried out in a clean room environment.
Production begins with injection molding, blow molding, or extrusion
of plastic parts. Molding tools are qualified to ensure specified tolerances
and reproducibility. Each step of the subsequent manufacturing and assembly
processes is qualified and validated. Critical process steps and materials
are documented to ensure that every unit is produced consistently and meets
performance requirements.
All processing chamber and most set assembly work is done in the
Company's Braintree, Massachusetts; Leetsdale, Pennsylvania; or Bothwell,
Scotland facilities. All disposable blood processing products are sterilized
for patient and donor protection and are tested in laboratories to confirm
sterility. Some manufacturing of less proprietary components is performed
for the Company by outside contractors. The Company also maintains important
relationships with two Japanese manufacturers that provide finished sets in
Singapore, Japan and Thailand. These sets are used primarily by Haemonetics'
customers in Japan.
Solutions
In its South Carolina facility, the Company manufactures sterile
intravenous ("IV") solutions to support the Company's blood bank (component
therapy) and plasma businesses. IV solutions include anticoagulants and
storage solutions necessary to collect and store blood components. The
Company has regulatory approval to market 4% sodium citrate anticoagulant
solution for the automated collection of plasma in the US and Canada. The
Company also has approval to market Anticoagulant Citrate Dextrose Solution
Formula A, ("ACDA") in Canada. ACDA is an anticoagulant necessary for the
automated collection of platelets. In addition, because of the faster
regulatory review and approval processes in Europe, the Company already has
a full line of IV solutions available in Europe.
Equipment
Each Haemonetics blood processing machine is designed in-house and
assembled from components that are either manufactured by the Company or by
others to Company specifications. Many critical mechanical assemblies are
machined and fabricated utilizing the Company's own process control
procedures. The completed instruments are programmed, calibrated, and tested
to ensure compliance with the Company's engineering and quality assurance
specifications. Inspection checks are conducted throughout the manufacturing
process to verify proper assembly and functionality. When mechanical and
electronic components are sourced from outside vendors, those vendors must
meet detailed qualification requirements, and the components are subjected
to focused incoming inspection programs. Approximately 98 percent of the
Company's equipment, including all new systems, is manufactured by
Haemonetics. The remainder is manufactured for the Company by an outside
contractor.
Certain parts and components used in the Company's equipment and
disposables are purchased from various single sources. If it became
necessary, the Company believes that, in most cases, alternative sources of
supply could be identified and developed over a relatively short period of
time. Nevertheless, an interruption in supply could temporarily interfere
with production schedules and affect the Company's operations.
All of the Company's equipment and disposable manufacturing sites are
certified to the ISO 9000 standard and to the medical device directive
allowing placement of the CE mark of conformity.
The CORE Program
Beginning in 1998, Haemonetics engaged an independent consulting firm
to conduct a thorough evaluation of key corporate processes and then
embarked on a company-wide program to streamline operations and reduce
expenses. Involving all Haemonetics employees, the Customer Oriented
Redesign for Excellence ("CORE") Program is expected to have far-reaching
positive consequences.
The Program has three goals: 1) improve customer satisfaction through
top quality and on-time deliveries, 2) lower production costs, and 3)
optimize inventories.
Consistent with the tenets of traditional Total Quality of Management
("TQM"), CORE is focused heavily on customer satisfaction and addresses what
every Haemonetics employee can do to better meet customer needs. It expands
upon the Company's existing core values of trust, quality, and innovation,
and represents a new way of spotlighting the activities deemed essential to
continuous improvement of corporate processes and procedures.
Early results of the CORE Program show significant improvements in air
freight costs, inventory turns, late orders, and distribution expenses. In
fiscal year 2000, the Company saved $3.6 million through factory automation,
labor efficiencies and distribution and other selling, general and
administration expense savings. The Company also began putting in place
additional automated systems for some manufacturing processes which should
net future savings. Goals for fiscal year 2001 and fiscal year 2002 include
additional labor efficiencies and automated processes to net an estimated $3
million in savings in each of these years.
Competition
The markets for Haemonetics products are developing and are highly
competitive. Although Haemonetics competes directly with others, no one
company competes with Haemonetics across its full line of products. The
Company has established a record of innovation and market leadership in each
of the areas in which it competes.
Competition in the surgical blood salvage market, where the underlying
technology among major competitors is similar, is based upon reliability,
ease of use, service, support, and price. Haemonetics competes principally
with Medtronics, Inc. and Sorin Biomedica.
In the blood component therapy market, competition is based upon the
ability of systems to achieve increasingly higher levels of performance, as
measured by the time and efficiency of component collection and the quality
of the components collected. The Company's major competitors in this market
are Gambro BCT and Baxter International, Inc. Each of these companies has
taken a technological approach different from that of Haemonetics in the
design of systems for the component therapy market.
In the red cell market, the Company has pioneered automated
collection. The Company competes with traditional methods of collecting and
separating whole blood on the basis of total cost, process control, product
quality, and inventory management. Additionally, it competes with Gambro BCT
in certain red cell collection protocols.
In the area of plasma collection, the Company competes with Baxter
International, Inc. on the basis of quality, ease of use, and technical
features of systems, and on the long-term cost-effectiveness of equipment
and disposables. The Company's automated systems also compete with manual
collection systems, which are less expensive, but are also slower, less
efficient and clinically riskier.
In the fourth quarter, Fiscal 2000, the Company wrote down $10 million
in equipment placed in China, due in part to competition from unauthorized,
Chinese made disposables which are "knock offs" of Haemonetics proprietary
disposables. The uncertainties of China's practices surrounding protection
of intellectual property may subject other Haemonetics products sold in
China to competition from locally made knock offs.
The Company's technical staff is highly skilled, but many of its
competitors have substantially greater financial resources and larger
technical staffs at their disposal. There can be no assurance that such
competitors will not direct substantial efforts and resources toward the
development and marketing of products competitive with those of the Company.
The Company believes that its ability to maintain its competitive
advantage will continue to depend on a combination of factors, including its
reputation; its patents; its unpatented proprietary know-how in several
technological areas; the quality, safety and cost effectiveness of its
products; and continual and rigorous documentation of clinical performance.
Seasonality
Net revenues have historically been higher in the Company's third and
fourth quarters, reflecting principally the seasonal buying patterns of the
Company's customers.
However, in FY00, the Company was impacted in the fourth quarter by
decreased use of plasma disposable sets primarily because of a drop in
available donors.
Patents
Haemonetics holds patents in the United States and abroad on certain
of its machines and disposables. These patents cover certain elements of its
systems, including protocols employed in its equipment and certain aspects
of its processing chambers and disposables. The Company considers its
patents to be important but not indispensable to its business. To maintain
its competitive position, the Company relies to a greater degree on the
technical expertise and know-how of its personnel than on its patents. The
Company pursues an active and formal program of invention disclosure and
patent application both in the United States and abroad. The Company also
owns various trademarks which have been registered in the United States and
certain other countries.
Regulation
The products manufactured and marketed by the Company are subject to
regulation by the Center of Biologics Evaluation and Research ("CBER") and
the Center of Devices and Radiological Health ("CDRH") of the United States
Food and Drug Administration ("FDA"), and other non-US regulatory bodies.
All medical devices introduced to the United States market since 1976
are required by the FDA, as a condition of marketing, to secure either a
510(k) premarket notification clearance or an approved Premarket Approval
Application ("PMA"). IV solutions marketed by the Company for use with its
apheresis systems (blood anticoagulants and solutions for storage of red
blood cells) require the Company to obtain from CBER an approved New Drug
Application ("NDA") or Abbreviated New Drug Application ("ANDA"). A 510(k)
premarket clearance indicates FDA's agreement with an applicant's
determination that the product for which clearance has been sought is
substantially equivalent to another legally marketed medical device. An
approved PMA application indicates that the FDA has determined that the
device has been proven, through the submission of clinical data and
manufacturing information, to be safe and effective for its labeled
indications. The process of obtaining a 510(k) clearance may take up to 24
months and involves the submission of clinical data and supporting
information. The PMA process may take even longer requiring the submission
of more significant quantities of clinical data and supporting information.
The process of obtaining NDA approval for solutions is likely to take much
longer than 510(k) or PMA device approvals, both because the FDA review
process is more complicated, and because Haemonetics does not have
significant experience and expertise submitting NDAs.
The Company maintains customer complaint files, records all lot
numbers of disposable products, and conducts periodic audits to assure
compliance with FDA regulations. The Company places special emphasis on
customer training and advises all customers that blood processing procedures
should be undertaken only by qualified personnel.
The Company is also subject to regulation in countries outside the
United States in which it markets its products. Many of the regulations
applicable to the Company's products in such countries are similar to those
of the FDA. However, the national health or social security organizations of
certain countries require the Company's products to be qualified by those
countries before they can be marketed in those countries. Haemonetics has
complied with these regulations and has obtained such qualifications.
Federal, state and foreign regulations regarding the manufacture and
sale of products such as the Company's systems are subject to change. The
Company cannot predict what impact, if any, such changes might have on its
business.
Environmental Matters
The Company does not anticipate that compliance with federal, state,
and local environmental protection laws presently in effect will have a
material adverse impact upon the Company or will require any material
capital expenditures.
Employees
As of April 1, 2000, Haemonetics employed 1,328 persons assigned to
the following functional areas: manufacturing, 622; sales and marketing,
262; general and administrative, 208; research and development, 78; and
quality control and field service, 158. The Company considers its employee
relations to be satisfactory.
(e) Financial Information about Foreign and Domestic Operations and Export
Sales
The financial information required by this item is included herein in
footnote 11 of the financial statements, entitled SEGMENT, GEOGRAPHIC AND
CUSTOMER INFORMATION.
ITEM 2. PROPERTIES
The Company owns its main facility, which is located on 14 acres in
Braintree, Massachusetts. This facility is located in a light industrial
park and was constructed in the 1970s. The building is approximately 180,000
square feet, of which 70,000 square feet are devoted to manufacturing and
quality control operations, 35,000 square feet to warehousing, 61,000 square
feet for administrative and research and development activities and 14,000
square feet available for expansion.
The Company leases an 81,850 square foot facility in Pittsburgh,
Pennsylvania. This facility is used for warehousing, distribution of the
products and, as of November of 1991, manufacturing operations. Annual lease
expense is $280,000 for this facility.
In April 1994, the Company purchased a facility in Bothwell, Scotland.
The facility manufactures blood bank (component therapy), surgical (blood
salvage) and plasma disposable components for its European customers The
facility and related property were acquired at a cost of approximately
$1,600,000. The facility is approximately 22,200 square feet. Manufacturing
operations began in August 1994.
In August 1995, the Company purchased a facility in Union, South
Carolina. This facility is used for the manufacture of sterile solutions to
support the Company's blood bank (component therapy) and plasma businesses.
The facility and land were acquired for a cost of $2,423,000. The facility
is approximately 69,300 square feet.
Effective August 1997, the Company began leasing a 48,000 square foot
facility in Avon, Massachusetts. This facility is used for warehousing and
distribution of products. Annual lease expense for this facility is
$260,696.
The Company also leases sales, service and distribution facilities
overseas in the United Kingdom, France, Sweden, Switzerland, The
Netherlands, Germany, Japan, Hong Kong, Italy, Belgium, Austria, Taiwan,
China and the Czech Republic to support the international business.
ITEM 3. LEGAL PROCEEDINGS
The Company is presently engaged in various legal actions, and
although ultimate liability cannot be determined at the present time, the
Company believes that any such liability will not materially affect the
consolidated financial position of the Company or its results of operations.
The Company's products are relied upon by medical personnel in
connection with the treatment of patients and the collection of blood from
donors. In the event that patients or donors sustain injury or death in
connection with their condition or treatment, the Company, along with
others, may be sued, and whether or not the Company is ultimately determined
to be liable, it may incur significant legal expenses. In addition, such
litigation could damage the Company's reputation and, therefore, impair its
ability to market its products and impair its ability to obtain professional
or product liability insurance or cause the premiums for such insurances to
increase. The Company carries product liability and professional liability
(malpractice) coverage. While management of the Company believes that the
aggregate current coverage is sufficient, there can be no assurance that
such coverage will be adequate to cover liabilities which may be incurred.
Moreover, the Company may in the future be unable to obtain product and
professional liability coverages in amounts and on terms that it finds
acceptable, if at all.
In order to aggressively protect its intellectual property throughout
the world, the Company has a program of patent disclosures and filings in
markets where the Company does significant business. While management
believes that its program is reasonable and adequate, the risk of loss is
inherent in litigation as different legal systems offer different levels of
protection to intellectual property, and it is still possible that even
patented technologies may not be protected absolutely from infringement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
The information concerning the Company's Executive Officers required
by this item is incorporated by reference to the section in Part III hereof
entitled "Directors and Executive Officers of the Registrant."
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Summary of Quarterly Data
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal year ended April 1, 2000:
Net revenues $69,122 $68,194 $70,778 $69,830
Gross profit 32,817 31,639 33,177 33,685
Operating income 8,450 7,329 8,839 (533)
Income from continuing operations 5,973 5,588 6,533 760
Income from discontinued operations -- 144 -- --
Net income 5,973 5,732 6,533 760
Share data:
Net Income (loss):
Basic $ 0.223 $ 0.219 $ 0.254 $ 0.030
Diluted $ 0.223 $ 0.217 $ 0.250 $ 0.029
Fiscal year ended April 3, 1999:
Net revenues $71,996 $67,787 $67,958 $74,404
Gross profit 35,970 31,764 31,228 34,540
Operating income 7,303 7,907 7,221 9,197
Income from continuing operations 4,957 5,325 4,793 6,104
Loss from discontinued operations (57) (30) (8) (7)
Net income 4,900 5,295 4,785 6,097
Share data:
Net Income (loss):
Basic $ 0.184 $ 0.199 $ 0.178 $ 0.227
Diluted $ 0.184 $ 0.197 $ 0.175 $ 0.225
</TABLE>
Haemonetics' common stock is listed on the New York Stock Exchange under the
symbol HAE. The following table sets forth for the periods indicated the
high and low of the daily sales prices, which represent actual transactions
as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal year ended April 1, 2000:
Market price of
Common Stock
High $20.06 $20.25 $24.13 $29.13
Low $12.69 $17.56 $17.38 $22.50
Fiscal year ended April 3, 1999:
Market price of
Common Stock
High $18.82 $19.31 $23.13 $24.00
Low $14.38 $14.69 $17.50 $14.63
</TABLE>
There were approximately 474 holders of record of the Company's common stock
as of May 15, 2000. The Company has never paid cash dividends on shares of
its common stock and does not expect to pay cash dividends in the
foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Haemonetics Corporation and Subsidiaries
Five-Year Review
(in thousands, except share data)
<TABLE>
<CAPTION>
Summary of Operations 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $277,924 $282,145 $285,762 $303,009 $276,470
Cost of goods sold 146,606 148,643 150,007 143,846 122,468
--------------------------------------------------------
Gross profit 131,318 133,502 135,755 159,163 154,002
--------------------------------------------------------
Operating expenses:
Research and development 14,927 15,140 17,934 18,586 18,104
Selling, general and administrative 82,758 86,734 86,909 88,070 78,654
Non-recurring restructuring expense -- -- 24,500 -- --
Unusual item 9,548 -- -- -- --
--------------------------------------------------------
Total operating expenses 107,233 101,874 129,343 106,656 96,758
--------------------------------------------------------
Operating income 24,085 31,628 6,412 52,507 57,244
Other income (expense), net 3,240 956 (1,946) 2,298 931
--------------------------------------------------------
Income from continuing operations
before provision for income taxes 27,325 32,584 4,466 54,805 58,175
Provision for income taxes 8,471 11,405 3,865 19,171 20,351
--------------------------------------------------------
Income from continuing operations 18,854 21,179 601 35,634 37,824
--------------------------------------------------------
Income(loss) from discontinued operations 144 (102) (25,373) (2,664) (1,899)
--------------------------------------------------------
Net income(loss) $ 18,998 $ 21,077 $(24,772) $ 32,970 $ 35,925
========================================================
Income(loss) per share:
Basic $ 0.728 $ 0.788 $ (0.933) $ 1.214 $ 1.316
Diluted $ 0.717 $ 0.784 $ (0.932) $ 1.201 $ 1.296
Weighted average number of shares 26,087 26,744 26,537 27,160 27,294
Common Stock Equivalents 414 142 52 291 428
--------------------------------------------------------
Weighted average number of common
and common equivalent shares 26,501 26,886 26,589 27,451 27,722
========================================================
<CAPTION>
Financial and Statistical Data: 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $121,443 $162,188 $112,792 $ 94,045 $112,440
--------------------------------------------------------
Current ratio 2.4 3.3 2.4 2.3 3.4
Property, plant and equipment, net $ 81,608 $ 83,016 $ 84,219 $ 97,402 $ 82,869
--------------------------------------------------------
Capital expenditures $ 23,315 $ 22,466 $ 20,380 $ 36,725 $ 19,073
Depreciation and amortization $ 24,906 $ 24,573 $ 22,861 $ 19,507 $ 12,682
--------------------------------------------------------
Total assets $349,110 $356,359 $336,693 $320,474 $287,541
Total debt $ 74,202 $ 59,171 $ 71,054 $ 29,526 $ 18,534
--------------------------------------------------------
Stockholders' equity $206,443 $221,861 $194,655 $225,274 $216,970
Return on average equity 9.1% 10.1% (11.8)% 14.9% 17.5%
Debt as a % of stockholders' equity 35.9% 26.7% 36.5% 13.1% 8.5%
--------------------------------------------------------
Employees from continuing operations 1,328 1,329 1,396 1,405 1,202
Net revenues per employee
from continuing operations $ 209 $ 212 $ 205 $ 216 $ 230
--------------------------------------------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Continuing Operations
The table outlines the components of the consolidated statements of
operations for continuing operations as a percentage of net revenues:
<TABLE>
<CAPTION>
Percentage of Net Revenues Percentage
--------------------------------- -------------------
April 1, April 3, March 28, Increase (Decrease)
Years Ended 2000 1999 1998 2000/99 1999/98
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% (1.5)% (1.3)%
Cost of goods sold 52.8 52.7 52.5 (1.4) (0.9)
----------------------------------------------------------------------------------------------
Gross profit 47.2 47.3 47.5 (1.6) (1.7)
----------------------------------------------------------------------------------------------
Operating expenses:
Research and development 5.4 5.4 6.3 (1.0) (15.6)
Selling, general and administrative 29.7 30.7 30.4 (5.0) (0.2)
Non-recurring restructuring expense -- -- 8.6 -- (100.0)
Unusual item 3.4 -- -- 100.0 --
----------------------------------------------------------------------------------------------
Total operating expenses 38.5 36.1 45.3 5.3 (21.2)
----------------------------------------------------------------------------------------------
Operating income 8.7 11.2 2.2 (23.9) 393.3
Interest expense (1.6) (1.5) (1.2) 6.2 22.1
Interest income 1.8 1.7 1.2 3.7 43.2
Other income (expense), net 0.9 0.1 (.6) 936.5 --
----------------------------------------------------------------------------------------------
Income from continuing operations
before provision for income taxes 9.8 11.5 1.6 (16.1) 629.6
Provision for income taxes 3.0 4.0 1.4 (25.7) 195.1
----------------------------------------------------------------------------------------------
Earnings from continuing operations 6.8 7.5% 0.2% (11.0) 3,424.0%
==============================================================================================
</TABLE>
Net Revenue Summary
-------------------
<TABLE>
<CAPTION>
Percent Increase / (Decrease)
-------------------------------------
On a comparable basis
By location 2000 1999 As reported at constant currency**
----------- -------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ 88,459 $ 87,857 0.7% 2.6%
International 189,465 194,288 (2.5) 1.3
----------------------------------------------------
Net revenues $277,924 $282,145 (1.5)% 1.7%
<CAPTION>
Percent Increase / (Decrease)
-------------------------------------
On a comparable basis
By product type 2000 1999 As reported at constant currency**
--------------- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Disposables $250,426 $247,941 1.0 % 4.6%
Misc & service 12,307 13,246 (7.1) (7.4)
----------------------------------------------------
Subtotal disposables,
Misc & Service $262,733 $261,187 0.6 4.0%
Equipment 15,191 20,958 (27.5) (26.9)
----------------------------------------------------
Net revenues $277,924 $282,145 (1.5)% 1.7%
<CAPTION>
Disposable revenue
------------------
by product line
----------------
Percent Increase / (Decrease)
Disposable revenue -------------------------------------
------------------ On a comparable basis
by product line 2000 1999 As reported at constant currency**
---------------- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Surgical $ 58,973 $ 55,171 6.9% 9.5%
Blood bank* 108,880 108,580 0.3 4.5
Plasma 82,573 84,190 (1.9) 1.7
----------------------------------------------------
Total disposables revenue $250,426 $247,941 1.0 4.6
----------------------------------------------------
<F*> Includes sales of the Company's red cell collection sets.
<F**> To make 1999 comparable with 2000, the additional (14th) week in Q1 of
fiscal year 1999 was removed from all 1999 profit and loss statement
items including 1999 net revenues in the tables above.
</TABLE>
Additional note:
----------------
To make 2000 and 1999 operating expenses comparable for purposes of
management's discussion below, the unusual item relating to the write-down
of the investment in China in 2000 and the settlement cost relating to
litigation included in SG&A expenses in 1999 were removed.
2000 Compared to 1999
Net Revenues
Net revenues in 2000 decreased 1.5% to $277.9 million from $282.1
million in 1999. With currency rates held constant and reflected on a
comparable basis, net revenues increased 1.7%. The 1.7% increase was a
result of growth in disposable sales offset by decreases in both equipment
and miscellaneous revenue. Disposable sales increased approximately 1.0%.
With currency rates held constant and reflected on a comparable basis,
disposable sales increased 4.6%. The 4.6% increase was a result of growth in
all three product lines, worldwide surgical 9.5%, worldwide blood bank 4.5%
and worldwide plasma 1.7%. The low growth rate in the Plasma business was
mainly a result of lower disposable sales in the U.S. plasma market where
there was a drop in available donors. Constant currency sales of disposable
products, excluding service and other miscellaneous revenue, accounted for
approximately 90% and 88% of net revenues for 2000 and 1999, respectively.
Service revenues generated from equipment repairs performed under preventive
maintenance contracts or emergency service billings and miscellaneous
revenues accounted for approximately 4.4% and 4.7% of the Company's net
revenues, at constant currency, for 2000 and 1999, respectively. Equipment
revenues decreased approximately 27.5% year over year. At constant currency
rates and reflected at a comparable basis, the equipment revenue was down
26.9%. The 26.9% decrease resulted from a combination of customer preference
for, and the Company's policy of, moving toward placing Company-owned
equipment versus selling it under long-term sales-type leases. International
sales accounted for approximately 68% and 69% of net revenues for 2000 and
1999, respectively.
Gross profit
Gross profit of $131.3 million in 2000 decreased $2.2 million from
$133.5 million in 1999. At constant currency rates and reflected on a
comparable basis, gross profit as a percent of net revenues increased 0.9%
or $4.5 million from 1999. Of the $4.5 million improvement in gross profit,
$1.9 million was the result of labor cost savings and factory automation as
a result of the Company's Customer Oriented Redesign for Excellence (CORE)
Program.
Expenses
The Company expended $14.9 million on research and development in 2000
and $15.1 million in 1999 which represents 5.4% of net revenues in both 2000
and 1999. Currency had a minimal effect on research and development expenses
year over year.
Selling, general and administrative expenses decreased to $82.8
million in 2000 from $86.7 million in 1999. At constant currency and
reflected on a comparable basis, selling, general and administrative
expenses increased $0.4 million year over year, but decreased as a percent
of net revenues from 29.7% in 1999 to 29.3% in 2000. During 2000, the
Company experienced approximately $1.7 million in distribution and other
selling, general and administrative savings from the CORE program.
Unusual item
Beginning in fiscal year 1997, the Company placed approximately 1200
plasma collection machines in China under a sales-type lease contract. As a
result of intellectual property issues, high duties and restrictive local
regulations, the present business environment in China has impaired the
Company's ability to realize the full value of the sales-type lease contract
as originally recorded. Accordingly, in the fourth quarter of fiscal year
2000, the Company wrote down the investment in sales type leases by $9.5
million and reflected this as an unusual charge in its Operating Expenses on
its Consolidated Statement of Operations. The remaining balance of the sales
type lease contract recorded on the books as of April 1, 2000 reflects the
net present value of estimated future cash flows.
Operating Income
Operating income decreased from $31.6 million in 1999 to $24.1 million
in 2000 or 2.5% as a percent of net revenues. At constant currency and
reflected on a comparable basis without the effect of the unusual item,
operating income as a percent of net revenues, increased 1.6% or $4.8
million from 1999 largely due to year over year gross profit improvements.
Foreign Exchange
Greater than two-thirds of the Company's revenues are generated
outside the U.S. in foreign currencies. As such, the Company uses a
combination of business and financial tools comprised of various natural
hedges, (offsetting exposures from local production costs and operating
expenses), and forward contracts to hedge its balance sheet and P&L
exposures.
The purpose of the Company's hedging activities is to minimize, for a
period of time, the unforeseen impact of fluctuations in foreign exchange
rates on the Company's results of operations. The Company enters into
forward contracts, generally one year out, to hedge firm disposable sales
commitments to customers, after consideration of natural hedges, that are
denominated in foreign currencies, mainly Japanese Yen and the Euro. Actual
gains and losses on all forward contracts are recorded in operations,
offsetting the gains and losses on the underlying transactions being hedged.
While the Company's hedging program does not eliminate the volatility of
foreign exchange rates, it fixes rates for a period of one year, thereby
facilitating financial planning and resource allocation.
The Company computes a composite rate index for purposes of measuring,
comparatively, the change in foreign currency hedge spot rates from the
hedge spot rates of the corresponding period in the prior year. The relative
value of currencies in the index corresponds to the value of sales in those
currencies. The composite was set at 1.00 based upon the weighted rates at
March 31, 1997.
For fiscal year 2000, the indexed hedge rates were 3.9% less favorable
than those in fiscal 1999. For fiscal 2001, the indexed hedge spot rates
represent a 9.1% appreciation over those in year 2000. The final impact of
currency fluctuations on the results of operations is dependent on the local
currency amounts hedged and the actual local currency results.
<TABLE>
<CAPTION>
Composite Index Favorable / (Unfavorable)
Hedge Spot Rates Change vs Prior Year
---------------------------------------------
<S> <C> <C> <C>
FY1999 Q1 0.98 (9.4%)
Q2 1.06 (13.4%)
Q3 1.03 (5.9%)
Q4 1.05 (7.4%)
1999 Total 1.03 (9.1%)
FY2000 Q1 1.10 (10.8%)
Q2 1.09 (2.8%)
Q3 1.04 (0.6%)
Q4 1.07 (1.0%)
2000 Total 1.07 (3.9%)
FY2001 Q1 1.04 5.4%
Q2 1.00 8.2%
Q3 0.92 12.9%
Q4 0.97 10.3%
2001 Total 0.98 9.1%
</TABLE>
Other Income and Expense
Interest expense increased $0.3 million to $4.4 million in fiscal
year 2000 due to higher average debt levels. Interest income increased $0.2
million to $5.0 million in fiscal year 2000 as a result of higher average
cash balances and higher average yields offset by lower interest income
generated from declining sales-type lease balances.
Other income (expense) increased by $2.3 million of income from fiscal
year 1999 to fiscal year 2000 due to increases in income earned from points
on forward contracts and decreases in foreign exchange transaction losses.
Taxes
The provision for income taxes, as a percentage of pretax income, was
31.0% for fiscal year 2000, down from 35.0% in fiscal year 1999. The
decrease in tax rate was due to a decrease in the Japanese statutory tax
rate, the mix of income between jurisdictions and greater utilization of
foreign sales corporation benefits.
A further reduction in the tax rate to 29% is anticipated in fiscal
year 2001 due to the geographic distribution of income, anticipated tax
benefits from export sales and international and state tax planning.
1999 compared to 1998
Net Revenues
Net revenues in 1999 decreased 1.3% to $282.1 million from $285.8
million in 1998. With currency rates held constant, net revenues increased
3.3%. Disposable sales increased approximately 2.5%. With currency rates
held constant, disposable sales increased 7.6%. The 7.6% increase was a
result of growth in all three product lines, worldwide surgical 10.3%,
worldwide blood bank 5.9% and worldwide plasma 8.1%, reflecting an
additional week in the first quarter of 1999. Constant currency sales of
disposable products, excluding service and other miscellaneous revenue,
accounted for approximately 88% and 84% of net revenues for 1999 and 1998,
respectively. Service revenues generated from equipment repairs performed
under preventive maintenance contracts or emergency service billings and
miscellaneous revenues accounted for approximately 4.7% and 3.7% of the
Company's net revenues, at constant currency, for 1999 and 1998,
respectively. Equipment revenues decreased approximately 36.0% year over
year, both at actual dollars and at constant currency rates. The 36.0%
decrease resulted from a combination of customer preference for, and the
Company's policy of, moving toward placing Company-owned equipment versus
selling it under long-term sales-type leases. In addition, in the worldwide
plasma business, 1998 revenues included $6.0 million of plasma equipment
shipments to China and equipment sales to a U.S. plasma customer that were
not repeated in 1999. International sales accounted for approximately 68%
and 67% of net revenues for 1999 and 1998, respectively.
Gross profit
Gross profit of $133.5 million in 1999 decreased $2.3 million from
$135.8 million 1998. At constant currency rates, gross profit as a percent
of sales increased 2.7% or $11.3 million from 1998. The improvement in gross
profit at constant currency was largely the result of lower product costs
from cost saving initiatives undertaken during the third quarter of fiscal
1998 and labor cost savings generated by the CORE Program.
Expenses
The Company expended $15.1 million (5.4% of net revenues) on research
and development in 1999 and $17.9 million (6.3% of net revenues) in 1998.
Currency had a minimal effect on research and development expenses year over
year.
Selling, general and administrative expenses decreased to $86.7
million in 1999 from $86.9 million in 1998. At constant currency, selling,
general and administrative expenses increased $3.3 million year over year,
representing 31% of constant currency sales in both periods. Adjusting for
the Q1 FY99 impact of settling litigation ($2.6 million), and the additional
week in that quarter, constant currency S,G&A decreased $1.6 million in 1999
as compared to 1998. During 1999, the Company experienced approximately $4.1
million in distribution savings from the CORE program. These savings were
partially offset by consulting fees related to CORE of $2.5 million which
did not recur in FY00.
Operating Income
Operating income before the fiscal 1998 $24.5 million restructure
charge, as a percentage of net revenues, increased 0.4 percentage points to
11.2% in 1999 from 10.8% in 1998. At constant currency rates, operating
income before the restructure charge, increased 54.5% from 1998 or $10.4
million. The $10.4 million increase in operating income resulted largely
from the year over year gross profit improvements.
Other Income and Expense
Interest expense increased in 1999 to $4.1 million from $3.4 million
in 1998 due to a higher average level of borrowings in the U.S., resulting
from the $40.0 million in fixed rate notes with a coupon rate of 7.05%
issued by the Company during the third quarter of 1998. Interest income
increased $1.4 million in 1999 to $4.8 million as a result of interest
earned on increased US cash balances.
Other income (expense) increased by $2.2 million of income from 1998
to 1999 due to lower amortization expense and a $2.1 million write-off in
1998 of a non-strategic initiative, which was non-recurring in 1999. These
increases in income were partially offset by increased transaction losses in
1999.
Taxes
The provision for income taxes, as a percentage of pretax income, was
35.0% for 1999, down from 86.5% in 1998. The 1998 income tax rate of 86.5%
was due to the shift in taxable income from the domestic operations to the
higher taxed foreign operations and as a result of the one-time
restructuring charge of $24.5 million.
Results of Discontinued Operations (Blood Bank Management Services, "BBMS")
2000 compared to 1999
Accounting for the divestiture of all BBMS centers was completed
during the second quarter of fiscal year 2000 with the reversal of the
excess reserve amounting to $144,000 (net of $68,000 of taxes).
1999 compared to 1998
Net revenues decreased 11.3% to $16.0 million in 1999. Gross profit
increased to $0.2 million in 1999 from $(0.2) million in 1998 and operating
losses decreased 22.9% to $(8.3) million in 1999.
During fiscal year 1999, the Company sold six of its seven regional
blood systems for total cash proceeds of $5,325,000. Additionally, on May 2,
1999, the Company sold its one remaining center completing the divestiture
of its BBMS business.
Liquidity and Capital Resources
The Company has satisfied its cash requirements principally from
internally generated cash flow and borrowings. The Company's need for funds
is derived primarily from capital expenditures, working capital, share
repurchase and strategic investments.
During the twelve months ended April 1, 2000, the Company increased
its cash balances by $5.5 million from operating, investing and financing
activities before the effect of exchange rates. This $5.5 million is $29.4
million below the $34.9 million generated before the effect of exchange
rates by the Company's operating, investing and financing activities during
the twelve months ended April 3, 1999. The $29.4 million decrease was a
result of $19.8 million more cash provided by the Company's operating
activities offset by $49.2 million more cash utilized by the Company's
investing and financing activities.
Operating Activities:
The Company generated $58.4 million in cash from operating activities
of continuing operations in fiscal 2000 as compared to $51.1 million
generated during 1999. The $7.3 million increase year over year in cash
generated from the operating activities was a result of a $13.3 million
increase in net income adjusted for depreciation, amortization and other
non-cash items, a $7.6 million decrease in accounts receivable, a $5.5
million reduction in the current investment in sales-type leases and a $6.1
million decrease in other assets. These sources of cash were offset by
increased uses of cash from a $4.3 million increased inventory investment, a
$5.8 million increase in prepaid taxes, ($7.7 million of fiscal year 1999
refunds that did not recur in fiscal year 2000), and a $15.1 million
decrease in accounts payable, accrued expenses and other current liabilities
due to lower tax provision accruals in fiscal year 2000 as compared to
fiscal year 1999.
The Company measures its performance using an operating cash flow
metric defined as net income adjusted for depreciation, amortization and
other non-cash items; capital expenditures for property, plant and equipment
together with the investment in Haemonetics equipment at customer sites,
including sales-type leases; and the change in operating working capital,
including change in accounts receivable, inventory, accounts payable and
accrued expenses, excluding tax accounts and the effects of currency
translation. During fiscal 2000, the company generated $40.5 million of
operating cash representing an increase of $11.5 million from the $29.0
million generated during 1999. The increase year over year was largely the
result of reduced investment in operating working capital. The $40.5 million
of operating cash generated for fiscal year 2000 resulted from $28.7 million
of net income adjusted for non-cash items, $9.5 million from the reduction
of the Company's net investment in property plant and equipment and sales-
type leases and $2.3 million in lower working capital investment.
Investing Activities:
The Company utilized $33.7 million in cash for investing activities
from continuing operations in 2000, an increase of $23.5 million from 1999.
The $23.5 million increase in cash utilized is attributable to a fiscal year
2000 investment in Transfusion Technology Corporation of $15.2 million, and
a $7.5 million decrease in the cash generated from the net repayment of
long-term sales type leases as compared to fiscal year 1999.
Financing Activities:
During the twelve months ended April 1, 2000, the Company purchased
2,000,000 shares of its outstanding common stock at an average market price
of $19.85 which utilized $39.7 million in cash. In addition, the Company's
operations generated $17.1 million less cash from operating and investing
activities as compared to the twelve months ended April 3, 1999. This
increased use of cash of $56.8 million when partially offset by the $2.2
million in cash generated from stock purchase plan and option activity
resulted in the increase in the change in net debt of $54.7 million from
1999.
At April 1, 2000, the Company had working capital of $121.4 million.
This reflects a decrease of $40.7 million in working capital for the twelve
months ended April 1, 2000, largely due to a shift to short term notes from
long term borrowings, and $6.5 million accrued in accounts payable at April
1, 2000 for an unsettled stock repurchase transaction. The Company believes
its sources of cash are adequate to meet its projected needs.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which the Company will be required to adopt in the first
quarter of fiscal year 2001. SAB 101 provides additional guidance on the
accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company is
in the process of accumulating the information necessary to quantify the
potential impact, if any, of this new guidance.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The SFAS No. 133 requires that changes in the derivatives
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows
a derivative's gains and losses to offset related results on the hedged item
in the income statement, or in the case of a hedge of a forecasted probable
transaction, a derivative's gains and losses are included in other
comprehensive income until the transaction is consummated. Additionally, a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. A company may implement SFAS No.
133 as of the beginning of any fiscal quarter after issuance (that is fiscal
quarters beginning June 16, 1999 and thereafter). SFAS No. 133 cannot be
applied retroactively. The impacts of adopting SFAS No. 133 on the Company's
financial statements or the timing of adoption of SFAS No. 133 have not been
determined. However, it is expected that the derivative financial
instruments acquired in connection with the Company's hedging program will
continue to qualify for hedge accounting.
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements made
by the Company that are prefaced with the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," "designed" and
similar expressions, are intended to identify forward looking statements
regarding events, conditions and financial trends that may affect the
Company's future plans of operations, business strategy, results of
operations and financial position. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances about which the Company can give no firm assurance. Further,
any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made. As it is not possible to predict every new
factor that may emerge, forward-looking statements should not be relied upon
as a prediction of actual future financial condition or results. These
forward-looking statements, like any forward-looking statements, involve
risks and uncertainties that could cause actual results to differ materially
from those projected or unanticipated. Such risks and uncertainties include
technological advances in the medical field and the Company's ability to
successfully implement products that incorporate such advances, product
demand and market acceptance of the Company's products, regulatory
uncertainties, the effect of economic conditions, the impact of competitive
products and pricing, foreign currency exchange rates, changes in customers'
ordering patterns, the effect of uncertainties in markets outside the U.S.
(including Europe and Asia) in which the Company operates, and the
implications of Year 2000 including but not limited to the cost and expense
of any potential system interruptions. The foregoing list should not be
construed as exhaustive.
Year 2000 Costs
Haemonetics made the transition to the calendar year 2000 without any
significant "Year 2000" interruptions. Throughout the course of the Year
2000 project, the Company spent approximately $3 million replacing or
upgrading over 700 PCs and other computers, telecommunication systems around
the world and adding back-up capabilities. In addition, a complete inventory
of computer software was developed. Over 35% of the software applications
were upgraded, remediated, or retired. Several non-information technology
functions were also improved including manufacturing facilities and customer
support areas. The Company also took this opportunity to leverage Year 2000
contingency planning activities into disaster recovery plans for locations
around the world.
Risks
The Company continues to evaluate the risks associated with the
potential delayed impact of Year 2000 related failures. The failure to
correct a material Year 2000 problem could result in an interruption in, or
a failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's business,
financial condition, and results of operations. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-parties, the Company is
unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's business, financial
condition, and results of operations. The Company's Year 2000 project has
significantly reduced the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of
its critical vendors. The Company believes that, with the implementation of
new business systems and completion of the Company's Year 2000 project as
scheduled, the possibility of significant interruptions of normal operations
has been reduced.
Euro Currency
Effective January 1, 1999, 11 of the 15 countries in the European
Union (Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy,
Luxembourg, Portugal and Spain) adopted a single currency known as the Euro.
For the three years following January 1, 1999, these countries will be
allowed to transact business in both the Euro and in their own currencies at
fixed exchange rates. Beginning on July 1, 2002, the Euro will become the
only currency for these 11 countries.
Operations in Europe
The introduction of the Euro may have a significant impact on the
Company's operations. The Company has 10 subsidiaries located throughout
Europe, that generate one-third of its sales.
State of Readiness
The Company has formed a Euro Steering Committee (the "Committee") to
address all issues related to the Euro. This Committee is now preparing a
detailed action plan which will cover all areas of concern including
information systems, finance, tax, treasury, legal, marketing and human
resources.
As a part of the detailed action plan, a comprehensive questionnaire
was distributed to all of the Company's European subsidiaries to gain a
better understanding of the impact of the Euro currency in each location.
Currently, the responses to the questionnaires are being analyzed and
specific action plans are being developed for each subsidiary.
Date of conversion
The target date for conversion of the Company's local and corporate
information systems to the Euro is April 1, 2001, which is the first day of
the Company's fiscal year 2002.
Business activities
Although the introduction of the Euro will likely result in greater
transparency of pricing throughout Europe, it is anticipated that these
changes will have little impact on Haemonetics. The Company's products are
heavily regulated by organizations specific to each country and as a result,
transactions between countries are infrequent.
Information systems
The Company is continuing to gain a more complete view of the impact
of the Euro conversion on its information systems. The Company realizes it
will create technical challenges to adapt information technology and other
systems to accommodate Euro-denominated transactions. The Committee is in
the process of identifying all systems and determining their state of Euro
readiness. The cost of adapting these systems is not yet known, but the
Company does not believe it to be significant. All systems will be tested
during the first two quarters of Fiscal Year 2001.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposures relative to market risk are due to foreign
exchange risk and interest rate risk.
Foreign exchange risk
Over two-thirds of the Company's revenues are generated outside the
U.S. yet the Company's reporting currency is the U.S. dollar. Foreign
exchange risk arises because the Company engages in business in foreign
countries in local currency. Exposure is partially mitigated by producing
and sourcing product in local currency. Accordingly, whenever the US dollar
strengthens relative to the other major currencies, there is an adverse
affect on the Company's results of operations and alternatively, whenever
the U.S. dollar weakens relative to the other major currencies, there is a
positive effect on the Company's results of operations.
It is the Company's policy to minimize for a period of time the
unforeseen impact on its results of operations of fluctuations in foreign
exchange rates by using derivative financial instruments known as forward
contracts to hedge the majority of its firm sales commitments to customers
that are denominated in foreign currencies. The Company also enters into
forward contracts that settle within 35 days to hedge certain intercompany
receivables denominated in foreign currencies. Actual gains and losses on
all forward contracts are recorded in operations, offsetting the gains and
losses on the underlying transactions being hedged. These derivative
financial instruments are not used for trading purposes. The Company's
primary foreign currency exposures in relation to the U.S. dollar are the
Japanese Yen and the Euro equivalent of the French Franc, Deutsche Mark and
Italian Lire.
At April 1, 2000, the Company had the following foreign exchange
contracts to hedge certain firm sales commitments denominated in foreign
currency outstanding:
<TABLE>
<CAPTION>
Hedged (BUY) / SELL Weighted Forward US$ @ Unrealized
Currency Local Currency Contract Rate Current Fwd Gain/(Loss) Maturity
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Euro Equivalent 7,500,000 $1.054 7,181,950 $ 724,200 Apr-Jun 2000
Euro Equivalent 7,200,000 $1.077 6,936,600 $ 820,560 Jul-Sep 2000
Euro Equivalent 7,500,000 $1.108 7,269,400 $ 1,038,100 Oct-Dec 2000
Euro Equivalent 8,100,000 $1.004 7,895,790 $ 232,840 Jan-Mar 2001
Japanese Yen 1,850,000,000 117.3 per US$ 18,146,380 $(2,371,900) Apr-Jun 2000
Japanese Yen 1,975,000,000 111.9 per US$ 19,729,484 $(2,080,868) Jul-Sep 2000
Japanese Yen 2,075,000,000 99.7 per US$ 21,129,499 $ (308,637) Oct-Dec 2000
Japanese Yen 1,900,000,000 100.8 per US$ 19,713,368 $ (861,935) Jan-Mar 2001
---------------------------------------------
Total: 108,002,471 $(2,807,640)
=============================================
</TABLE>
The Company estimated the change in the fair value of all forward
contracts assuming both a 10% strengthening and weakening of the U.S. dollar
relative to all other major currencies. In the event of a 10% strengthening
of the U.S. dollar, the change in fair value of all forward contracts would
create an additional $13.1 million unrealized gain; whereas a 10% weakening
of the U.S. dollar would create an additional $15.2 million unrealized loss.
Interest Rate Risk
All of the Company's long-term debt is at fixed rates. Accordingly, a
change in interest rates has an insignificant effect on the Company's
interest expense amounts. The fair value of the Company's long-term debt
however would change in response to interest rates movements due to its
fixed rate nature. At April 1, 2000, the fair value of the Company's long-
term debt was approximately $0.5 million higher than the value of the debt
reflected on the Company's financial statements. This higher fair market is
primarily related to the $40 million, 7.05% fixed rate senior notes the
Company holds. These notes represent approximately 97% of the Company's
outstanding long-term borrowings at April 1, 2000. At April 3, 1999, the
fair value of the Company's long-term debt was $2.9 million higher than the
value of the debt reflected on the Company's financial statements.
Using scenario analysis, the Company changed the interest rate on all
long-term maturities by 10% from the rate levels, which existed at April 1,
2000. The effect was a change in the fair value of the Company's long-term
debt, of approximately $1.5 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
---------------------------------
April 1, April 3, March 28,
2000 1999 1998
---------------------------------
<S> <C> <C> <C>
Net revenues $277,924 $282,145 $285,762
Cost of goods sold 146,606 148,643 150,007
--------------------------------
Gross profit 131,318 133,502 135,755
--------------------------------
Operating expenses:
Research and development 14,927 15,140 17,934
Selling, general and administrative 82,758 86,734 86,909
Non-recurring restructuring expense -- -- 24,500
Unusual item 9,548 -- --
--------------------------------
Total operating expenses 107,233 101,874 129,343
--------------------------------
Operating income 24,085 31,628 6,412
Interest expense (4,372) (4,117) (3,373)
Interest income 5,000 4,821 3,366
Other income (expense), net 2,612 252 (1,939)
--------------------------------
Income from continuing operations
before provision for income taxes 27,325 32,584 4,466
Provision for income taxes 8,471 11,405 3,865
--------------------------------
Income from continuing operations 18,854 21,179 601
Discontinued operations:
Income (loss) from discontinued
operations, net of income tax
expense (benefit) of $68 in 2000,
($56) in 1999 and ($3,863) in 1998 144 (102) (7,173)
Loss on disposal, net of income tax
benefit of ($9,800) -- -- (18,200)
--------------------------------
Income (loss) from discontinued operations 144 (102) (25,373)
Net income (loss) $ 18,998 $ 21,077 $(24,772)
================================
Basic income (loss) per common share
Continuing operations $ 0.723 $ 0.792 $ 0.023
Discontinued operations $ 0.006 $ (0.004) $ (0.956)
Net income (loss) $ 0.728 $ 0.788 $ (0.933)
Income (loss) per common share assuming
dilution
Continuing operations $ 0.711 $ 0.788 $ 0.023
Discontinued operations $ 0.005 $ (0.004) $ (0.954)
Net income (loss) $ 0.717 $ 0.784 $ (0.932)
Weighted average shares outstanding
Basic 26,087 26,744 26,537
Diluted 26,501 26,886 26,589
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
April 1, 2000 April 3, 1999
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 61,328 $ 56,319
Accounts receivable, less allowance
of $1,149 in 2000 and $747 in 1999 59,140 62,975
Inventories 59,817 59,773
Current investment in sales-type leases, net 8,036 12,303
Deferred tax asset 16,360 29,741
Other prepaid and current assets 5,237 10,211
------------------------
Total current assets 209,918 231,322
Property, plant and equipment:
Land, building, and building improvements 28,561 26,781
Plant equipment and machinery 43,070 40,072
Office equipment and information technology 25,810 29,855
Haemonetics equipment 87,991 81,358
------------------------
Total property, plant and equipment 185,432 178,066
Less: accumulated depreciation 103,824 95,050
------------------------
Net property, plant and equipment 81,608 83,016
Other assets:
Investment in sales-type leases, net
(long-term) 10,775 24,716
Distribution rights, net 11,356 10,990
Goodwill, less accumulated amortization
of $662 in 2000 and $517 in 1999 1,832 1,977
Deferred tax asset 14,806 1,107
Other assets, net 18,815 3,231
------------------------
Total other assets 57,584 42,021
------------------------
Total assets $349,110 $356,359
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt $ 32,896 $ 6,645
Accounts payable 17,224 10,666
Accrued payroll and related costs 8,456 9,229
Accrued income taxes 15,700 21,850
Other accrued liabilities 14,199 17,476
Current liabilities and accrued losses
net of current assets of discontinued
operations 0 3,268
------------------------
Total current liabilities 88,475 69,134
Deferred income taxes 10,722 11,684
Long-term debt, net of current maturities 41,306 52,526
Other long-term liabilities 2,164 1,008
Long-term liabilities, net of long-term
assets of discontinued operations 0 146
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value;
Authorized - 80,000,000 shares;
Issued 30,004,811 shares in 2000;
29,702,623 shares in 1999 300 297
Additional paid-in capital 73,662 65,504
Retained earnings 230,732 211,834
Cumulative translation adjustment (13,078) (9,825)
------------------------
Stockholders' equity before treasury stock 291,616 267,810
Less: treasury stock at cost 4,728,762
shares in 2000 and 2,756,969 shares
in 1999 85,173 45,949
------------------------
Total stockholders' equity 206,443 221,861
------------------------
Total liabilities and stockholders'
equity $349,110 $356,359
========================
Supplemental disclosure of balance sheet
information:
Net Debt $ 12,874 $ 2,852
========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Total
------------- Paid-in Treasury Retained Translation Stockholders' Comprehensive
Shares $'s Capital Stock Earnings Adjustment Equity Income
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 29, 1997 29,238 $292 $56,547 $(41,060) $215,657 $ (6,162) $225,274
Employee stock purchase plan -- -- -- 677 (128) -- 549
Exercise of stock options
and related tax benefit 104 1 2,595 -- -- -- 2,596
Purchase of treasury stock -- -- -- (5,566) -- -- (5,566)
Net loss -- -- -- -- (24,772) -- (24,772) $(24,772)
Foreign currency translation
adjustment -- -- -- -- -- (3,426) (3,426) (3,426)
--------
Comprehensive income -- -- -- -- -- -- -- $(28,198)
--------------------------------------------------------------------------------------------
Balance, March 28, 1998 29,342 $293 $59,142 $(45,949) $190,757 $ (9,588) $194,655
Employee stock purchase plan -- -- -- -- -- -- 0
Exercise of stock options
and related tax benefit 361 4 6,362 -- -- -- 6,366
Net income -- -- -- -- 21,077 -- 21,077 $ 21,077
Foreign currency translation
adjustment -- -- -- -- -- (237) (237) (237)
--------
Comprehensive income -- -- -- -- -- -- -- $ 20,840
--------------------------------------------------------------------------------------------
Balance, April 3, 1999 29,703 $297 $65,504 $(45,949) $211,834 $ (9,825) $221,861
============================================================================================
Employee stock purchase plan -- -- -- 479 (100) -- 379
Exercise of stock options
and related tax benefit 302 3 8,158 -- -- -- 8,161
Purchase of treasury stock -- -- -- (39,703) -- -- (39,703)
Net income -- -- -- -- 18,998 -- 18,998 $ 18,998
Foreign currency translation
adjustment -- -- -- -- -- (3,253) (3,253) (3,253)
--------
Comprehensive income -- -- -- -- -- -- -- $ 15,745
--------------------------------------------------------------------------------------------
Balance, April 1, 2000 30,005 $300 $73,662 $(85,173) $230,732 $(13,078) $206,443
============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended
---------------------------------
April 1, April 3, March 28,
2000 1999 1998
---------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 18,998 $ 21,077 $(24,772)
Less net income (loss) from discontinued operations 144 (102) (25,373)
--------------------------------
Net income from continuing operations 18,854 21,179 601
Adjustments to reconcile net income to net cash
provided by operating activities:
Non cash items:
Depreciation and amortization 24,906 24,573 22,861
Restructuring charge -- -- 24,500
Deferred tax benefit (1,697) (7,329) (338)
Unusual item and other non cash items 12,268 2,621 --
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net 3,560 (4,098) 9,668
(Increase) decrease in inventories (1,843) 2,499 (14,675)
(Increase) decrease in sales-type leases (current) 4,216 (1,301) 967
(Increase) decrease in prepaid income taxes 2,494 8,234 (8,842)
(Increase) decrease in other assets 1,588 (4,474) 99
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities (5,949) 9,197 (2,745)
--------------------------------
Net cash provided by operating activities, continuing operations 58,397 51,101 32,096
Net cash used in operating activities, discontinued operations (4,932) (17,387) (11,697)
--------------------------------
Net cash provided by operating activities 53,465 33,714 20,399
Cash Flows from Investing Activities:
Capital expenditures on property,
plant and equipment, net of
retirements and disposals (23,315) (22,466) (20,380)
Other investments (15,200) -- --
Increase in distribution rights -- -- (1,717)
Net (increase) decrease in sales-type leases (long-term) 4,814 12,280 (8,923)
--------------------------------
Net cash used in investing activities, continued operations (33,701) (10,186) (31,020)
Net cash provided by (used in) investing activities, discontinued operations 3,562 16,910 (15,965)
--------------------------------
Net cash provided by (used in) investing activities (30,139) 6,724 (46,985)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage (116) (208) (186)
Net increase (decrease) in short-term revolving
credit agreements 16,991 (10,813) (1,038)
Net increase (decrease) in long-term credit agreements (3,501) (850) 3,757
Borrowings under long term senior note purchases agreements -- -- 40,000
Employee stock purchase plan 379 -- 549
Exercise of stock options and related tax benefit 8,161 6,366 2,596
Purchase of treasury stock (39,703) -- (5,566)
--------------------------------
Net cash provided by (used in) financing activities (17,789) (5,505) 40,112
Effect of exchange rates on cash and cash equivalents (528) (380) (32)
--------------------------------
Net Increase in Cash and Cash Equivalents 5,009 34,553 13,494
Cash and Cash Equivalents at Beginning of Year 56,319 21,766 8,272
--------------------------------
Cash and Cash Equivalents at End of Year $ 61,328 $ 56,319 $ 21,766
================================
Supplemental disclosures of cash flow information:
Net decrease in cash and cash equivalents, discontinued operations $ (1,370) $ (477) $(27,662)
Net increase in cash and cash equivalents, continuing operations $ 6,379 $ 35,030 $ 41,156
Increase (decrease) in net debt $ 8,365 $(46,424) $ 29,039
Interest paid $ 4,017 $ 4,038 $ 2,423
Income taxes paid (refunded) $ 10,695 $ (5,327) $ 16,792
================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1. DESCRIPTION OF THE BUSINESS
Haemonetics Corporation and subsidiaries (the "Company") designs,
manufactures and markets automated systems for the collection, processing
and surgical salvage of blood.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Saturday closest to the last day
of March. Fiscal year 2000 and fiscal year 1998 each included 52 weeks.
Fiscal 1999 included 53 weeks, with 14 weeks in the first quarter.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management 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 differ from those estimates.
Cash and Cash Equivalents
Cash equivalents include various short-term instruments such as money
market funds offering daily liquidity and commercial paper. Cash and cash
equivalents are recorded at cost, which approximates market value.
Net Income (Loss) per Share
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations, as
required by Statement of Financial Accounting Standards, "SFAS" No. 128,
"Earnings Per Share." Basic EPS is computed by dividing reported earnings
available to stockholders by weighted average shares outstanding. Diluted
EPS includes the effect of other common stock equivalents.
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------
April 1, 2000 April 3, 1999 March 28, 1998
------------------------------------------------------
(Dollars and shares in thousands except share amounts)
<S> <C> <C> <C>
Basic EPS
Net income (loss) $18,998 $21,077 $(24,772)
Weighted average shares 26,087 26,744 26,537
---------------------------------------------
Basic income (loss) per share $ 0.728 $ 0.788 $ (0.933)
Diluted EPS
Net income (loss) $18,998 $21,077 $(24,772)
Basic weighted average shares 26,087 26,744 26,537
Effect of stock options 414 142 52
---------------------------------------------
Diluted weighted average shares 26,501 26,886 26,589
Diluted income (loss) per share $ .717 $ .784 $ (0.932)
=============================================
</TABLE>
The diluted weighted average shares do not include the effect of
options that were anti-dilutive. Anti-dilutive options were approximately
115,000, 420,000 and 2,414,000 for 2000, 1999 and 1998, respectively.
Foreign Currency
Foreign currency transactions and financial statements are translated
into U.S. dollars following the provisions of SFAS No. 52, "Foreign Currency
Translation." Accordingly, assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at exchange rates in effect at year end.
Net revenues, costs and expenses are translated at average rates in effect
during the year. The effects of exchange rate changes on the Company's
assets and liabilities are included in the cumulative translation adjustment
account. Included in other income (expense) in the consolidated statement of
operations in 2000, 1999 and 1998 are $19,775, ($1,166,000) and $318,000,
respectively, in foreign currency transaction gains (losses).
The Company enters into forward exchange contracts to hedge certain
firm sales commitments to customers that are denominated in foreign
currencies. The purpose of the Company's foreign hedging activities is to
minimize, for a period of time, the unforeseen impact on the Company's
results of operations of fluctuations in foreign exchange rates. The Company
also enters into forward contracts that settle within 35 days to hedge
certain intercompany receivables denominated in foreign currencies. Actual
gains and losses on all forward contracts are recorded in operations,
offsetting the gains and losses on the underlying transactions being hedged.
These derivative financial instruments are not used for trading purposes.
The cash flows related to the gains and losses on these foreign currency
hedges are classified in the consolidated statements of cash flows as part
of cash flows from operating activities.
At April 1, 2000 and April 3, 1999, the Company had forward exchange
contracts, all maturing in less than twelve months, to exchange foreign
currencies (major European currencies and Japanese yen) primarily for U.S.
dollars totaling $137,816,000 and $146,596,300, respectively. Of the
respective balances, $29,813,000 and $50,365,000 represented contracts
related to intercompany receivables that settled within 35 days. The balance
of the contracts relate to firm sales commitments. Gross unrealized gains
and losses from hedging firm sales commitments, based upon current forward
rates, were a $2,815,700 gain and a $5,623,300 loss at April 1, 2000 and a
$2,671,000 gain and a $6,582,000 loss at April 3, 1999. Deferred gains and
losses are recognized in earnings when the transactions being hedged are
recognized. Management anticipates that these deferred amounts at April 1,
2000 will be offset by the foreign exchange effect on sales of products to
international customers in future periods.
The Company is exposed to credit loss in the event of nonperformance
by counter-parties on these foreign exchange contracts. The Company does not
anticipate nonperformance by any of these parties.
Financial Instruments
The fair value of certain of the Company's financial instruments
including cash and cash equivalents and notes payable approximated their
carrying values at April 1, 2000 and April 3, 1999.
At April 1,2000, the fair value of the Company's long-term debt was
$0.5 million higher than the value of the debt reflected on the Company's
financial statements. This higher fair market is primarily related to the
$40 million, 7.05% fixed rate senior notes the Company holds. Fair values
have been determined through information obtained from market sources and
management estimates. At April 3, 1999, the fair value of the Company's
long-term debt was $2.9 million higher than the value of the debt reflected
on the Company's financial statements.
Inventories
Inventories are stated at the lower of cost or market and include the
cost of material, labor and manufacturing overhead. Cost is determined on
the first-in, first-out basis.
Inventories consist of the following:
<TABLE>
<CAPTION>
April 2, April 3,
2000 1999
--------------------
(in thousands)
<S> <C> <C>
Raw materials $14,081 $14,497
Work-in-process 7,199 5,106
Finished goods 38,537 40,170
-------------------
$59,817 $59,773
===================
</TABLE>
Property, Plant and Equipment
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:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Lives
-------------------- ------------
<S> <C>
Building 30 Years
Building and leasehold improvements 5-25 Years
Plant equipment and machinery 3-10 Years
Office equipment and information technology 4-8 Years
Haemonetics equipment 2-8 Years
</TABLE>
Leasehold improvements are amortized over the lesser of their useful
lives or the term of the lease. Maintenance and repairs are charged to
operations as incurred. 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 results of operations. Fully depreciated assets are removed
from the accounts when they are no longer in use.
Revenue Recognition
Revenues from equipment and disposable product sales and sales-type
leases are recognized upon shipment. Service revenues are recognized ratably
over the contractual periods or as the services are provided. The Company
provides for warranty costs based on product shipments.
Income Taxes
The Company accounts for income taxes in accordance with the liability
method. The liability method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of the
temporary differences between the tax and financial reporting bases of
assets and liabilities.
Distribution Rights
Distribution rights represent the cost to acquire the right to
directly distribute certain of the Company's products in foreign markets.
These rights were acquired in several different acquisitions. The historical
cost of these acquisitions was approximately $ 16,218,000 and $16,076,000 as
of April 1, 2000 and April 3, 1999, respectively. All distribution rights
are amortized on a straight-line basis over 20 years. The accumulated
amortization was approximately $4,862,000 and $5,086,000 for the years ended
April 1, 2000 and April 3, 1999, respectively.
Accounting for Long-lived Assets
The Company accounts for long-lived assets in accordance with SFAS No.
121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of. The Company periodically reviews its long-lived
assets for potential impairment. The Company assesses the future useful life
of these assets, primarily property, plant, equipment, investment in sales-
type leases and distribution rights, whenever events or changes in
circumstances indicate that the current useful life has diminished. The
Company considers the future undiscounted cash flows of these assets in
assessing their recoverability. If impairment has occurred, any excess of
carrying value over fair value is recorded as a loss.
Accounting for Stock-Based Compensation
In December 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation," which became effective for the Company in fiscal year
1998. SFAS No. 123 requires that employee stock-based compensation be
recorded or disclosed at its fair value. The Company has elected to adopt
the disclosure provision for employee stock-based compensation in SFAS No.
123 and to continue to account for employee stock-based compensation under
Accounting Pronouncement Board No. 25. No accounting recognition is given to
options granted to employees and directors at fair market value until they
are exercised. Upon exercise, net proceeds, including tax benefits realized,
are credited to equity. The compensation cost for options granted to
consultants is recorded at fair value in accordance with Emerging Issues
Task Force, "EITF" issue 96-18, "Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
Comprehensive Income
In the first quarter of fiscal year 1999, the Company adopted the
provisions of SFAS No. 130, reporting Comprehensive Income, which
established standards for reporting and display of comprehensive income and
its components. Comprehensive income is the total of net income and all
other nonowner changes in stockholders' equity, which for the Company, is
foreign currency translation.
New Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which the Company will be required to adopt in the first
quarter of fiscal year 2001. SAB 101 provides additional guidance on the
accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company is
in the process of accumulating the information necessary to quantify the
potential impact, if any, of this new guidance.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the income statement, or in the case of a hedge of a forecasted probable
transaction, a derivative's gains and losses are included in other
comprehensive income until the transaction is consummated. Additionally, a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. A company may implement SFAS No.
133 as of the beginning of any fiscal quarter after issuance, (that is
fiscal quarters beginning June 16, 1999 and thereafter). SFAS No. 133 cannot
be applied retroactively. The impacts of adopting SFAS No. 133 on the
Company's financial statements or the timing of adoption of SFAS No. 133
have not been determined. However, it is expected that the derivative
financial instruments acquired in connection with the Company's hedging
program will continue to qualify for hedge accounting.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the 2000 presentation.
3. INVESTMENT IN SALES-TYPE LEASES
The Company leases equipment to customers under sales-type leases. The
components of the Company's net investment in sales-type leases are as
follows:
<TABLE>
<CAPTION>
April 1, April 3,
2000 1999
-------------------
(in thousands)
<S> <C> <C>
Total minimum lease payments receivable $24,070 $50,211
Less - Unearned interest 5,259 13,192
------------------
Net investment in sales-type leases 18,811 37,019
Less - Current portion 8,036 12,303
------------------
$10,775 $24,716
==================
</TABLE>
Future minimum lease payments receivable under noncancelable leases as of
April 1, 2000 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending (in thousands)
-----------------------------------------
<S> <C>
2001 $9,621
2002 6,330
2003 3,978
2004 2,268
2005 and thereafter 1,873
-------
$24,070
=======
</TABLE>
4. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
April 1, April 3,
2000 1999
-------------------
(in thousands)
<S> <C> <C>
Real estate mortgage $ 8,128 $ 8,360
Senior notes 40,000 40,000
Haemonetics Japan Co. Ltd. 24,604 9,484
Other non-U.S. borrowings 1,470 1,327
------------------
74,202 59,171
Less - Current portion 32,896 6,645
------------------
$41,306 $52,526
==================
</TABLE>
Real Estate Mortgage Agreement
The Company has a $10,000,000 real estate mortgage agreement (the
"Mortgage Agreement") with an insurance company. The Mortgage Agreement
requires principal and interest payments of $91,500 per month for a period
of 120 months, commencing October 1, 1990, with the remaining unpaid
principal balance and interest thereon due and payable on September 1, 2000.
The entire balance of the loan may be repaid, subject to a prepayment
premium equal to the greater of either 1% of the principal balance at
prepayment, or an amount calculated based on the interest rate differential,
the principal balance due and the remaining loan term. The Mortgage
Agreement provides for interest to accrue on the unpaid principal balance at
a rate of 10.5% per annum. Borrowings under the Mortgage Agreement are
secured by the land, building and improvements at the Company's headquarters
and manufacturing facility. The Mortgage Agreement also includes minimum
tangible net worth and current ratio requirements. The terms and conditions
of this agreement remain unchanged for future periods.
Credit Facilities
The Company has a $20,000,000 committed, unsecured revolving credit
facility. As of April 1, 2000 the credit facility had no outstanding
borrowings. The $20,000,000 facility was available through June 25, 2000,
however on March 31, 2000 the Company sent notification to terminate the
Agreement early. Per the Agreement, the early termination was effective ten
business days from March 31, 2000 or April 14, 2000.
Senior Notes
The Company has outstanding $40,000,000 of 7.05% Senior Notes due 2007
(the "Senior Notes"). The Company is required to make annual prepayments of
principal each year in the amount $5,714,286 beginning on October 15, 2001
and concluding with the final principal payment on October 15, 2007.
Interest on the Senior Notes is computed on the basis of a 360-day
year of twelve 30-day months on the unpaid balance at the rate of 7.05% per
annum, payable semiannually, on April 15 and October 15 each year. The
Senior Notes contain affirmative and negative covenants and restrictions
including but not limited to minimum stockholders' equity and ratio
requirements of consolidated funded indebtedness to consolidated total
capitalization and priority indebtedness to consolidated stockholders
equity. The Company is in compliance with all debt covenants.
Haemonetics Japan Co. Ltd.
At April 1, 2000, Haemonetics Japan Co. Ltd. had JPY 2.6 billion
(equivalent to US $24.6 million) in debt outstanding. Of this amount, JPY
400.0 million is evidenced by a term loan dated March 31, 1999, which is
guaranteed by Haemonetics Corporation. This loan bears interest based on the
Euro-yen rate for the first year, currently 1.10%, and at a fixed rate of
2.58% from March 31, 2000 through the maturity date of March 31, 2001. At
April 1, 2000, the US dollar equivalent of this borrowing was $3.8 million.
The remaining balance is all short-term in nature, maturing in less than one
year.
Other Non-U.S. Borrowings
Non-U.S. borrowings represent the financing arranged by the Company's
subsidiaries with local banks which may be guaranteed by the Company. The
majority of the amounts outstanding as of April 1, 2000 are short-term in
nature.
The weighted average short-term rates for U.S. and non-U.S. borrowings
were 3.36%, 1.45% and 1.77% as of April 1, 2000, April 3, 1999 and March 28,
1998, respectively.
As of April 1, 2000, notes payable and long-term debt mature as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ending (in thousands)
-----------------------------------------
<S> <C>
2001 $32,896
2002 7,021
2003 5,715
2004 5,715
2005 and thereafter 22,855
-------
$74,202
=======
</TABLE>
5. INCOME TAXES
The components of domestic and foreign income from continuing
operations before the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended
---------------------------------
April 1, April 3, March 28,
2000 1999 1998
---------------------------------
(in thousands)
<S> <C> <C> <C>
Domestic $16,784 $13,707 $1,123
Foreign 10,541 18,877 3,343
-------------------------------
$27,325 $32,584 $4,466
===============================
</TABLE>
The provision for income taxes from continuing operations consists of
the following components:
<TABLE>
<CAPTION>
Years Ended
---------------------------------
April 1, April 3, March 28,
2000 1999 1998
---------------------------------
(in thousands)
<S> <C> <C> <C>
Current
-------
Federal $ 7,702 $ 7,107 $1,031
State 400 2,780 125
Foreign 2,066 8,847 3,047
-------------------------------
Total current 10,168 18,734 4,203
-------------------------------
Deferred
--------
Federal (3,501) (3,656) (316)
State 312 (1,542) (50)
Foreign 1,492 (2,131) 28
-------------------------------
Total deferred (1,697) (7,329) (338)
-------------------------------
Total tax expense $ 8,471 $11,405 $3,865
===============================
</TABLE>
Included in the federal income tax provisions for fiscal years 2000,
1999 and 1998, are approximately $247,000, $1,480,000, and $333,000,
respectively, provided on foreign source income of approximately $1,337,000,
$9,451,000, and $2,375,000 in 2000, 1999 and 1998 respectively for taxes
which are payable in the United States.
The total provision for income taxes included in the consolidated
financial statements was as follows:
<TABLE>
<CAPTION>
Years Ended
---------------------------------
April 1, April 3, March 28,
2000 1999 1998
---------------------------------
(in thousands)
<S> <C> <C> <C>
Continuing operations $8,471 $11,405 $ 3,865
Discontinued operations 68 (56) (13,663)
---------------------------------
$8,539 $11,349 $ (9,798)
=================================
</TABLE>
The tax effect of significant temporary differences composing the net
deferred tax asset (liability) is as follows:
<TABLE>
<CAPTION>
Years Ended
--------------------
April 1, April 3,
2000 1999
--------------------
(in thousands)
<S> <C> <C>
Discontinued operations $ 0 $ 2,170
Depreciation (7,234) (8,398)
Amortization (3,488) (3,285)
Inventory 10,224 10,294
Accruals and reserves 5,260 6,601
Net operating loss carryforward 7,056 4,966
Foreign Tax credits 8,626 6,816
-------------------
Total net deferred taxes $20,444 $19,164
===================
</TABLE>
At April 1, 2000, the company had U.S. net operating loss
carryforwards of approximately $20,523,000 and foreign tax credits available
of approximately $8,626,000. The tax attributes begin to expire in the year
2013 and the year 2003 respectively.
The provision for income taxes from continuing operations differs from
the amount computed by applying the 35% U.S. federal statutory income tax
rate in 2000, 1999, and 1998, due to the following:
<TABLE>
<CAPTION>
Years Ended
---------------------------------
April 1, April 3, March 28,
2000 1999 1998
---------------------------------
(in thousands)
<S> <C> <C> <C>
Tax at federal statutory rate $ 9,564 $11,405 $1,563
Difference due to:
------------------
Foreign sales corporation (1,662) -- --
Difference between U.S. Tax and
Foreign statutory rates 313 109 1,904
State taxes, net of federal income tax benefits 463 805 49
Other, net (207) (914) 349
-------------------------------
Total $ 8,471 $11,405 $3,865
===============================
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases facilities and certain equipment under operating
leases expiring at various dates through fiscal year 2013. Facility leases
require the Company to pay certain insurance expenses, maintenance costs and
real estate taxes.
For continuing operations, approximate future basic rental commitments
under operating leases as of April 1, 2000 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending (in thousands)
-----------------------------------------
<S> <C>
2001 $ 5,152
2002 3,638
2003 2,362
2004 1,104
2005 and thereafter 1,032
-------
$13,288
=======
</TABLE>
Rent expense for continuing operations in 2000, 1999 and 1998 was
$4,069,000, $4,456,000 and $3,078,000, respectively.
The Company is presently engaged in various legal actions, and
although ultimate liability cannot be determined at the present time, the
Company believes, based on consultation with counsel, that any such
liability will not materially affect the consolidated financial position of
the Company or its results of operations.
7. Capital Stock
Treasury Stock
During 2000, the Company repurchased 2,000,000 shares of its
outstanding common stock at an average prevailing price of $19.85. During
1999, the company did not repurchase any shares of its common stock. The
Company expects any repurchased shares to be made available for issuance
pursuant to its employee benefit and incentive plans and for other corporate
purposes.
Stock Plans
The Company has a long-term incentive stock option plan under which a
maximum of 4,619,116 shares of the Company's common stock may be issued
pursuant to incentive and or non-qualified stock options and stock awards
granted to key employees, consultants and advisers (the "Long-term Incentive
Plan"). The Long-term Incentive Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee") consisting of two or
more disinterested members of the Company's Board of Directors. The exercise
price for non-qualified options granted under the Long-term Incentive Plan
is determined by the Committee, but in no event shall such option price be
less than 50% of the fair market value of the common stock at the time the
option is granted. Incentive options may be granted at a price not less than
fair market value on the date of grant. Options become exercisable in a
manner determined by the Committee, generally between four and seven years,
and incentive options expire not more than ten years from the date of the
grant. There were 526,193 shares available for future grant at April 1,
2000.
The Company also has a non-qualified stock option plan under which a
maximum of 500,000 shares of the Company's common stock may be issued to
non-employee directors (the "Non-employee Plan"). The Non-employee Plan is
administered by the Board of Directors. Options are granted at not less than
the fair market value of the common stock on the date of grant, and expire
not more than ten years from the date of grant. There were 326,268 shares
available for future grant at April 1, 2000 under this plan.
The Company also had a stock option plan under which options were
granted to key employees for the purchase of common stock (the "Option
Plan"). The Option Plan expired on March 31, 2000 and no shares are
available for future grant.
The Company has an Employee Stock Purchase Plan (the "Purchase Plan")
under which a maximum of 375,000 shares (subject to adjustment for stock
splits and similar changes) of common stock may be purchased by eligible
employees. Substantially all full-time employees of the Company are eligible
to participate in the Purchase Plan.
The Purchase Plan provides for two "purchase periods" within each of
the Company's fiscal years, the first commencing on November 1 of each
calendar year and continuing through April 30 of such calendar year, and the
second commencing on May 1 of each year and continuing through October 31 of
such calendar year. Eligible employees may elect to become participants in
the Purchase Plan for a purchase period by completing a stock purchase
agreement prior to the first day of the purchase period for which the
election is made. Shares are purchased through accumulation of payroll
deductions (of not less than 2% nor more than 8% 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.
During 2000, there were 28,207 shares purchased at a range of $13.34
to $13.44 per share under the Purchase Plan. During 1999, there were no
shares purchased under the Purchase Plan.
The Company accounts for employee stock benefit plans under APB
Opinion No. 25, under which no compensation cost has been recognized for
options granted at fair market value. Had the compensation cost for these
plans been determined consistent with the SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share
would have been the following pro forma amounts:
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------
<S> <C> <C> <C> <C>
Net Income: As Reported $18,998,000 $21,077,000 $(24,772,000)
Pro Forma $15,034,000 $18,200,000 $(28,071,000)
Basic EPS: As Reported $0.728 $0.788 $(0.933)
Pro Forma $0.576 $0.681 $(1.058)
Diluted EPS: As Reported $0.717 $0.784 $(0.932)
Pro Forma $0.567 $0.677 $(1.056)
</TABLE>
For purposes of the pro forma disclosure, the fair value of each
option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------
<S> <C> <C> <C>
Volatility 33.0% 33.6% 28.5%
Risk-Free Interest Rate 5.8% 5.5% 6.6%
Expected Life of Options 7 yrs. 7 yrs. 7 yrs.
</TABLE>
The weighted average grant date fair value of options granted during
2000, 1999 and 1998 was approximately $8.770, $7.857 and $7.663,
respectively.
The fair values of shares purchased under the Employee Stock Purchase
Plan is estimated using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------
<S> <C> <C> <C>
Volatility 27.9% N/A 27.8%
Risk-Free Interest Rate 5.4% N/A 5.5%
Expected Life of Options 6 mos. N/A 5 mos.
</TABLE>
The weighted average grant date fair value of options granted under
the Purchase Plan was $4.32 in 2000 and $4.13 in 1998. There were no shares
granted under the Purchase Plan in 1999.
The effects of applying SFAS No. 123 for the purposes of providing pro
forma disclosures may not be indicative of the effects on reported net
income per share for future years, as the pro forma disclosures include the
effects of only those awards granted after April 2, 1995.
A summary of stock option activity for the combined plans for the
three years ended April 1, 2000 is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price per Share
--------------------------
<S> <C> <C>
Outstanding at March 29, 1997 2,263,031 $18.231
Granted 1,918,871 $17.103
Exercised (103,298) $14.959
Terminated (1,184,030) $18.891
----------
Outstanding at March 28, 1998 2,894,574 $17.450
Granted 1,004,158 $16.731
Exercised (360,975) $17.418
Terminated (541,805) $17.552
----------
Outstanding at April 3, 1999 2,995,952 $17.196
Granted 1,165,831 $18.481
Exercised (302,188) $16.642
Terminated (140,706) $18.264
----------
Outstanding at April 1, 2000 3,718,889 $17.603
==========
</TABLE>
The following table summarizes information about stock options
outstanding at April 1, 2000
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 4/1/2000 Life Price At 4/1/2000 Price
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$14.4375 - $15.8750 1,595,328 8.37 $15.6522 556,996 $15.5531
$16.0625 - $18.0000 1,407,143 6.50 $17.4727 851,599 $17.4873
$18.3750 - $27.3438 716,418 7.40 $22.2051 297,030 $20.2517
-----------------------------------------------------------------
Total 3,718,889 7.48 $17.6034 1,705,625 $17.3371
========= =========
</TABLE>
8. SAVINGS PLUS PLAN
The Company's Savings Plus Plan is a 401k plan which allows employees
to accumulate savings on a pretax basis. In addition, the Company makes
matching contributions to the Plan based upon preestablished rates. The
Company can also make additional discretionary contributions if approved by
the Board of Directors. The Company's matching contributions amounted to
approximately $1,353,000, $1,387,000 and $641,000 in 2000, 1999 and 1998,
respectively. On May 12, 1998, the Board of Directors approved a change to
the matching calculation which took effect during fiscal year 1999. The new
formula is a dollar for dollar match up to 6% of earnings (capped at
$100,000 of earnings) per participant, per Plan year. The match for 1998
represented the prior method of a dollar for dollar match up to $1,000 per
participant, per Plan year.
The Board of Directors declared discretionary contributions of
approximately $1,100,000 for the Savings Plan year ended March 28, 1998. No
discretionary contributions were made for the Savings Plan years ended April
1, 2000 and April 3, 1999.
The Company has no material obligation for postretirement or
postemployment benefits.
9. RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $24.5 million related
to the restructuring plans announced during the third quarter of fiscal
1998. The Company decided not to undertake certain rework and to terminate
the manufacture of certain products. Additionally, the Company discontinued
support for products which would have required additional investment to
continue their useful lives. The Company also identified certain operations,
which it closed, resulting in losses associated with the abandonment of
certain leases and fixed assets, and the termination of certain employees.
The $24.5 million charge consisted of $8.6 million related to the
write-off of certain disposable and equipment inventories. These inventories
and equipment were scrapped or abandoned in conjunction with decisions to
discontinue a disposable rework program, and to exit certain product lines.
The Company also recorded charges of $3.8 million related to the cost of
exiting certain long term supply commitments for products, which the Company
no longer plans to resell or use in its operations. Other assets totaling
$3.8 million were written off which represented certain strategic
investments in non-core businesses, which the Company no longer intends to
pursue. The Company charged $2.1 million related to reserves for severance
and other contractual obligations. These reserves and other restructuring
costs were provided in accordance with EITF Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)".
Finally, $6.2 million was related to the write down of certain property,
plant and equipment, principally older generation commercial plasma
equipment, which the Company no longer intends to support. This write down
was computed using management's estimate of future cash flows to be provided
by the equipment, and the costs to service the equipment, consistent with
SFAS No. 121, "Impairment of Long-lived Assets".
In fiscal year 1999, the Company made payments in connection with the
termination of certain long-term supply agreements. There were no remaining
restructuring reserves at April 3, 1999.
10. DISCONTINUED OPERATIONS ("BBMS")
During fiscal year 1999, the Company sold six of its seven regional
blood systems for total cash proceeds of $5,325,000. The divestiture was
completed during the first quarter of fiscal year 2000, with the sale of the
last remaining center. During the second quarter of fiscal year 2000, the
Company completed its accounting for the divestiture with the reversal of
the excess reserve of $144,000, net of taxes of $68,000.
For fiscal years 2000, 1999 and 1998, the operating results for BBMS
have been segregated from the results for the continuing operations and
reported as a separate line on the consolidated statements of operations for
all periods presented.
The operating losses for BBMS are detailed as follows, in thousands:
<TABLE>
<CAPTION>
Years Ended
---------------------------------
April 1, April 3, March 28,
2000 1999 1998
---------------------------------
(in thousands)
<S> <C> <C> <C>
Net Revenues $ 413 $16,003 $ 18,046
Gross Profit (24) 188 (189)
Operating expenses:
Research and Development -- -- 364
Selling, general and administrative 569 8,496 10,228
Total operating expenses 569 8,496 10,592
Operating loss (593) (8,308) (10,781)
Other expense -- (158) (255)
Tax benefit (190) (2,963) (3,863)
--------------------------------
Net loss $(403) $(5,503) $ (7,173)
================================
Operating (loss) (net of taxes) charged to reserve $(403) $(5,401) --
Reversal of remaining reserve 144 -- --
--------------------------------
Reflected on consolidated statement of operations $ 144 $ (102) $ (7,173)
================================
</TABLE>
Other expense includes an allocation of corporate interest expense of
approximately $158,000 and $255,000 in the years ended 1999 and 1998,
respectively. The allocation of corporate interest was calculated based upon
the percentage of net assets of BBMS to total domestic assets.
The net loss on disposal of $18,200,000 includes a provision for
estimated losses after taxes for BBMS of $5,195,000 from March 30, 1998
through disposal. With the divestiture complete, there are no remaining
discontinued operations reserves on the Company's balance sheet.
The net assets of BBMS included in the consolidated balance sheet for
April 3, 1999 were as follows:
<TABLE>
<CAPTION>
April 3,
1999
--------------
(in thousands)
<S> <C>
Current assets $1,128
Net property, plant and equipment 1,075
Other assets 129
------
Total assets $2,332
======
Current liabilities and accrued losses $4,396
Other long-term liabilities 1,350
------
Total liabilities $5,746
======
</TABLE>
11. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
Segment Definition Criteria
The Company manages its business on the basis of one operating
segment: the design, manufacture and marketing of automated blood processing
systems. Haemonetics chief operating decision-maker uses consolidated
results to make operating and strategic decisions. Manufacturing processes,
as well as the regulatory environment in which the company operates, are
largely the same for all product lines.
Product and Service Segmentation
The Company's principal product offerings include blood bank, surgical
and plasma products.
The blood bank products comprise machines and single use disposables
that perform "apheresis," the separation of whole blood into its components
and subsequent collection of certain components. The device used for blood
component therapy is the MCS(r)+, mobile collection system.
Surgical products comprise machines and single use disposables that
perform intraoperative autologous transfusion ("IAT") or surgical blood
salvage as it is more commonly known. Surgical blood salvage is a procedure
whereby shed blood is cleansed and then returned back to a patient. The
devices used to perform this are a full line of Cell Saver(r) autologous blood
recovery systems.
Plasma collection products are machines and disposables that, like
blood bank, perform apheresis for the separation of whole blood components
and subsequent collection of plasma. The device used in automated plasma
collection is the PCS(R)2.
<TABLE>
<CAPTION>
Years ended (in thousands)
April 1, 2000 Blood Bank Surgical Plasma Other Total
------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $116,361 $64,294 $84,962 $12,307 $277,924
April 3, 1999
--------------
Revenues from external customers 121,401 62,117 85,381 13,246 282,145
March 28, 1998
--------------
Revenues from external customers 122,290 61,170 91,173 11,129 285,762
</TABLE>
Geographical Segmentation
<TABLE>
<CAPTION>
Years ended (in thousands)
April 1, 2000
-------------
Other Total
United North North Other Total
States America America Japan Asia Asia Germany
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 88,459 $1,918 $ 90,377 $78,516 $16,579 $ 95,095 $26,074
Total Assets 244,666 89 244,755 44,298 6,551 50,849 8,318
Long-Lived Assets 105,962 89 $106,051 8,639 3,458 12,097 2,535
April 3, 1999
-------------
<CAPTION>
Other Total
United North North Other Total
States America America Japan Asia Asia Germany
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 87,931 $1,636 $ 89,567 $87,817 $16,044 $103,861 $23,724
Total Assets 233,570 475 234,045 38,332 17,831 56,163 11,063
Long-Lived Assets 83,277 475 $ 83,752 8,867 14,675 23,542 2,980
Mar 28, 1998
------------
<CAPTION>
Other Total
United North North Other Total
States America America Japan Asia Asia Germany
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 90,905 $2,199 $ 93,104 $82,860 $18,054 $100,914 $24,066
Total Assets 212,707 558 213,265 37,265 18,424 55,689 10,806
Long-Lived Assets 98,717 558 99,275 5,613 16,432 22,045 3,010
<CAPTION>
Years ended (in thousands)
April 1, 2000
-------------
United Other Total Total
France Kingdom Italy Austria Europe Europe Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $21,653 $ 8,832 $8,912 $6,568 $20,413 $92,452 $277,924
Total Assets 12,465 5,342 8,680 2,046 16,655 53,506 349,110
Long-Lived Assets 824 479 1,142 411 7,182 12,573 130,721
April 3, 1999
-------------
<CAPTION>
United Other Total Total
France Kingdom Italy Austria Europe Europe Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $21,852 $10,043 $8,291 $5,777 $19,030 $88,717 $282,145
Total Assets 14,037 4,389 9,767 2,865 24,030 66,151 356,359
Long-Lived Assets 1,131 600 1,987 614 7,407 14,719 122,013
Mar 28, 1998
------------
<CAPTION>
United Other Total Total
France Kingdom Italy Austria Europe Europe Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $22,426 $ 9,310 $7,795 $6,666 $21,481 $91,744 $285,762
Total Assets 14,177 4,638 8,559 2,581 26,978 67,739 336,693
Long-Lived Assets 1,561 389 1,973 763 10,398 18,094 139,414
</TABLE>
Information about major customers
Sales to one, unaffiliated Japanese customer amounted to $81,566,000,
$72,942,000 and $65,644,000 for 2000, 1999 and 1998, respectively. As a
percentage of total Company sales, this single customer's sales represented
29.3%, 25.9% and 23.0% of total sales for 2000, 1999 and 1998, respectively.
12. OTHER INVESTMENTS
During the third quarter of fiscal year 2000, the Company made a $15.2
million investment in the securities of the privately-held company,
Transfusion Technologies Corporation. Transfusion Technologies Corporation
designs, develops, and markets equipment and disposable sets for the
processing of human blood for transfusion to patients.
The $15.2 million investment is accounted for using the cost basis
method of accounting. The investment is included in Long-term Other Assets
on the Company's fiscal year 2000 balance sheet.
13. UNUSUAL ITEM
Beginning in fiscal year 1997, the Company placed approximately 1,200
plasma collection machines in China under a sales-type lease contract. As a
result of intellectual property issues, high duties and restrictive local
regulations, the present business environment in China has impaired the
Company's ability to realize the full value of the sales type lease contract
as originally recorded. Accordingly, in the fourth quarter of fiscal year
2000, the Company wrote down the investment in sales type leases by $9.5
million and reflected this as an unusual charge on its Consolidated
Statement of Operations. The remaining balance of the sales type lease
contract recorded on the books as of April 1, 2000 reflects the net present
value of the estimated future cash flows.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Haemonetics Corporation:
We have audited the accompanying consolidated balance sheets of
Haemonetics Corporation (a Massachusetts corporation) and subsidiaries as of
April 1, 2000 and April 3, 1999, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in
the period ended April 1, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Haemonetics
Corporation and subsidiaries as of April 1, 2000 and April 3, 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended April 1, 2000, in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index
above is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states, in all
material respects, the consolidated financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 24, 2000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information concerning the Company's directors and concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934
required by this Item is incorporated by reference to the Company's Proxy
Statement for the Annual Meeting to be held July 25, 2000.
(b) The information concerning the Executive Officers of the Company, who
are elected by and serve at the discretion of the Board of Directors, is as
follows:
BRUNO DEGLAIRE joined Haemonetics' European Operation in 1987 as
Director of Haemonetics International Finance and Administration. In 1993,
Mr. Deglaire was promoted to Director of European Marketing and Product
Development. In 1996, he was named Vice President of European Field
Operations. In February, 1998, Mr. Deglaire was appointed to the position of
President, Europe and Asian Field Operations. Prior to joining Haemonetics
Mr. Deglaire held various positions of increasing responsibility at Dupont
de Nemours in Geneva, Switzerland.
ROBERT EBBELING joined Haemonetics in 1987 as Manager of Injection
Molding and in December 1987 he became Manager, Molding and Lapping. In
April, 1988, Mr. Ebbeling was promoted to Manager, Bowls, Molding, and
Lapping. In April, 1989, he became Director, Disposables Manufacturing. In
January, 1994, Mr. Ebbeling was promoted to Vice President, US Disposables
Manufacturing. In April, 1995, he was named Vice President, Disposables
Manufacturing. In August, 1996, Mr. Ebbeling was promoted to Senior Vice
President, Manufacturing. Prior to joining Haemonetics, Mr. Ebbeling was
Vice President, Manufacturing, for Data Packaging Corporation, Somerset,
Massachusetts.
THOMAS LAWLOR joined Haemonetics in 1986 and has served in many
capacities with increasing responsibility. These positions include:
Production Supervisor, Equipment Division; Manager, New Product
Introduction; Manager, Parts Refurbishment Department; and Manager, Field
Service. In 1992, Mr. Lawlor became the Director of Equipment Manufacturing
and served in this position for six years. In 1998, Mr. Lawlor was promoted
to Vice President, Commercial Plasma and in April, 2000, he was appointed
President, Plasma Division. Prior to Haemonetics, Mr. Lawlor was employed
from 1981-1986 with Intermetrics, Inc, Cambridge, MA, where he held various
technical and management positions.
PETER J. LOGUE re-joined Haemonetics in 1998 as Vice President, Blood
Bank Division, US Sales and Marketing. From 1992 to 1998, Mr. Logue co-
founded and then managed Coral Therapeutics, Inc., a venture-backed start-up
providing outsource blood services to hospitals throughout the United
States. Prior to this, Mr. Logue spent seven years with Haemonetics in US
Blood Bank Sales, European Marketing based in Switzerland, and as Director
of Marketing in the US Blood Bank Division, where he launched the first
generation MCS(R).
ALICIA LOPEZ joined Haemonetics in 1988 as General Counsel and
Director of Human Resources. In 1990, Ms. Lopez became Clerk to the Board of
Directors and in 1994, she was promoted to Corporate Vice President and
General Counsel, in charge of legal and US regulatory affairs. In November,
1997, she assumed responsibility for shareholder relations. In December,
1999, Ms. Lopez was promoted to Senior Vice President and General Counsel.
Prior to joining Haemonetics, Ms. Lopez was a lawyer at Sullivan &
Worcester, Boston MA.
MICHAEL P. MATHEWS joined Haemonetics in 1987 as Vice President,
Quality Assurance. In 1990, Mr. Mathews assumed the position of Vice
President of Sales and Marketing. In 1991, Mr. Mathews resumed the position
of Vice President, Quality Assurance. In 1994, Mr. Mathews was promoted to
Senior Vice President, Quality Assurance and Solutions Development. In 1996,
Mr. Mathews was promoted to Executive Vice President. In February, 1998, Mr.
Mathews was promoted to President, Blood Bank Division. In April, 2000, Mr.
Mathews was appointed Vice President, Business Development. From 1985 until
joining Haemonetics Mr. Mathews served in various management positions with
V. Mueller, a Division of Baxter International, Inc., Niles, Illinois.
JAMES L. PETERSON joined Haemonetics in 1980 as Director of European
Operations. In 1982, he was promoted to Vice President and, in 1988, to
Executive Vice President. In 1994, Mr. Peterson was promoted to President,
International Operations. In January, 1998, Mr. Peterson was elected
President and Chief Executive Officer by the Board of Directors. Prior to
joining Haemonetics he was employed by Hewlett-Packard Company in various
management positions. Mr. Peterson has been a member of Haemonetics' Board
of Directors since 1985 and was elected to the position of Vice Chairman of
Haemonetics' Board of Directors in 1994.
RONALD J. RYAN joined Haemonetics in February, 1998, as Senior Vice
President and Chief Financial Officer. Prior to joining Haemonetics Mr. Ryan
was employed by Converse Inc., North Reading, Massachusetts, where his most
recent position was Senior Vice President of Operations. Previously, Mr.
Ryan was Senior Vice President of Finance and Administration and Chief
Financial Officer. Prior to Converse Inc., Mr. Ryan was employed with
Bristol-Myers Squibb as Vice President of Finance and Business Planning for
the Europe, Middle East and Africa Division. Prior to Bristol-Myers Squibb,
Mr. Ryan was Vice President of Planning and Control International at
American Can Company.
YUTAKA SAKURADA, Ph.D. joined Haemonetics in 1991 as President of
Haemonetics Japan and Vice President of Haemonetics Corporation. In April,
1995, Dr. Sakurada was promoted to Senior Vice President of Haemonetics
Corporation. Prior to joining Haemonetics, Dr. Sakurada was employed by
Kuraray Co., Ltd. in Japan, where he was responsible for the planning,
development, and establishment of the medical products business. Dr.
Sakurada has been a member of the Haemonetics Board of Directors since
joining the Company in 1991.
TIMOTHY R. SURGENOR joined Haemonetics in January, 2000, as Executive
Vice President with responsibility for business development, advanced R&D,
the worldwide solutions business, and quality assurance. Prior to joining
Haemonetics, Mr. Surgenor was President of Genzyme Tissue Repair, a publicly
traded cell therapy division of Genzyme Corporation, Cambridge,
Massachusetts, from 1995 until 1999. Prior to Genzyme, Mr. Surgenor was
Executive Vice President and CFO of BioSurface Technology, Inc. and held
various positions in operations at Integrated Genetics, Inc.
PETER A. TOMASULO, MD. joined Haemonetics in September, 1996, as the
International Medical Director based in Switzerland. In March, 1998, he
became Vice President, Blood Center Services and in March, 1999, he became
the Senior Vice President, Red Blood Cell Business Unit. In November, 1999,
Dr. Tomasulo was promoted to the position of President, Surgical Business
Unit. Prior to joining Haemonetics, Dr. Tomasulo spent nine years with
worldwide Red Cross agencies in various senior level blood center management
positions, including the position of Chief Operating Officer, American Red
Cross Biomedical Services, Washington, DC.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Company's Proxy Statement for the Annual Meeting to be held July 25,
2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's Proxy Statement for the Annual Meeting to be held July 25,
2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The following documents are filed as a part of this report:
(a) Financial Statements are included in Part II of this report
Financial Statements required by Item 8 of this Form
Consolidated Statements of Operations 29
Consolidated Balance Sheets 30
Consolidated Statements of Stockholders' Equity 31
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements 33
Report of Independent Public Accountants 49
Schedules required by Article 12 of Regulation S-X
II Valuation and Qualifying Accounts 56
All other schedules have been omitted because they are not applicable
or not required.
(b) Reports on Form 8-K
None
(c) Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index at page 54, which is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HAEMONETICS CORPORATION
By: /s/ Sir Stuart Burgess
-----------------------------
Sir Stuart Burgess
Chairman
By: /s/ James L. Peterson
-----------------------------
James L. Peterson, President
and Chief Executive Officer
June 6, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Sir Stuart Burgess Chairman of the Board June 6, 2000
--------------------------
Sir Stuart Burgess
/s/ James L. Peterson President and Chief Executive Officer June 6, 2000
-------------------------- Director
James L. Peterson
/s/ Ronald J. Ryan Sr. Vice President of Finance June 6, 2000
-------------------------- and Chief Financial Officer,
Ronald J. Ryan (Principal Financial and
Accounting Officer)
/s/ Yutaka Sakurada Sr. Vice President Haemonetics Corp. June 6, 2000
-------------------------- and President, Haemonectics Japan
Yutaka Sakurada Director
/s/ Benjamin L. Holmes Director June 6, 2000
--------------------------
Benjamin L. Holmes
/s/ Donna C. E. Williamson Director June 6, 2000
--------------------------
Donna C. E. Williamson
/s/ N. Colin Lind Director June 6, 2000
--------------------------
N. Colin Lind
/s/ Harvey G. Klein M.D. Director June 6, 2000
--------------------------
Harvey G. Klein M.D.
/s/ Ronald G. Gelbman Director June 6, 2000
--------------------------
Ronald G. Gelbman
</TABLE>
EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
Number and Description of Exhibit
---------------------------------
3. Articles of Organization
3A* Articles of Organization of the Company effective August 29, 1985, as
amended December 12, 1985 and May 21, 1987 (filed as Exhibit 3A to the
Company's Form S-1 No. 33-39490 and incorporated herein by reference).
3B* Form of Restated Articles of Organization of the Company (filed as
Exhibit 3B to the Company's Form S-1 No. 33-39490 and incorporated
herein by reference).
3C* By-Laws of the Company presently in effect (filed as Exhibit 3C to the
Company's Form 10-K No. 1-10730 for the year ended April 3, 1993 and
incorporated herein by reference).
3D* Articles of Amendment to the Articles of Organization of the Company
filed May 8, 1991 with the Secretary of the Commonwealth of
Massachusetts (filed as Exhibit 3E to the Company's Amendment No. 1 to
Form S-1 No. 33-39490 and incorporated herein by reference).
4. Instruments defining the rights of security holders
4A* Specimen certificate for shares of common stock (filed as Exhibit 4B
to the Company's Amendment No. 1 to Form S-1 No. 33-39490 and
incorporated herein by reference).
10. Material Contracts
10A* The 1990 Stock Option Plan, as amended (filed as Exhibit 4A to the
Company's Form S-8 No. 33-42006 and incorporated herein by reference).
10B* Form of Option Agreements for Incentive and Non-qualified Options
(filed as Exhibit 10B to the Company's Form S-1 No. 33-39490 and
incorporated herein by reference).
10C* Note and Mortgage dated August 7, 1990 between the Company and John
Hancock Mutual Life Insurance Company relating to the Braintree
facility (filed as Exhibit 10H to the Company's Form S-1 No. 33-39490
and incorporated herein by reference).
10D* Credit Facility with Swiss Bank Corporation (filed as Exhibit 10J to
the Company's Amendment No. 1 to Form S-1 No. 33-39490 and
incorporated herein by reference).
10E* Lease dated July 17, 1990 between the Buncher Company and the Company
of property in Pittsburgh, Pennsylvania (filed as Exhibit 10K to the
Company's Form S-1 No. 33-39490 and incorporated herein by reference).
10F* Lease dated July 3, 1991 between Starwood Financial Inc. and the
Company for the property adjacent to the main facility in Braintree,
Massachusetts (filed as Exhibit 10M to the Company's Form 10-K No.
1-10730 for the year ended March 28, 1992 and incorporated herein by
reference).
10G* Amendment No. 1 to Lease dated July 3, 1991 between Starwood Financial
Inc. and the Company for the child care facility (filed as Exhibit 10N
to the Company's Form 10-K No. 1-10730 for the year ended March 28,
1992 and incorporated herein by reference).
10H* Bank Overdraft Facility between The Sumitomo Bank and the Company with
an annual renewal beginning February 28, 1993 (filed as Exhibit 10O to
the Company's Form 10-K No. 1-10730 for the year ended March 28, 1992
and incorporated herein by reference).
10I* Bank Overdraft Facility between The Mitsubishi Bank and the Company
with an annual renewal beginning June 30, 1993 (filed as Exhibit 10P
to the Company's Form 10-K, No. 1-10730 for the year ended March 28,
1992 and incorporated herein by reference).
10J* Short-term Loan Agreement between The Mitsubishi Bank and the Company
renewable every three months (filed as Exhibit 10Q to the Company's
Form 10-K No. 1-10730 for the year ended March 28, 1992 and
incorporated herein by reference).
10K* Amendment No. 2 to Lease dated July 3, 1991 between Starwood Financial
Inc. and the Company (filed as Exhibit 10S to the Company's Form 10-K
No. 1-10730 for the year ended April 3, 1993 and incorporated herein
by reference).
10L* Real Estate purchase agreement dated May 1, 1994 between 3M UK Holding
PLC and the Company (filed as Exhibit 10AA to the Company's Form 10-K
No. 1-10730 for the year ended April 1, 1995 and incorporated herein
by reference).
10M* 1992 Long-Term incentive Plan (filed as Exhibit 10V to the Company's
Form 10-K No. 1-10730 for the year ended April 3, 1993 and
incorporated herein by reference).
10N* Real Estate purchase agreement dated September 30, 1994 between The
Midland Mutual Life Insurance Company and the Company (filed as
Exhibit 10AB to the Company's Form 10-K No. 1-10730 for the year ended
April 1, 1995 and incorporated herein by reference).
10O* Purchase agreement dated October 1, 1994 between Kuraray Co. and the
Company (filed as Exhibit 10AC to the Company's Form 10-K No. 1-10730
for the year ended April 1, 1995 and incorporated herein by
reference).
10P* Asset Purchase Agreement dated as of July 18, 1995 between DHL
Laboratories and the Company (filed as Exhibit 10AF to the Company's
Form 10-K No. 1-10730 for the year ended March 30, 1996 and
incorporated herein by reference).
10Q* First Amendment to lease dated July 17,1990 between Buncher Company
and the Company of property in Pittsburgh, Pennsylvania (filed as
Exhibit 10AI to the Company's Form 10-Q No. 1-10730 for the quarter
ended December 28, 1996 and incorporated herein by reference).
10R* Revolving Credit Agreement among Mellon Bank, N.A., the First National
Bank of Boston and Haemonetics Corporation dated as of October 1,
1996. (filed as Exhibit 10E to the Company's Form 10-K No. 1-10730 for
the year ended March 29, 1997 and incorporated herein by reference).
10S* Amendment, dated April 18, 1997 to the 1992 Long-Term Incentive Plan
(filed as Exhibit 10V to the Company's Form 10-K No. 1-10730 for the
year ended April 3, 1993 and incorporated herein by reference).
10T* $40,000,000 Revolving Credit Facility Among Mellon Bank, N.A. For
Itself and as Agent BankBoston, N.A. and The Sanwa Bank, Limited to
Haemonetics Corporation. (filed as Exhibit 10A to the Company's Form
10-Q No. 1-10730 for the quarter ended June 28, 1997 and incorporated
herein by reference).
10U* Note Purchase agreement whereby Haemonetics Corporation authorized
sale of $40,000,000, 7.05% Senior Notes due October 15, 2007. (filed
as Exhibit 10A to the Company's Form 10-Q No. 1-10730 for the quarter
ended September 27, 1997 and incorporated herein by reference).
10V* First Amendment, dated December 26, 1997 to the Revolving Credit
Agreement, dated June 25, 1997, among Haemonetics Corporation and
Mellon Bank N.A. (filed as Exhibit 10A to the Company's Form 10-Q No.
1-10730 for the quarter ended December 27, 1997 and incorporated
herein by reference).
10W* Second Amendment, dated April 30, 1998 to the Revolving Credit
Agreement, dated June 25, 1997, among Haemonetics Corporation and
Mellon Bank N.A. . (filed as Exhibit 10Y to the Company's Form 10-K
No. 1-10730 for the year ended March 28, 1998 and incorporated herein
by reference).
10X* 1998 Employee Stock Purchase Plan. (filed as Exhibit 10Z to the
Company's Form 10-K No. 1-10730 for the year ended March 28, 1998 and
incorporated herein by reference).
10Y* 1998 Stock Option Plan for Non-Employee Directors. (filed as Exhibit
10AA to the Company's Form 10-K No. 1-10730 for the year ended March
28, 1998 and incorporated herein by reference).
10Z* Lease, dated July 29, 1997 between New Avon Limited Parnership and
the Company for the property in Avon, Massachusetts. (filed as Exhibit
10AB to the Company's Form 10-K No. 1-10730 for the year ended March
28, 1998 and incorporated herein by reference).
10AA* Agreement on Bank Transactions between Haemonetics Corporation and the
Bank of Tokyo-Mitsubishi, Ltd. dated February 14, 1985. (filed as
Exhibit 10AA to the Company's Form 10-K No. 1-10730 for the year ended
April 3, 1999 and incorporated herein by reference).
10AB* Third Amendment, dated April 21, 1999 to the Revolving Credit
Agreement, dated June 25, 1997, among Haemonetics Corporation and
Mellon Bank N.A. . (filed as Exhibit 10A to the Company's Form 10-Q
No. 1-10730 for the three months ended July 3, 1999 and incorporated
herein by reference).
21. Subsidiaries of the Company
23. Consent of the Independent Public Accountants
27. Financial Data Schedule
--------------------
* Incorporated by reference.
(All other exhibits are inapplicable.)
SCHEDULE II
HAEMONETICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Write-Offs Balance at
Beginning Cost and (Net of End of
of Period Expenses Recoveries) Period
-----------------------------------------------------
<S> <C> <C> <C> <C>
For Year Ended April 1, 2000
Allowance for Doubtful Accounts 747 625 (223) 1,149
Discontinued Operations Reserve 5,616 0 (5,616) 0
For the Year Ended April 3, 1999
Allowance for Doubtful Accounts 818 687 (758) 747
Restructuring Reserve 1,706 0 (1,706) 0
Discontinued Operations Reserve 28,000 0 (22,384) 5,616
For the Year Ended March 28, 1998
Allowance for Doubtful Accounts 961 263 (406) 818
Restructuring Reserve 0 24,500 (22,794) 1,706
Discontinued Operations Reserve 0 28,000 0 28,000
</TABLE>
