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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 March 31, 2001. Commission file number 1-10730
HAEMONETICS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
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(State of Incorporation) (I.R.S. Employer Identification No.)
400 Wood Road, Braintree, Massachusetts 02184-9114
(781) 848-7100
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(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
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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
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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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing sale price of May 16, 2001 was
approximately $603,000,000
The number of shares of the registrant's common stock, $.01 par
value, outstanding as of May 16, 2001 was 25,903,944
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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 24,
2001.
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TABLE OF CONTENTS
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Page Number
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Item 1. Business
(a) New Developments in the Business 3
(b) General History of the Business 6
(c) Financial Information about Industry Segments 6
(d) Narrative Description of Business 6
(e) Financial Information about Foreign and
Domestic Operations and Export Sales 15
Item 2. Properties 15
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Consolidated Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 32
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 61
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors 61
(b) Identification of Executive Officers 61
Item 11. Executive Compensation 62
Item 12. Security Ownership of Certain Beneficial Owners and Management 62
Item 13. Certain Relationships and Related Transactions 62
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statement Schedules 62
(b) Reports on Form 8-K 62
(c) Exhibits 62
2
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,
by providing its own IV solutions, Haemonetics will be able to control
costs more effectively and enable customers to satisfy all of their
automated blood collection requirements through one vendor.
The Company already has a full line of CE-approved IV solutions in
Europe, and in March 2000, the Food and Drug Administration ("FDA") cleared
the first Haemonetics' solutions planned for sale in the United States.
Specifically, 4 percent sodium citrate was cleared for use as an
anticoagulant during the automated collection of plasma. Other New Drug
Application clearances for anticoagulant and red cell nutrient solutions
are expected to be received from the FDA in FY02. Solutions are
manufactured at the Company's plant in South Carolina.
Red Cell Apheresis and Leukoreduction
Regulatory bodies around the world, including the FDA, support
removal of white cells from red blood cells prior to transfusion to protect
the transfusion recipient from the potentially harmful effects of white
cells. In November 2000, the Company received FDA clearance to market an
automated blood collection system that allows blood centers to double the
amount of red cells collected from a donor while also removing white blood
cells through a filtering process called leukoreduction. Leukoreduction is
now legally mandated in ten countries worldwide, and 14 countries,
including the United States, are moving to filter all donor blood.
New Business Developments
Expansion
In May 2000, Haemonetics acquired the Softreservoir(R) blood
reservoir product from METEC A. Schneider GmbH to complement its cell
salvage line of disposables. Blood reservoirs are single-use disposable
units that collect a surgical patient's blood for possible reinfusion.
The major improvement represented by the Softreservoir is a space
saving design that collects blood in a flexible plastic "sock" rather than
in a hard plastic shell, without sacrificing capacity or functionality. As
a result, almost 10 times more Softreservoirs will fit in the same shelf
space currently used by hospitals to store blood reservoirs. Thus,
Haemonetics' distribution costs to hospital customers could decrease. Even
more significantly, hospital costs to store and dispose of the reservoirs,
when they must be treated as medical waste, will decrease. Environmentally
friendly "green" products are increasingly popular with European
environmental groups and medical communities.
In September 2000, Haemonetics announced its acquisition of
Transfusion Technologies Corporation, a private company whose blood
separation systems are based on centrifuge technology called the Dynamic
Disk(TM). Transfusion Technologies had annual revenues of approximately
$1.5 million from sales of its first commercially available products, the
OrthoPAT(R) system and related disposables. The OrthoPAT system collects,
washes, and concentrates red blood cells salvaged from patients intra- and
post-operatively. It is small and mounts easily to an IV pole to follow a
patient from the operating room to the recovery room and to the patient
floor if necessary. It was designed specifically for orthopedic surgeries,
including knee and hip replacements, in which much of the blood loss occurs
post-operatively.
3
The OrthoPAT system has been cleared for sale in the United States
through the 510(k) process and is distributed in North America by Zimmer, a
division of Bristol-Myers Squibb. Haemonetics recently launched the product
directly in Europe.
Another new product acquired through the purchase of Transfusion
Technologies is the Chairside Separator(R) System, an automated blood
collection system that will draw whole blood from a donor and separate it
into one unit of red blood cells and one unit of plasma. These units can be
transfused directly to a patient without further laboratory processing,
thereby cost-effectively reducing the amount of laboratory handling
necessary for transfusion and aiding blood centers in regulatory
compliance. The Chairside Separator System is in the last stages of
clinical trials, after which a 510(k) pre-market application will be filed
with the FDA.
Thomas Headley, founder and past chairman of Transfusion
Technologies, has joined Haemonetics as Executive Vice President in charge
of global research and development; and Lise Halpern, formerly
Transfusion's Vice President of Marketing, is now with Haemonetics as Vice
President in charge of the Company's worldwide red cell program. Several
other Transfusion employees have also joined Haemonetics since the
acquisition.
Additional management-level appointments during the Fiscal Year 2001
included Mark Popovsky, M.D., former CEO of the American Red Cross,
Northeast Region, as President of the Company's new Cell Processing
Division and Corporate Medical Director; and Stephen Swenson as Executive
Vice President in charge of Worldwide Sales and Marketing.
In January 2001, the Company announced an agreement to purchase Alpha
Therapeutic Corporation's Compton, California plasma collection bottle
plant for $8.3 million. The disposable plastic bottles made at this plant
are used by many of Haemonetics' customers as collection containers for
blood plasma.
Continued Cultivation of the Growing Red Blood Cell Market
According to data collected by the National Blood Data Reseach
Center, the gap between transfusion needs and available blood supply in the
United States continues to widen. As such, the Company continued
aggressively marketing its red cell apheresis products. Apheresis is a
procedure that enables a donor to give twice as many red blood cells as
would be donated in a manual collection. Red blood cells are the most
frequently transfused of the three main blood components.
At the close of Fiscal Year 2001, the Company's red blood cell
collection system had been accepted for use at blood centers that collect
nearly 75 percent of all blood donated in the United States. While
Haemonetics will concurrently pursue international sales and regulatory
clearances, its near term objective is to focus on increasing the number of
automated red cell collection procedures done at blood centers in the
United States. During fiscal 2001, sales of red cell collection disposables
reached $8 million. Q4 FY01 sales increased 34 percent over Q4 FY00
worldwide and 69 percent over Q4 FY00 in the United States. The Company
recently announced an index of 13 blood collectors, representing a sample
of the United States system, against which it will track its success and
penetration of the United States system periodically.
4
New Agreement with the American Red Cross
In December 2000, the Company announced the signing of a multi-year
supply agreement with the American Red Cross, ("ARC"). The Red Cross will
use Haemonetics' automated systems for double red cell collection. The
agreement followed an extensive pilot study by the Red Cross that concluded
that the use of Haemonetics' systems could increase the supply of red cells
by as much as 6 percent. The Red Cross plans to increase its collections of
Type O blood using Haemonetics' technology. Type O, considered the
universal blood type, is most in demand and most often in short supply. The
Red Cross recently began expanding its program beyond the pilot regions.
Recently, the Red Cross announced that it will implement stricter
donor deferral criteria based on a donor's time spent, during a defined
period, in the United Kingdom or the rest of Europe based on the
theoretical risk of transmission through blood of a new form of Creutzfeld
Jakob Disease (the human variant of "mad cow" disease). The Red Cross has
also announced that it will aggressively recruit blood donors to make up
for the 6-9% of donors who could be lost to the blood collection system as
a result of the new donation eligibility criteria.
Research and Development Activities
The Company continued to expand its efforts to move new products to
market. In January 2000, Haemonetics announced that it is collaborating
with V.I. Technologies (NSDQ: VITX; "VITEX") to develop a pathogen
inactivation system. VITEX's Inactine(R) is an agent that will kill the
bacteria and viruses that can inhabit red blood cells without damaging the
red cells themselves. Haemonetics' technology contribution will be the part
of the system that "washes" red blood cells to eliminate the agent after
they have been treated with Inactine.
VITEX was the first company to receive FDA clearance to proceed to
Phase II clinical trials in the area of inactivating pathogens in red blood
cells. All of the current 40 million annual collections of red blood cells
could potentially be treated with Inactine and washed using Haemonetics'
technology. VITEX anticipates bringing the pathogen inactivation system to
market in 2003.
In May 2001, the Company announced that it had received 510(k) pre-
market clearance by the FDA for the ACP(TM) 215 automated cell processing
system, a device that will allow blood processing centers to better manage
their inventory of blood available for transfusion. Red blood cells can be
frozen for up to ten years and are thawed for use. Traditionally, these
cells have been thawed in a manual, open-circuit system. Because of the
potential for bacterial contamination, the thawed cells had to be
transfused within 24 hours or discarded. The new device enables frozen red
cells to be thawed in an automated, closed-circuit environment that
eliminates exposure to air and potential bacterial contamination, thereby
permitting a shelf life of 14 days.
Streamlined Operations
In 1998, Haemonetics embarked on a company-wide program to re-
engineer manufacturing, logistics, and other processes. This initiative -
Customer Oriented Redesign for Excellence ("CORE") - has three goals: 1)
to improve customer satisfaction through top quality and on-time
deliveries, 2) to lower production costs, and 3) to optimize inventories.
The CORE program has helped Haemonetics to realize significant cost
savings. During Fiscal Year 2001, the program yielded savings of $3.4
million, bringing total program savings since inception to $12 million.
5
(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 as well as on automated blood collection devices for use by blood
collectors and by commercial plasma collectors. 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 11 of 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, comprises red blood cells, white blood cells, and
platelets. All of these components are derived from stem cells that
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 using one or more of the above components. These
deficiencies can be related to hereditary disorders (e.g., hemophilia),
serious injury, major surgery (e.g., organ transplants or open heart
surgery), or chemotherapy treatments (e.g., cancer).
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" or "allogeneic" blood
transfusion). Homologous/Allogeneic 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 absolutely comprehensive,
6
and the evidence of disease contamination in the blood supply is well
documented. This risk is increased when blood from multiple donors is
transfused.
As a result of the above risks and limitations of traditional
transfusion treatment, three important trends have emerged in blood
transfusion therapy and practice: 1) increasing acceptance of autologous
blood transfusion (reinfusion of a patient's own blood), 2) increasing use
of techniques and systems that reduce the number of donors to which
patients are exposed in the course of therapy involving donor blood or
blood components, and 3) the increasing prevalence of blood component
therapy that requires the administration of only those blood components
needed by the patient.
Markets and Products
The automated blood collection procedure (also known as "apheresis")
developed by Haemonetics is beneficial to donors as well as to patients. It
conserves the donor pool in that surgical salvage systems enable doctors to
cleanse and return blood lost by patients during surgery. Also through
automation, blood donors may 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 donors of only
the platelet component of blood may donate as often as twice a week.
Conversely, apheresis allows certain donors to maximize their time spent at
the blood center by donating two units of the red cell component of their
blood. However, these donors may only donate every 16 weeks.
Automated systems offer a purer and safer blood product to the
transfusion recipient potentially reducing the number of donors to which
the patient is exposed.
Haemonetics' products address five important therapeutic markets for
blood and blood components: surgical blood salvage, automated plasma
collection, automated platelet collection, automated red cell collection,
and cell processing.
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
usually includes a washing procedure that removes unwanted substances from
the blood prior to reinfusion.
The need for a blood transfusion during surgery is common in open
heart, trauma, transplant, vascular, and orthopedic operations. Surgical
blood salvage reduces or eliminates a patient's dependence on blood donated
from others, 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 a transfusion against the risks of
the transfusion itself. The Company believes there is increasing preference
within the medical community for autologus blood transfusions 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.
7
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 surgical 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, both
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 acquired the OrthoPAT system, an additional
surgical blood salvage product, in September 2000 (see New Business
Development section above).
The Company markets these surgical blood salvage products to
hospital-based medical specialists, primarily cardiovascular, orthopedic,
and trauma surgeons.
Automated 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 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 was 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 produced poor yields. Today, virtually all plasma is
collected on automated systems. In the United States, commercial operators
use automated collection devices from Haemonetics and other vendors to
collect plasma from paid donors. These systems account for approximately 95
percent of plasma collection, with the remaining five 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
fractionated plasma or the resultant protein products worldwide for
fractionation purposes. Outside the United States, virtually every
industrialized nation has expressed the desire to increase its 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
collection systems has resulted in an almost complete conversion from
manual to automated plasma collection techniques in many countries.
Haemonetics' automated plasma collection systems, PCS(R) and PCS(R)2,
have shortened the collection procedure from 90 minutes required for manual
collection to approximately 25 minutes. Donor safety has 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)2 systems also yield a
higher quality plasma than do manual methods, because a smaller amount of
anticoagulant is needed and because the donor is given no intravenous
fluids to dilute his or her native plasma.
8
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 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 that equipment
should usage and sales not meet optimal terms.
Plasma collection from donors is undergoing significant change 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; Baxter is the Company's only competitor. The Company does not
collect plasma itself, but rather sells its devices and disposables to
commercial plasma collection firms.
Automated Platelet Collection
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 through
manual separation from blood obtained through whole blood donations.
However, platelets constitute a very small portion of the body's total
blood volume, and 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
automated systems, such as the Haemonetics MCS(R)+ mobile collection
system. The apheresis process permits the collection of therapeutically
useful quantities platelets from a single donor. The end products of
automated platelet collection are referred to as single donor platelets (as
opposed to the pooled or random donor platelets traditionally available
from blood banks or hospital centers).
Automated Red Cell Collection
Traditionally, red blood cells have been derived from a manual
separation process after whole blood is donated. However, this manual
procedure involves time-consuming, manual 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 systems automate the collection process, thereby producing a
more consistent red cell transfusion unit and eliminating the lengthy
secondary handling and processing steps. In addition, automating the
collection of red cells allows for the collection of either two therapeutic
doses of red cells from one donor, or one therapeutic dose of red cells and
one therapeutic dose of plasma. By targeting group O "universal" donors for
red cell collection in multiple units, blood centers can meet their
collection requirements more efficiently and make better use of a shrinking
donor pool.
9
In November 2000, the Company received its first FDA clearance to
market an automated blood collection system that allows blood centers to
double the amount of red cells they collect from a donor while at the same
time removing potentially harmful white blood cells through a process
called leukoreduction. The new Haemonetics product includes an integrated
filter that reduces the number of white cells before the blood is stored.
Leukoreduction is believed to benefit patients by decreasing transfusion
side effects such as fever, chills, and viral infections. This new product
is important to the Company in its efforts to penetrate the red cell
market, because it makes automated red cell collection an even more cost-
effective alternative to traditional blood collection and filtration.
Cell Processing
It has been possible for some time to collect and freeze red blood
cells for up to 10 years for future use. However, until now, the thawed
cells had to be transfused within 24 hours of being "defrosted" because red
cells thawed in an open environment, exposed to air, could allow the growth
of bacteria and other contaminants. Because of the short useful life of the
thawed cells, frozen blood programs have not been widely adopted, except by
military organizations that need red cells in crisis situations.
In May 2001, the FDA cleared for marketing Haemonetics' automated
cell processing device, the ACP(TM) 215 system. The new system thaws and
cleanses red cells in a "closed" environment that eliminates exposure to
air and potential bacterial contamination, thereby extending shelf life to
14 days. The market opportunity for this device, the only one of its kind
on the market, is estimated at $10 to $15 million.
Revenue Detail
In the year ended March 31, 2001, sales of disposable products
accounted for approximately 89.6 percent of net revenues. Sales of
disposable products by the Company were 5.1 percent higher in 2001 than in
2000 (2.1 percent higher in 2001 than in 2000 with currency rates held
constant) and grew at a compound average annual growth rate of 4.2 percent
for the three years ended March 31, 2001, with currency rates held
constant. Service and other miscellaneous revenues accounted for
approximately 5.8 percent of the Company's net revenues during the year
ended March 31, 2001.
Sales of equipment accounted for approximately 4.6 percent of net
revenues in fiscal year 2001 and approximately 5.4 percent in fiscal year
2000, representing a decrease of 10.6 percent. The decrease in equipment
revenue is a result of lower equipment revenues in the surgical and plasma
product lines, mainly in the U.S. and in Asia due to a large non-recurring
equipment sale in the prior year. In addition, 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.
Marketing/Sales/Distribution
Haemonetics markets and sells its products to hospitals, 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 Asia 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, Italy,
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 product demonstrations and
training.
10
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 United States. 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' Distribution Agreements
The Company has an exclusive distribution agreement with Zimmer to
sell its the OrthoPAT autotransfusion system to the United States market.
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 its 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
to closely match local customer requirements. The Company's expenditures
for research and development were $19.0 million, $14.9 million, and $15.2
million, for fiscal years 2001, 2000, and 1999, 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, and information about
potential test sites, objective evaluations, and expert opinions regarding
technical and performance issues.
11
Manufacturing
Disposables
Each individual blood collection procedure requires a disposable
plastic set containing 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 process 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 platelet, red cell,
and plasma businesses. IV solutions include the anticoagulants and storage
solutions necessary to collect and store blood components. The Company has
regulatory approval to market 4 percent sodium citrate anticoagulant
solution for the automated collection of plasma in the United States 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 the Company's 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. During
fiscal year 2001, approximately 80 percent of the Company's newly
manufactured equipment was manufactured internally by Haemonetics. The
remainder was 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.
12
The CORE Program
From 1998 to 1999, 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 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.
The CORE Program has already shown significant improvements in air
freight costs, inventory turns, late orders, and distribution expenses. In
fiscal year 2001, the Company saved $3.4 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 that should
net future savings. Goals for fiscal year 2002 include expanding automation
of manufacturing processes and a focus on Six Sigma quality initiatives.
Savings for the year are expected to be in the $3 million range.
In April 2001, the Company announced that it had received the Omega
NorthFace ScoreBoard Award for exemplary service to customers. This award
is presented to the highest-ranked organizations based on customer ratings
of firms' actual performance against customer expectations in areas such as
phone support, on-site operations, technical services, and training. The
Company attributes its outstanding reputation for customer service in large
part to the CORE Program.
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., Fresenius, and Sorin Biomedica.
In the blood component therapy market, competition is based upon the
ability of systems to continually improve level 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.
13
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 a 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.
Patents
Haemonetics holds patents in the United States and abroad on some 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 that 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-United States
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
automated 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, which requires the submission of more
significant quantities of clinical data and supporting information, may
take even longer. 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 in 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.
14
The Company is also subject to regulation in the 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 March 31, 2001, Haemonetics employed 1,357 persons assigned to
the following functional areas: manufacturing, 675; sales and marketing,
200; general and administrative, 226; research and development, 89; and
quality control and field service, 167. 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 Leetsdale,
Pennsylvania. This facility is used for warehousing, distribution and
manufacturing operations. Annual lease expense is $303,270 for this
facility.
In April 1994, the Company purchased a facility in Bothwell,
Scotland. The facility manufactures disposable components for 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.
In 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
$268,856.
15
Effective January 2001, The Company purchased a manufacturing
operation for plasma bottle production. This disposable component is used
in conjunction with the company's plasma collection equipment. As part of
the acquisition the company assumed lease payments of $126,312 annually for
a 24,000 square foot facility in Compton, California.
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."
16
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)
First Quarter Second Quarter Third Quarter Fourth Quarter
------------------------------------------------------------------
Fiscal year ended March 31, 2001:
Net revenues (a) $70,265 $70,943 $76,238 $76,414
Gross profit 33,445 33,421 39,019 36,528
Operating income (loss) 7,848 (14,493) 10,967 9,098
Income (loss) from continuing operations 6,224 (15,117) 8,963 7,166
Net income (loss) 6,224 (15,117) 8,963 7,166
Share data:
Net Income (loss):
Basic $ 0.247 $(0.601) $ 0.355 $ 0.280
Diluted $ 0.242 $(0.601) $ 0.345 $ 0.270
Fiscal year ended April 1, 2000:
Net revenues (a) $69,870 $68,685 $71,562 $70,493
Gross profit 32,840 31,693 33,193 33,731
Operating income (loss) 8,446 7,325 5,621(b) (949)(b)
Income from continuing operations 5,973 5,588 3,319(b) 346 (b)
Income from discontinued operations --- 144 --- ---
Net income 5,973 5,732 3,319(b) 346 (b)
Share data:
Net Income:
Basic $ 0.223 $ 0.218 $ 0.129 $ 0.014
Diluted $ 0.223 $ 0.216 $ 0.127 $ 0.013
(a) All revenues shown were restated to include additional shipping and
handling revenue billed to customers in accordance with Emerging
Issues Task Force (EITF) 'Issue 00-10, "Accounting for Shipping and
Handling Fees and Costs" (EITF 00-10) which the Company adopted in
the fourth quarter of fiscal 2001. Prior to the Company's adoption of
EITF 00-10, amounts billed to customers for shipping and handling
were netted against the related costs in cost of goods sold or S,G&A
(see Note 2 to the consolidated financial statements for further
discussion).
(b) The third quarter of fiscal year 2000, was restated to include the
$2.9 million charge for the in-process research and development and
$0.3 million for other unusual charges related to the acquisition of
Transfusion Technologies Corporation. The fourth quarter of fiscal
year 2000, was restated by $0.4 million to reflect additional unusual
charges related to the acquisition of Transfusion Technologies
Corporation (see Note 12 to the consolidated financial statements for
further discussion).
Haemonetics' common stock is listed on the New York Stock Exchange
under 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.
First Quarter Second Quarter Third Quarter Fourth Quarter
------------------------------------------------------------------
Fiscal year ended March 31, 2001:
Market price of
Common Stock
High $25.19 $26.00 $31.94 $33.19
Low $19.75 $20.63 $21.25 $27.10
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
There were approximately 454 holders of record of the Company's common stock
as of May 16, 2001. 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.
17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Haemonetics Corporation and Subsidiaries
Five-Year Review
(in thousands, except share and employee data)
Summary of Operations 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Net revenues(a) $293,860 $280,612 $284,513 $285,762 $303,009
Cost of goods sold 151,447 149,155 150,866 158,607(b) 143,846
--------------------------------------------------------------
Gross profit 142,413 131,457 133,647 127,155 159,163
--------------------------------------------------------------
Operating expenses:
Research and development 19,039 14,943 15,153 17,934 18,586
Selling, general and administrative 86,734 82,895 86,879 86,909 88,070
Non-recurring restructuring expense -- -- -- 15,900(b) --
In process research and development 18,606 2,871(c) -- -- --
Other unusual charges 4,614 10,305(c) -- -- --
--------------------------------------------------------------
Total operating expenses 128,993 111,014 102,032 120,743 106,656
--------------------------------------------------------------
Operating income 13,420 20,443 31,615 6,412 52,507
Other income (expense), net 3,906 3,254 969 (1,946) 2,298
--------------------------------------------------------------
Income from continuing operations
before provision for income taxes 17,326 23,697 32,584 4,466 54,805
Provision for income taxes 10,090 8,471 11,405 3,865 19,171
--------------------------------------------------------------
Income from continuing operations 7,236 15,226 21,179 601 35,634
--------------------------------------------------------------
Income(loss) from discontinued operations - 144 (102) (25,373) (2,664)
--------------------------------------------------------------
Net income(loss) $ 7,236 $ 15,370 $ 21,077 $(24,772) $ 32,970
==============================================================
Income(loss) per share:
Basic $ 0.286 $ 0.589 $ 0.788 $ (0.933) $ 1.214
Diluted $ 0.278 $ 0.580 $ 0.784 $ (0.932) $ 1.201
Weighted average number of shares 25,299 26,087 26,744 26,537 27,160
Common Stock Equivalents 706 414 142 52 291
--------------------------------------------------------------
Weighted average number of common
and common equivalent shares 26,005 26,501 26,886 26,589 27,451
==============================================================
Financial and Statistical Data: 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Working capital $139,717 $121,443 $162,188 $112,792 $ 94,045
--------------------------------------------------------------
Current ratio 2.8 2.4 3.3 2.4 2.3
Property, plant and equipment, net $ 83,251 $ 81,608 $ 83,016 $ 84,219 $ 97,402
--------------------------------------------------------------
Capital expenditures $ 22,240 $ 23,315 $ 22,466 $ 20,380 $ 36,725
Depreciation and amortization $ 24,499 $ 24,906 $ 24,573 $ 22,861 $ 19,507
--------------------------------------------------------------
Total assets $345,314 $334,760 $344,675 $326,749 $307,704
Total debt $ 69,719 $ 74,202 $ 59,171 $ 71,054 $ 29,526
--------------------------------------------------------------
Stockholders' equity $215,516 $202,815 $221,861 $194,655 $225,274
Return on average equity 3.5% 7.2% 10.1% (11.8)% 14.9%
Debt as a % of stockholders' equity 32.3% 36.6% 26.7% 36.5% 13.1%
--------------------------------------------------------------
Employees from continuing operations 1,357 1,328 1,329 1,396 1,405
Net revenues per employee
from continuing operations $ 217 $ 211 $ 214 $ 205 $ 216
--------------------------------------------------------------
(a) Revenues for 2000 and 1999 shown were restated to include additional
shipping and handling revenue billed to customers in accordance with
Emerging Issues Task Force (EITF) Issue 00-10, "Accounting for
Shipping and Handling Fees and Costs" (EITF 00-10) which the Company
adopted in the fourth quarter of fiscal 2001. Prior to the Company's
adoption of EITF 00-10, amounts billed to customers for shipping and
handling were netted against the related costs in cost of goods sold
or S,G&A (see Note 2 to the consolidated financial statements for
further discussion).
(b) $8.6 million of the $24.5 million restructuring charges recorded in
1998 has been reclassified to Cost of Goods Sold in accordance with
Emerging Issues Task Force 96-09 "Classification of Inventory
Markdowns and Other Costs Associated with a Restructuring."
(c) Fiscal year 2000 was adjusted to include a $2.9 million charge for
in-process research and development and $0.7 million for other
unusual charges related to the acquisition of Transfusion
Technologies Corporation (see Note 12 to the consolidated financial
statements for further discussion).
18
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:
Percentage of Net Revenues Percentage
--------------------------------- -------------------
March 31, April 1, April 3, Increase (Decrease)
Years Ended 2001 2000 1999 2001/00 2000/99
- ----------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0% 4.7% (1.4)%
Cost of goods sold 51.5 53.2 53.0 1.5 (1.1)
- --------------------------------------------------------------------------------------------------
Gross profit 48.5 46.8 47.0 8.3 (1.6)
- --------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 6.5 5.3 5.3 27.4 (1.4)
Selling, general and administrative 29.5 29.5 30.5 4.6 (4.6)
In process research and development 6.3 1.0 - 548.1 >100.0
Other unusual charges 1.6 3.7 - (55.2) >100.0
- --------------------------------------------------------------------------------------------------
Total operating expenses 43.9 39.5 35.8 16.2 8.8
- --------------------------------------------------------------------------------------------------
Operating income 4.6 7.3 11.2 (34.4) (35.3)
Interest expense (1.3) (1.6) (1.5) (14.7) 6.2
Interest income 1.6 1.8 1.7 (8.0) 3.7
Other income, net 1.0 0.9 0.1 15.5 890.9
- --------------------------------------------------------------------------------------------------
Income from continuing operations before
provision for income taxes 5.9 8.4 11.5 (26.9) (27.3)
Provision for income taxes 3.4 3.0 4.0 19.1 (25.7)
- --------------------------------------------------------------------------------------------------
Income from continuing operations 2.5% 5.4% 7.5% (52.5)% (28.1)%
==================================================================================================
Net Revenue Summary
- -------------------
Percent Increase/Decrease)
-----------------------------------
By location 2001 2000 As reported At constant currency
- ----------- -----------------------------------------------------------
United States $ 96,555 $ 90,986 6.1% 6.1%
International 197,305 189,626 4.0 0.9
---------------------------------------------------
Net revenues $293,860 $280,612 4.7% 2.6%
Percent Increase/(Decrease)
-----------------------------------
By product type 2001 2000 As reported At constant currency
- --------------- -----------------------------------------------------------
Disposables $263,174 $250,419 5.1% 2.1
Misc. & service 17,112 15,002 14.1 20.0
Equipment 13,574 15,191 (10.6) (7.1)
---------------------------------------------------
Net revenues 293,860 $280,612 4.7% 2.6%
19
Disposable revenue Percent Increase/(Decrease)
- ------------------ -----------------------------------
by product line 2001 2000 As reported At constant currency
- --------------- -----------------------------------------------------------
Surgical $ 61,309 $ 58,970 4.0% 4.6%
Blood bank 104,443 100,500 3.9 (1.5)
Red cells 7,942 6,201 28.1 34.3
Plasma 89,480 84,748 5.6 2.5
---------------------------------------------------
Total disposables revenue $263,174 $250,419 5.1% 2.1%
---------------------------------------------------
2001 COMPARED TO 2000
Net Revenues
Net revenues in 2001 increased 4.7% to $293.9 million from $280.6
million in 2000. With currency rates held constant, net revenues increased
2.6%.
Disposable sales increased 5.1% year over year at actual rates. With
currency rates held constant, disposable sales increased 2.1%. Year over
year constant currency disposable sales growth was a result of growth in
worldwide Red Cell sales of 34.3%, worldwide Surgical sales of 4.6% and
worldwide Plasma sales of 2.5%. The increase in worldwide Red Cell sales is
attributable to volume increases in both the U.S. and Europe as the rollout
of this new technology in these markets continues to gain strength. The
growth in worldwide surgical disposable sales is mainly attributed to
volume increase and the mix effect of products sold in the U.S. 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 Plasma disposable sales is primarily attributable to the
acquisition of the new plasma collection bottle and the addition of the
newly approved anticoagulant to the plasma product line in the U.S. market.
Constant currency sales of disposable products, excluding service and
other miscellaneous revenue, accounted for approximately 89% and 90% of net
revenues for fiscal year 2001and 2000, respectively.
Service generated from equipment repairs performed under preventive
maintenance contracts or emergency service billings and miscellaneous
revenues accounted for 6.0% and 5.1% of the Company's net revenues, at
constant currency, for fiscal year 2001 and 2000, respectively.
Equipment revenues decreased 10.6% from $15.2 million in fiscal 2000
at actual rates and decreased 7.1% year over year with currency rates held
constant. The 7.1% decrease was a result of lower equipment revenues in the
surgical and plasma product lines, mainly in the U.S., and in Asia due to a
large 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 include the
customers' preference to be relieved from certain risks of ownership,
particularly the equipment's economic useful life and technological
obsolescence. 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 67.1% and
67.6% of net revenues for fiscal 2001 and 2000, respectively. As in the
U.S., sales outside the U.S. 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.
20
Gross profit
Gross profit of $142.4 million in fiscal 2001 increased $10.9 million
from $131.5 million in fiscal 2000. With currency rates held constant,
gross profit increased by 1.3%, or $1.8 million, but decreased as a
percentage of sales by 0.5%. The $1.8 million constant currency gross
profit increase from fiscal 2000 was a result of higher sales and reflected
cost savings of approximately $2.4 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 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 $2.4 million in savings for
2001 resulted from lower product costs achieved by automation and
redesigning the way certain products are made to use less material and
labor and by negotiating lower material prices with vendors. These savings
were partially offset by increases in other product costs.
Expenses
The Company expended $19.0 million, 6.5% of net revenues, on research
and development for 2001 and $14.9 million, 5.3% of net revenues, for 2000.
With currency rates held constant, research and development spending
increased by 27.4%, or $4.1 million from fiscal 2000 to 2001. The increase
in research and development spending is in line with the Company's
objective to reinvest available funds into new product development and new
product selling and marketing activities in order to fuel future top line
growth.
Selling, general and administrative expenses increased $3.8 million
from $82.9 million in fiscal 2000 to $86.7 million in fiscal 2001. At
constant currency rates, selling, general and administrative expenses
increased as a percent of net revenues by 0.6% to 29.7%. Offsetting
increases in spending related to the Company's new product selling and
marketing activities, were cost savings of approximately $1.0 million from
the Company's CORE Program. The $1.0 million savings for 2001 was due to
reductions in distribution-related selling, general and administrative
expenses. More specifically, distribution savings were generated by
lowering freight costs and the move of the Company's European distribution
center from the Netherlands to Germany.
In-Process Research and Development (IPR&D)
Upon consummation of the Transfusion Technologies acquisition in the
second quarter of fiscal 2001, the Company incurred costs representing the
value of the research and development projects. 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
fiscal year 2000 relative to Haemonetics' original 19.8% investment and
$18.6 million of which is reflected in consolidated statement of operations
for the year ended March 31, 2001. 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 (see Note 12 in the
audited consolidated financial statements for further discussion of the
acquisition and IPR&D charges).
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 technology over a 10-year period. Estimated future
after-tax cash flows for each product were based on Transfusion's 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 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
21
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's 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, 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. At the time of the acquisition, Haemonetics estimated that
the CSS project was 95% complete and that product sales would commence by
the fourth quarter of fiscal 2002. The IPR&D value assigned to the CSS was
$17.6 million. A discount rate of 33% was employed in the analysis.
As of the fourth quarter ending March 31,2001, the Company estimates
that the CSS project is 98% complete with only the clinical safety study
remaining to be completed prior to submission of the 510(K) to the FDA,
which is anticipated in the second quarter of fiscal 2002. Product sales
will commence upon approval by the FDA which could be one year, or greater,
from submission date. The estimated cost to complete the final clinical
trials is approximately $100,000 and will be incurred in the first quarter
and second quarters of fiscal 2002.
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
500 ml 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 or by DC
battery packs. At the time of the acquisition, Haemonetics estimated that
the RCC project was 65% complete and that 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% was employed in the analysis.
As of the fourth quarter ending March 31, 2001, the Company's
estimate of percent completion remained unchanged from prior estimates of
65%. As such, the expected date that product sales will commence is fiscal
2004. All other estimates for cost of sales, S,G&A costs and income tax
rates relative to the RCC project are unchanged from original estimates
with the exception of timing. Significant design, software programming,
disposable set development and sourcing requirements are still to be
completed. In addition, clinical trials will be conducted prior to
submission of a 510(K) to the FDA. The estimated cost to be incurred to
develop the purchased in-process RCC technology into a commercially viable
product is approximately $1.6 million in fiscal 2002, $2.1 million in
fiscal 2003 and $2.5 million in fiscal 2004.
22
Other Unusual Charges
a) Relating to the acquisition of Transfusion Technologies
Unusual charges expensed in the twelve months ended March 31, 2001,
as a result of the acquisition of Transfusion Technologies amounted to $4.6
million. These charges included $2.8 million in bonuses paid to key
Transfusion executives hired by Haemonetics and severance to Haemonetics
employees laid off due to overlaps created by the merger, a $0.5 million
write-off of an investment in 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
losses incurred by Transfusion Technologies from November of fiscal year
2000 through the date of acquisition of the remaining 80.2%. The charge to
the consolidated statement of operations related to this cost to equity
adjustment was $1.3 million in fiscal year 2001 and $0.7 million in fiscal
2000.
b) Other
Beginning in fiscal year 1997, the Company placed approximately 1,200
plasma collection machines in China under a sales-type lease contract with
a local distributor. The sales-type lease contract included minimum annual
disposable products use commitments per machine under contract and included
a ramp-up period.
In March of 2000, the Company reassessed its ability to realize the
full value of the sales-type lease as originally recorded given that the
ramp up in disposable purchases expected had not materialized. In the
Company's opinion two main factors or market conditions contributed to the
Distributor's failure to meet its disposable purchase commitments. Although
it passed an executive order in 1998 making manual plasma collection
unlawful, the Chinese Government failed to enforce this and manual plasma
collection, which is much less costly for the collector, continues for a
large percentage of total plasma collections. Secondly, the availability
of, and lack of enforcement against, unauthorized local copies of
disposable products at a lower cost, significantly impacted purchases from
foreign suppliers.
Given the change in market conditions, a reassessment of the contract
was performed with a new estimate of future disposable purchases and
related cash flows considering the reduced percentage of the market willing
to use automated collection with foreign manufactured products and because
of pricing concessions extended to the local distributor by Haemonetics.
Based on the reassessment, the Company wrote down the investment in sales
type leases by $9.5 million during the fourth quarter of fiscal year 2000
and reflected this as an unusual charge on its consolidated statement of
operations.
Operating Income
Operating income for 2001, as a percentage of net revenues, decreased
2.7 percentage points to 4.6% in fiscal 2001 from 7.3% in fiscal 2000. At
constant currency rates, operating income decreased 16.5% from fiscal 2000
or by $16.0 million. The $16.0 million decrease in operating income
resulted largely from the $19.6 million year over year increase in combined
IPR&D and other unusual items related to the acquisition of Transfusion
Technologies and $7.7 million in combined increases in operating expenses
for investments in R&D and new product selling and marketing programs
offset by the non-recurrence of the $9.5 million write-down of the sales-
type lease in China in fiscal 2000 and the $1.8 million increase in gross
profit at constant currency rates.
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 statement of
operations exposures.
23
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 represented a 9.1% appreciation over those in year 2000; and for
fiscal year 2002, the indexed hedge spot rates are 2.0% less favorable than
those in fiscal 2001. 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 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%
Q3 1.01 (8.6%)
Q4 1.05 (7.5%)
2002 Total 1.00 (2.0%)
24
Other Income, net
Interest expense decreased $0.6 million during fiscal 2001 as
compared to fiscal 2000 due to a reduction in the average outstanding
borrowings and lower interest rates. Interest income decreased $0.4 million
for 2001 compared to fiscal 2000. Other income, net increased $0.4 million
due to increases in income earned from points on forward contracts, which
was partially offset by an increase 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
58.2% for 2001, up from 35.7% in 2000. Before the effect of non-deductible
charges in connection with the acquisition of Transfusion Technologies, the
Company's effective tax rate was 27% for 2001, down from 31% in 2000. The
decrease in the effective tax rate from 31% was primarily attributable to
maximizing tax benefits on funds repatriated and increased export benefits
generated by the Company's Foreign Sales Corporation. The Company expects
its effective tax rate for its next fiscal year to be approximately 28%.
25
2000 COMPARED TO 1999
Net Revenue Summary
- -------------------
Percent Increase/(Decrease)
-----------------------------------
By location 2000 1999 As reported At constant currency
- ----------- -----------------------------------------------------------
United States $ 90,986 $ 90,204 0.9% 0.9%
International 189,626 194,309 (2.4) (0.5)
---------------------------------------------------
Net revenues $280,612 $284,513 (1.4%) --%
Percent Increase/(Decrease)
-----------------------------------
By product type 2000 1999 As reported At constant currency
- --------------- -----------------------------------------------------------
Disposables $250,419 $247,971 1.0% 2.7%
Misc. & service 15,002 15,584 (3.7) (5.9)
Equipment 15,191 20,958 (27.5) (27.8)
---------------------------------------------------
Net revenues $280,612 $284,513 (1.4%) --%
Disposable revenue Percent Increase/(Decrease)
- ------------------ -----------------------------------
by product line 2000 1999 As reported At constant currency
- ---------------- -----------------------------------------------------------
Surgical $ 58,970 $ 55,118 7.0% 7.4%
Blood bank 100,500 102,578 (2.0) 0.5
Red cells 6,201 4,899 26.6 25.1
Plasma 84,748 85,376 (0.7) 1.0
---------------------------------------------------
Total disposables revenue $250,419 $247,971 1.0% 2.7%
---------------------------------------------------
Net Revenues
Net revenues in 2000 decreased 1.4% to $280.6 million from $284.5
million in 1999. With currency rates held constant, net revenues remained
relatively unchanged. Growth in disposable sales over the prior year offset
decreases in both equipment and miscellaneous revenues.
Disposable sales increased approximately 1.0%. With currency rates
held constant, disposable sales increased 2.7%. The 2.7% increase was a
result of constant currency growth in all product lines: worldwide
surgical 7.4%, worldwide blood bank 0.5%, worldwide red cells 25.1% and
worldwide plasma 1.0%. 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 90.0% and 87.2 %
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 5.1% and 5.4% of the
Company's net revenues, at constant currency, for 2000 and 1999,
respectively.
26
Equipment revenues decreased approximately 27.5% year over year. At
constant currency rates, the equipment revenue was down 27.8%. This
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. Reasons for customer
preference vary significantly but include the customers' preference to be
relieved from certain risks of ownership, particularly the equipment's
economic useful life and technological obsolescence. 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 accounted for approximately 68% of net revenues
for both fiscal years 2000 and 1999. As in the U.S., sales outside the U.S.
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.
Fiscal year 2000 contained 52 weeks versus 53 in fiscal year 1999.
When revenues in fiscal 1999 are adjusted for the extra week to put both
years on a comparable basis, constant currency revenue growth in fiscal
2000 was 1.8%. Constant currency disposable revenue adjusted in the same
fashion showed growth of 4.6%, with growth in worldwide surgical sales of
9.5%, worldwide blood bank sales of 2.4%, worldwide red cells of 26.9% and
worldwide plasma of 2.7%.
Gross profit
Gross profit of $131.5 million in 2000 decreased $2.1 million from
$133.6 million in 1999. At constant currency rates, gross profit as a
percent of net revenues increased 0.7% or $2.0 million from 1999. The
increase was the result of labor cost savings and factory automation as a
result of the Company's Customer Oriented Redesign for Excellence (CORE)
Program. The CORE Program is based on TQM principals and aims to increase
the efficiency and the quality of, processes and products, and to improve
the quality of management at Haemonetics.
Adjusting for the extra week in fiscal 1999, constant currency gross
profit grew 3.6%, or 0.8 points as a percent of sales.
Expenses
The Company expended $14.9 million on research and development in
2000 and $15.1 million in 1999, which represents 5.3% 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 $82.9
million in fiscal 2000 from $86.9 million in 1999. At constant currency,
selling, general and administrative expenses decreased $3.8 million year
over year, and decreased as a percent of net revenues from 30.4% in 1999 to
29.1% in 2000. During 2000, the Company experienced approximately $1.7
million in distribution and other selling, general and administrative
savings from the CORE program.
At constant currency and reflected on a comparable basis by adjusting
1999 for the extra week and the one time effect of settling litigation of
$2.6 million, selling, general and administrative expenses decreased $1.4
million year over year, and decreased as a percent of net revenues by 1.0%.
27
In-Process Research and Development (IPR&D)
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 fiscal year 2000 relative to
Haemonetics' original 19.8% investment. 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 (see Note 12 in the
audited consolidated financial statements for further discussion of the
acquisition and IPR&D charges).
Other Unusual Charges
a) Relating to the acquisition of Transfusion Technologies
Included in other unusual charges is the adjustment required to
modify the 19.8% investment of Transfusion Technologies Corporation 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 Company recorded its 19.8% share of
the monthly losses incurred by Transfusion Technologies from November of
fiscal year 2000 as if the investment had been accounted for under the
equity method from its inception. The charge to the consolidated statement
of operations related to this cost to equity adjustment was $0.7 million
for fiscal 2000.
b) Other
Beginning in fiscal year 1997, the Company placed approximately 1,200
plasma collection machines in China under a sales-type lease contract with
a local distributor. The sales-type lease contract included minimum annual
disposable products use commitments per machine under contract, and
included a ramp-up period.
In March of 2000, the Company reassessed its ability to realize the
full value of the sales-type lease as originally recorded given that the
ramp up in disposable purchases expected had not materialized. In the
Company's opinion two main factors or market conditions contributed to the
Distributor's failure to meet its disposable purchase commitments.
Although it passed an executive order in 1998 making manual plasma
collection unlawful, the Chinese Government failed to enforce this and
manual plasma collection, which is much less costly for the collector,
continues for a large percentage of total plasma collections. Secondly, the
availability of, and lack of enforcement against, unauthorized local copies
of disposable products at a lower cost, significantly impacted purchases
from foreign suppliers.
Given the change in market conditions, a reassessment of the contract
was performed with a new estimate of future disposable purchases and
related cash flows considering the reduced percentage of the market willing
to use automated collection with foreign manufactured products and because
of pricing concessions extended to the local distributor by Haemonetics.
Based upon the reassessment, the Company wrote down the investment in sales-
type leases by $9.5 million during the fourth quarter of fiscal year 2000
and reflected this as an unusual charge on its consolidated statement of
operations.
Operating Income
Operating income decreased to $20.4 million in 2000 from $31.6
million in 1999 or 3.8% as a percent of net revenues. At constant currency,
operating income as a percent of net revenues, decreased 2.2% or $6.4
million from 1999 largely due the $13.2 million of in process R&D and other
unusual charges.
Without the in-process R&D and unusual charges in fiscal 2000, and
adjusting fiscal 1999 for the extra week and litigation resolution charge,
operating income increased 2.3% as a percent of net revenues or $7.0
million due both to gross profit improvements and the decrease in selling,
general and administrative expenses.
28
Other Income, net
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, net increased by $2.3 million of income in 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
35.7% for fiscal year 2000, up from 35.0% in fiscal year 1999. The increase
in the effective tax rate was due to the effect of certain non-deductible
charges incurred in conjunction with the Transfusion Technologies
acquisition.
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) (see Footnote 10
for more detailed discussion about BBMS).
Liquidity and Capital Resources
The Company has satisfied its cash requirements principally from
internally generated cash flow and borrowings. The Company's capital
requirements have arisen primarily in connection with capital expenditures,
working capital, share repurchase and strategic investments.
During the twelve months ended March 31, 2001, the Company increased
its cash balances by $15.9 million from operating, investing and financing
activities before the effect of exchange rates. This $15.9 million is $45.8
million more than the $29.9 million reduction of cash during the twelve
months ended April 1, 2000. The $45.8 million was a result of $7.6 million
more cash provided by the Company's operating activities, $15.4 million
less utilized in investing activities and $22.8 million resulting from $5.0
million of cash generated in fiscal 2001 versus $17.8 million utilized in
the prior year related to the Company's financing activities.
Operating Activities
The Company generated $61.0 million in cash from operating activities
of continuing operations in 2001 as compared to $58.4 million generated
during 2000. The $2.6 million increase year over year in cash generated
from the operating activities from continuing operations was a result of a
$0.8 million increase in net income adjusted for depreciation, amortization
and other non-cash items, an $8.3 million decrease in inventories due to
higher finished goods inventory turns and a $5.2 million increase in
accounts payable and accrued expenses partly due to increases in accruals
related to acquisitions in fiscal 2001. These sources of cash were offset
by increased uses of cash resulting from a $5.1 million increase in
accounts receivable as a result of higher sales, a $1.9 million increase in
the current investment in sales-type leases, a $2.7 million increase in
prepaid taxes and a $2.0 million increase in other assets also related to
the Company's fiscal 2001 acquisitions.
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
29
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 $42.7 million and $40.5 million of operating cash during fiscal
2001 and 2000, respectively. The operating cash generated for both years
excludes cash spent to first invest in, and later acquire, Transfusion
Technologies which amounted to $26.3 million in fiscal 2001 and $15.5
million in 2000. The $42.7 million of operating cash flow in fiscal 2001
resulted from $30.7 million of net income adjusted for non-cash items and
$14.7 million from the reduction of the Company's net investment in
property, plant and equipment and sales-type leases. Offsetting these was
$2.8 million from increased working capital investment, primarily higher
accounts receivable due to higher sales, with a small increase in
inventories of $1.3 million. These were offset by $3.5 million higher
accounts payable and accrued payroll. The $40.5 million of operating cash
generated for 2000 resulted from $28.7 million of net income adjusted for
non-cash items, a $3.7 million higher working capital investment, due
mainly to increased inventories, and $15.5 million from the reduction of
the Company's net investment in property, plant and equipment and sales-
type leases. Non-cash transfers from inventory to property, plant and
equipment have been excluded for purposes of this calculation and amounted
to approximately $6.1 million and $6.0 million in for fiscal 2001 and 2000,
respectively.
Investing Activities:
The Company utilized $50.1 million in cash for investing activities
from continuing operations in 2001, a decrease of $15.4 million from 2000.
The $15.4 million decrease in cash utilized is largely attributable to a
$37.8 million net decrease in the Company's investment in available for
sale securities, offset by $19.7 million more cash utilized for the
acquisition of Transfusion Technologies and Alpha Therapeutic's Compton
California bottle plant.
Financing Activities:
During the twelve months ended March 31, 2001, the Company generated
$5.0 million of cash as a result of its financing activities, versus the
prior year when it used $17.8 million. During fiscal 2001, the Company
refinanced its Braintree headquarters real estate mortgage and paid down
some of its short-term debt in Japan. The Company purchased 236,300 shares
of its outstanding common stock at an average market price of $20.01 which
utilized $4.7 million of cash, $35 million less than the year ending April
1, 2000, and generated $14.3 million, $6.1 million more than the prior
year, from the exercise of stock options.
At March 31, 2001, the Company had working capital of $139.7 million.
This reflects an increase of $18.3 million in working capital from the year
ended April 1, 2000, largely due to a shift from short-term notes from
long-term borrowings, and the increase in cash and available-for-sale
investments. The Company believes its sources of cash are adequate to meet
its projected needs.
Inflation
The Company does not believe that inflation has had a significant
impact on the Company's results of operations for the periods presented.
Historically, the Company believes it has been able to minimize the effects
of inflation by improving its manufacturing and purchasing efficiency, by
increasing employee productivity and by reflecting the effects of inflation
in the selling prices of new products it introduces each year.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in
Financial Statements," which the Company adopted in the fourth quarter of
fiscal year 2001. SAB No. 101 provides additional guidance on the
accounting for revenue recognition including
30
both broad conceptual discussions, as well as certain industry-specific
guidance. The Company's adoption of SAB No. 101 did not have a material
impact on the Company's financial position or results of operations.
In accordance with SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," the Company will adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138 "Accounting
for Certain Derivative Instruments and Hedging Activities, an Amendment of
FASB Statement No. 133," (collectively, SFAS No. 133, as amended) effective
April 1, 2001. These standards will be adopted as a change in accounting
principle and cannot be applied retroactively to financial statements of
prior periods.
SFAS No. 133, as amended, 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, to the extent effective, and requires that the Company formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133, as amended, in part, allows special
hedge accounting for fair value and cash flow hedges. The statement
provides that the gain or loss on a derivative instrument designated and
qualifying as a fair value hedging instrument, as well as the offsetting
changes in the fair value of the hedged item attributable to the hedged
risk, be recognized currently in earnings in the same accounting period.
SFAS No. 133, as amended, provides that the effective portion of the gain
or loss on a derivative instrument designated and qualifying as a cash flow
hedging instrument be reported as a component of other comprehensive income
and be reclassified into earnings in the same period or periods during
which the hedged forecasted transaction affects earnings. The ineffective
portion of a derivative's change in fair value is recognized currently
through earnings regardless of whether the instrument is designated as a
hedge.
At March 31, 2001, the Company had 28 forward contracts, all maturing
in less than twelve months, to exchange foreign currencies (major European
currencies and Japanese yen) primarily for U.S. dollars totaling $110.9
million. Of these contracts, six, totaling $19.6 million, represented
contracts with zero fair value relating to inter-company receivables put in
place at year end, that settle within 35 days after year-end. The Company
has designated the remainder of these contracts as cash flow hedges
intended to lock-in the expected cash flows of forecasted foreign currency
denominated revenues at the available spot rate. Thus, change in the value
of the forward contract unrelated to the spot rate is deemed ineffective
and is recorded in earnings. Upon adoption, the Company will record the
fair value of these contracts as an asset on the balance sheet, the change
in fair value of the effective portion of the contracts in other
comprehensive income and the change in time value in earnings as a
cumulative catch up adjustment.
At March 31,2001, the Company accounted for these contracts as hedges
according to SFAS No. 52 and did not record any amounts in the consolidated
balance sheet. Had the Company accounted for these contracts consistent
with SFAS No.133, the estimated cumulative effect of the change in
accounting principle would have been as follows (in thousands):
Cumulative effect of
change in accounting
principle in Other Cumulative effect of
Asset-Forward Comprehensive change in accounting
Contracts Income principle in earnings
------------- -------------------- ---------------------
Cash Flow Hedges [Debit/(Credit)] $9,200 $(6,400) $(3,200)
At March 31, 2001, there are no embedded derivatives as defined by
SFAS 133, as amended, and the Company is not aware of any potential impact
of any other significant matter that may result from the adoption of these
standards.
31
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 and the effect of uncertainties in markets
outside the U.S. (including Europe and Asia) in which the Company operates.
The foregoing list should not be construed as exhaustive.
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 impacted the Company's operations. The
Company has 10 subsidiaries located throughout Europe, that generate one-
third of its sales.
Date of conversion
The conversion at the Company's subsidiaries now using the Euro
currency was successfully achieved on April 1, 2001, which was the first
day of the Company's fiscal year 2002.
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 U.S.
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.
32
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 March 31, 2001, the Company had the following outstanding foreign
exchange contracts to hedge certain firm sales commitments denominated in
foreign currency:
(BUY)/SELL Weighted Discounted
Hedged Local Forward US$@ Unrealized Unrealized
Currency Currency Contract Rate Current Fwd Gain/(Loss) Gain/(Loss) Maturity
- ----------------------------------------------------------------------------------------------------------------
Euro Equivalent 5,500,000 $0.915 4,869,200 165,575 164,085 Apr-Jun 2001
Euro Equivalent 6,500,000 $0.942 5,756,450 367,050 368,504 Jul-Sept 2001
Euro Equivalent 7,450,000 $0.860 6,600,010 (192,855) (185,234) Oct-Dec 2001
Euro Equivalent 8,000,000 $0.942 7,089,690 447,560 422,627 Jan-Mar 2002
Japanese Yen 1,400,000,000 101.0 per US$ 11,521,898 2,339,858 2,319,060 Apr-Jun 2001
Japanese Yen 1,925,000,000 101.2 per US$ 15,999,531 3,029,208 2,958,546 Jul-Sept 2001
Japanese Yen 1,950,000,000 102.9 per US$ 16,398,603 2,544,708 2,443,815 Oct-Dec 2001
Japanese Yen 1,600,000,000 111.3 per US$ 13,616,786 759,120 717,010 Jan-Mar 2002
----------------------------------------------------------
Total: 81,852,168 9,460,224 9,198,413
==========================================================
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 $5.4 million unrealized gain; whereas
a 10% weakening of the U.S. dollar would reduce the unrecorded gain by $5.8
million.
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 March 31, 2001, the fair value of the Company's long-
term debt was approximately $2.5 million higher than the value of the debt
reflected on the Company's financial statements. This higher fair market is
primarily related to the Company's $40 million, 7.05% fixed rate senior
notes. These notes represent approximately 73% of the Company's outstanding
long-term borrowings at March 31, 2001.
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
Using scenario analysis, the Company changed the interest rate on all
long-term maturities by 10% from the rate levels, which existed at March
31, 2001. The effect was a change in the fair value of the Company's long-
term debt, of approximately $1.1 million.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years Ended
---------------------------------
March 31, April 1, April 3,
2001 2000 1999
---------------------------------
Net revenues $293,860 $280,612 $284,513
Cost of goods sold 151,447 149,155 150,866
---------------------------------
Gross profit 142,413 131,457 133,647
---------------------------------
Operating expenses:
Research and development 19,039 14,943 15,153
Selling, general and administrative 86,734 82,895 86,879
In process research and development 18,606 2,871 --
Other unusual charges 4,614 10,305 --
---------------------------------
Total operating expenses 128,993 111,014 102,032
---------------------------------
Operating income 13,420 20,443 31,615
Interest expense (3,728) (4,372) (4,117)
Interest income 4,602 5,000 4,821
Other income, net 3,032 2,626 265
---------------------------------
Income from continuing operations
before provision for income taxes 17,326 23,697 32,584
Provision for income taxes 10,090 8,471 11,405
---------------------------------
Income from continuing operations 7,236 15,226 21,179
Discontinued operations:
Income (loss) from discontinued operations,
net of income tax expense (benefit) of $68
in 2000 and ($56) in 1999 and ($3,863) in 1998 -- 144 (102)
Income (loss) from discontinued operations -- 144 (102)
Net income $ 7,236 $ 15,370 $ 21,077
=================================
Basic income (loss) per common share
Continuing operations $ 0.286 $ 0.584 $ 0.792
Discontinued operations $ -- $ 0.006 $ (0.004)
Net income $ 0.286 $ 0.589 $ 0.788
Income (loss) per common share assuming dilution
Continuing operations $ 0.278 $ 0.575 $ 0.788
Discontinued operations $ -- $ 0.005 $ (0.004)
Net income $ 0.278 $ 0.580 $ 0.784
Weighted average shares outstanding
Basic 25,299 26,087 26,744
Diluted 26,005 26,501 26,886
The accompanying notes are an integral part of these consolidated
financial statements.
34
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, 2001 April 1, 2000
-------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 41,441 $ 25,911
Available-for-sale investments 33,042 35,417
Accounts receivable, less allowance of
$1,233 in 2001 and $1,149 in 2000 59,842 59,140
Inventories 54,007 59,817
Current investment in sales-type leases, net 5,680 8,036
Deferred tax asset 19,982 16,360
Prepaid expenses and other current assets 5,170 5,237
-------------------------
Total current assets 219,164 209,918
Property, plant and equipment:
Land, building and building improvements 29,132 28,561
Plant equipment and machinery 51,259 43,070
Office equipment and information technology 24,707 25,810
Haemonetics equipment 98,785 87,991
-------------------------
Total property, plant and equipment 203,883 185,432
Less: accumulated depreciation 120,632 103,824
-------------------------
Net property, plant and equipment 83,251 81,608
Other assets:
Investment in sales-type leases, net
(long-term) 5,391 10,775
Other intangibles, less amortization
of $406 in 2001 15,842 -
Goodwill, less accumulated amortization
of $7,827 in 2001 and $5,524 in 2000 14,426 13,188
Deferred tax asset, net 1,737 4,084
Other long-term assets 5,503 15,187
-------------------------
Total other assets 42,899 43,234
-------------------------
Total assets $345,314 $334,760
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt $ 22,438 $ 32,896
Accounts payable 13,350 17,224
Accrued payroll and related costs 10,072 8,456
Accrued income taxes 14,791 15,700
Other accrued liabilities 18,796 14,199
-------------------------
Total current liabilities 79,447 88,475
Long-term debt, net of current maturities 47,281 41,306
Other long-term liabilities 3,070 2,164
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $0.01 par value;
Authorized - 80,000,000 shares;
Issued - 30,721,723 shares in 2001
and 30,004,811 shares in 2000 307 300
Additional paid-in capital 87,958 73,662
Retained earnings 234,325 227,104
Cumulative translation adjustment (17,618) (13,078)
-------------------------
Stockholders' equity before treasury stock 304,972 287,988
Less: Treasury stock at cost - 4,940,390
shares in 2001 and 4,728,762 shares in
2000 and 2,756,969 shares in 1999 89,456 85,173
-------------------------
Total stockholders' equity 215,516 202,815
-------------------------
Total liabilities and stockholders' equity $345,314 $334,760
=========================
The accompanying notes are an integral part of these consolidated
financial statements.
35
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Common Stock Additional Cumulative Total
------------- Paid-in Treasury Retained Translation Stockholders' Comprehensive
Shares $'s Capital Stock Earnings Adjustment Equity Income
-----------------------------------------------------------------------------------------------
Balance, March 28, 1998 29,342 $293 $59,142 $(45,949) $190,757 $ (9,588) $194,655
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 -- -- -- -- 15,370 -- 15,370 $15,370
Foreign currency translation
adjustment -- -- -- -- -- (3,253) (3,253) (3,253)
-------
Comprehensive income -- -- -- -- -- -- -- $12,117
--------------------------------------------------------------------------------------------
Balance, April 1, 2000 30,005 $300 $73,662 $(85,173) $227,104 $(13,078) $202,815
============================================================================================
Employee stock purchase plan -- -- -- 446 (15) -- 431
Exercise of stock options
and related tax benefit 717 7 14,296 -- -- -- 14,303
Purchase of treasury stock -- -- -- (4,729) -- -- (4,729)
Net income -- -- -- -- 7,236 -- 7,236 $ 7,236
Foreign currency translation
adjustment -- -- -- -- -- (4,540) (4,540) (4,540)
-------
Comprehensive income -- -- -- -- -- -- -- $ 2,696
--------------------------------------------------------------------------------------------
Balance, March 31, 2001 30,722 $307 $87,958 $(89,456) $234,325 $(17,618) $215,516
============================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
36
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
---------------------------------
March 31, April 1, April 3,
2001 2000 1999
---------------------------------
Cash Flows from Operating Activities:
Net income $ 7,236 $ 15,370 $ 21,077
Less net income (loss) from discontinued operations -- 144 (102)
---------------------------------
Net income from continuing operations 7,236 15,226 21,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Non cash items:
Depreciation and amortization 24,499 24,906 24,573
Deferred tax expense (benefit) 2,112 (1,697) (7,329)
In process research and development 18,606 2,871 --
Equity in losses of investment 1,353 757 --
Other unusual non-cash charges 1,282 12,268 2,621
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (1,551) 3,560 (4,098)
(Increase) decrease in inventories 6,417 (1,843) 2,499
(Increase) decrease in sales-type leases (current) 2,356 4,216 (1,301)
(Increase) decrease in prepaid income taxes (216) 2,494 8,234
(Increase) decrease in other assets (384) 1,588 (4,474)
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities (700) (5,949) 9,197
---------------------------------
Net cash provided by operating activities, continuing operations 61,010 58,397 51,101
Net cash used in operating activities, discontinued operations -- (4,932) (17,387)
---------------------------------
Net cash provided by operating activities 61,010 53,465 33,714
Cash Flows from Investing Activities:
Purchases of available-for-sale-investments (47,351) (70,423) --
Gross proceeds from sale of available-for-sale investments 49,726 35,006 --
Capital expenditures on property, plant and equipment, net of
disposals (22,240) (23,315) (22,466)
Acquisistion of Transfusion Technologies Corporation, net
of cash acquired (26,572) (15,200) --
Acquisition of plasma collection bottle plant (8,300) -- --
Net decrease in sales-type leases (long-term) 4,597 4,814 12,280
---------------------------------
Net cash used in investing activities, continued operations (50,140) (69,118) (10,186)
Net cash provided by investing activities, discontinued operations 3,562 16,910
---------------------------------
Net cash (used in) provided by investing activities (50,140) (65,556) 6,724
Cash Flows from Financing Activities:
Borrowings (payments) on long-term real estate mortgage 9,561 (116) (208)
Net increase (decrease) in short-term revolving
credit agreements (10,883) 16,991 (10,813)
Net decrease in long-term credit agreements (3,675) (3,501) (850)
Employee stock purchase plan 446 379 --
Exercise of stock options and related tax benefit 14,288 8,161 6,366
Purchase of treasury stock (4,729) (39,703) --
---------------------------------
Net cash provided by (used in) financing activities 5,008 (17,789) (5,505)
Effect of Exchange Rates on Cash and Cash Equivalents (348) (528) (380)
---------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 15,530 (30,408) 34,553
Cash and Cash Equivalents at Beginning of Year 25,911 56,319 21,766
---------------------------------
Cash and Cash Equivalents at End of Year $ 41,441 $ 25,911 $ 56,319
=================================
Non-cash Investing and Financing Activities:
Transfers from inventory to fixed assets for placements
of Haemonetics equipment $ 6,094 $ 5,969 $ 7,275
=================================
Supplemental Disclosures of Cash Flow Information:
Net decrease in cash and cash equivalents, discontinued operations -- $ (1,370) $ (477)
=================================
Net increase (decreases) in cash and cash equivalents, continuing operations $ 15,530 $(29,038) $ 35,030
=================================
Interest paid $ 3,487 $ 4,017 $ 4,038
=================================
Income taxes paid (refunded) $ 6,941 $ 10,695 $ (5,327)
=================================
The accompanying notes are an integral part of these consolidated
financial statements.
37
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO 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 in March. Fiscal year 2001 and fiscal year 2000 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 vary from the amounts
derived from management's estimates and assumptions.
Cash and Cash Equivalents
Cash equivalents include various short-term instruments such as money
market funds, U.S. government agency notes, certificates of deposit and
commercial paper with maturities of three months or less at date of
acquisition. Cash and cash equivalents are recorded at cost, which
approximates fair market value.
Available-for-Sale Investments
As of March 31, 2001 and April 1, 2000, all of the Company's short-
term investments had maturities greater than three months but equal to or
less than 12 months. All the Company's investments were classified as
available-for-sale and carried at fair market value, which approximates
amortized cost. Realized gains and losses from available-for-sale
investments actually sold are included in other income, net on the
Company's consolidated statements of operations. During 2001, proceeds from
these investment securities sales totaled approximately $49.7 million with
realized gains and losses of approximately $33,000 and $4,000,
respectively. During 2000, proceeds from the sale of available-for-sale
investment securities were approximately $35.0 million with realized losses
of approximately $3,700. The specific identification cost method is used to
calculate realized gains and losses.
The following table summarizes, by major security type, the Company's
short-term investments. The Company's U.S. corporate securities include
U.S. government agency notes, certificates of deposit, corporate debt
securities and commercial paper.
38
March 31, 2001 April 1, 2000
-------------------------------
U.S. treasuries $ 588 $ --
U.S. corporate securities 32,454 35,417
-------------------------
Total included in available-for-sale
Investments (short-term) $33,042 $35,417
=========================
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-
term investments, accounts receivable and investment in sales type lease
receivables. Sales to one unaffiliated Japanese customer amounted to $86.3
million, $81.6 million and $72.9 million for 2001, 2000 and 1999,
respectively. Concentration risk on the Company's accounts receivable is
attributable to this customer which accounted for 22.7%, 27.3% and 27.1% of
total accounts receivable for 2001, 2000 and 1999, respectively. While the
accounts receivable related to this customer may be significant, the
Company does not believe the credit loss risk to be significant given the
consistent payment history by this customer.
Net Income per Share
The following table provides a reconciliation of the numerators and
denominators reflected in the basic and diluted earnings per share
computations, as required by Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," ("EPS"). Basic EPS is computed by
dividing reported earnings available to stockholders by the weighted
average shares outstanding. Diluted EPS also includes the effect of
dilutive potential common shares.
Years Ended
----------------------------------------------------------
March 31, 2001 April 1, 2000 April 3, 1999
----------------------------------------------------------
(Dollars and shares in thousands except per share amounts)
Basic EPS
Net income $ 7,236 $15,370 $21,077
Weighted average shares 25,299 26,087 26,744
----------------------------------------------------
Basic income per share $ 0.286 $ 0.589 $ 0.788
Diluted EPS
Net income $ 7,236 $15,370 $21,077
Basic weighted average shares 25,299 26,087 26,744
Dilutive effect of stock options 706 414 142
----------------------------------------------------
Diluted weighted average shares 26,005 26,501 26,886
Diluted income per share $ 0.278 $ 0.580 $ 0.784
====================================================
The diluted weighted average shares do not include the effect of
anti-dilutive options that totaled approximately 0.3 million, 0.1 million
and 0.4 million for 2001, 2000 and 1999, respectively.
39
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, while 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 2001, 2000 and
1999 are ($1.1) million, $0 and ($1.2) million, 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 due to 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 March 31, 2001 and April 1, 2000, the Company had forward exchange
contracts, all maturing in less than 12 months, to exchange Euro equivalent
currencies and the Japanese yen primarily for U.S. dollars totaling $110.9
million and $127.8 million, respectively. Of the respective balances, $19.6
million and $29.4 million represented contracts related to intercompany
receivables that settled within 35 days after year-end. The balance of the
contracts relate to firm sales commitments. The fair value of the contracts
related to hedging firm sales commitments was $9.2 million at March 31,
2001 and ($2.3) million at April 1, 2000. Deferred gains and losses are
recognized in earnings when the transactions being hedged are recognized.
Management anticipates that these deferred amounts at March 31, 2001 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 carrying values for certain Company financial instruments,
including cash and cash equivalents, available-for-sale investments and
notes payable were either at or approximated their fair market values at
March 31, 2001 and April 1, 2000.
At March 31, 2001, the fair value of the Company's long-term debt was
$2.5 million higher than the value of the debt reflected on the Company's
financial statements. This higher fair market is primarily related to the
Company's $40 million, 7.05% fixed rate senior notes. Fair values have been
determined through information obtained from market sources and management
estimates. 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.
40
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:
March 31, 2001 April 1, 2000
-------------------------------
(in thousands)
Raw materials $16,015 $14,081
Work-in-process 4,237 7,199
Finished goods 33,755 38,537
-------------------------
$54,007 $59,817
=========================
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:
Estimated
Asset Classification Useful Lives
-------------------- ------------
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
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.
Haemonetics Equipment
Haemonetics equipment is largely comprised of machines installed at
customer sites under use plan or rental agreements and machines utilized by
Haemonetics sales personnel as demonstration units. Under each of these
arrangements, the equipment remains the property of Haemonetics. Contracts
for use plan and rental arrangements vary in length from two to eight
years.
Use plan contracts generally include a commitment for certain minimum
levels of disposable product usage and stated disposable prices over the
contract term. As equipment remains the property of Haemonetics, it can be
removed if disposable utilization targets are not reached. Also,
disposable pricing may be adjusted up or down if disposable usage is not
met or, alternatively, exceeded. The Company's U.S. Commercial Plasma
business and its worldwide Red Blood Cell Business employ the use plan
arrangement almost exclusively and account for the most significant portion
of the value of the Haemonetics Equipment category.
Equipment under rental agreements may or may not include a minimum
use disposable commitment. Rental charges are billed monthly and the
equipment remains the property of Haemonetics.
41
Equipment given to salespeople for demonstration remains the property
of Haemonetics and is depreciated over estimated useful lives of two to
five years.
Revenue Recognition
Effective in the fourth quarter of fiscal year 2001, the Company
adopted the guidance issued by the Securities and Exchange Commission staff
in December 1999 under SAB No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides additional guidance on the accounting
for revenue recognition including both broad conceptual discussions, as
well as certain industry-specific guidance. The Company's adoption of SAB
No. 101 did not have a material impact on the Company's financial position
or results of operations.
The Company's revenue recognition policy is to recognize revenues
from product sales and services when earned as required by generally
accepted accounting principles and in accordance with SAB No. 101. Revenues
are recognized when persuasive evidence of an arrangement exists, product
delivery, including customer acceptance, has occurred or services have been
rendered, the price is fixed or determinable and collectibility is
reasonably assured. For product sales, revenue is not recognized until
title and risk of loss have transferred and all provisions agreed to in the
arrangement necessary for customer acceptance have been fulfilled.
There are principally four arrangements under which products are
shipped to a customer: a use plan, a rental agreement, a sales-type lease
and a cash sale not under contract.
Under use plan and rental agreements, no equipment revenue is
recognized as in each of these arrangements, the equipment remains the
property of the Company and title does not pass to the customer.
Equipment revenues under sales-type lease agreements are recognized
either at shipment or delivery in accordance with the agreed upon contract
terms with interest income recognized over the life of the lease.
Revenues from Distributor Sales
Haemonetics recognizes revenue for both equipment and disposables
upon shipment to its distributors. Haemonetics' standard contracts with its
distributors state that title of the equipment passes to the distributors
at point of shipment to a distributor's location. The distributors are
responsible for shipment to the end customer along with installation,
training and acceptance of the equipment by the end customer. All shipments
to distributors are at contract prices and payment is not contingent upon
resale of the product
Service Revenues and Warranty
Service revenues are recognized ratably over the contractual periods
or as the services are provided. The Company provides for warranty costs
in the same period the associated revenue is recognized.
Research and Development Expenses
All research and development costs, for which no alternate future use
exists, are expensed as incurred. Research and development expense for
continuing operations in fiscal 2001, 2000 and 1999 was $19.0 million,
$14.9 million and $15.2 million, respectively.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes, as set forth in SFAS No. 109, "Accounting for Income Taxes"
(SFAS No. 109). SFAS No. 109 requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of the
temporary differences between the tax and
42
financial reporting basis for assets and liabilities, utilizing currently
enacted tax rates. The effect of any change in tax rates is recognized in
the period in which the change occurs.
Goodwill
Goodwill relates to various acquisitions the Company has made. It is
being amortized over lives ranging from 15 to 20 years.
Other Intangibles
Other intangibles, with estimated useful lives of 15 to 20 years,
represents the value assigned to patents and the OrthoPAT(R) core technology
purchased in conjunction with the Transfusion Technologies Corporation
acquisition and the value assigned to a customer base purchased in
conjunction with the acquisition of a plasma collection bottle plant (see
Note 12 to the consolidated financial statements for a more detailed
discussion of both acquisitions).
Amortization expense related to other intangibles totaled $0.4
million for fiscal year 2001.
The patents were purchased as part of the acquisition of Transfusion
Technologies Corporation. The patents cover various processes, systems and
components of the blood collection and separation processes utilized in
both the existing OrthoPAT(R) product and the Chairside Separator and Red
Cell Collector that are currently under development. Core technology
consists of the OrthoPAT(R) orthopedic perioperative autotransfusion system
and other already developed and working theory and know how that is shared
by all three products purchased in the acquisition. An independent
valuation was performed to assess and allocate value to the intangible
assets purchased.
The bottling plant customer base intangible asset represents the
value allocated to the acquired customer base and certain customer
contracts purchased in the acquisition of Alpha Therapeutic's Compton,
California, plasma collection bottle plant. An independent valuation was
also performed to assess and allocate value to the intangible assets
purchased in this transaction.
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 any potential impairment. The Company assesses the
future useful life of these assets: primarily goodwill, property, plant,
equipment and investment in sales-type leases, whenever events or changes
in circumstances indicate that the current useful lives have 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 accounting for employee stock-based compensation under
Accounting Principles Board Opinion No. 25 ("APB 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."
43
Comprehensive Income
In fiscal 1999, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income," which established standards for reporting
and displaying comprehensive income and its components. Comprehensive
income is the total of net income and all other non-owner changes in
stockholders' equity. For the Company, this is primarily foreign currency
translation. With the Company's adoption of SFAS No. 133, as amended, the
changes in fair value of the effective portion of the Company's outstanding
cash flow hedge contracts will also be included in this measurement.
Accounting for Shipping and Handling Costs
In the current fiscal year, the Company adopted EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs." The EITF concluded
that amounts billed to a customer in a sale transaction related to shipping
and handling should be classified as revenue. Prior to implementing EITF
00-10, shipping and handling costs billed to a customer were netted against
shipping and handling costs recorded in cost of goods sold and selling,
general and administrative expenses.
The EITF consensus also requires an entity to disclose the amount of
shipping and handling costs and the line item on the income statement that
includes such costs if the costs are not in cost of goods sold and are
significant. Shipping and handling costs are included in costs of goods
sold with the exception of $4.0 million, $4.1 million and $4.7 million for
fiscal year 2001, 2000 and 1999, respectively that are included in selling,
general and administrative expenses.
New Pronouncements
In accordance with SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," the Company will adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138 "Accounting
for Certain Derivative Instruments and Hedging Activities, an Amendment of
FASB Statement No. 133" (collectively, SFAS No. 133, as amended) effective
April 1, 2001. These standards will be adopted as a change in accounting
principle and cannot be applied retroactively to financial statements of
prior periods.
SFAS No. 133, as amended, 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, to the extent effective, and requires that the Company formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133, as amended, in part, allows special
hedge accounting for fair value and cash flow hedges. The statement
provides that the gain or loss on a derivative instrument designated and
qualifying as a fair value hedging instrument, as well as the offsetting
change in fair value of the hedged item attributable to the hedged risk, be
recognized currently in earnings in the same accounting period. SFAS No.
133, as amended, provides that the effective portion of the gain or loss on
a derivative instrument designated and qualifying as a cash flow hedging
instrument be reported as a component of other comprehensive income and be
reclassified into earnings in the same period or periods during which the
hedged forecasted transaction affects earnings. The ineffective portion of
a derivative's change in fair value is recognized currently through
earnings regardless of whether the instrument is designated as a hedge.
At March 31, 2001, the Company had 28 forward contracts, all maturing
in less than twelve months, to exchange foreign currencies (major European
currencies and Japanese yen) primarily for U.S. dollars totaling $110.9
million. Of these contracts, six, totaling $19.6 million, represented
contracts with zero fair value relating to inter-company receivables put in
place at year end that settle within 35 days after year-end. The Company
has
44
designated the remainder of these contracts as cash flow hedges intended
to lock-in the expected cash flows of forecasted foreign currency
denominated revenues at the available spot rate. Thus, change in the value
of the forward contract unrelated to changes in the spot rate is deemed
ineffective and is recorded in earnings. Upon adoption, the Company will
record the fair value of these contracts as an asset on the balance sheet,
the change in fair value of the effective portion of the contracts in other
comprehensive income and the change in time value in earnings as a
cumulative catch up adjustment.
At March 31, 2001, the Company accounted for these contracts as
hedges according to SFAS No. 52 and did not record any amounts in the
consolidated balance sheet. Had the Company accounted for these contracts
consistent with SFAS No. 133, the estimated cumulative effect of the change
in accounting principle would have been as follows (in thousands):
Cumulative effect of
change in accounting
principle in Other Cumulative effect of
Asset - Forward Comprehensive change in accounting
Contracts Income principle in earnings
----------------------------------------------------------------
Cash Flow Hedges [Debit/(Credit)] $9,200 $(6,400) $(3,200)
At March 31, 2001, there are no embedded derivatives as defined by
SFAS 133, as amended, and the Company is not aware of any potential impact
of any other significant matter that may result from the adoption of these
standards.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the fiscal 2001 presentation.
3. INVESTMENT IN SALES-TYPE LEASES
The Company leases equipment to customers under sales-type leases. As
sales-type leases, the lease payments to be received over the term of the
leases are recorded as a receivable at the inception of the new lease.
Finance income attributable to the lease contracts is initially recorded as
unearned income and subsequently recognized as interest income under the
interest method over the term of the leases.
There are generally two forms of sales-type lease arrangements. The
first is unrelated to purchases of future disposable products, and simply
calls for a stated monthly payment for each piece of equipment under lease.
The second is an arrangement under which the Company commits to providing a
customer specified pricing for the purchase of equipment and disposables
over a fixed period of time, and the customer commits to purchasing a
certain minimum number of disposables over the contract's term. Thus,
leases are billed monthly, or alternatively with the disposables purchased.
Contract terms vary but are generally three to five years. Under both
sales-type lease arrangements, title to the equipment transfers at the
completion of the lease commitment.
45
The components of the Company's net investment in sales-type leases are
as follows:
March 31, 2001 April 1, 2000
-------------------------------
(in thousands)
Total minimum lease payments receivable $13,894 $24,070
Less - Unearned interest 2,823 5,259
------------------------
Net investment in sales-type leases 11,071 18,811
Less - Current portion 5,680 8,036
------------------------
Net investment, long-term $ 5,391 $10,775
========================
Future minimum lease payments receivable under non-cancelable leases as
of March 31, 2001, are as follows:
Fiscal Year Ending (in thousands)
--------------------------------------
2002 $ 6,541
2003 3,852
2004 2,186
2005 1,088
2006 227
and thereafter 0
-------
$13,894
=======
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
March 31, 2001 April 1, 2000
-------------------------------
(in thousands)
Real estate mortgage $ 9,920 $ 8,128
Senior notes 40,000 40,000
Haemonetics Japan Co. Ltd. 18,806 24,604
Other non-U.S. borrowings 993 1,470
-------------------------
69,719 74,202
Less - Current portion 22,438 32,896
-------------------------
$47,281 $41,306
=========================
Real Estate Mortgage Agreement
In December 2000, the Company entered into a $10.0 million real
estate mortgage agreement (the "Mortgage Agreement") with an investment
firm. The Mortgage Agreement requires principal and interest payments of
$0.1 million per month for a period of 180 months, commencing February 1,
2001. The entire balance of the loan may be repaid at any time after
February 1, 2006, subject to a prepayment premium, which is calculated
based upon the change in the current weekly average yield of Ten (10)-year
U.S. Treasury Constant Maturities, 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 8.41% per annum. Borrowings
under the Mortgage Agreement are secured by the land, building and
improvements at the Company's headquarters and manufacturing facility with
a collective carrying value of approximately $10.6 million and $9.8 million
as of March 31, 2001 and April 1, 2000, respectively. There
46
are no financial covenants in the terms and conditions of this agreement.
This Mortgage Agreement replaces a prior agreement that was completed in July
2000.
Credit Facilities
The Company terminated a $20.0 million committed, unsecured revolving
credit facility on April 14, 2000. As of March 31, 2001, the Company had
not replaced this credit facility.
Senior Notes
The Company has outstanding $40.0 million of 7.05% Senior Notes due
in 2007 (the "Senior Notes"). The Company is required to make annual
prepayments of principal each year in the amount $5.7 million 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 March 31, 2001, Haemonetics Japan Co. Ltd. had 2.3 billion
Japanese yen, equivalent to U.S. $18.8 million, in unsecured debt
outstanding. Of this amount, JPY 300.0 million is long-term. This loan
bears interest at a rate 0.91%. At March 31, 2001, the US dollar equivalent
of this long-term borrowing was $2.5 million. The remaining balance is
short-term, 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 March 31, 2001, are short-term in
nature.
The weighted average short-term rates for U.S. and non-U.S.
borrowings were 2.75%, 3.36%, and 1.45% as of March 31, 2001, April 1,
2000, and April 3, 1999, respectively.
As of March 31, 2001, notes payable and long-term debt mature as
follows:
Fiscal Year Ending (in thousands)
------------------------------------
2002 $22,438
2003 9,534
2004 6,134
2005 6,171
2006 6,211
2007 and thereafter 19,231
-------
$69,719
=======
47
5. INCOME TAXES
The components of domestic and foreign income from continuing
operations before the provision for income taxes are as follows:
Years Ended
--------------------------------------------------
March 31, 2001 April 1, 2000 April 3, 1999
--------------------------------------------------
(in thousands)
Domestic $ 7,635 $13,156 $13,707
Foreign 9,691 10,541 18,877
--------------------------------------------
$17,326 $23,697 $32,584
============================================
The provision for income taxes from continuing operations consists of
the following components:
Years Ended
--------------------------------------------------
March 31, 2001 April 1, 2000 April 3, 1999
--------------------------------------------------
(in thousands)
Current
-------
Federal $ 2,956 $ 7,702 $ 7,107
State 435 400 2,780
Foreign 4,587 2,066 8,847
--------------------------------------------
Total current 7,978 10,168 18,734
--------------------------------------------
Deferred
--------
Federal 3,308 (3,501) (3,656)
State 49 312 (1,542)
Foreign (1,245) 1,492 (2,131)
--------------------------------------------
Total deferred 2,112 (1,697) (7,329)
--------------------------------------------
Total tax expense $10,090 $ 8,471 $11,405
============================================
Included in the federal income tax provisions for fiscal years 2001,
2000 and 1999, are approximately $0.2 million, $0.2 million and $1.5
million, respectively, provided on foreign source income of approximately
$0.7 million, $1.3 million, and $9.5 million in 2001, 2000 and 1999,
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:
Years Ended
--------------------------------------------------
March 31, 2001 April 1, 2000 April 3, 1999
--------------------------------------------------
(in thousands)
Continuing operations $10,090 $8,471 $11,405
Discontinued operations -- 68 (56)
--------------------------------------------
$10,090 $8,539 $11,349
============================================
48
The tax effect of significant temporary differences comprising the
net deferred tax asset (liability) is as follows:
Years Ended
-------------------------------
March 31, 2001 April 1, 2000
-------------------------------
(in thousands)
Depreciation $(6,042) $(7,234)
Amortization (6,491) (3,488)
Inventory 6,713 10,224
Accruals and reserves 6,294 5,260
Net operating loss carryforward 16,604 7,056
Foreign tax credits 11,014 8,626
------------------------
Total deferred taxes $28,092 $20,444
------------------------
Valuation allowance (6,373) -
------------------------
Total net deferred assets $21,719 $20,444
========================
At March 31, 2001, the Company had U.S. net operating loss
carryforwards of approximately $46.8 million, of which $11.4 million
relates to continuing operations and $35.4 million is acquisition related
and subject to separate limitations. The Company also has foreign tax
credits available of approximately $11.0 million. These tax attributes
begin to expire in the year 2008 and 2003, respectively. The valuation
allowance reflects the potential inability to utilize Transfusion
Technology's net operating loss carryforwards before the 15-year carryover
period expires.
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 2001, 2000, and 1999, due to the following:
Years Ended
--------------------------------------------------
March 31, 2001 April 1, 2000 April 3, 1999
--------------------------------------------------
(in thousands)
Tax at federal statutory rate $ 6,064 $ 8,294 $11,405
Foreign Sales Corporation (1,634) (1,662) --
Difference between U.S. tax and
foreign statutory rates (1,709) 313 109
State taxes, net of federal income tax benefits 314 463 805
Non-deductible acquisition costs 7,105 1,270 --
Other, net (50) (207) (914)
--------------------------------------------
Tax at effective tax rate $10,090 $ 8,471 $11,405
============================================
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.
49
For continuing operations, approximate future basic rental
commitments under operating leases as of March 31, 2001 are as follows:
Fiscal Year Ending (in thousands)
------------------------------------
2002 4,303
2003 2,320
2004 1,508
2005 1,330
2006 1,160
Thereafter 78
------
10,699
======
Rent expense for continuing operations in fiscal 2001, 2000 and 1999
was $4.1 million, $4.1 million and $4.5 million, 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 2001, the Company repurchased 236,300 shares of its
outstanding common stock at an average prevailing price of $20.01. During
2000, the Company repurchased 2,000,000 shares of its outstanding common
stock at an average prevailing price of $19.85. 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 3,500,000 shares of the Company's common stock may be issued
pursuant to incentive and non-qualified stock options granted to key
employees, officers and directors of the Company (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 both incentive and 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 the fair market value of the
common stock at the time the option is granted. Options become exercisable
in a manner determined by the Committee, generally between two and seven
years, and incentive stock options expire not more than 10 years from the
date of the grant. There were 3,392,000 shares available for future grant
at March 31, 2001.
The Company also had a non-qualified stock option plan under which
options were granted to non-employee directors and a previous version of
the long-term incentive plan under which options were granted to key
employees, consultants and advisors. During 2001, the Company recorded $0.1
million as stock option compensation expense related to grants to
consultants and advisors of the Company. No further options will be granted
under these plans.
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.
50
The Purchase Plan provides for two "purchase periods" within each of
the Company's fiscal years, the first commencing on November 1 of each year
and continuing through April 30 of the next calendar year, and the second
commencing on May 1 of each year and continuing through October 31 of such
year. Shares are purchased through 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 2001, there were 24,672 shares purchased at a range of $15.84
to $19.50 per share under the Purchase Plan. During 2000, there were 28,207
shares purchased at a range of $13.34 to $13.44 per share under the
Purchase Plan.
The Company accounts for employee and director grants under APB No.
25, resulting in no compensation cost being recognized for options granted
at fair market value. Had the compensation cost for these plans been
determined consistent with the SFAS No. 123, the Company's net income and
earnings per share would have been the following pro forma amounts (in
thousands):
2001 2000 1999
------------------------------
Net Income: As Reported $7,236 $15,370 $21,077
Pro Forma $ 648 $11,406 $18,200
Basic EPS: As Reported $0.286 $ 0.589 $ 0.788
Pro Forma $0.026 $ 0.437 $ 0.681
Diluted EPS: As Reported $0.278 $ 0.580 $ 0.784
Pro Forma $0.025 $ 0.430 $ 0.677
For purposes of the pro forma disclosure, the fair value of each
option is estimated on the date of grant using the Black-Scholes options
pricing model with the following weighted average assumptions:
2001 2000 1999
----------------------------
Volatility 30.9% 33.0% 33.6%
Risk-Free Interest Rate 6.3% 5.8% 5.5%
Expected Life of Options 7 yrs. 7 yrs. 7 yrs.
The weighted average grant date fair value of options granted during
2001, 2000 and 1999 was approximately $11.065, $8.770, and $7.857,
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:
2001 2000 1999
--------------------------
Volatility 31.9% 27.9% N/A
Risk-Free Interest Rate 6.1% 5.4% N/A
Expected Life of Options 6 mos. 6 mos N/A
51
The weighted average purchase date fair value of shares purchased
under the Purchase Plan was $5.14 in 2001, and $4.32 in 2000. There were no
shares purchased 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 three years ended March
31, 2001 is as follows:
Weighted
Average
Number of Exercise
Shares Price per Share
-----------------------------
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
=========================
Exercisable at April 3, 1999 1,281,565 $17.667
=========================
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
=========================
Exercisable at April 1, 2000 1,705,625 $17.337
=========================
Granted 1,255,099 $23.604
Exercised (716,912) $17.179
Terminated (119,361) $17.231
-------------------------
Outstanding at March 31, 2001 4,137,715 $19.508
=========================
Exercisable at March 31, 2001 1,842,814 $18.439
=========================
52
The following table summarizes information about stock options
outstanding at March 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Range of Number Outstanding Average Number Average
Exercise Outstanding At Contractual Exercise Exercisable At Exercise
Prices March 31, 2001 Life Price March 31, 2001 Price
- ---------------------------------------------------------------------------------------------------
$14.4375 - $16.5000 1,381,652 7.29 $15.7090 666,833 $15.7153
$17.0000 - $22.9063 2,210,063 7.21 $20.1967 1,047,436 $19.3216
$23.1250 - $30.1875 546,000 8.77 $26.3326 128,545 $25.3814
--------- --------
Total 4,137,715 7.44 $19.5078 1,842,814 $18.4393
========= ========
8. SAVINGS PLUS PLAN
The Company's Savings Plus Plan is a 401(k) plan that allows
employees to accumulate savings on a pre-tax basis. In addition, the
Company makes matching contributions to the Plan based upon pre-established
rates. The Company can also make additional discretionary contributions if
approved by the Board of Directors. The Company's matching contributions
amounted to approximately $1.5 million, $1.4 million and $1.4 million in
2001, 2000 and 1999, respectively. No discretionary contributions were made
for the Savings Plan in 2001, 2000 and 1999.
The Company has no material obligation for post-retirement or post-
employment benefits.
9. TRANSACTIONS WITH RELATED PARTIES
The Company advances money to various employees for relocation costs
and other personal purposes. Loans to employees, which are included in
other assets, amounted to approximately $0.6 million as of March 31, 2001,
and $0.2 million as of April 1, 2000, and are payable within five years.
Certain loans are interest bearing, and the Company records interest income
on these loans when collected. Certain loans have forgiveness provisions
based upon continued service or compliance with various guidelines. The
Company amortizes the outstanding loan balance as a charge to operating
expense as such amounts are forgiven.
10. DISCONTINUED OPERATIONS ("BBMS")
During fiscal year 1999, the Company sold six of its seven regional
blood systems for total cash proceeds of $5.3 million. 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 and 1999, 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.
53
The operating losses for BBMS are detailed as follows, in thousands:
Years Ended
-------------------------------
April 1, 2000 April 3, 1999
-------------------------------
(in thousands)
Net Revenues $ 413 $16,003
Gross Profit (24) 188
Operating expenses:
Research and Development -- --
Selling, general and administrative 569 8,496
Total operating expenses 569 8,496
Operating loss (593) (8,308)
Other expense -- (158)
Tax benefit (190) (2,963)
------------------------
Net loss $(403) $(5,503)
========================
Operating loss (net of taxes) charged to reserve (403) (5,401)
Reversal of remaining reserve 144 --
------------------------
Reflected on consolidated statement of operations $ 144 $ (102)
========================
Other expense includes an allocation of corporate interest expense of
approximately $158,000 in the year ended 1999. The allocation of corporate
interest was calculated based upon the percentage of net assets of BBMS to
total domestic assets.
The estimated net loss on disposal of $18.2 million recorded during
the year ended March 28, 1998 included a provision for estimated losses
after taxes for BBMS of $5.2 million from March 30, 1998 through the date
of disposal. With the divestiture complete, there are no remaining
discontinued operations reserves on the Company's balance sheet.
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, red
cell, surgical and plasma products.
The blood bank products comprise machines and single use disposables
and solutions that perform "apheresis," the separation of whole blood into
its components and subsequent collection of blood components, including
platelets and plasma as well as the washing of red blood cells for certain
applications. The main device used for these blood component therapies is
the MCS(R)+ mobile collection system.
Red cell products comprise machines and single use disposables and
solutions that perform apheresis for the collection of red blood cells.
Devices used for the collection of red blood cells are the Red Cell 8150
and MCS (R) 9000.
54
Surgical products comprise machines and single use disposables that
perform intraoperative autologous transfusion ("IAT") or surgical blood
salvage, as it is more commonly known, in orthopedic and cardiovascular
surgical applications. Surgical blood salvage is a procedure whereby shed
blood is collected, cleansed and returned to a patient. The devices used in
the surgical area are the OrthoPAT(R) System, and a full line of Cell
Saver(R) autologous blood recovery systems.
Plasma collection products are machines, disposables and solutions
that 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.
Years ended (in thousands)
March 31, 2001 Blood Bank Red Cells Surgical Plasma Other Total
- -------------- ---------- --------- -------- ------ ----- -----
Revenues from external customers $111,354 $8,088 $66,467 $90,838 $17,113 $293,860
April 1, 2000
- -------------
Revenues from external customers 107,830 6,351 64,291 87,138 15,002 280,612
April 3, 1999
- -------------
Revenues from external customers 115,247 5,051 62,064 86,567 15,584 284,513
Geographical Segmentation
Years ended (in thousands)
March 31, 2001
- --------------
Other Total
United North North Other Total
States America America Japan Asia Asia
----------------------------------------------------------------------
Sales $ 96,555 $2,688 $ 99,243 $93,311 $17,865 $111,176
Total Assets 254,480 - 254,480 31,262 5,851 37,113
Long-Lived Assets 109,632 - $109,632 6,921 2,004 8,925
United Other Total Total
Germany France Kingdom Italy Austria Europe Europe Consolidated
------------------------------------------------------------------------------------------------
Sales $23,996 $18,281 $ 7,353 $ 8,643 $ 6,583 $18,585 $83,441 $293,860
Total Assets 9,256 11,214 2,663 8,841 1,895 19,852 53,721 345,314
Long-Lived Assets 3,231 716 197 884 598 6,135 11,761 130,318
April 1, 2000
- -------------
Other Total
United North North Other Total
States America America Japan Asia Asia
----------------------------------------------------------------------
Sales $ 91,007 $1,919 $ 92,926 $78,516 $16,579 $ 95,095
Total Assets 233,010 89 233,099 40,682 6,551 47,233
Long-Lived Assets 102,333 89 $102,422 8,639 3,458 12,097
United Other Total Total
Germany France Kingdom Italy Austria Europe Europe Consolidated
------------------------------------------------------------------------------------------------
Sales $26,074 $21,653 $ 8,832 $ 8,912 $ 6,568 $20,552 $92,591 $280,612
Total Assets 8,096 12,288 3,214 8,605 2,006 20,219 54,428 334,760
Long-Lived Assets 2,535 824 479 1,142 411 7,182 12,573 127,092
April 3, 1999
- -------------
Other Total
United North North Other Total
States America America Japan Asia Asia
----------------------------------------------------------------------
Sales $ 90,153 $1,636 $ 91,789 $87,817 $16,044 $103,861
Total Assets 224,648 475 225,123 35,961 17,831 53,792
Long-Lived Assets 83,270 475 $83,745 8,867 14,675 23,542
United Other Total Total
Germany France Kingdom Italy Austria Europe Europe Consolidated
------------------------------------------------------------------------------------------------
Sales $23,724 $21,852 $10,043 $ 8,291 $ 5,777 $19,176 $88,863 $284,513
Total Assets 11,100 14,203 5,131 10,108 2,844 22,374 65,760 344,675
Long-Lived Assets 2,980 1,131 600 1,987 614 7,407 14,719 122,006
55
12. ACQUISITIONS
Transfusion Technologies
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 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 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 million 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 million, 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's 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. The fair market value of liabilities
included in the net assets purchased was $6.3 million. The allocation of the
purchase price continues to be 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 is recorded as
goodwill in the amount of $2.8 million. The goodwill is being amortized
over 20 years.
The present allocation of the purchase price over the fair market
value of the assets acquired is as follows (in thousands):
Consideration paid $45,046
Plus other estimated transaction costs 1,607(i)
Total estimated purchase price 46,653
Less: estimated fair value of Transfusion's
Identifiable net assets on March 31, 2001 43,832
Total estimated goodwill due to acquisition 2,821
(i) Transaction costs primarily include professional fees, costs to close
down the Transfusion Technologies' facility and severance costs.
56
In-Process Research and Development
Included in the purchase price allocation for the acquisition of
Transfusion 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 fiscal year 2000 relative to Haemonetics'
original 19.8% investment and $18.6 million of which is reflected in the 12
months ended March 31, 2001 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 technology over a 10-year period. Estimated future
after-tax cash flows for each product were based on Transfusion's 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 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
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's 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, including their estimated stage of completion and
associated discount rates used in the accounting for them, 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. At the time of the acquisition, Haemonetics estimated that
the CSS project was 95% complete and that product sales would commence by
the fourth quarter of 2002. The IPR&D value assigned to the CSS was $17.6
million. A discount rate of 33% 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 or by DC
battery packs. At the time of the acquisition, Haemonetics
57
estimated that the RCC project was 65% complete and that 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% was employed in the analysis.
The following unaudited pro forma summary combines the consolidated
results of operations of Haemonetics and Transfusion 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 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.
Twelve Months Ended
--------------------------------
March 31, 2001 April 1, 2000
-------------- -------------
(In thousands, except
per share amounts)
Net revenues $295,236 $279,389
Operating income 26,457 13,988
Income from continuing operations 21,680 9,526
Basic and diluted income per common share
from continuing operations:
Basic $ 0.857 $ 0.365
Diluted $ 0.834 $ 0.359
Weighted average number of common shares outstanding:
Basic 25,299 26,087
Diluted 26,005 26,501
Unusual charges expensed in the 12 months ended March 31, 2001
resulting from the acquisition of Transfusion amounted to $4.6 million.
Included in the unusual charges were $2.8 million in bonuses paid to key
Transfusion executives hired by Haemonetics and severance to Haemonetics
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
losses incurred by Transfusion from November of fiscal year 2000 through
the date of acquisition of the remaining 80.2%. For fiscal year 2001, the
charge to the statement of operations related to this equity adjustment was
$ 1.3 million. In addition, the Company restated its investment in
Transfusion on the balance sheet for losses incurred through April 1, 2000.
Retained earnings at April 1, 2000, and the statement of operations for the
12 months ended April 1, 2000, reflected a $3.6 million charge, $0.7
million of which related to the cost to equity method of accounting
adjustment and $2.9 million of which related to IPR&D attributable to
Haemonetics' initial investment.
Plasma collection bottle plant
In January 2001, the Company purchased the assets of Alpha
Therapeutic Corporation's ("Alpha") Compton, California plasma collection
bottle plant for $8.3 million. Cash of $7.5 million was paid to Alpha with
$0.8 million held in escrow. The disposable plastic bottles made at the
plant are used by many of the Company's existing U.S.
58
Commercial Plasma customers. As part of the transaction, the Company signed
long-term, exclusive supply agreements with Alpha for plasma collection
bottles and 4% Sodium Citrate anticoagulant solutions that are used in each
plasma collection.
The asset purchase was accounted for using the purchase method of
accounting for business combinations. Accordingly, the purchase price was
allocated to the net assets acquired based on the Company's estimates of
fair value at the acquisition date. An independent valuation was performed
to assess and allocate value to certain purchased tangible assets including
property, plant and equipment. A separate independent valuation was
performed to assess and allocate value to the customer base purchased in
conjunction with the acquisition. This intangible asset is being amortized
over 15 years. The allocation of the purchase price continues to be subject
to adjustment upon final valuation of certain acquired assets and
liabilities. At March 31, 2001, the excess of the purchase price over the
fair market value of the net assets acquired is recorded as goodwill in the
amount of $0.7 million. The goodwill is being amortized over 15 years.
13. UNUSUAL ITEM
In January 1998, the Chinese Government (Ministry of Health) issued
an executive order to automate manual plasmapheresis throughout China. By
March 1998, the Company had placed approximately 1,200 plasma collection
machines in China under a sales-type lease contract with a local
distributor. The sales-type lease contract included minimum annual
disposable products use commitments per machine under contract and included
a ramp-up period.
In March 2000, the Company reassessed its ability to realize the full
value of the sales-type lease as originally recorded given that the ramp up
in disposable purchases expected had not materialized. In the Company's
opinion two main factors or market conditions contributed to the
Distributor's failure to meet its disposable purchase commitments.
Although it passed an executive order in 1998 making manual plasma
collection unlawful, the Chinese Government failed to enforce this and
manual plasma collection, which is much less costly for the collector,
continues for a large percentage of total plasma collections. Secondly, the
availability of, and lack of enforcement against, unauthorized local copies
of disposable products at a lower cost significantly impacted purchases
from foreign suppliers.
Given the change in market conditions, a reassessment of the contract
was performed with a new estimate of future disposable purchases and
related cash flows considering the reduced percentage of the market willing
to use automated collection with foreign manufactured products and because
of pricing concessions extended to the local distributor by Haemonetics.
Based on the reassessment, the Company wrote down the investment in sales
type leases by $9.5 million during the fourth quarter of fiscal year 2000
and reflected this as an unusual charge on the consolidated statement of
operations.
59
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 March 31,
2001 and April 1, 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended March 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 its subsidiaries as of March 31, 2001 and April 1, 2000, and the
results of their operations and their cash flows for each of the three
years in the period ended March 31, 2001, in conformity with accounting
principles generally accepted in the United States.
S/ARTHUR ANDERSEN
Boston, Massachusetts
April 27, 2001
Boston, Massachusetts
April 27, 2001
60
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 24, 2001.
(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:
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 D. HEADLEY joined Haemonetics in September 2000 as Executive
Vice President with responsibility for worldwide research and development.
Prior to joining Haemonetics, Mr. Headley worked for Transfusion
Technologies Corporation, which he founded with two other executives in
1994. While with Transfusion Technologies, Mr. Headley served as President
and CEO from 1994 through 1999 and as Chairman of the Board from 1999 to
2000 when Haemonetics acquired the company. In addition, Mr. Headley worked
at Haemonetics from 1975 until 1992. During that period, he held various
positions including Director of R&D and QA, General Manager - Japan and Far
East, and Director of the US Commercial Plasma Business.
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 April 1994.
RONALD J. RYAN joined Haemonetics in 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.
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. In January 2001,
he also assumed responsibility for the Platelet and Red Cell Business
Units. 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 Chief Financial
Officer of BioSurface Technology, Inc. and held various positions in
operations at Integrated Genetics, Inc.
61
STEPHEN C. SWENSON joined Haemonetics in December 2000, as Executive
Vice President responsible for the worldwide field organization,
encompassing the sales and marketing teams for the United States, Europe,
and Asia. Prior to joining Haemonetics, Mr. Swenson was President and CEO
of Illuminis Corporation, an eHealth company that focused on internet
communications for diagnostic medical images. Prior to this, he spent
twenty years with the Hewlett-Packard Medical Group. His most recent
responsibilities were Worldwide Marketing Manager and General Manager,
North American Field Operations.
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 24,
2001.
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 24,
2001.
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 34
Consolidated Balance Sheets 35
Consolidated Statements of Stockholders' Equity 36
Consolidated Statements of Cash Flows 37
Notes to Consolidated Financial Statements 38
Report of Independent Public Accountants 60
Schedules required by Article 12 of Regulation S-X
II Valuation and Qualifying Accounts 67
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 64, which is incorporated herein by reference.
62
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 18, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Sir Stuart Burgess Chairman of the Board June 18, 2001
- -----------------------------
Sir Stuart Burgess
/s/ James L. Peterson President and Chief Executive Officer June 18, 2001
- ----------------------------- Director
James L. Peterson
/s/ Ronald J. Ryan Sr. Vice President of Finance June 18, 2001
- ----------------------------- and Chief Financial Officer,
Ronald J. Ryan (Principal Financial and Accounting Officer)
/s/ Yutaka Sakurada Sr. Vice President Haemonetics Corp. June 18, 2001
- ----------------------------- and President, Haemonetics Japan
Yutaka Sakurada Director
/s/ Benjamin L. Holmes Director June 18, 2001
- -----------------------------
Benjamin L. Holmes
/s/ Donna C. E. Williamson Director June 18, 2001
- -----------------------------
Donna C. E. Williamson
/s/ N. Colin Lind Director June 18, 2001
- -----------------------------
N. Colin Lind
/s/ Harvey G. Klein M.D. Director June 18, 2001
- -----------------------------
Harvey G. Klein M.D.
/s/ Ronald G. Gelbman Director June 18, 2001
- -----------------------------
Ronald G. Gelbman
63
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* 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).
10D* 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).
10E* 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).
10F* 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).
10G* 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).
10H* 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).
10I* 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).
10J* 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).
10K* 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).
64
10L* 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).
10M* 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).
10N* 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).
10O* 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).
10P* 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).
10Q* 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).
10R* 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).
10S* 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).
10T* 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).
10U* 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).
10V* 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).
10W* Agreement and Plan of Merger dated September 4, 200 between
Haemonetics Corporation and Transfusion Technologies Corporation
(filed as Exhibit 2.1 to the Company's Form 8-K No. 1-14041 dated
September 29, 2000 and incorporated herein by reference).
10X* Amendment dated September 29, 2000 to the 7.05% Senior Notes Plan
(filed as Exhibit 10A to the Company's Form 10-Q No. 1-10730 for the
quarter ended September 30, 2000).
10Y* Haemonetics Corporation 2000 Long-term Incentive Plan (filed as
Exhibit 10A to the Company's Form 10-Q No. 1-10730 for the quarter
ended December 30, 2000).
10Z* Note and Mortgage dated December 12, 2000 between the Company and
General Electric Capital Business Asset Funding Corporation relating
to the Braintree facility (filed as Exhibit 10B to the Company's Form
10-Q No. 1-10730 for the quarter ended December 30, 2000).
21. Subsidiaries of the Company
23. Consent of the Independent Public Accountants
[FN]
- --------------------
* Incorporated by reference.
(All other exhibits are inapplicable.)
65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE TO THE CONSOLIDATIED FINANCIAL STATEMENTS
We have audited in accordance with auditing standards generally accepted in
the United States the consolidated financial statements included in
Haemonetics Corporation and subsidiaries' Annual Report to Shareholders and
in this Form 10-K, and have issued our report thereon dated April 27, 2001.
Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the index in item 14(a)
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
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
S/ARTHUR ANDERSEN
Boston, Massachusetts
April 27, 2001
66
SCHEDULE II
HAEMONETICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charged Balance
at to Cost Write-Offs at
Beginning and (Net of End of
of Period Expenses Recoveries) Period
For Year Ended March 31, 2001
Allowance for Doubtful Accounts 1,149 279 (195) 1,233
For the 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
67
EXHIBIT 21
SUBSIDIARIES OF HAEMONETICS CORPORATION
Name Jurisdiction of Incorporation
- ---- -----------------------------
Haemonetics S.A. Switzerland
Haemonetics AB Sweden
Haemonetics GmbH Germany
Haemonetics France S.A.R.L. France
Haemonetics U.K. Ltd. England
Haemonetics Japan K.K. Japan
Haemonetics Foreign Sales Corp. U.S. Virgin Islands
Haemonetics Belgium N.V. Belgium
Haemonetics B.V. Netherlands
Haemonetics Italia S.R.L. Italy
Haemonetics GesmbH Austria
Haemonetics Asia Inc., with branch in Taiwan Delaware
Haemonetics Hong Kong Ltd. Hong Kong
Haemonetics CZ, s.p.o.l., S.r.o. Czech Republic
Haemonetcs Medical Devices (Shanghai)
International Trading Co. Ltd. People's Republic of China
Transfusion Technologies Corporation Delaware
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EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated April 27, 2001, included in this
Form 10-K, into the Company's previously filed Registration Statement File
Nos. 33-42005, 33-42006, 33-70932, 33-70934, 33-80652, 333-61453, 333-61455,
333-60020 and 333-62598. It should be noted that we have not audited any
financial statements of the Company subsequent to March 31, 2001 or performed
any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 22, 2001
69