FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarter ended: September 30, 2000 Commission File Number: 1-10730
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HAEMONETICS CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 Wood Road, Braintree, MA 02184
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(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 848-7100
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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) (2.) has been subject to the
filing requirements for at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,198,959 shares of Common Stock, $ .01 par value, as of
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September 30, 2000
HAEMONETICS CORPORATION
INDEX
PAGE
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PART I. Financial Information
Unaudited Consolidated Statements of Operations - 2
Three and Six Months Ended September 30, 2000
and October 2, 1999
Unaudited Consolidated Balance Sheets - September 30, 2000 3
and April 1, 2000
Unaudited Consolidated Statement of Stockholders' Equity - 4
Six Months Ended September 30, 2000
Unaudited Consolidated Statements of Cash Flows - 5
Six Months Ended September 30, 2000 and October 2, 1999
Notes to Unaudited Consolidated Financial Statements 6-13
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-27
Quantitative and Qualitative Disclosures about Market Risk 27-28
PART II. Other Information 29-30
Signatures 31
1
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except share data)
Three Months Ended Six Months Ended
-------------------- --------------------
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
2000 1999 2000 1999
--------------------------------------------
Net revenues $70,570 $68,194 $140,263 $137,316
Cost of goods sold 37,187 36,555 73,461 72,860
-------------------------------------------
Gross profit 33,383 31,639 66,802 64,456
Operating expenses:
Research and development 4,202 3,782 8,336 7,405
Selling, general and administrative 20,832 20,528 41,788 41,272
In process research and development (note 11) 18,606 - 18,606 -
Other unusual charges relating to acquisition (note 10) 4,174 - 4,613 -
-------------------------------------------
Total operating expenses 47,814 24,310 73,343 48,677
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Operating income (14,431) 7,329 (6,541) 15,779
Interest expense (848) (1,052) (1,869) (2,067)
Interest income 1,126 1,248 2,308 2,365
Other income, net 779 692 1,546 924
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Income (loss) from continuing operations
before provision for income taxes (13,374) 8,217 (4,556) 17,001
Provision for income taxes 1,745 2,629 4,338 5,440
-------------------------------------------
Income (loss) from continuing operations (15,119) $ 5,588 (8,894) $ 11,561
===========================================
Discontinued operations: (note 8)
Income (loss) from operations, net of income tax
expense of $68 in 1999 - 144 - 144
-------------------------------------------
Net income. (loss) (15,119) $ 5,732 (8,894) $ 11,705
===========================================
Basic income (loss) per common share
Continuing operations $(0.602) $ 0.213 $ (0.353) $ 0.436
Discontinued operations - 0.005 - 0.005
Net income (0.602) 0.218 (0.353) 0.441
Income (loss) per common share assuming dilution
Continuing operations $(0.602) $ 0.210 $ (0.353) $ 0.433
Discontinued operations - 0.005 - 0.005
Net income (0.602) 0.216 (0.353) 0.438
Weighted average shares outstanding
Basic 25,133 26,290 25,191 26,546
Diluted 25,133 26,578 25,191 26,730
2
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share data)
September 30, April 1,
ASSETS 2000 2000
-------------------------
(note 10)
Current assets:
Cash and short term investments $ 38,617 $ 61,328
Accounts receivable, less allowance of
$944 at September 30, 2000 and $1,149
at April 1, 2000 59,849 59,140
Inventories 52,969 59,817
Current investment in sales-type
leases, net 6,770 8,036
Deferred tax asset 19,515 16,360
Other prepaid and current assets 3,838 5,237
-----------------------
Total current assets 181,558 209,918
-----------------------
Property, plant and equipment 193,911 185,432
Less accumulated depreciation 111,790 103,824
-----------------------
Net property, plant and equipment 82,121 81,608
Other assets:
Investment in sales-type leases, net
(long term) 7,011 10,775
Distribution rights, net 10,702 11,356
Goodwill, less accumulated amortization of
$758 at September 30, 2000 and $662
at April 1, 2000 4,836 1,832
Deferred tax asset 20,806 14,806
Other assets, net 16,105 15,187
-----------------------
Total other assets 59,460 53,956
-----------------------
Total assets $323,139 $345,482
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 17,763 $ 32,896
Accounts payable 11,078 17,224
Accrued payroll and related costs 10,464 8,456
Accrued income taxes 16,561 15,700
Other accrued liabilities 17,951 14,199
-----------------------
Total current liabilities 73,817 88,475
-----------------------
Deferred income taxes 16,455 10,722
Long-term debt, net of current maturities 41,098 41,306
Other long-term liabilities 2,102 2,164
Stockholders' equity:
Common stock, $.01 par value;
Authorized - 80,000,000 shares;
Issued 30,150,821 shares at September 30, 2000;
30,004,811 shares at April 1, 2000 301 300
Additional paid-in capital 76,542 73,662
Retained earnings (note 10) 218,180 227,104
Cumulative translation adjustments (15,692) (13,078)
-----------------------
Stockholders' equity before treasury stock. 279,331 287,988
Less: treasury stock 4,951,862 shares at
cost at September 30, 2000 and 4,728,762
shares at cost at April 1, 2000 89,664 85,173
-----------------------
Total stockholders' equity 189,667 202,815
-----------------------
Total liabilities and stockholders' equity $323,139 $345,482
=======================
The accompanying notes are an integral part of these consolidated financial
statements.
3
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited in thousands)
Common Stock Additional Cumulative Total
------------- Paid-in Treasury Retained Translation Stockholders' Comprehensive
Shares $'s Capital Stock Earnings Adjustment Equity Income
------------------------------------------------------------------------------------------------
Balance, April 1, 2000 Restated 30,005 $300 $73,662 $(85,173) $227,104 $(13,078) $202,815
============================================================================
Employee stock purchase plan --- --- --- 238 --- 238
Exercise of stock options
and related tax benefit 146 1 2,880 --- (30) --- 2,851
Purchase of treasury stock --- --- --- (4,729) --- --- (4,729)
Net loss --- --- --- --- (8,894) --- (8,894) $ (8,894)
Foreign currency
translation adjustment --- --- --- --- --- (2,614) (2,614) (2,614)
--------------------------------------------------------------------------------------------
Comprehensive loss --- --- --- --- --- --- --- $(11,508)
------------------------------------------------------------------------------------========
Balance, September 30, 2000 30,151 $301 $76,542 $(89,664) $218,180 $(15,692) $189,667
============================================================================
4
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited- in thousands)
Six Months Ended
---------------------
Sept 30, Oct 2,
2000 1999
---------------------
Cash Flows from Operating Activities:
Net income (loss) $ (8,894) $ 11,705
Less net income from discontinued operations - 144
---------------------
Net income (loss) from continuing operations (8,894) 11,561
Adjustments to reconcile net income to
net cash provided by operating activities:
Non cash items:
Depreciation and amortization 11,972 16,200
Deferred tax (expense) benefit (77) 67
In process research and development 18,606 -
Equity in losses of investment (note 10) 1,353 -
Other unusual non-cash charges 1,282 491
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable - net (1,572) 5,083
Decrease (increase) in inventories 3,672 (2,733)
Decrease in sales-type leases (current) 1,686 1,586
(Increase) decrease in prepaid income taxes (171) 1,118
(Increase) decrease in other assets (334) 1,475
Decrease in accounts payable, accrued
expenses and other current liabilities (2,849) (4,842)
---------------------
Net cash provided by operating
activities, continuing operations 24,674 30,006
---------------------
Net cash used in operating
activities, discontinued operations 0 (4,932)
---------------------
Net cash provided by operating
activities 24,674 25,074
Cash Flows from Investing Activities:
Capital expenditures on property, plant
and equipment, net of retirements
and disposals (6,163) (13,889)
Acquisition of Transfusion Technologies
Corporation, net of cash acquired (26,572) -
Net decrease in sales-type leases
(long-term) 2,977 2,934
---------------------
Net cash used in investing activities,
continuing operations (29,758) (10,955)
---------------------
Net cash provided by investing activities,
discontinued operations 0 3,562
---------------------
Net cash provided by (used in)
investing activities (29,758) (7,393)
Cash Flows from Financing Activities:
Payments on long-term real estate mortgage - (77)
Net (decrease) increase in short-term revolving
credit agreements (15,568) 2,509
Net decrease in long-term credit agreements (235) (126)
Employee stock purchase plan purchases 208 185
Exercise of stock options and related
tax benefit 2,880 400
Purchase of treasury stock (4,729) (20,638)
---------------------
Net cash used in financing activities (17,444) (17,747)
Effect of exchange rates on cash and
cash equivalents (183) (44)
---------------------
Net decrease in cash and cash equivalents (22,711) (110)
Cash and cash equivalents at beginning of period 61,328 56,319
---------------------
Cash and cash equivalents at end of period $ 38,617 $ 56,209
=====================
Non-cash investing and financing activities:
Transfers from inventory to fixed assets
for placements of Haemonetics equipment $ 3,149 $ 3,058
Supplemental disclosures of cash flow information:
Net decrease in cash and cash equivalents,
discontinued operations $ 0 $ (1,370)
Net (decrease) increase in cash and cash
equivalents, continuing operations $(22,711) $ 1,260
Interest paid $ 1,748 $ 1,858
Income taxes paid $ 3,354 $ 8,629
=====================
5
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The results of operations for the interim periods shown in this report
are not necessarily indicative of results for any future interim period or
for the entire fiscal year. The Company believes that the quarterly
information presented includes all adjustments (consisting only of normal,
recurring adjustments) that the Company considers necessary for a fair
presentation in accordance with generally accepted accounting principles.
The accompanying consolidated financial statements and notes should be read
in conjunction with the Company's audited annual financial statements.
2. FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to the last day
of March. Both fiscal year 2001 and 2000 include 52 weeks with the second
quarter of each fiscal year including 13 weeks.
3. COMPREHENSIVE INCOME
In the first quarter of fiscal year 1999, the Company adopted the
provisions of Statement of Financial Accounting Standard (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 non-owner changes in
stockholders' equity, which for the Company, is foreign currency
translation. At September 30, 2000 and April 1, 2000, the cumulative
foreign currency translation adjustment totaled ($15.7) million and ($13.1)
million, respectively. For the three and six months ended September 30,
2000, the Comprehensive income (loss) was ($17,549) and ($11,508)
respectively.
4. 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 by the end of the
fourth 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 reviewing SAB 101. Management does not anticipate a
required change to its revenue recognition policy resulting from the
application of SAB 101.
In June 1998, Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by FASB Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133-An Amendment of FASB Statement No. 133," and
by FASB Statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - An Amendment of FASB Statement 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 as amended requires
that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Additionally, a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 as amended is
effective for fiscal years beginning after June 15, 2000. The impacts of
adopting SFAS No. 133 as amended on the Company's financial statements and
the timing of adoption of SFAS No. 133 as amended have not been determined.
However, it is expected that the derivative financial instruments acquired
in connection with the Company's hedging program will qualify for hedge
accounting under SFAS No. 133 as amended.
6
5. 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 period end.
Net revenues and costs and expenses are translated at average rates in
effect during the period. 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 for the six months of fiscal year 2001 and fiscal
year 2000 are ($225,900) and $169,500 respectively, in foreign currency
transaction gains (losses).
The Company enters into forward exchange contracts to hedge certain
firm sales commitments by 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 inter-company 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 September 30, 2000 and October 2, 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, the fair value of which totaled $129,308,000 and
$154,558,000, respectively. Of the respective balances, $27,814,000 and
$49,271,000 represented contracts related to inter-company 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 $6,381,000 gain at
September 30, 2000, and a $2,863,000 gain and a ($10,377,000) loss at
October 2, 1999. Deferred gains and losses are recognized in earnings when
the transactions being hedged are recognized. Management anticipates that
these deferred amounts at September 30, 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.
6. 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 method.
Inventories consist of the following:
Sept. 30, April 1,
2000 2000
-----------------------
(in thousands)
Raw materials $14,678 $14,081
Work-in-process 5,167 7,199
Finished goods 33,124 38,537
---------------------
$52,969 $59,817
=====================
7
7. NET INCOME 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 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. The Company did not include the effect of Stock options in its
calculation of Diluted loss per share for the three and six months ended
September 30, 2000 as it was anti-dilutive.
For the three months ended
-------------------------------------
September 30, 2000 October 2, 1999
-------------------------------------
Basic EPS
- ---------
Net income (loss) $(15,119) $ 5,732
Weighted Average Shares 25,133 26,290
----------------------------
Basic income (loss) per share $ (0.602) $ .218
----------------------------
Diluted EPS
- -----------
Net income(loss) $(15,119) $ 5,732
Basic Weighted Average shares 25,133 26,290
Effect of Stock options - 288
----------------------------
Diluted Weighted Average shares 25,133 26,578
----------------------------
Diluted income (loss) per share $ (0.602) $ .216
----------------------------
For the six months ended
-------------------------------------
September 30, 2000 October 2, 1999
-------------------------------------
Basic EPS
- ---------
Net income(loss) $ (8,894) $11,705
Weighted Average Shares 25,191 26,547
----------------------------
Basic income (loss) per share $ (0.353) $ .441
----------------------------
Diluted EPS
- -----------
Net income(loss) $ (8,894) $11,705
Basic Weighted Average shares 25,191 26,547
Effect of Stock options - 183
----------------------------
Diluted Weighted Average shares 25,191 26,730
----------------------------
Diluted income (loss) per share $ (0.353) $ .438
----------------------------
8
8. DISCONTINUED OPERATIONS
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. As of October 2, 1999, the Company
completed its accounting for the divestiture with the reversal of the excess
reserve of $144,000, net of taxes of $68,000.
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. For the
six months ended October 2, 1999, the operating loss for BBMS of $403,000
was charged to the discontinued operations provision established in the
fourth quarter of fiscal year 1998.
The operating losses, in thousands, for BBMS are detailed as follows
for six months ending:
October 2,
1999
--------------
(in thousands)
Net Revenues $413
Gross Profit (24)
Operating expense:
Research and Development -
Selling, general and administrative 569
Total operating expenses 569
----
Operating loss (593)
Other expense -
Tax benefit (190)
----
Net loss (403)
Operating loss (net of taxes)
charged to reserve 403
Recovery of remaining reserve 144
----
Reflected on Consolidated Statement of Operations $144
No interest was allocated for the six months ended October 2, 1999, as
all blood centers have been divested effective May 1999. The allocation of
corporate interest was calculated based upon the percentage of net assets of
BBMS to total domestic assets.
9. SEGMENT 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.
9
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.
Three months ended (in thousands)
September 30, 2000
------------------
Blood Bank Surgical Plasma Other Total
---------------------------------------------------
Revenues from external customers 30,092 15,606 21,236 3,636 70,570
October 2, 1999
---------------
Revenues from external customers 28,450 15,124 21,616 3,004 68,194
Six months ended (in thousands)
September 30, 2000
------------------
Blood Bank Surgical Plasma Other Total
--------------------------------------------------
Revenues from external customers 59,549 31,578 41,453 7,683 140,263
October 2, 1999
- ---------------
Revenues from external customers 57,498 30,974 43,300 5,544 137,316
10. ACQUISITION
On September 18, 2000, Haemonetics Corporation, ("Haemonetics")
completed the acquisition of Transfusion Technologies Corporation, a
Delaware Corporation ("Transfusion") pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") dated September 4, 2000 among Haemonetics,
Transfusion, Transfusion Merger Co., the holders of a majority of
outstanding shares of Preferred and Common Stock of Transfusion and certain
principals of Transfusion. The acquisition was effected in the form of a
merger (the "Merger") of Transfusion Merger Co., a wholly owned subsidiary
of Haemonetics, with and into Transfusion. Transfusion was the surviving
corporation in the merger.
Transfusion Technologies designs, develops and markets systems for the
processing of human blood for transfusion to patients. Its systems are
based on centrifuge technology called the Dynamic Disk TM and consist of
10
sterile, single-use disposable sets and computer controlled
electromechanical devices that control the blood processing procedure. The
systems have applications in both autotransfusion and blood component
collection technologies.
The aggregate purchase price, before transaction costs and cash
acquired, of approximately $50.1 is comprised of $36.5 million to
Transfusion's common and preferred stockholders, and warrant and option
holders, and $13.6 million, representing the economic value of Haemonetics'
19.8% preferred stock investment in Transfusion made in November 1999. The
cash required to purchase the remaining 80.2% interest in Transfusion, was
$26.6, net of cash acquired.
The Transfusion merger was accounted for using the purchase method of
accounting for business combinations. Accordingly, the accompanying
Consolidated Statement of Operations includes Transfusion Technologies'
results of operations commencing on the date of acquisition. The purchase
price was allocated to the net assets acquired based on the Company's
estimates of fair value at the acquisition date. For certain assets
acquired in property, plant and equipment, representing Transfusion's
equipment placed at customer locations, net book value was used as a proxy
for fair market value. The allocation of the purchase price is still
subject to adjustment upon final valuation of certain acquired assets and
liabilities. The excess of the purchase price over the fair market value of
the net assets acquired has been recorded as goodwill in the amount of $3.1
million. The goodwill is being amortized over 20 years.
The preliminary allocation of the purchase price over the fair market
value of the assets acquired is as follows:
Consideration Paid for 80.2%: $45,318,231
Plus other estimated transaction costs 2,488,743(i)
Total estimated purchase price 47,806,974
Less: estimated fair value of Transfusion'
identifiable net assets on September 15, 2000 44,706,706
Total estimated goodwill due to acquisition 3,100,268
(i) Transaction costs primarily include professional fees, costs to
close down the Transfusion Technologies' facility and severance
costs.
The following unaudited pro forma summary combines the consolidated
results of operations of Haemonetics Corporation and Transfusion
Technologies as if the acquisition had occurred as of the beginning of the
fiscal year presented after giving effect to certain adjustments including
adjustments to reflect reductions in depreciation expense, increases in
intangible and goodwill amortization expense and lost interest income. This
pro forma summary is not necessarily indicative of the results of operations
that would have occurred if Haemonetics and Transfusion Technologies had
been combined during such periods. Moreover, the pro forma summary is not
intended to be indicative of the results of operations to be attained in the
future.
11
Six Months Ended
September 29,
---------------------
2000 1999
---------------------
(in thousands, except
per share amounts)
---------------------
Net revenues $141,639 $137,909
Operating income 6,392 8,967
Income from continuing operations 5,551 6,635
Basic and diluted income per common share
from continuing operations:
Basic $ 0.22 $ 0.26
Diluted $ 0.22 $ 0.25
Weighted average number of common shares outstanding:
Basic 25,191 26,547
Diluted 25,738 26,730
Unusual charges expensed as a result of the acquisition of Transfusion
Technologies amounted to $4.2 and $4.6 million for the three and six months
ended September 30, 2000. Included in the unusual charges were $2.8 million
in bonuses paid to key Transfusion executives hired by Haemonetics and
severance to employees laid off due to overlaps created by the merger, a
$0.5 million write-off of an investment in a technology which the Company
decided not to pursue in lieu of the technologies acquired in the merger,
and the adjustment required to modify the 19.8% investment of Transfusion by
Haemonetics in November of fiscal year 2000 from the cost method to the
equity method of accounting as required by generally accepted accounting
principles. To effect this change, the historic cost of the 19.8%
investment made by Haemonetics' was written down by its 19.8% share of the
monthly losses incurred by Transfusion Technologies from November of fiscal
year 2000. For fiscal year 2001, the charge to the statement of operations
related to this cost to equity adjustment was $0.9 million and $1.3
million, respectively for the three and six months ended September 30, 2000.
In addition the Company restated its Investment in Transfusion Technologies
on the balance Sheet for losses incurred through April 1, 2000 of $3.6
million. Retained earnings at April 1, 2000 was also reduced by $3.6
million.
11 IN-PROCESS RESEARCH AND DEVELOPMENT
Included in the purchase price allocation for the acquisition of
Transfusion Technologies was an aggregate amount of purchased in-process
research and development ("IPR&D") of $21.5 million, $2.9 million of which
is reflected in the restatement of the third quarter of fiscal year 2000
relative to Haemonetics' original 19.8% investment and $18.6 million of
which is reflected in the current period Consolidated Statement of
Operations. The values represent purchased in-process technology that had
not yet reached technical feasibility and had no alternative future use.
Accordingly, the amounts were immediately expensed in the Consolidated
Statement of Operations.
An independent valuation was performed to assess and allocate a value to
the purchased IPR&D. The value represents the estimated fair market value
based on risk-adjusted future cash flows generated by the products employing
the in-process projects over a ten-year period. Estimated future after-tax
cash flows for each product were based on Transfusion Technologies' and
Haemonetics' estimates of revenue, operating expenses, income taxes, and
charges for the use of contributory assets. Additionally, these cash flows
were adjusted to compensate for
12
the existence of any core technology and development efforts that were to be
completed post-acquisition.
Revenues were estimated based on relevant market size and growth
factors, expected industry trends, individual product sales cycles, and the
estimated life of each product's underlying technology. Estimated operating
expenses include cost of goods sold, selling, general and administrative,
and research and development ("R&D") expenses. The estimated R&D expenses
include only those costs needed to maintain the products once they have been
introduced into the market. Operating expense estimates were consistent
with expense levels for similar products.
The discount rates used to present-value the projected cash flows
were based on a weighted average cost of capital relative to Transfusion
Technologies and its industry adjusted for the product-specific risk
associated with the purchased IPR&D projects. Product-specific risk
includes such factors as: the stage of completion of each project, the
complexity of the development work completed to date, the likelihood of
achieving technological feasibility, and market acceptance.
The forecast data employed in the valuation were based upon
projections created by Transfusion Technologies' management and Haemonetics
management's estimate of the future performance of the business. The inputs
used in valuing the purchased IPR&D were based on assumptions that
management believes to be reasonable but which are inherently uncertain and
unpredictable. These assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events or circumstances will not
occur. Accordingly, actual results may vary from the forecasted results.
While management believes that all of the development projects will be
successfully completed, failure of any of these projects to achieve
technological feasibility, and/or any variance from forecasted results, may
result in a material adverse effect on Haemonetics' financial condition and
results of operations.
A brief description of the IPR&D projects related to the acquisition
of Transfusion Technologies, including their estimated stage of completion
and associated discount rates, is outlined below.
Chairside Separator ("CSS"). The CSS is a portable, automated device
used for the donor-side collection and processing of a single unit of whole
blood into a unit of red cell concentrate and plasma. The system is
designed for use in a blood center, hospital, or mobile blood drive location
and can be powered either through a standard AC outlet or by DC battery
packs. Haemonetics estimates that the project was 95 percent completed at
the time of acquisition and product sales would commence by the fourth
quarter 2001. The IPR&D value assigned to the CSS was $17.6 million. A
discount rate of 33 percent was employed in the analysis.
Red Cell Collector ("RCC"). The RCC is a portable, automated device
used for the collection and processing of two units of red blood cells from
donors. The system collects and automatically anticoagulates the whole
blood while separating it into red blood cells and plasma. The plasma and
500ml of saline is then re-infused back to the donor. The system is
designed for use in a blood center, hospital, or mobile blood drive location
and can be powered either through a standard AC outlet of by DC battery
packs. Haemonetics estimates that the project was 65 percent completed at
the time of acquisition and product sales would commence by the second
quarter 2003. The IPR&D value assigned to the RCC was $3.9 million. A
discount rate of 33 percent was employed in the analysis.
13
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
income for continuing operations as a percentage of net revenues:
Percentage of Net Revenues Percentage Inc(Dec)
Three Months Ended Three Months Ended
--------------------------- -------------------
Sept 1, 2000 Oct 2, 1999 2000/1999
- ----------------------------------------------------------------------------------------------
Net revenues 100.0 % 100.0% 3.5 %
Cost of goods sold 52.7 53.6 1.7
----------------------------------------
Gross Profit 47.3 46.4 5.5
Operating Expenses:
Research and development 6.0 5.5 11.1
Selling, general and administrative 29.5 30.1 1.5
In process research and development 26.3 - 100.0
Other Unusual charges relating
to acquisition 5.9 - 100.0
----------------------------------------
Total operating expenses 67.7 35.6 96.7
Operating income (20.4) 10.8 (296.9)
Interest expense (1.2) (1.5) (19.4)
Interest income 1.6 1.8 (9.8)
Other income, net 1.0 1.0 12.6
----------------------------------------
Income from continuing operations before
provision for income taxes (19.0) 12.1 (262.8)
Provision for income taxes 2.4 3.9 (33.6)
----------------------------------------
Earnings from continuing operations (21.4)% 8.2% (370.6)%
========================================
Three Months Ended September 30, 2000 Compared to
Three Months Ended October 2 , 1999
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By geography: 2000 1999 as reported currency
- ------------- ---------------------------------------------------
United States $22,160 $22,026 0.6 0.6
International 48,410 46,168 4.9 2.3
------------------------------------------------
Net revenues $70,570 $68,194 3.5 1.7
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By product type: 2000 1999 as reported currency
- ---------------- ---------------------------------------------------
Disposables $64,290 $61,985 3.7 1.5
Misc & service 3,636 3,003 21.1 31.0
Equipment 2,644 3,206 (17.5) (19.1)
------------------------------------------------
Net revenues $70,570 $68,194 3.5 1.7
14
Percent Increase / (Decrease)
Disposables -----------------------------
- ----------- Actual dollars At constant
by product line: 2000 1999 as reported currency
- ---------------- ---------------------------------------------------
Surgical $14,208 $13,649 4.1 5.4
Blood bank* 28,970 26,828 8.0 5.1
Plasma 21,112 21,508 (1.8) (4.7)
------------------------------------------------
Disposable revenues $64,290 $61,985 3.7 1.5
* Includes red cell disposables
Three months ended September 30, 2000 compared to
three months ended October 2, 1999
Net Revenues
Net revenues in 2000 increased 3.5% to $70.6 million from $68.2
million in 1999. With currency rates held constant, net revenues increased
1.7 % from 1999 to 2000.
Disposable sales increased approximately 3.7% year over year at actual
rates. With currency rates held constant, disposable sales increased 1.5%.
The 1.5% increase at constant currency was a result of growth in both
worldwide surgical, 5.4%, and worldwide blood bank, 5.1%, offset by a
decrease in worldwide plasma, 4.7%. More specifically, the growth in the
worldwide surgical business is mainly attributed to volume increase and the
mix effect of products sold in the US, Asia and Japan markets. The Company
views the increasing prices of red cells around the world, and the favorable
autotransfusion economics its Surgical product offerings deliver, as factors
contributing to the volume increases. The increase in the worldwide blood
bank revenues is attributed to volume increases and the mix effect from the
introduction of new disposable products in the Europe and Asia markets.
Sales of red cell disposables, which are included in the blood bank
revenues, increased 34% at constant currency over last year. The increase in
red cell sales was attributable to volume increases in both the US and
Europe as the rollout of this new technology in these markets continues to
gain strength. The decrease in the Plasma sales was attributable most
significantly to volume decreases due to reduced demand resulting from
various market factors.
Constant currency sales of disposable products, excluding service and
other miscellaneous revenue, accounted for approximately 91% of net revenues
for both 2000 and 1999.
Service generated from equipment repairs performed under preventive
maintenance contracts or emergency service billings and miscellaneous
revenues accounted for approximately 5.3% and 4.1 % of the Company's net
revenues, at constant currency, for 2000 and 1999, respectively.
Equipment revenues decreased approximately 17.5 % from $3.2 million in
1999. With currency rates held constant, equipment revenues decreased 19.1%
from 1999 to 2000. The 19.1% decrease was a result of decreased equipment
revenues in the blood bank and surgical product lines, mainly in Europe and
the US. The decrease in revenue recognized on equipment shipments represents
a continuing trend of customer preference for, and the Company's policy of,
moving toward placing on loan Company-owned equipment versus selling it
under long-term sales-type leases. Reasons for customer preference vary
significantly but included the customers' preference to be relieved from
certain risks of ownership, particularly the equipment's economic useful
life and technological feasibility. From the Company's point of view,
placing company owned equipment versus selling it, allows the Company to
better track the location and the utilization of the equipment.
International sales as reported accounted for approximately 68.6% and
67.7% of net revenues for 2000 and 1999, respectively. As in the US, the
sales outside the US are susceptible to risks and uncertainties from
regulatory changes, the Company's ability to forecast product demand and
market acceptance of the Company's products, changes in economic conditions,
the impact of competitive products and pricing and changes in health care
policy.
15
Gross profit
Gross profit of $33.4 million in 2000 increased $1.8 million or 0.9 as
a percent of sales from $31.6 million in 1999. At constant currency, gross
profit as a percent of sales decreased by 1.1% and decreased in dollars by
$0.2 million from 1999 to 2000. The $0.2 million gross profit decrease from
1999 was a result of improvements in gross profit from higher sales being
offset by increases in manufacturing variances such as further reductions in
inventory. Offsetting the increased manufacturing variances were cost
savings of approximately $0.7 million from the Company's Customer Oriented
Redesign for Excellence ("CORE") Program. In 1998, the Company initiated the
CORE Program to increase operational effectiveness and improve all aspects
of customer service. The CORE Program is based on Total Quality of
Management, ("TQM"), principals, and the Program aims to increase the
efficiency and the quality of, processes and products, and to improve the
quality of management at Haemonetics. The $0.7 million in CORE savings in
the second quarter resulted from savings in material and labor costs as a
result of redesigning the way products are made and by negotiating lower
material prices with vendors.
Expenses
The Company expended $4.2 million (6.0% of net revenues) on research
and development in 2000 and $3.8 million (5.5% of net revenues) in 1999. At
constant currency rates, research and development as a percent of sales
increased by 0.6% and increased in dollars by $0.5 million from 1999 to
2000. The increase in research and development was a result of the Company's
objective to reinvest available funds into new product development in order
to fuel future top line growth.
Selling, general and administrative expenses increased $0.3 million
from $20.5 million in 1999. At constant currency, selling, general and
administrative expenses increased $0.5 million from 1999 to 2000 and
increased 0.3% as a percent of sales from 1999 to 2000. The CORE Program
contributed approximately $0.2 million to reductions in distribution related
selling, general and administrative expenses. More specifically, the
distribution savings were generated by lowering freight costs with the move
of the Company's European distribution center from the Netherlands to
Germany, by renegotiating lower freight rates with vendors and by increasing
local sourcing of raw materials abroad.
In Process Research and Development (IPR&D) and Other Unusual charges
Relating to the Acquisition
Acquisition of Transfusion Technologies Corporation
On September 15, 2000, the Company completed the acquisition of
Transfusion Technologies Corporation, a Delaware Corporation ("Transfusion")
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
September 4, 2000 among Haemonetics, Transfusion, Transfusion Merger Co.,
the holders of a majority of outstanding shares of Preferred and Common
Stock of Transfusion and certain principals of Transfusion. The acquisition
was effected in the form of a merger (the "Merger") of Transfusion Merger
Co., a wholly owned subsidiary of Haemonetics, with and into Transfusion.
Transfusion was the surviving corporation in the merger.
a) In Process Research and Development (IPR&D)
The Company incurred a charge in the second quarter of fiscal 2001
related to the acquisition of Transfusion Technologies Corporation of $18.6
million representing the value of the research and development projects that
were in process, that had not yet reached technical feasibility and had no
alternative future use at the time of the acquisition. Accordingly, the
amounts were immediately expensed in the Consolidated Statement of
Operations. (See footnotes #10 and #11 for a further description of the
acquisition and an explanation as to how the IPR&D was valued.)
16
b) Other Unusual Charges Relating to the Acquisition
Unusual charges expensed in Q2 of fiscal year 2001, as a result of the
acquisition of Transfusion Technologies amounted to $4.2 million which
included $2.8 million in bonuses paid to key Transfusion Executives hired by
Haemonetics and severance to employees laid off due to overlaps created by
the merger, a $0.5 million write-off of an investment in a technology which
Haemonetics decided not to pursue in lieu of the technologies acquired in
the merger, and the adjustment required to modify the 19.8% investment of
Transfusion by Haemonetics in November of fiscal year 2000 from the cost
method to the equity method of accounting as required by generally accepted
accounting principles. To effect this change, the historic cost of the
19.8% investment made by Haemonetics' was written down by its 19.8% share of
the monthly losses incurred by Transfusion Technologies from November of
fiscal year 2000. For fiscal year 2001, the charge to the statement of
operations related to this cost to equity adjustment was $0.9 million for
the three months ended September 30, 2000.
Operating Income
Operating income, as a percentage of net revenues, decreased 31.2
percentage points to (20.4)% in 2000 from 10.8% in 1999. At constant
currency, operating income, as a percent of sales, decreased 31.8% from 1999
or $23.9 million. The $23.9 million decrease in operating income resulted
largely from the $22.8 million in combined IPR&D and other unusual charges
incurred as a result of the Company's acquisition Transfusion Technologies
as well as $1.1 million in combined increases in operating expenses and
slightly lower gross profit.
Other Income and Expense
Interest expense decreased $0.2 million from 1999 to 2000 due to a
reduction in the average outstanding borrowings and lower interest rates.
Interest income decreased $0.1 million from 1999 to 2000. Other income net
increased $0.1 million due to increases in income earned from points on
forward contracts, which was partially offset by an increase in amortization
expense related to investments and the Company's acquisition of Transfusion
Technologies, and increases in foreign exchange transaction losses. Points
on forward contracts are amounts, either paid or earned, based on the
interest rate differential between two foreign currencies in a forward hedge
contract.
Taxes
The provision for income taxes, as a percentage of pretax income, was
32.0% in the second quarter of fiscal year 2000 and 28.0% in the second
quarter of fiscal year 2001 before the effect of the Transfusion
Technologies acquisition. The Company anticipates the provision rate applied
to the Company before the effect of the Transfusion Technologies acquisition
to remain at 28% for fiscal year 2001. Contributing to the decrease in the
tax rates from 32% to 28% was an increase in export benefits from the
Company's Foreign Sales Corporation, benefits associated with the
repatriation of funds as well as the geographic mix of income.
17
Six Months Ended September 30, 2000 Compared to
Six Months Ended October 2, 1999
Percentage of Net Revenues Percentage Incr/(decr)
Six Months Ended Six Months Ended
---------------------------- ----------------------
Sept 30, 2000 Oct 2, 1999 2000/99
- ----------------------------------------------------------------------------------------------
Net revenues 100.0 % 100.0% 2.1 %
Cost of goods sold 52.4 53.1 0.8
-------------------------------------------
Gross Profit 47.6 46.9 3.6
Operating Expenses:
Research and development 5.9 5.4 12.6
Selling, general and administrative 29.8 30.0 1.3
In process research and development 13.3 - -
Other unusual items 3.3 - -
-------------------------------------------
Total operating expenses 52.3 35.4 50.7
Operating income (4.7) 11.5 (141.5)
Interest expense (1.3) (1.5) (9.6)
Interest income 1.7 1.7 (2.4)
Other income 1.1 0.7 67.3
-------------------------------------------
Income from continuing operations before
provision for income taxes (3.2) 12.4 (126.8)
Provision for income taxes 3.1 4.0 (20.3)
-------------------------------------------
Earnings from continuing operations (6.3)% 8.4% (177.0)%
===========================================
18
Six Months Ended September 30, 2000 Compared to
Six Months Ended October 2, 1999
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By geography: 2000 1999 as reported currency
- ------------- ----------------------------------------------------
United States $ 44,308 $ 44,546 (0.5) (0.5)
International 95,955 92,770 3.4 1.2
------------------------------------------------
Net revenues $140,263 $137,316 2.1 0.7
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By product type: 2000 1999 as reported currency
- ---------------- ----------------------------------------------------
Disposables $126,911 $124,099 2.3 0.4
Misc & service 7,683 5,544 38.6 46.5
Equipment 5,669 7,673 (26.1) (26.3)
-------------------------------------------------
Net revenues $140,263 $137,316 2.1 0.7
Percent Increase / (Decrease)
Disposables -----------------------------
- ----------- Actual dollars At constant
by product line: 2000 1999 as reported currency
- ---------------- ---------------------------------------------------
Surgical $ 29,058 $ 28,213 3.0 4.0
Blood bank* 56,637 53,873 5.1 2.4
Plasma 41,216 42,013 (1.9) (4.2)
-------------------------------------------------
Disposable revenues $126,911 $124,099 2.3 0.4
* Includes red cell disposables
Net Revenues
Net revenues in 2000 increased 2.1% to $140.3 million from $137.3
million in 1999. With currency rates held constant, net revenues increased
0.7% from 1999 to 2000.
Disposable sales increased approximately 2.3% year over year at actual
rates. With currency rates held constant, disposable sales increased 0.4%.
The 0.4% increase was a result of growth in worldwide surgical, 4.0%, and
worldwide blood bank, 2.4%, markets offset by a decrease in worldwide plasma
sales of 4.2%. More specifically, the growth in the worldwide surgical
business is mainly attributed to volume increase and the mix effect of
products sold in the US, Asia and Japan markets. The Company views the
increasing prices of red cells around the world, and the favorable
autotransfusion economics its Surgical product offerings deliver, as factors
contributing to the volume increases. The increase in the worldwide blood
bank sales is attributed to volume increases and the mix effect from the
introduction of new products in the Europe, Asia and US blood bank markets.
Sales of red cell disposables, which are included in the blood bank
revenues, increased 26% at constant currency over last year. The increase in
red cell sales was attributable to volume increases in both the US and
Europe as the rollout of this new technology in these markets continues to
gain strength. Demand decreases in the US, Europe,
19
Japan and Asia accounted for the decrease in the worldwide plasma sales and
resulted from a combination of market factors including a lack of available
donors in the US.
Constant currency sales of disposable products, excluding service and
other miscellaneous revenue, accounted for approximately 90% and 91% of net
revenues for 2000 and 1999, respectively.
Service generated from equipment repairs performed under preventive
maintenance contracts or emergency service billings and miscellaneous
revenues accounted for approximately 5.6% and 3.9% of the Company's net
revenues, at constant currency, for 2000 and 1999, respectively.
Equipment revenues decreased approximately 26.1% from $7.7 million in
1999 at actual rates and 26.3% with currency rates held constant. The 26.3%
decrease was a result of lower equipment revenues in the blood bank,
surgical and plasma product lines, in all geographies, but particularly in
Asia due to a large non-recurring equipment sale in the prior year. The
overall decrease in revenue recognized on equipment shipments represents a
continuing trend of customer preference for, and the Company's policy of,
moving toward placing on loan Company-owned equipment versus selling it
under long-term sales-type leases. Reasons for customer preference vary
significantly but included the customers' preference to be relieved from
certain risks of ownership, particularly the equipment's economic useful
life and technological feasibility. From the Company's point of view,
placing company owned equipment versus selling it, allows the Company to
better track the location and the utilization of the equipment.
International sales as reported accounted for approximately 68.4% and
67.6% of net revenues for 2000 and 1999, respectively. As in the US, the
sales outside the US are susceptible to risks and uncertainties from
regulatory changes, the Company's ability to forecast product demand and
market acceptance of the Company's products, changes in economic conditions,
the impact of competitive products and pricing and changes in health care
policy.
Gross profit
Gross profit of $66.8 million in 2000 increased $2.3 million from
$64.5 million in 1999. With currency rates held constant, gross profit as a
percent of sales decreased by 0.6% and decreased in dollars by $0.3 million
from 1999 to 2000. The $0.3 million gross profit decrease from 1999 was a
result of improvements in gross profit from higher sales being offset by
increases in manufacturing variances from further reductions in inventory.
Offsetting the increased manufacturing variances were cost savings of
approximately $1.5 million from the Company's CORE Program. The $1.5 million
in savings for the six months ended September 30, 2000, resulted primarily
from savings in material costs as a result of redesigning the way products
are made to use less material and by negotiating lower material prices with
vendors.
Expenses
The Company expended $8.3 million (5.9% of net revenues) on research
and development in 2000 and $7.4 million (5.4% of net revenues) in 1999.
With currency rates held constant, research and development as a percent of
sales increased by 0.7% and increased $1.0 million in dollars from 1999 to
2000. The increase in research and development spending is a result of the
Company reinvesting available funds into new product development in order to
fuel future top line growth.
Selling, general and administrative expenses increased $0.5 million
from $41.3 million in 1999. At constant currency rates, selling, general and
administrative expenses increased $0.7 million from 1999 to 2000 and
increased 0.3% as a percent of sales from 1999 to 2000. The CORE Program
contributed approximately $0.3 million due to reductions in distribution
related selling, general and administrative expenses. More specifically, the
distribution savings were generated by lowering freight costs with the move
of Company's European distribution center from the Netherlands to Germany.
20
In Process Research and Development (IPR&D) and Other Unusual charges
Relating to the Acquisition
a) In Process Research and Development (IPR&D)
As previously discussed, the Company incurred a charge in the second
quarter of fiscal 2001 related to the acquisition of Transfusion
Technologies Corporation of $18.6 million representing the value of the
research and development projects that were in process, that had not yet
reached technical feasibility and had no alternative future use at the time
of the acquisition. Accordingly, the amounts were immediately expensed in
the Consolidated Statement of Operations. (See footnotes #10 and #11 for a
further description of the acquisition and an explanation as to how the
IPR&D was valued.)
b) Other Unusual Charges Relating to the Acquisition
Unusual charges expensed in Q2 of fiscal year 2001, as a result of the
acquisition of Transfusion Technologies amounted to $4.2 million and
included $2.8 million in bonuses paid to key Transfusion Executives hired by
Haemonetics and severance to employees laid off due to overlaps created by
the merger, a $0.5 million write-off of an investment in fluid warming
technology which Haemonetics decided not to pursue in lieu of the
technologies acquired in the merger, and the adjustment required to modify
the 19.8% investment of Transfusion by Haemonetics in November of fiscal
year 2000 from the cost method to the equity method of accounting as
required by generally accepted accounting principles. To effect this
change, the historic cost of the 19.8% investment made by Haemonetics' was
written down by its 19.8% share of the monthly losses incurred by
Transfusion Technologies from November of fiscal year 2000. For fiscal year
2001, the charge to the statement of operations related to this cost to
equity adjustment was $1.3 million for the six months ended September 30,
2000.
Operating Income
Operating income, as a percentage of net revenues, decreased 16.2
percentage points to (4.7)% in 2000 from 11.5% in 1999. At constant currency
rates, operating income, as a percent of sales, decreased 18.0% from 1999 or
$25.1 million. The $25.1 million decrease in operating income resulted
largely from the $23.2 million in combined IPR&D and other unusual items
from the Transfusion Technologies acquisition as well as $2.0 million in
combined increases in operating expenses and slightly lower gross profit
results.
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. Hedging through the use of forward contracts does not eliminate
the volatility of foreign exchange rates, but because the Company generally
enters into forward contracts one year out, rates are fixed for a one-year
period, thereby facilitating financial planning and resource allocation.
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 and 2001, the indexed hedge rates were 3.9% less
favorable and 9.1% more favorable than the respective prior years. For the
first and second quarters of fiscal 2001, the indexed hedge spot rates
appreciated 5.4% and 8.2%, respectively and for the first and second
quarters of fiscal 2002, the indexed hedge spot rates appreciated 5.2% and
3.3%, respectively over the corresponding quarters of the preceding years.
These indexed hedge rates represent the change in spot value (value on the
day the hedge contract is undertaken) of the Haemonetics specific hedge rate
index. These
21
indexed hedge rates impact sales, cost of sales and SG&A in the Company's
financial statements.
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.
Composite Index Favorable / (Unfavorable)
Hedge Spot Rates Change vs Prior Year
---------------- -------------------------
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%
FY2002 Q1 0.99 5.2%
Q2 0.97 3.3%
Other Income and Expense
Interest expense decreased $0.2 million from 2000 to 1999 due to a
reduction in the average outstanding borrowings and lower interest rates.
Interest income was relatively unchanged 1999 to 2000. Other income net
increased $0.6 million due to increases in income earned from points on
forward contracts, which was partially offset by an increase in amortization
expense related to investments and the Company's acquisition of Transfusion
Technologies. Points on forward contracts are amounts, either paid or
earned, based on the interest rate differential between two foreign
currencies in a forward hedge contract.
Taxes
The provision for income taxes, as a percentage of pretax income, was
32.0% during the first six months of fiscal year 2000 and 28.0% during the
first six months of fiscal year 2001 before the effect of the Transfusion
Technologies acquisition. The Company anticipates the provision rate applied
to the Company before the effect of the Transfusion Technologies acquisition
to remain at 28% for fiscal year 2001. Contributing to the decrease in the
tax rates from 32% to 28% was an increase in export benefits from the
Company's Foreign Sales Corporation, benefits associated with the
repatriation of funds as well as the geographic mix of income.
22
RESULTS OF DISCONTINUED OPERATIONS (BLOOD BANK MANAGEMENT SERVICES, "BBMS")
Accounting for the divestiture of all BBMS centers effective May 1999,
was completed during the second quarter of 1999 with the recovery of the
excess reserve amounting to $144,000 (net of $68,000 of taxes).
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, acquisitions, new business
development and working capital.
During the six months ended September 30, 2000, the Company decreased
its cash balances, before the effect of exchange rates, by $22.5 million
from operating, investing and financing activities which represents an
increase in cash utilization of $22.4 million from the $0.1 million utilized
in the Company's operating, investing and financing activities during the
six months ended October 2, 1999. The increase in cash utilization was
largely a result of the $26.6 million spent to acquire Transfusion
Technologies.
Operating Activities:
The Company generated $24.7 million in cash from operating activities
of continuing operations in 2000 as compared to $30.0 million generated
during 1999. The $5.3 million decrease in operating cash flow generated from
continuing operations from 1999 to 2000 was a result of a decrease of $4.1
in net income adjusted for non cash items and $1.2 million in additional
funds utilized by various working capital activities. Specifically, the $1.2
million in additional funds utilized by working capital activities resulted
from cash generated from targeted reductions in inventory levels, and
increases in accounts payable, accrued expenses and other current
liabilities as a result of accruals booked as part of the Transfusion
Technologies acquisition, offset primarily by increases in accounts
receivable due to timing and mix of domestic sales booked during the six
months ended September 30, 2000.
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. This alternative measure of operating cash flows is a non-GAAP
measure that may not be comparable to similarly titled measures reported by
other companies. It is intended to assist readers of the report who employ
"free cash flow" and similar measures that do not include tax assets and
liabilities, equity investments and other sources and uses that are outside
the day-to-day activities of a Company.
As measured by the Company's operating cash flow metric, the company
generated $25.5 million and $24.3 million of operating cash during the six
months ended September 30, 2000 and the six months ended October 2, 1999,
respectively. The $25.5 million of operating cash generated for the six
months ended September 30, 2000 was calculated excluding the $26.6 of cash
spent to acquire Transfusion Technologies. The $25.5 of cash flow resulted
from $14.3 million of net income adjusted for non-cash items, $9.2 million
from the reduction of the Company's net investment in property plant and
equipment and sales-type leases, and from a $2.0 million lower working
capital investment, due mainly to lower inventories. Non-cash transfers from
inventory to property, plant and equipment have been excluded for purposes
of this calculation and amounted to approximately $3.1 million in the six-
month periods for both 2000 and 1999. The $24.3 million of operating cash
generated for the six months ended October 2, 1999 resulted from $13.1
million of net income adjusted for non-cash items and $7.6 million from the
reduction of the Company's net investment in property plant and equipment
and sales-type leases, and a $3.6 million in lower working capital
investment, due mainly to lower accounts receivable.
During 1999, the Company's discontinued operations utilized $4.9
million in operating cash flows stemming from working capital changes.
23
Investing Activities
The Company utilized $29.8 million in cash for investing activities
from continuing operations in 2000, an increase of $18.8 million from 1999.
In 2000, the Company acquired Transfusion Technologies utilizing $26.6
million of cash. This cash utilization was partially offset by a decrease in
capital expenditures for 2000 of $7.7, net of retirements and disposals.
The Company estimates that the cash and non-cash costs of
restructuring, integrating and consolidating the operations of Haemonetics
Corporation and Transfusion Technologies over the next 6 months to be
approximately $1.5 million, net of tax of $0.6 million, which will be
charged to income as incurred. Further, the Company expects the cash outlays
to be financed by internally generated cash flows.
During 1999, the Company's discontinued operations provided $3.6
million in operating cash flows as a result of the sale of capital assets
relative to the dissolution of the discontinued operations.
Financing Activities:
During the six months ended September 30, 2000, the Company's utilized
$0.3 less cash as a result of its financing activities than during 1999. The
Company paid the remaining $8.0 million balance on its Braintree headquarter
real estate mortgage and $7.0 million in Japanese short-term debt. This
$15.0 million debt reduction represented an $18.0 million increase in cash
utilization for debt pay down as compared to 1999. This increase use of cash
was partially offset by the fact that the Company repurchased fewer shares
for its treasury during 2000 as compared to 1999, representing $15.9
million.
At September 30, 2000, the Company had working capital of $107.7
million. This reflects a decrease of $13.7 million in working capital for
the six months ended September 30, 2000. The Company has received a
commitment for a $10.0 million mortgage to be secured by the company owned
headquarters and manufacturing facility in Braintree Massachusetts. The
Company expects the transaction to close during the third quarter of fiscal
year 2001. The funds received from this transaction will be used for general
corporate purposes. The Company believes all its anticipated 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 fourth
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 reviewing SAB 101. Management does not anticipate a
required change to its revenue recognition policy resulting from the
application of SAB 101.
In June 1998, Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by FASB Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133-An Amendment of FASB Statement No. 133," and
by FASB Statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - An Amendment of FASB Statement 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 as amended requires
that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Additionally, a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 as amended is
effective for fiscal years beginning after June 15, 2000. The impacts of
adopting SFAS No. 133 as amended on the Company's financial statements and
the timing of adoption of SFAS No. 133 as amended have not been determined.
However, it is expected that the derivative financial instruments acquired
in connection with the Company's hedging program will qualify for hedge
accounting under SFAS No. 133 as amended.
24
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.
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
The introduction of the Euro will likely result in greater
transparency of pricing throughout Europe and make price comparison easier
between countries. It is anticipated that these changes will have little
impact on Haemonetics in the short-term but could result in some long-term
price harmonization. The Company's products
25
are heavily regulated by organizations specific to each country and as a
result, transactions between countries are infrequent.
Information systems
The Company is continuing a thorough review 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 local transactional systems are
planned to be tested by Q3 FY01.
Accounting, Finance & Treasury
At the point the Company adopts the Euro, it expects to experience the
benefits of simplified hedging, banking and financial transaction systems.
The Corporate local currency bank accounts have been consolidated to a
single Euro account. Each subsidiary will maintain bank accounts, which are
capable of processing transactions in both the local currency and the Euro.
The transactions between the local currency accounts and Euro accounts
throughout Europe do not result in any additional expense for the company.
Tax
It is expected that some of the European countries will allow costs
related to the introduction of the Euro to be fully deductible.
Additionally, it is anticipated that most countries will allow tax relief by
means of a one-time depreciation or amortization charge related to assets
utilized in the Euro conversion.
Legal
The EU has adopted regulations precluding a party from using the Euro
conversion as the reason for breaching or changing its contractual
obligations, unless the other parties to the contract are in agreement. The
Company is now in the process of identifying any contracts between the
Company and parties outside the USA, which fall under these regulations. At
this point, the Company is not aware of substantial risk related to such
contracts.
The conversion to Euro on April 2, 2001 will result in the conversion
of the share capital of the 6 subsidiaries within the European Monetary
Union (EMU). The Committee has concluded that if the converted share capital
results in uneven amounts, they will be rounded by increasing or decreasing
the share capital.
The Committee has identified the new amounts of the share capital per
the requested minimum capital requirements issued by the EU. The Committee
is currently in the process of coordinating all activities related to these
changes such as meetings of the subsidiary board of directors, shareholder
meetings, changes in by-laws and defining the appropriate accounting
transactions. The Company anticipates that all required changes will be
completed during the second and third quarters of fiscal year 2001. The
Company does not anticipate material exposure resulting from the share
capital conversion.
Human Resources
The Committee has decided not to rewrite the existing employee
contracts in subsidiaries located in the EMU, but rather, to give a letter
to each employee which will form an integrated part of the existing employee
contract. This letter will indicate the salary amount in Euro, as well as
provide general information about the Euro. The effective date of this
letter will be April 2, 2001.
26
A Euro contact person responsible for organizing regular employee
updates and for communicating the company-wide progress of the Euro
implementation has been identified at each European subsidiary.
Costs
Although the total cost of the Euro conversion has not yet been
quantified, the Company does not believe that the total cost will be
significant or have a material impact on its business, results of
operations, financial position or cash flows.
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 September 30, 2000, the Company had the following significant
foreign exchange contracts to hedge certain firm sales commitments
denominated in foreign currency outstanding:
Hedged (BUY) / SELL Weighted Forward US$ @ Unrealized
Currency Local Currency Contract Rate Current Rate Gain / (Loss) Maturity
- ------------------------------------------------------------------------------------------------------
Euro Equivalent 7,500,000 $1.108 6,621,400 $1,686,100 Oct-Dec 2000
Euro Equivalent 8,100,000 $1.004 7,182,560 946,070 Jan-Mar 2001
Euro Equivalent 7,500,000 $0.915 6,674,500 185,875 Apr-Jun 2001
Euro Equivalent 6,500,000 $0.942 5,810,200 313,300 Jul-Sep 2001
Japanese Yen 2,075,000,000 99.7 per US$ 19,314,132 $1,506,729 Oct-Dec 2000
Japanese Yen 1,900,000,000 100.8 per US$ 17,958,885 892,548 Jan-Mar 2001
Japanese Yen 2,000,000,000 101.2 per US$ 19,185,334 568,595 Apr-Jun 2001
Japanese Yen 1,925,000,000 101.2 per US$ 18,747,394 281,345 Jul-Sep 2001
----------------------------------------------
Total: 101,494,405 $6,380,562
----------------------------------------------
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
result in a $10.4 million unrealized gain; whereas a 10% weakening of the
U.S. dollar would result in a $11.9 million unrealized loss.
27
Interest Rate Risk
Approximately 97%, 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 September 30, 2000, the fair value of the
Company's long-term debt was approximately $1.1 million higher than the
value of the debt reflected on the Company's financial statements. This
higher fair market is primarily related to the $40.0 million, 7.05% fixed
rate senior notes the Company holds. These notes represent approximately 97%
of the Company's outstanding long-term borrowings at September 30, 2000. At
October 2, 1999, the fair value of the Company's long-term debt was
approximately $1.2 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 September
30, 2000. The effect was a change in the fair value of the Company's long-
term debt, of approximately $1.5 million.
28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On July 25, 2000, the Company held its annual meeting of
stockholders. At the meeting, Sir Stuart Burgess, Ronald G. Gelbman
and N. Colin Lind were re-elected as Directors for terms ending in
2003. The voting results were as follows:
Sir Stuart Burgess For 23,716,610 Withheld 295,679
Ronald G. Gelbman For 23,716,720 Withheld 295,569
N. Colin Lind For 23,716,690 Withheld 295,599
The other members of the Board of Directors whose terms continued
after the meeting were:
Serving a Term Ending in 2001 - Yutaka Sakurada, Donna D. E.
Williamson and Harvey G. Klein, M.D.;
Serving a Term Ending in 2002 - James L. Peterson and Benjamin L.
Holmes.
At the meeting, the stockholders ratified the selection by the
Board of Directors of Arthur Andersen LLP as independent public
accountants for the current fiscal year. The vote was as follows:
For 23,986,680 Against 17,944 Abstain 7,665
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a). Exhibits
The following exhibits will be filed as part of this form 10-Q:
Exhibit 10A Amendment, dated September 29, 2000, to the Note
Purchase agreement, dated October 15, 1997.
29
Exhibit 27 Financial Data Schedule
(b). Reports on Form 8-K.
A report on Form 8-K was filed on September 29, 000 reporting under
Item 2, The Acquisition of Transfusion Technologies Corporation.
30
SIGNATURES
----------
Pursuant to the requirements 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
Date: November 10, 2000 By: /s/ James L. Peterson
----------------- --------------------------------------
James L. Peterson,
President and Chief Executive Officer
Date: November 10, 2000 By: /s/ Ronald J. Ryan
----------------- --------------------------------------
Ronald J. Ryan,
Sr. Vice President and Chief
Financial Officer, (Principal
Accounting Officer)
31
Exhibit 10A
AMENDMENT OF NOTE PURCHASE AGREEMENTS
This Amendment of Note Purchase Agreements (the "Amendment") is made
as of this 29th day of September, 2000 by and among Allstate Life Insurance
Company, Employers Insurance of Wausau A Mutual Company, State Farm Life
Insurance Company and Nationwide Mutual Fire Insurance Company (herein
collectively the "Purchasers") and Haemonetics Corporation, a Massachusetts
corporation (the "Company"). Capitalized words used as defined terms
herein and not otherwise defined shall have the meaning ascribed thereto in
the Note Purchase Agreements (as defined below).
WITNESSETH
WHEREAS, the Purchasers and the Company have entered into separate
and several Note Purchase Agreements each dated as of October 15, 1997 (the
"Note Purchase Agreements") relating to the issuance by the Company of
$40,000,000 in aggregate principal amount of its 7.05% Senior Notes due
October 15, 2007;
WHEREAS, on or about September 15, 2000 the Company acquired all of
the capital stock of Transfusion Technologies Corporation, a Delaware
corporation ("TTC"), which it did not previously own;
WHEREAS, in connection with such acquisition of TTC stock, certain
purchase accounting adjustments to the financial statements of TTC will be
required under GAAP and, prior to said acquisition, TTC recognized losses
which, in accordance with GAAP, were not reflected on the Company's
financial statements; and
WHEREAS, Section 10.1 of the Note Purchase Agreement provides that
the Company will at all times keep and maintain a minimum amount of
Consolidated Stockholder's Equity and Section 10.5 of the Note Purchase
Agreements provides that the Company will not make Restricted Payments
unless in compliance with certain financial tests.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Purchasers and the Company
hereby agree as follows:
1. Amendments to the Note Purchase Agreements. The parties hereto
hereby amend the Note Purchase Agreements, effective as of September 30,
2000, as follows:
(a) Section 10.1 is hereby amended by deleting the same in
its entirety and inserting in lieu thereof the following:
"Section 10.1. Consolidated Stockholders' Equity. The
company will at all times keep and maintain Consolidated
Stockholders' Equity at an amount not less than the lesser of
(i) $180,000,000 (One Hundred and Eighty Million Dollars) plus
25% of Consolidated Net Income determined on a cumulative basis
for the period commencing October 1, 2000 and ending as of the
end of the quarter immediately preceding the date of
determination, and (ii) $200,000,000 (Two Hundred Million
Dollars)."
1
(b) Section 10.5(a) is hereby amended by adding at the end
thereof the following:
"; plus
(iv) an amount equal to the TTC Adjustment Amount."
(c) Schedule B to the Note Purchase Agreements is hereby
further amended by adding after the definition of Swaps, the
following:
"TTC Adjustment Amount" means a positive amount equal to
the negative impact on the stock accounts, additional paid in
capital and surplus and retained earnings of Transfusion
Technologies Corporation, a Delaware corporation ("TTC"),
resulting from the Company's acquisition on or about September
15, 2000 of the equity interest in TTC not previously owned by
the Company, plus, a positive amount equal to 50% of the
negative impact that TTC's results of operations prior to
September 15, 2000 had on the Company's Consolidated Net
Income.
2. Representations, Warranties and Covenants of the Company. To
induce the Purchasers to enter into this Amendment, the Company hereby
represents, warrants and covenants to the Purchasers as follows:
(a) The representations and warranties of the Company
contained in the Note Purchase Agreements were true and correct when
made and are true and correct at and as of the date hereof, except
that all representations and warranties that expressly related to
specific financial statements of the Company are deemed to be made
herein with respect to the financial statements of the Company as of
and for the period ended June 30, 2000, copies of which have been
delivered to the Purchasers.
(b) There exists no Default or Event of Default, after giving
effect to the Amendments contemplated hereby, under the Note Purchase
Agreements or the Notes.
(c) The Company has not, directly or indirectly, paid or
caused to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or granted any security, to
any holder of the Notes as consideration for or as an inducement to
the entering into this Amendment.
3. Effect of Amendment. The Amendment set forth herein shall be
limited precisely as written and shall not be deemed a amendment or
modification of any other term or condition of the Note Purchase Agreements
or to be a consent to any future amendment of any provision thereof.
2
4. Note Purchase Agreements and Notes Ratified. This Amendment
shall be construed in connection with each of the Note Purchase Agreements,
and except as expressly modified by this Amendment, all terms, conditions
and covenants contained in the Note Purchase Agreements and Notes are
hereby ratified and shall be and remain in full force and effect.
5. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original but all of which together
shall constitute one instrument.
6. Governing Law. This Amendment shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
law of the State of Illinois.
* * * * * * * * * * * *
3
The foregoing amendment is hereby accepted and agreed to as of the
date first written above.
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ Ronald Mendel
-------------------------
By: /s/ Patricia W. Wilson
-------------------------
NATIONWIDE INDEMNITY COMPANY
(AS SUCCESSOR TO EMPLOYERS INSURANCE
OF WAUSAU A MUTUAL COMPANY)
By: /s/ Mark W. Poeppelman
-------------------------
STATE FARM LIFE INSURANCE COMPANY
By:__________________________
By:__________________________
NATIONWIDE MUTUAL
FIRE INSURANCE COMPANY
By: /s/ Mark W. Poeppelman
-------------------------
HAEMONETICS CORPORATION
By:___________________________
4
