FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarter ended: June 30, 2001 Commission File Number: 1-10730
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HAEMONETICS CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2882273
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 Wood Road, Braintree, MA 02184
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(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 848-7100
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Indicate by check mark whether the registrant (1.) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) (2.) has been subject to the
filing requirements for at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
26,128,484 shares of Common Stock, $ .01 par value, as of
---------------------------------------------------------
June 30, 2001
HAEMONETICS CORPORATION
INDEX
PAGE
----
PART I. Financial Information
Unaudited Consolidated Statements of Operations - 2
Three Months Ended June 30, 2001
and July 1, 2000
Unaudited Consolidated Balance Sheets - June 30, 2001 3
and March 31, 2001
Unaudited Consolidated Statements of Stockholders' Equity - 4
Three Months Ended June 30, 2001
Unaudited Consolidated Statements of Cash Flows - 5
Three Months Ended June 30, 2001 and July 1, 2000
Notes to Unaudited Consolidated Financial Statements 6-13
Management's Discussion and Analysis of Financial Condition and 14-21
Results of Operations
Quantitative and Qualitative Disclosures about Market Risk 22-23
PART II. Other Information 24
Signatures 25
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except share data)
Three Months Ended
-------------------
June 30, July 1,
2001 2000
-------------------
Net revenues $75,801 $70,265
Cost of goods sold 39,498 36,819
-------------------
Gross profit 36,303 33,446
Operating expenses:
Research and development 4,765 4,173
Selling, general and administrative 22,006 20,985
Other unusual charges relating to acquisition - 440
-------------------
Total operating expenses 26,771 25,598
-------------------
Operating income 9,532 7,848
Interest expense (983) (1,021)
Interest income 1,093 1,182
Other income, net 969 806
-------------------
Income before provision for income taxes 10,611 8,815
Provision for income taxes 2,971 2,591
-------------------
Income before cumulative effect of change
in accounting principle 7,640 $ 6,224
Cumulative effect of change in accounting
principle, net of tax 2,304 -
-------------------
Net income $ 9,944 $ 6,224
===================
Basic income per common share
Income before cumulative effect of change
in accounting principle $ 0.29 $ 0.25
Cumulative effect of change in accounting
principle, net of tax 0.09 -
Net income 0.38 0.25
Income per common share assuming dilution
Income before cumulative effect of change
in accounting principle $ 0.28 0.24
Cumulative effect of change in accounting
principle, net of tax 0.09 -
Net income 0.37 0.24
Weighted average shares outstanding
Basic 25,979 25,248
Diluted 26,947 25,731
2
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share data)
June 30, March 31,
ASSETS 2001 2001
---------------------
Current assets:
Cash and short term investments $ 40,959 $ 41,441
Available-for-sale investments $ 45,454 $ 33,042
Accounts receivable, less allowance of $1,329
at June 30, 2001 and $1,233 at March 31, 2001 61,800 59,842
Inventories 56,671 54,007
Current investment in sales-type
leases, net 5,616 5,680
Deferred tax asset 18,054 19,982
Other prepaid and current assets 13,573 5,170
---------------------
Total current assets 242,127 219,164
---------------------
Property, plant and equipment 208,092 203,883
Less accumulated depreciation 125,983 120,632
---------------------
Net property, plant and equipment 82,109 83,251
Other assets:
Investment in sales-type leases, net
(long-term) 3,810 5,391
Other intangibles, less accumulated amortization of
$894 at June 30, 2001 and $599 at March 31, 2001 19,063 19,107
Goodwill, less accumulated amortization of $7,922
at June 30, 2001 and March 31, 2001 12,388 14,426
Deferred tax asset 8,173 1,737
Other long-term assets 1,978 2,238
---------------------
Total other assets 45,412 42,899
---------------------
Total assets $369,648 $345,314
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 28,403 $ 22,438
Accounts payable 11,923 13,350
Accrued payroll and related costs 9,535 10,072
Accrued income taxes 16,742 14,791
Other accrued liabilities 17,498 18,796
---------------------
Total current liabilities 84,101 79,447
---------------------
Long-term debt, net of current maturities 47,303 47,281
Other long-term liabilities 3,004 3,070
Stockholders' equity:
Common stock, $.01 par value;
Authorized - 80,000,000 shares;
Issued 31,056,606 shares at June 30, 2001;
30,721,723 shares at March 31, 2001 311 307
Additional paid-in capital 93,759 87,958
Retained earnings 244,297 234,325
Other comprehensive loss (13,893) (17,618)
---------------------
Stockholders' equity before treasury stock 324,474 304,972
Less: treasury stock 4,928,122 shares at
cost at June 30, 2001 and 4,940,390 shares
at cost at March 31, 2001 89,234 89,456
---------------------
Total stockholders' equity 235,240 215,516
---------------------
Total liabilities and stockholders' equity $369,648 $345,314
=====================
The accompanying notes are an integral part of these consolidated financial
statements.
3
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unaudited- in thousands)
Common Stock Additional Other Total
-------------- Paid-in Treasury Retained Comprehensive Stockholders' Comprehensive
Shares $'s Capital Stock Earnings Income(loss) Equity Income (loss)
---------------------------------------------------------------------------------------------------
Balance, March 31, 2001 30,722 $307 $87,958 $(89,456) $234,325 $(17,618) $215,516
Employee stock purchase
plan --- --- --- 222 28 --- 250
Exercise of stock options
and related tax benefit 335 4 5,801 --- --- --- 5,805
Net income --- --- --- --- 9,944 --- 9,944 $ 9,944
Foreign currency
translation adjustment --- --- --- --- --- (1,048) (1,048) (1,048)
Unrealized gain on
derivatives --- --- --- --- --- 4,773 4,773 4,773
------
Comprehensive income --- --- --- --- --- --- --- $13,669
-----------------------------------------------------------------------------------------=======
Balance, June 30, 2001 31,057 $311 $93,759 $(89,234) $244,297 $(13,893) $235,240
=================================================================================
4
HAEMONETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited- in thousands)
Three Months Ended
------------------
Jun 30, Jul 1,
2001 2000
------------------
Cash Flows from Operating Activities:
Net income $ 9,944 $ 6,224
------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Non cash items:
Cumulative effect of change in accounting principle,
net of tax (2,304) --
Depreciation and amortization 5,837 6,027
Deferred tax (expense) benefit (4,508) 9
Equity in losses of investment (note 10) -- 440
Other unusual non-cash charges -- 787
Realized gain from exchange rate fluctuations (1,116) --
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable - net (2,167) 169
(Increase) decrease in inventories (4,556) 675
Decrease in sales-type leases (current) 64 580
Increase in prepaid income taxes (122) (225)
(Increase) decrease in other assets 1,856 (1,352)
Decrease in accounts payable, accrued
expenses and other current liabilities (1,415) (8,884)
------------------
Net cash provided by operating activities 1,513 4,450
Cash Flows from Investing Activities:
Purchases of available-for-sale investments (23,580) (4,278)
Gross proceeds from sale of available-for-sale investments 11,167 3,858
Capital expenditures on property, plant and equipment,
net of retirements and disposals (2,926) (3,195)
Net decrease in sales-type leases (long-term) 1,581 1,534
------------------
Net cash used in investing activities (13,758) (2,081)
------------------
Cash Flows from Financing Activities:
Proceeds (payments) on long-term real estate mortgage (86) 0
Net (decrease) increase in short-term revolving
credit agreements 5,844 (8,136)
Net (decrease) increase in long-term credit agreements 89 (126)
Employee stock purchase plan purchases 250 209
Exercise of stock options and related tax benefit 5,805 894
Purchase of treasury stock -- (4,729)
------------------
Net cash used in financing activities 11,902 (11,888)
Effect of exchange rates on cash and cash equivalents (139) (34)
------------------
Net decrease in cash and cash equivalents (482) (9,553)
Cash and cash equivalents at beginning of period 41,441 25,882
------------------
Cash and cash equivalents at end of period $40,959 $16,329
==================
Non-cash investing and financing activities:
Transfers from inventory to fixed assets
for Haemonetics placement equipment $ 1,767 $ 1,441
Supplemental disclosures of cash flow information:
Interest paid $ 1,628 $ 1,670
Income taxes paid $ 2,480 $ 1,084
5
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The results of operations for the interim periods shown in this report
are not necessarily indicative of results for any future interim period or
for the entire fiscal year. The Company believes that the quarterly
information presented includes all adjustments (consisting only of normal,
recurring adjustments) that the Company considers necessary for a fair
presentation in accordance with generally accepted accounting principles.
Certain reclassifications were made to prior year balances to conform with
the presentation of the financial statements for the three months ended June
30, 2001. The accompanying consolidated financial statements and notes
should be read in conjunction with the Company's audited annual financial
statements.
2. FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to the last day
of March. Both fiscal year 2002 and 2001 include 52 weeks with the first
quarter of each fiscal year including 13 weeks.
3. Accounting for Shipping and Handling Costs
In the fourth quarter of fiscal year 2001, the Company adopted
Emerging Issues Task Force No. 00-10, ("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 first quarter of fiscal year 2001 has been
adjusted to comply with this change in classification of freight revenue.
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 $1.5 million and $0.9 million for fiscal year 2002 and
2001, that are included in selling, general and administrative expenses.
4. New Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"),
"Business Combinations." SFAS No. 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
This statement is effective for all business combinations initiated after
June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement supercedes Accounting Principles Board
Opinion No. 17 ("APB 17"), "Intangible Assets," and applies to goodwill and
intangible assets acquired after June 30, 2001, as well as goodwill and
intangible assets previously acquired. Under this statement goodwill as well
as certain other intangible assets, determined to have an infinite life,
will no longer be amortized, instead these assets will be reviewed for
impairment on a periodic basis. Early adoption of this statement is
permitted for non-calendar year-end companies whereby the entity's fiscal
year begins after March 15, 2001 and its first interim period financial
statements have not been issued. Pursuant to this statement, the Company
elected early adoption during the first fiscal quarter ended June 30, 2001.
The goodwill associated with past acquisitions is no longer subject to
amortization over its estimated useful life. Such goodwill will be subject
to an annual assessment for impairment by applying a fair-value based test.
See Notes 5 and 6 for additional disclosure information required by SFAS No.
142.
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 adopted 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 were adopted as of April 1, 2001 as a change
in accounting principle and cannot be applied retroactively to financial
statements of prior periods.
6
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
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.
The Company enters into forward exchange contracts to hedge the
anticipated cash flows from forecasted foreign currency denominated
revenues. The purpose of the Company's foreign hedging activities is to
minimize, for a period of time, the unforeseen impact on the Company's
results of operations of fluctuations in foreign exchange rates. The Company
also enters into forward contracts that settle within 35 days to hedge
certain inter-company receivables denominated in foreign currencies. 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 June 30, 2001, the Company had 28 forward contracts outstanding,
all maturing in less than twelve months, to exchange Euro equivalent
currencies and the Japanese yen primarily for U.S. dollars totaling $109.0
million. Of these contracts, six, totaling $21.7 million, represented
contracts with zero fair value relating to inter-company receivables put in
place at quarter end, that settle within 35 days after quarter-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. The fair value of the
forward contracts associated with changes in forward points is excluded from
the Company's assessment of hedge effectiveness. At adoption, the Company
recorded the fair value of these contracts of $9.2 million as an asset on
the balance sheet. The change in the fair value of the contracts associated
with changes in the spot rate as of April 1, 2001 of $6.4 million was
recorded in other comprehensive income, net of tax. The change in the fair
value of the contracts attributable to forward points, which are excluded
from the Company's assessment of hedge effectiveness, totaled $3.2 million
as of April 1, 2001. This amount was recorded as a cumulative effect of a
change in accounting principle, net of tax.
At June 30, 2001, the fair value of the forward contracts was $8.2
million. Of this amount, $6.6 million was recorded in other comprehensive
income, net of tax. For the three months ended June 30, 2001, the change in
the fair value attributable to forward points totaled approximately $1.0
million. This balance was excluded from the assessment of hedge
effectiveness and was recorded as other income, net for the three-months
ended June 30, 2001.
7
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
A summary of the accounting discussed above is as follows (in thousands):
Cumulative
Effect of Change
Other in Accounting
(Income)/ Expense Asset-Forward Comprehensive Other Income, Principle, net
Cash Flow Hedges- Debit (Credit) Contracts Income net of tax
----------------------------------------------------------------
At Adoption of SFAS No. 133, net of tax $ 9,200 $(4,608) -- $(2,304)
For 3 months ended June 30, 2001 (1,007) (165) (991) --
--------------------------------------------------------
Total $ 8,193 $(4,773) $(991) $(2,304)
========================================================
Prior to the adoption of SFAS No. 133 as amended, the Company recorded
forward points as other income upon settlement of the related forward
contracts. Under SFAS No. 133 as amended, these points are recorded on a
fair value basis over the life of the contracts. For the three months ended
June 30, 2001, income from forward points was $4.2 million or $2.8 million
higher than if booked under SFAS No. 52, ("Foreign Currency Translation.")
5. ACQUIRED OTHER INTANGIBLE ASSETS
As of June 30, 2001
-------------------------------------------
Gross
(in thousands) Carrying Amount Accumulated Amortization
-------------------------------------------
Asset Class
Patents $ 6,539 $(289)
Unpatented technology 7,418 (405)
Customer contracts and
related relationships 6,000 (200)
-----------------------------
Total $19,957 $(894)
=============================
Aggregate amortization expense for amortized other intangible assets
for the three months ended June 30, 2001 is $295,000. Additionally, future
amortization expense on other intangible assets for each of the succeeding
five fiscal years is approximated to be $1.2 million.
8
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
6. GOODWILL
The changes in the carrying amount for the three months ended June 30,
2001 are as follows (in thousands):
Carrying amount as of March 31, 2001 $14,426
Adjustment due to the change in the valuation
of the deferred taxes associated with the
acquisition of Transfusion Technologies in
September, 2000. (2,737)
Adjustment due to change in the valuation of
the liabilities in the acquisition of the
Alpha Therapeutic Corporation plasma collection
bottle plant in January, 2001. 878
Effect of change in rates used for translation (179)
-------
Carrying amount as of June 30, 2001 $12,388
=======
The proforma effect on prior year earnings of excluding amortization
expense, net of tax, is as follows:
For the three months ended
(in thousands except per share data) July 1, 2000
--------------------------
Reported net income $6,224
Add back: Goodwill amortization 186
------
Adjusted net income $6,410
------
Basic income per common share:
- ------------------------------
Reported net income $ 0.25
Goodwill amortization 0.01
------
Adjusted net income $ 0.25*
------
Income per common share assuming full dilution:
- -----------------------------------------------
Reported net income $ 0.24
Goodwill amortization 0.01
------
Adjusted net income $ 0.25
------
- --------------------
* Does not add due to rounding.
With the adoption of SFAS No. 141, there were no changes to
amortization expense on acquired other intangible assets.
9
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
7. INVENTORIES
Inventories are stated at the lower of cost or market and include the
cost of material, labor and manufacturing overhead. Cost is determined on
the first-in, first-out method.
Inventories consist of the following:
Jun. 30, Mar 31,
2001 2001
-------------------
(in thousands)
Raw materials $15,628 $16,015
Work-in-process 5,056 4,237
Finished goods 35,987 33,755
-------------------
$56,671 $54,007
===================
8. Net Income Per Share
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations, as
required by SFAS No. 128, "Earnings Per Share." Basic EPS is computed by
dividing reported earnings available to stockholders by weighted average
shares outstanding. Diluted EPS includes the effect of potential dilutive
securities.
For the three months ended
-----------------------------
June 30, 2001 July 1, 2000
-----------------------------
Basic EPS
- ---------
Net income $ 9,944 $ 6,224
Weighted Average Shares 25,979 25,248
------------------------
Basic income per share $ .38 $ .25
------------------------
Diluted EPS
- -----------
Net income $ 9,944 $ 6,224
Basic Weighted Average shares 25,979 25,248
Effect of Stock options 968 483
------------------------
Diluted Weighted Average shares 26,947 25,731
------------------------
Diluted income per share $ .37 $ .24
------------------------
10
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
9. SEGMENT INFORMATION
Segment Definition Criteria
The Company manages its business on the basis of one operating segment:
the design, manufacture and marketing of automated blood processing systems.
Haemonetics chief operating decision-maker uses consolidated results to make
operating and strategic decisions. Manufacturing processes, as well as the
regulatory environment in which the Company operates, are largely the same
for all product lines.
Product and Service Segmentation
The Company's principal product offerings include blood bank, red
cell, surgical and plasma collection products.
The blood bank products include machines and single use disposables
and solutions that perform "apheresis," the separation of whole blood into
its components and subsequent collection of certain components, including
platelets and plasma as well a 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 include 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.
Surgical products include 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 back 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.
Three months ended (in thousands)
June 30, 2001 Blood Bank Red Cells Surgical Plasma Other Total
------------- ---------------------------------------------------------------
Revenues from external customers $25,498 2,421 17,135 26,898 3,849 75,801
July 1, 2000
------------
Revenues from external customers $27,106 1,751 15,967 20,821 4,620 70,265
11
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
10. ACQUISITIONS
Transfusion Technologies
In the second quarter of fiscal year 2001, Haemonetics completed the
acquisition of Transfusion Technologies Corporation, ("Transfusion.")
The Transfusion merger was accounted for using the purchase method of
accounting for business combinations under Accounting Principles Board (APB)
Opinion No. 16, Business Combinations. Accordingly, the accompanying
consolidated statements of operations includes Transfusion Technologies'
results of operations commencing on the date of acquisition.
(i) 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 first quarter of
fiscal year 2001 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.
Three Months Ended
July 1, 2000
(in thousands, except
per share amounts)
Net revenues $70,971
Operating income 5,941
-------
Net income 4,728
-------
Basic and diluted income per common share:
Basic $ 0.19
Diluted $ 0.18
Weighted average number of common shares
outstanding:
Basic 25,248
Diluted 25,731
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 excess of the purchase price over the fair market value of the
net assets acquired had been recorded as goodwill in the amount of $2.8
million. At March 31, 2001, there existed a $6.4 million valuation allowance
against the Company's
12
HAEMONETICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
deferred tax asset account to reflect the potential inability of the Company
to utilize Transfusion Technology's net operating loss carryforwards before
the 15-year carryover period expires. In fiscal year 2002, as part of
management's ongoing analysis of the purchase price allocation of the
Transfusion acquisition, it was determined that this tax valuation allowance
was not necessary. Accordingly, the Company has written down the goodwill by
$2.8 million, other acquired intangibles by $2.6 million and the value of
other acquired assets related to this transaction by $1.0 million.
11. UNUSUAL ITEM
Relating to the Acquisition of Transfusion Technologies
Included in unusual charges in the first quarter of fiscal year 2001
was the adjustment required to modify the 19.8% investment in Transfusion
Technologies 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 in November of fiscal year 2000 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 $0.4 million in the first
quarter of fiscal year 2001.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table outlines the components of the consolidated statements of
income from operations as a percentage of net revenues:
Percentage Increase/(Decrease)
Percentage of Net Revenues Three Months Ended
Three Months Ended (in actual dollars)
----------------------------- ------------------------------
June 30, 2001 July 1, 2000 2001/2000
- ------------------------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 7.9%
Cost of goods sold 52.1 52.4 7.3
------------------------------------------------
Gross Profit 47.9 47.6 8.5
Operating Expenses:
Research and development 6.3 5.9 14.2
Selling, general and administrative 29.0 29.9 4.9
Other unusual charges relating to acquisition -- 0.6 (100.0)
------------------------------------------------
Total operating expenses 35.3 36.4 4.6
------------------------------------------------
Operating income 12.6 11.2 21.5
Interest expense (1.3) (1.4) (3.7)
Interest income 1.4 1.7 (7.5)
Other income, net 1.3 1.1 20.2
------------------------------------------------
Income before provision for income taxes 14.0 12.6 20.4
Provision for income taxes 3.9 3.7 14.7
------------------------------------------------
Income before cumulative effect of change in
accounting principle, net of tax 10.1 8.9 22.8
Cumulative effect of change in accounting
principle, net of tax 3.0 -- 100.0
------------------------------------------------
Net income 13.1% 8.9% 59.8%
================================================
Three Months Ended June 30, 2001 Compared to Three Months Ended July 1, 2000
Percent Increase / (Decrease)
-----------------------------
Actual dollars At constant
By geography: 2001 2000 as reported currency
-------------------------------------------------
United States $28,885 $22,690 27.3% 27.3%
International 46,916 47,575 (1.4) (0.3%)
-----------------------------------------------
Net revenues $75,801 $70,265 7.9% 8.6%
Percent Increase / (Decrease)
-----------------------------
By product type: 2001 2000 Actual dollars At constant
as reported currency
-------------------------------------------------
Disposables $69,704 $62,619 11.3% 11.4%
Misc. & service 3,849 4,621 (16.7%) (10.9%)
Equipment 2,248 3,025 (25.7%) (22.1%)
-----------------------------------------------
Net revenues $75,801 $70,265 7.9% 8.6%
Disposable revenue Percent Increase / (Decrease)
-----------------------------
by product line: 2001 2000 Actual dollars At constant
as reported Currency
-------------------------------------------------
Surgical 16,211 14,845 9.2% 11.5%
Blood bank 24,339 25,393 (4.2) (5.0)
Red cells 2,393 1,673 43.0 52.2
Plasma 26,761 20,708 29.2 28.4
-----------------------------------------------
Disposable revenues $69,704 $62,619 11.3% 11.4%
Three months ended June 30, 2001 compared to three months ended July 1, 2000
Net Revenues
Net revenues in 2001 increased 7.9% to $75.8 million from $70.3
million in 2000. With currency rates held constant, net revenues increased
8.6% from 2000 to 2001.
Disposable sales increased 11.3% year over year at actual rates. With
currency rates held constant, disposable sales increased 11.4%. Year over
year constant currency disposable sales growth was a result of disposable
growth in worldwide Red Cells (up 52.2%), worldwide Surgical (up 11.5%) and
worldwide Plasma (up 28.4%). The increase in worldwide red cell sales is
primarily attributable to volume increases in the US market as the rollout
of this new technology continues to gain strength. The growth in the
worldwide surgical disposable sales is mainly attributed to volume increase
in the US market with the success of the Company's newly acquired
OrthoPAT(R) into the orthopedic market and the strengthening demand for
autotransfusion in general. The growth in worldwide Plasma disposables sales
is mainly attributed to volume increases of products sold in the US due to
an upturn in plasma collections. Of the 28.4% constant currency plasma
growth, 8% of it was due to the Company's acquisition of the plasma
container business in the fourth quarter of last year. Offsetting these
increases in surgical, red cell and plasma disposable sales were decreases
in platelets disposable sales in Europe, Japan and in the U.S.
Constant currency sales of disposable products, excluding service and
other miscellaneous revenue, accounted for 91.9% and 89.5% of net revenues
for 2001 and 2000, respectively.
Service revenue generated from equipment repairs performed under
preventive maintenance contracts or emergency service billings and
miscellaneous revenues accounted for 5.1% and 6.2% of the Company's
net revenues, at constant currency, for 2001 and 2000, respectively.
15
Equipment revenues decreased 25.7% from $3.0 million in 2000 at actual
rates and decreased 22.1% year over year with currency rates held constant.
The 22.1% constant currency decrease was a result of lower equipment
revenues in the platelet business, mainly in the U.S., Europe and Japan. 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 optimize the utilization of the equipment.
International sales as reported accounted for 61.9% and 67.7% of net
revenues for 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.
Gross profit
Gross profit of $36.3 million for the three months ended June 30, 2001
increased $2.9 million or 0.3% as a percent of sales from $33.4 million for
the three months ended July 1, 2001. At constant currency, gross profit as a
percent of sales decreased slightly by 0.1% yet increased in dollars by $2.8
million or 8.3% from 2000 to 2001. The $2.8 million constant dollar gross
profit increase from 2000 was primarily a result of higher sales.
In 1998, the Company initiated the Company's Customer Oriented
Redesign for Excellence ("CORE") Program to increase operational
effectiveness and improve all aspects of customer service. The CORE Program
is based on Total Quality of Management, ("TQM"), principals, and the
Program aims to increase the efficiency and the quality of, processes and
products, and to improve the quality of management at Haemonetics. For the
three months of fiscal 2002, the CORE program has contributed approximately
$0.3 million of cost savings benefiting the Company's gross profit. The
estimated savings for the full twelve months of fiscal year 2002 is expected
from initiatives to lower product costs by automating and redesigning the
way certain products are made so that less material and labor is needed and
by negotiating lower material prices with vendors. These savings are
expected to be partially offset by increases in other product costs.
Expenses
The Company expended $4.8 million (6.3% of net revenues) on research
and development in 2001 and $4.2 million (5.9% of net revenues) in 2000. At
constant currency rates, research and development as a percent of sales
increased by 0.5% and increased in dollars by $0.7 million from 2000 to
2001. The increase in research and development was a result of the Company's
objective to reinvest available funds into new product development.
Selling, general and administrative expenses increased $1.0 million
from $21.0 million in 2000 to approximately $22.0 million in 2001. At
constant currency, selling, general and administrative expenses increased
$1.9 million from 2000 and increased 0.2% as a percent of sales from 2000 to
2001. Increased spending behind the Company's new product selling and
marketing activities contributed to the increase. The CORE Program is not
expected to have a notable impact in savings on selling, general and
administrative expenses during the current year as most savings are expected
in gross profit.
16
Other Unusual charges Relating to the Acquisition of Transfusion
Technologies Corporation
Included in unusual charges in the three months ended June 1, 2000 was
the adjustment required to modify the 19.8% investment in Transfusion
Technologies 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 $0.4 million in the three months ended July 1, 2000.
Operating Income
Operating income, as a percentage of net revenues, increased 1.4
percentage points to 12.6% from 11.2% in 2000. At constant currency,
operating income increased $0.6 million and declined 0.1 percentage points
as a percent of sales from 11.5% in 2000. The gross profit increases from
the strong disposable sales were almost fully invested back into the
business by way of research and development and selling programs.
Foreign Exchange
The Company generates approximately 62% of its revenues outside the
U.S. in foreign currencies. As such, the Company uses a combination of
business and financial tools comprised of various natural hedges,
(offsetting exposures from local production costs and operating expenses),
and forward contracts to hedge its balance sheet and P&L exposures. Hedging
through the use of forward contracts does not eliminate the volatility of
foreign exchange rates, but because the Company generally enters into
forward contracts one year out, rates are fixed for a one-year period,
thereby facilitating financial planning and resource allocation.
The Company computes a composite rate index for purposes of measuring,
comparatively, the change in foreign currency hedge spot rates from the
hedge spot rates of the corresponding period in the prior year. The relative
value of currencies in the index corresponds to the value of sales in those
currencies. The composite was set at 1.00 based upon the weighted rates at
March 31, 1997.
For the first quarter of fiscal 2002, the indexed hedge spot rates
appreciated 5.2% and for the first quarter of fiscal 2003, the indexed hedge
spot rates depreciated 8.9% over the corresponding quarter of the preceding
years. These indexed hedge rates represent the change in spot value (value
on the day the hedge contract is undertaken) of the Haemonetics specific
hedge rate index. These indexed hedge rates impact sales 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%
17
Q3 0.92 12.9%
Q4 0.97 10.2%
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%)
FY2003 Q1 1.09 (8.9%)
Other Income, Net
Interest expense in 2001 was relatively flat as compared to 2000 as
the interest rates year over year were relatively unchanged given the large
percentage of the fixed rate debt and the average outstanding borrowings
were relatively unchanged year over year. Interest income was also
relatively flat from 2000 to 2001. Other income net increased $0.2 million
due a reduction in amortization as a result of the Company's adoption of
Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"),
"Goodwill and Other Intangible Assets," effective April 1, 2001 which
required that the Company cease amortization of goodwill.
Taxes
The provision for income taxes, as a percentage of pretax income, was
28.0% for the three months ended June 30, 2001 and 29.4% for the three
months ended July 1, 2000. The decrease in the effective tax rate from 2000
to 2001 was primarily attributable to the cost to equity adjustment of $0.4
million in the 3 months ended July 1, 2000. (See Note 11.)
Cumulative Effect of accounting change, net of tax
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 adopted 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, the beginning of the Company's 2002 fiscal year. As required,
these standards were adopted as a change in accounting principle and
accordingly, the effect at adoption of $3.2 million was shown net of taxes
of $0.9 million as a cumulative effect of a change in accounting principle
on the face of the consolidated statements of operations in the 3 months
ended June 30, 2001.
18
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its cash requirements principally from
internally generated cash flow and borrowings. The Company's need for funds
is derived primarily from capital expenditures, acquisitions, new business
development and working capital.
During the three months ended June 30, 2001, the Company decreased its
cash balances, before the effect of exchange rates, by $0.3 million from
operating, investing and financing activities which represents a decrease in
cash utilization or an increase in cash generated of $9.2 million from the
$9.5 million utilized in the Company's operating, investing and financing
activities during the three months ended July 1, 2000. The $9.2 million of
additional cash generated results from the additional $23.8 million provided
by the Company's financing activities in 2001 offset by the $11.7 of
additional cash utilized by the Company's investing activities and the $2.9
million of additional cash utilized by the Company's operating activities.
Operating Activities:
The Company generated $1.5 million in cash from operating activities
during the three months ended June 30, 2001 as compared to $4.5 million
generated during the three months ended July 1, 2000. The $2.9 million
decrease in operating cash flow from fiscal year 2001 to fiscal year 2002
was a result of a $5.6 million decrease in net income adjusted for
depreciation, amortization and other non-cash items, a $5.2 million decrease
in inventories due to higher finished good equipment and work-in-process
inventory levels, a $2.3 million increase in accounts receivable as a result
of higher sales as compared to a year ago and $0.5 million from the slow
down in reductions to current sales type leases as part of the continuing
trend of customer preference for, and the Company's policy of, moving toward
placing on loan Company-owned equipment versus selling it under sales-type
leases . These additional uses of cash were offset by additional sources of
cash of $3.2 million from a decrease in other assets, a $7.5 million
increase in accounts payable and accrued expenses due partially because of
higher than normal reductions in accounts payable during the three months
ended July 1, 2001 related to treasury stock repurchases.
The Company measures its performance using an operating cash flow
metric defined as net income adjusted for depreciation, amortization and
other non-cash items; capital expenditures for property, plant and equipment
together with the investment in Haemonetics equipment at customer sites,
including sales-type leases; and the change in operating working capital,
including change in accounts receivable, inventory, accounts payable and
accrued expenses, excluding tax accounts and the effects of currency
translation. This alternative measure of operating cash flows is a non-GAAP
measure that may not be comparable to similarly titled measures reported by
other companies. It is intended to assist readers of the report who employ
"free cash flow" and similar measures that do not include tax assets and
liabilities, equity investments and other sources and uses that are outside
the day-to-day activities of a Company.
As measured by the Company's operating cash flow metric, the Company
generated $4.8 million and $10.0 million of operating cash during the three
months ended June 30, 2001 and July 1, 2000, respectively. The $4.8 million
of operating cash flow generated for the three months ended June 30, 2001
resulted from $10.0 million of net income adjusted for non-cash items and
$4.4 million from the reduction of the Company's net investment in property,
plant and equipment and sales-type leases offset by $9.6 million from
increased working capital investment, primarily due to higher inventories,
higher accounts receivable and lower accrued payables and payroll. The $10.0
million of operating cash generated for the three months ended July 1, 2000
resulted from $7.8 million of net income adjusted for non-cash items, $4.5
million from the reduction of the Company's net investment in property,
plant and equipment and sales-type leases offset by $2.3 million in higher
working capital investment. Non-cash transfers from inventory to property,
plant and equipment have been excluded for purposes of this calculation and
amounted to approximately $1.8 million and $1.4 million in the three-month
periods for 2001 and 2000, respectively.
19
Investing Activities
The Company utilized $13.8 million in cash for investing activities
from operations during the 3 months ended June 30, 2001, an increase of $11.7
million from the same period a year ago. Due to the Company's growing cash
balances during the 3 months ended June 30, 2001, the Company has increased
the amount of cash it invests into higher yielding available-for sale
securities.
Financing Activities:
During the three months ended June 30, 2001, the Company generated
$23.8 million more cash from its financing activities than during the three
months ended July 1, 2000 through a $13.9 million increase in short-term
credit revolving credit agreements in Japan, a $4.9 million increase in cash
from stock option exercises and $4.7 million in cash savings as a result of
the Company's decision not to purchase any treasury shares during the three
months ended June 30, 2001.
At June 30, 2001, the Company had working capital of $159.9 million.
This reflects an increase of $ 20.2 million in working capital from the three
months ended July 1, 2000.
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 July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"),
"Business Combinations." SFAS No. 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
This statement is effective for all business combinations initiated after
June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement supercedes Accounting Principles Board
Opinion No. 17 ("APB 17"), "Intangible Assets," and applies to goodwill and
intangible assets acquired after June 30, 2001, as well as goodwill and
intangible assets previously acquired. Under this statement goodwill as well
as certain other intangible assets, determined to have an infinite life,
will no longer be amortized, instead these assets will be reviewed for
impairment on a periodic basis. Early adoption of this statement is
permitted for non-calendar year-end companies whereby the entity's fiscal
year begins after March 15, 2001 and its first interim period financial
statements have not been issued. Pursuant to this statement, the Company
elected early adoption during the first fiscal quarter ended June 30, 2001.
The goodwill associated with past acquisitions is no longer subject to
amortization over its estimated useful life. Such goodwill will be subject
to an annual assessment for impairment by applying a fair-value based test.
See Notes 5 and 6 for additional disclosure information required by SFAS No.
142.
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 adopted 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 were adopted as of April 1, 2001 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
20
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.
The Company enters into forward exchange contracts to hedge the
anticipated cash flows from forecasted foreign currency denominated
revenues. The purpose of the Company's foreign hedging activities is to
minimize, for a period of time, the unforeseen impact on the Company's
results of operations of fluctuations in foreign exchange rates. The Company
also enters into forward contracts that settle within 35 days to hedge
certain inter-company receivables denominated in foreign currencies. 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 June 30, 2001, the Company had 28 forward contracts outstanding,
all maturing in less than twelve months, to exchange Euro equivalent
currencies and the Japanese yen primarily for U.S. dollars totaling $109.0
million. Of these contracts, six, totaling $21.7 million, represented
contracts with zero fair value relating to inter-company receivables put in
place at quarter end, that settle within 35 days after quarter-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. The fair value of the
forward contracts associated with changes in forward points is excluded from
the Company's assessment of hedge effectiveness. At adoption, the Company
recorded the fair value of these contracts of $9.2 million as an asset on
the balance sheet. The change in the fair value of the contracts associated
with changes in the spot rate as of April 1, 2001 of $6.4 million was
recorded in other comprehensive income, net of tax. The change in the fair
value of the contracts attributable to forward points, which are excluded
from the Company's assessment of hedge effectiveness, totaled $3.2 million
as of April 1, 2001. This amount was recorded as a cumulative effect of a
change in accounting principle, net of tax.
At June 30, 2001, the fair value of the forward contracts was $8.2
million. Of this amount, $6.6 million was recorded in other comprehensive
income, net of tax. For the three months ended June 30, 2001, the change in
the fair value attributable to forward points totaled approximately $1.0
million. This balance was excluded from the assessment of hedge
effectiveness and was recorded as other income, net for the three-months
ended June 30, 2001.
A summary of the accounting discussed above is as follows (in
thousands):
Cumulative
Effect of Change
Other in Accounting
(Income)/ Expense Asset-Forward Comprehensive Other Income, Principle, net
Cash Flow Hedges- Debit (Credit) Contracts Income net of tax
----------------------------------------------------------------
At Adoption of SFAS No. 133, net of tax $ 9,200 $(4,608) -- $(2,304)
For 3 months ended June 30, 2001 (1,007) (165) (991) --
--------------------------------------------------------
Total $ 8,193 $(4,773) $(991) $(2,304)
========================================================
21
Prior to the adoption of SFAS No. 133 as amended, the Company recorded
forward points as other income upon settlement of the related forward
contracts. Under SFAS No. 133 as amended, these points are recorded on a
fair value basis over the life of the contracts. For the three months ended
June 30, 2001, income from forward points was $4.2 million or $2.8 million
higher than if booked under SFAS No. 52, ("Foreign Currency Translation.")
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements made
by the Company that are prefaced with the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," "designed" and
similar expressions, are intended to identify forward looking statements
regarding events, conditions and financial trends that may affect the
Company's future plans of operations, business strategy, results of
operations and financial position. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances about which the Company can give no firm assurance. Further,
any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made. As it is not possible to predict every new
factor that may emerge, forward-looking statements should not be relied upon
as a prediction of actual future financial condition or results. These
forward-looking statements, like any forward-looking statements, involve
risks and uncertainties that could cause actual results to differ materially
from those projected or unanticipated. Such risks and uncertainties include
technological advances in the medical field and the Company's ability to
successfully implement products that incorporate such advances, product
demand and market acceptance of the Company's products, regulatory
uncertainties, the effect of economic conditions, the impact of competitive
products and pricing, foreign currency exchange rates, changes in customers'
ordering patterns, the effect of uncertainties in markets outside the U.S.
(including Europe and Asia) in which the Company operates.
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
Approximately 62% of the Company's revenues are generated outside the
U.S., yet the Company's reporting currency is the U.S. dollar. Foreign
exchange risk arises because the Company engages in business in foreign
countries in local currency. Exposure is partially mitigated by producing
and sourcing product in local currency. Accordingly, whenever the US dollar
strengthens relative to the other major currencies, there is an adverse
affect on the Company's results of operations and alternatively, whenever
the U.S. dollar weakens relative to the other major currencies, there is a
positive effect on the Company's results of operations.
It is the Company's policy to minimize for a period of time, the
unforeseen impact on its results of operations of fluctuations in foreign
exchange rates by using derivative financial instruments known as forward
contracts to hedge the anticipated cash flows from forecasted foreign
currency denominated revenues. 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.
At June 30, 2001, the Company had the following significant foreign
exchange contracts to hedge the anticipated cash flows from forecasted
foreign currency denominated revenues outstanding:
22
Currency Local Currency Contract Rate Current Fwd Gain / (Loss) Gain / (Loss) Maturity
- ------------------------------------------------------------------------------------------------------------------
Euro 4,500,000 $0.943 3,867,650 $ 374,350 370,977 Jul-Sept 2001
Euro 7,450,000 $0.860 6,395,660 $ 11,495 11,199 Oct-Dec 2001
Euro 8,000,000 $0.942 6,862,620 $ 674,630 647,753 Jan-Mar 2002
Euro 7,550,000 $0.857 6,476,445 $ (4,820) (4,551) Apr-Jun 2003
Japanese Yen 1,350,000,000 100.9 per US$ 10,907,741 $2,468,225 2,446,001 Jul-Sept 2001
Japanese Yen 1,950,000,000 102.9 per US$ 15,880,860 $3,062,450 2,991,241 Oct-Dec 2001
Japanese Yen 1,600,000,000 111.3 per US$ 13,159,703 $1,216,204 1,167,980 Jan-Mar 2002
Japanese Yen 1,850,000,000 115.9 per US$ 15,371,533 $ 595,571 562,626 Apr-Jun 2003
-----------------------------------------------------------
Total: 78,922,212 8,398,105 8,193,226
===========================================================
The Company estimated the change in the fair value of all forward
contracts assuming both a 10% strengthening and weakening of the U.S. dollar
relative to all other major currencies. In the event of a 10% strengthening
of the U.S. dollar, the change in fair value of all forward contracts would
result in a $9.7 million unrealized gain; whereas a 10% weakening of the
U.S. dollar would result in a $11.1 million unrealized loss.
Interest Rate Risk
Approximately 93%, 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 June 30, 2001, the fair value of the Company's
long-term debt was approximately $3.2 million higher than the value of the
debt reflected on the Company's financial statements. This higher fair
market is primarily related to the $40.0 million, 7.05% fixed rate senior
notes and the $10.0 million, 8.41% fixed rate mortgage the Company holds.
These notes collectively represent approximately 93% of the Company's
outstanding long-term borrowings at June 30, 2001. At July 1, 2000, the
fair value of the Company's long-term debt was approximately $0.6 million
higher than the value of the debt reflected on the Company's financial
statements.
Using scenario analysis, the Company changed the interest rate on all
long-term maturities by 10% from the rate levels, which existed at June 30,
2001. The effect was a change in the fair value of the Company's long-term
debt, of approximately $1.0 million.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a). Exhibits
No exhibits will be filed as part of this form 10-Q:
(b). Reports on Form 8-K.
None
24
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAEMONETICS CORPORATION
Date: August 8 , 2001 By: /s/ James L. Peterson
---------------------
James L. Peterson, President and
Chief Executive Officer
Date: August 8, 2001 By: /s/ Ronald J. Ryan
------------------
Ronald J. Ryan, Sr. Vice
President and Chief
Financial Officer, (Principal
Accounting Officer)
25